In that other thread I've noticed a little trend that I don't really get. In there I read the following:
"That includes everything but income tax"
"Does not include property taxes of $6K per year though"
"If I back out my car payments"
"If I back out my rent and car payment"
"Without mortgage, it drops to"
"If I remove my mortgage"
I guess I get the last two comments; in my case I plan to pay off my mortgage by the time I retire. But at the same time, I subtract my (projected) mortgage balance from my (projected) investments when calculating my potential withdrawal rate, so that seems fair.
In the other cases, I don't get it. Are people not planning on paying income taxes, property taxes, rent, or owning cars in retirement? These expenses are probably not inconsequential either, so ignoring them seems problematic, more so than, say, forgetting to account for bubble gum purchases in a retiree budget. In my particular case, these kinds of expenses are in my top 10 expenses.
Since turnabout is fair play, here's my retirement planning process in a nutshell:
1. Take current actual Quicken expenditures for the last six months. Multiply by two to get an annual figure.
2. Project that annual expenditure rate forward at the long term historical inflation rate.
3. Take current actual investment values and project them forward at the long term historical rate of return provided by their respective asset classes.
4. Project my monthly mortgage balance forward based on my payments and my (fixed) interest rate.
5. Plan to retire when (projected expenses) <= 4% of(projected investments - projected mortgage balance)
One of my key assumptions is that my spending in retirement is equal to or less than my spending now. I expect taxes and charitable giving to go down, as those will be based on my retiree draw instead of my salary. I expect health insurance to go up.
The reason I chose 6 months in step #1 is that I have some recurring expenses that only occur twice a year, so I need to capture those and average them in.
So feel free to criticize my approach.
malakito
(Feeling silly thinking that I was being frugal and finding out I spend nearly 3 times the average!)
"That includes everything but income tax"
"Does not include property taxes of $6K per year though"
"If I back out my car payments"
"If I back out my rent and car payment"
"Without mortgage, it drops to"
"If I remove my mortgage"
I guess I get the last two comments; in my case I plan to pay off my mortgage by the time I retire. But at the same time, I subtract my (projected) mortgage balance from my (projected) investments when calculating my potential withdrawal rate, so that seems fair.
In the other cases, I don't get it. Are people not planning on paying income taxes, property taxes, rent, or owning cars in retirement? These expenses are probably not inconsequential either, so ignoring them seems problematic, more so than, say, forgetting to account for bubble gum purchases in a retiree budget. In my particular case, these kinds of expenses are in my top 10 expenses.
Since turnabout is fair play, here's my retirement planning process in a nutshell:
1. Take current actual Quicken expenditures for the last six months. Multiply by two to get an annual figure.
2. Project that annual expenditure rate forward at the long term historical inflation rate.
3. Take current actual investment values and project them forward at the long term historical rate of return provided by their respective asset classes.
4. Project my monthly mortgage balance forward based on my payments and my (fixed) interest rate.
5. Plan to retire when (projected expenses) <= 4% of(projected investments - projected mortgage balance)
One of my key assumptions is that my spending in retirement is equal to or less than my spending now. I expect taxes and charitable giving to go down, as those will be based on my retiree draw instead of my salary. I expect health insurance to go up.
The reason I chose 6 months in step #1 is that I have some recurring expenses that only occur twice a year, so I need to capture those and average them in.
So feel free to criticize my approach.
malakito
(Feeling silly thinking that I was being frugal and finding out I spend nearly 3 times the average!)