Underestimating Living Expenses

[mamadogmamacat]

40K sounded low to me for two of you, so I'm not at all surprised you are seeing 44k to 45k when tracking actual expenditures. In fact, even 45k sounds low to me. I tracked expenses for several years prior to ER and it was about 55k to 60k for just myself, pets, charities. Once in ER, I no longer track, just keep total withdrawals under the 65k (range now at 65K as I do account for inflation each yr) mark. This does not include lumpy expenses such as when the tree hit the roof and I did some upgrades along with what the insurance covered. I have a separate amount that is not included in my SWR calculation, for lumpy events.

[ncbill]

Quote:

Originally Posted by BeachOrCity May I suggest using an automated tool that automatically categorized and adds it up such as Mint? My personal philosophy was I needed several years of pre retirement spending to know what it really was. Then I added and subtracted for changes in retirement such as healthcare and travel and big capital items like New car , new HVAC etc. so far this approach seems to have worked for me. If doing it this way doesn’t give you the green light it means you may not be able to afford the lifestyle you have and or want in retirement

Yep, I just use Mint to track spending.

Not perfect (it often counts transfers between brokerage & bank accounts as income) but manual corrections aren't needed too often.

[Teacher Terry]

Whether it’s low or not depends on each individual situation. If everything is paid off in retirement it wouldn’t be that hard to do.

[Retire2023]

I have used Quicken to track/budget expenses since the 90's. One of the most useful things for me, is that I can quickly find out when and how much we spent on any purchase. We do this a lot..."when did we buy tires last for the Tahoe and how much did we spend?" or "What year was that cruise to Canada?" I like having this data at hand, especially if it let's me win a "discussion"!

I do comparison reports going back years to look at the spending patterns and because of this, I also increased the projected amounts to budget for retirement. I knew there were lumpy expenses, but this review showed just how regular those lumpy expenses really were. They may be different, but they are always there with amazing frequency.

[mountainsoft]

Quote:

Originally Posted by mamadogmamacat 40K sounded low to me for two of you, so I'm not at all surprised you are seeing 44k to 45k when tracking actual expenditures. In fact, even 45k sounds low to me.

I suppose it depends on where you live and what your lifestyle is like. I still think we could live quite comfortably on 40K per year. Our total income last year (while still working) was less than 58K (before taxes), and a good chunk of that goes to savings or work related expenses that we won't have after retirement.



My most recent expense estimate comes to just over 44K, based on what we are spending now. There are still many areas we could cut back if we needed to.


1800 Electric (150/mo - current is 125/mo)
270 Garbage (45 every other month)
9600 Grocery (800/mo)
1080 Wife Gas (90/mo)
1080 Husband Gas (90/mo)
950 Home Insurance
4600 Property Taxes
800 Insurance for Vehicles
200 Vehicle Licenses
60 Safe Deposit Box
600 Home and Cell Phones
960 Internet (80/mo)
360 Netflix
300 Web Site Expenses
7000 Health Care
1500 Automotive Maintenance and Repairs
2500 Home Improvement (repairs, painting, etc.)
4500 Miscellaneous (clothing, computer parts, craft supplies, etc.)
6000 Recreation (movies, dinners out, hiking, vacations, etc.)

[Kim451]

I had no way to estimate how much I'd spend since I've been living overseas for years, and frankly I've been somewhat awed at how much I can spend in retirement without even trying (and a condo too small to add more Stuff). Fortunately my budget covers it and my former employers have a program where they use their retirees to cover staffing gaps so I'll be working a short while to cover some unexpected moving expenses. My plan when I retired was 'this is how much you can spend; don't spend more than that, and if you do, get a job'. Works so far.

[daylatedollarshort]

We found the Consumer Expenditure Survey helpful to compare to our retirement budget for a reasonableness check. We were spending much more on groceries so we took a close look at that category and brought the cost down while trying to buy healthier food.

[SumDay]

Quote:

Originally Posted by NW-Bound Just a few days ago, I looked at the expenses for last year for some info, and observed that there was no income tax listed. What? I knew I withheld some taxes when making IRA withdrawals. Where did that go? It turned out that Quicken properly got the online report from the IRA custodian about the federal and state withholdings. However, Quicken will not show tax withholding under the "Expenses - Taxes" category, if the withholding is paid out of a tax deferred account. In order for it to show correctly in the Expenses Summary, I have to create a fictitious transfer of the withholding out of the IRA into my banking account, then another fictitious tax payment from the banking account. I found this workaround when looking on the Quicken forum.

Ditto. In fact, I decided that next year I'll have VG withhold ZERO from my annual withdrawal, and I'll just pay them quarterly via IRS Direct Pay. I'll let the balance sit in my savings account and earn interest until the next quarter.

[Dash man]

I don’t track anything except my checking account. At the beginning of each month I add funds up to my monthly spending level plus a $5k cushion. If I don’t have to add any during the month, all is good. If some is left at the end of the month, I’m under my planned spending. If I have to add more during the month it’s easy to figure out why. Each year I redo my net worth and portfolio analysis. So far net worth has been up each year, so all is good.

[jpeter1093]

Quote:

Originally Posted by mountainsoft I suppose it depends on where you live and what your lifestyle is like. I still think we could live quite comfortably on 40K per year. Our total income last year (while still working) was less than 58K (before taxes), and a good chunk of that goes to savings or work related expenses that we won't have after retirement. My most recent expense estimate comes to just over 44K, based on what we are spending now. There are still many areas we could cut back if we needed to. 1800 Electric (150/mo - current is 125/mo) 270 Garbage (45 every other month) 9600 Grocery (800/mo) 1080 Wife Gas (90/mo) 1080 Husband Gas (90/mo) 950 Home Insurance 4600 Property Taxes 800 Insurance for Vehicles 200 Vehicle Licenses 60 Safe Deposit Box 600 Home and Cell Phones 960 Internet (80/mo) 360 Netflix 300 Web Site Expenses 7000 Health Care 1500 Automotive Maintenance and Repairs 2500 Home Improvement (repairs, painting, etc.) 4500 Miscellaneous (clothing, computer parts, craft supplies, etc.) 6000 Recreation (movies, dinners out, hiking, vacations, etc.)

Would getting rid of your home landline be a quick (positive) hit? We both have cells and got rid of ours years ago

[GenXguy]

Quote:

Originally Posted by mamadogmamacat 40K sounded low to me for two of you, so I'm not at all surprised you are seeing 44k to 45k when tracking actual expenditures. In fact, even 45k sounds low to me. I tracked expenses for several years prior to ER and it was about 55k to 60k for just myself, pets, charities.

Wow, that sounds like a lot for one person. I've been spending about $15,000/yr in recent years for a single person, no pets, but I budget about $16,000/yr to cover long term home maintenance. When I FIRE, that will increase to $21,600/yr budgeted "required" living expenses due to higher health care costs, adding a car sinking fund, and edging up the home maintenance budget, which will leave about $26,400/mo for discretionary spending using a 3.4% WR before SS kicks in, and about 2.1% WR after SS kicks in.

Yeah, I've been spending less than $1000/yr on discretionary spending and am budgeting for $26,400/yr on discretionary spending when I FIRE. I'm not sure how I'll actually spend that much on discretionary without giving and throwing money away, but that's what the math tells me I can spend with a conservative 3.4% WR (and 2.1% WR with SS). If I was to use a full 4% WR, my discretionary budget would be about $33,000/yr, which is just getting more ridiculous. If I don't spend the discretionary funds, my WR will effectively be somewhere south of 3.4%. I'm sure I could cut through some serious discretionary funds by doing a lot of travel, but that's something I was never very interested in, so I'm not likely to sink a whole lot into that, and I generally don't like wasting money, while maintaining a savings rate of 70% to 80% in recent years.

Note: The above expenses do not include income taxes as expenses, although taxes are accounted for in coming to the above numbers.

[Katsmeow]

Quote:

Originally Posted by mountainsoft My most recent expense estimate comes to just over 44K, based on what we are spending now. There are still many areas we could cut back if we needed to. 1800 Electric (150/mo - current is 125/mo) 270 Garbage (45 every other month) 9600 Grocery (800/mo) 1080 Wife Gas (90/mo) 1080 Husband Gas (90/mo) 950 Home Insurance 4600 Property Taxes 800 Insurance for Vehicles 200 Vehicle Licenses 60 Safe Deposit Box 600 Home and Cell Phones 960 Internet (80/mo) 360 Netflix 300 Web Site Expenses 7000 Health Care 1500 Automotive Maintenance and Repairs 2500 Home Improvement (repairs, painting, etc.) 4500 Miscellaneous (clothing, computer parts, craft supplies, etc.) 6000 Recreation (movies, dinners out, hiking, vacations, etc.)

So this is interesting. I went and looked at ours over the last year. We had some expenses that are non-recurring so I didn't consider those. Just a few things were I see we spend differently:

1. Our electric is more. Just this week we replaced the 18 year old AC in our current house with a much more energy efficient heat pump. Hopefully that will help on the electric front.

2. I note your only utilities are electric and garbage. We also have to pay for water and natural gas. (With our new heat pump and the heat pump water heater we will soon have, we will only be using natural gas for the pool heater so will be paying the minimum).

3. One of the years where we spend less than you is gas now that both DH and I are retired. One advantage of our new house is that we are close to everything and we don't drive nearly as much far as we did when the closest grocery store was 20 minutes away. There are advantages to having most things 5 minutes away and most of the rest no more than 10 to 15 minutes.

4. Our home insurance is triple yours which may be mostly a location issue. Our house is not that large (about 2200 SF). Alas our property taxes are a lot more. But we don't have state income tax so there's that. Our vehicle insurance is more. We bought a new car last year so that is a factor.

5. Finally an area where we spend less. Our internet is much less, but our cell phones are more.

6. I have broken down miscellaneous. This area is where the biggest different exists. The biggest differences are probably in two areas -- personal care for me and our pets. I get my hair professionally done and it is the biggest part of my personal expenses. We do have pets so that is a fairly large expense.

7. Recreation was a little more but not much. Actually probably more than I thought as I just put dining out in our grocery budget rather than breaking it out in a separate category.

[Bir48die]

Quote:

Originally Posted by DrRoy The first year I tracked everything by category. Now I just track the monthly total and travel.

+1

Even having some time to track this being retired I have lost my desire to get too detailed. Sure there have been times I overspent a bit but staying pretty close to monthly projections.

I’m fortunate in the fact like many I tracked and had major concerns over this. However I am at the stage in retirement that I’m not looking to deny myself the creature comforts.

[ivinsfan]

Quote:

Originally Posted by mountainsoft I suppose it depends on where you live and what your lifestyle is like. I still think we could live quite comfortably on 40K per year. Our total income last year (while still working) was less than 58K (before taxes), and a good chunk of that goes to savings or work related expenses that we won't have after retirement. My most recent expense estimate comes to just over 44K, based on what we are spending now. There are still many areas we could cut back if we needed to. 1800 Electric (150/mo - current is 125/mo) 270 Garbage (45 every other month) 9600 Grocery (800/mo) 1080 Wife Gas (90/mo) 1080 Husband Gas (90/mo) 950 Home Insurance 4600 Property Taxes 800 Insurance for Vehicles 200 Vehicle Licenses 60 Safe Deposit Box 600 Home and Cell Phones 960 Internet (80/mo) 360 Netflix 300 Web Site Expenses 7000 Health Care 1500 Automotive Maintenance and Repairs 2500 Home Improvement (repairs, painting, etc.) 4500 Miscellaneous (clothing, computer parts, craft supplies, etc.) 6000 Recreation (movies, dinners out, hiking, vacations, etc.)

what happens when you need to replace a vehicle?

[mountainsoft]

Quote:

Originally Posted by jpeter1093 Would getting rid of your home landline be a quick (positive) hit? We both have cells and got rid of ours years ago

We have a VOIP phone line. Dropping it would only save about $250 per year. It's certainly something that could be eliminated if money really got tight, but I still prefer talking on a real phone handset over a rectangular smart phone.

We use Tracfone for our cell's and only spend about $200 per year, per phone.

[mountainsoft]

Quote:

Originally Posted by Katsmeow 1. Our electric is more. Just this week we replaced the 18 year old AC in our current house with a much more energy efficient heat pump. Hopefully that will help on the electric front. 2. I note your only utilities are electric and garbage. We also have to pay for water and natural gas. (With our new heat pump and the heat pump water heater we will soon have, we will only be using natural gas for the pool heater so will be paying the minimum). 3. One of the years where we spend less than you is gas now that both DH and I are retired. One advantage of our new house is that we are close to everything and we don't drive nearly as much far as we did when the closest grocery store was 20 minutes away. There are advantages to having most things 5 minutes away and most of the rest no more than 10 to 15 minutes. 4. Our home insurance is triple yours which may be mostly a location issue. Our house is not that large (about 2200 SF). Alas our property taxes are a lot more. But we don't have state income tax so there's that. Our vehicle insurance is more. We bought a new car last year so that is a factor. 5. Finally an area where we spend less. Our internet is much less, but our cell phones are more. 6. I have broken down miscellaneous. This area is where the biggest different exists. The biggest differences are probably in two areas -- personal care for me and our pets. I get my hair professionally done and it is the biggest part of my personal expenses. We do have pets so that is a fairly large expense. 7. Recreation was a little more but not much. Actually probably more than I thought as I just put dining out in our grocery budget rather than breaking it out in a separate category.

1. We don't have AC, and our 1500sq/ft house stays fairly cool in the summer being in the trees. We're on an equal pay plan and the electric utility recently lowered our payments from 148 to 125 due to declining usage. I'm still seeing our credit balance increasing despite the reduction, but that's fairly normal during the summer. I did replace all lights with LED's, and upgrading our washer/dryer made a noticeable difference in our electric usage (old machines were over 30 years old).

2. We get our water from a well, have a private septic system, and we're 100% electric (no gas). Heat is electric wall heaters, with supplemental woodstove (more for ambiance and emergencies than actual heating).

3. We're basically 20-30 minutes from anything, but I do expect our gas usage to drop significantly once we retire. Before I had to start taking care of my mom I was only logging about 2500 miles a year.

4. Yep, smaller 1500 sq/ft home, nothing extravagant or overly valuable to insure. Our property taxes are much higher than surrounding counties. If we can keep our income under 40K after we retire, we may qualify for senior deductions.

5. Unfortunately, Comcast is our only option for broadband internet, and they seem to raise rates every year. Cell phones are Tracfone, only cost about $200 each per year.

6. We no longer have pets and my wife cuts my hair and her own. Our miscellaneous spending is really random; stuff I buy on Amazon, Kindle Books, iTunes songs, clothes, etc. Many of the Amazon items probably belong in other categories (auto or home), but I didn't bother breaking those down.

7. Recreation this year has mostly been eating out at restaurants. We usually cook our own meals at home, but we've been so busy with our mom's that we've opted for the convenience of dining out while we're in town. I suspect our restaurant dining will decrease dramatically in a few years.

[mountainsoft]

Quote:

Originally Posted by ivinsfan what happens when you need to replace a vehicle?

Like other one time expenses (water heater, new roof, etc.) I factor that into our overall savings and don't include it as a yearly expense.

Of course, we only buy used vehicles and have never spent more than $4000 on a car (I paid $1900 for my current 2000 VW Jetta).

[mountainsoft]

Quote:

Originally Posted by BeachOrCity May I suggest using an automated tool that automatically categorized and adds it up such as Mint?

I really don't like web based apps (such as Mint), and don't want to pay subscription fees for programs like Quicken. I also don't trust giving any of these businesses with the login information for my various financial accounts.

I use MoneyDance to manage my various accounts, but don't know if it would do what I'm wanting.

I've been trying a few different programs, and the only one I've seen so far that has any promise is "Alzex Personal Finance" (https://www.alzex.com/). It has a few quirks, but I think I can make it work for simple expense tracking. I just download the CSV transactions from my various accounts, import them into the program, and assign categories to the various transactions. It's only a minor step up from my manual method, but it might make the process slightly easier. Still playing with it before I decide if it's worth the $25 price.

[cyber888]

just add another 10% ?

[brett]

The thing is we were not looking to cut back on anything when we retired early.

We would not have decided to retire early if it meant cutting back on things that we enjoy or impacting our desired lifestyle in a negative fashion. We would have kept working until such time as the numbers balance. I realize that this would be different if we had a revenue challenge and an expense challenge but such is not the case. But, we do not live like millionaires and splash our money around like drunken sailers either. Hard to when you were raised and taught by canny Scots Presbyterians. I only want to spend so much time on money. I would much rather review an investment/allocation spreadship and tax data than pour over an expenditure spreadsheet the lists everything down to haircuts and last case of wine that I picked up on sale.

We expected to spend more, but differently. Lifestyle changes as a result of early retirement and downsizing meant additional savings that went into travel etc. Our WR rate is about a half percent. We don't throw our money around and we shop on value for most things. Not going to turn down the heat in the fall, the AC in the summer to save on utilities. Gas could double and we would still be making regular day trips into the Rockies. Whatever we spend at the grocery store is what we spend. When we dine out it does not have to be gourmet but it is never fast food or a hunk of meat with a ton of fries followed by a fat/sugar laden dessert either. This is what we wanted from our early retirement-a degree of freedom to do what we want while we have the health and the inclination.