Spending patterns inRE

[DawgMan]

I just finished reading thru the thread http://www.early-retirement.org/forums/f28/being-worth-more-at-the-end-than-the-84393.html, and it prompted some related questions so I thought a new thread was warranted. Questions for you folks who have some years under your belt in RE...

- What has been your actual annual spending as compared to your planned spending for the years you have been RE?
- How does your current age/health play into your spending plan? In other words, are you spending more in your 50's with a plan to spend less in your 70's?
- What surprises/observations (good or bad) have you found in your spending plan over the years in RE when you look back and compare it to what you had planned for (i.e. didn't travel like you thought, unprepared for 1 time expenses like new cars/home repairs)?
- After X yrs, what deliberate adjustments have you made to your spending plans going forward and what were the drivers (i.e. market performing better/worse relative to your SWR, actual expenses higher/lower than you thought, your conservative mind set keeps you frugal, health issues hit, some event occurred where you say WTF... you only live once!)?

I think hearing from many of you who have been RE 5+ yrs would be extremely helpful to many of us on this site, especially those of us being very close to FIRE. Personally, I anticipate spending more $$ while healthy/young and enjoy my $ WITH my family/kids in the form of experiences as opposed to leaving a pot of $$ in the end. OTOH, I know I will sleep better at night knowing I am not drawing down my principle in RE which probably has me stashing away much more $$ than I will need come the big dirt nap. None the less, I am sure their is a balance there.

 

[Jerry1]

I think hearing from many of you who have been RE 5+ yrs would be extremely helpful to many of us on this site

I would really hope to hear from those who have been retired for over 10 years so that it includes your insight to how you handled the years around the 2008 market crash.

 

[Surewhitey]

I'm not the 5+ crowd, but we did a test drive of 3 years. I am the spreadsheet geek of the family, so I'm intimate with the outcome of our experience. 2011-2015 were awesome. Learned a lot about ourselves and the filling of time...

Insurance ($7.5k deductible) was our choice and cost on average $550/mo over the years. Humana was the carrier. Increasing on average of 10-12% annually, so be careful there. We were 42 & 48 in the beginning...ACA was not in effect yet, so you can engineer your MAGI possibly. Also, a trip to the emergency room in Mexico cost me $175 for 2hrs and fluid/pain meds for a stone... our insurance is for cancer and other major events.

We rented in Playa del Carmen Mexico. Our expenses went down as the dollar appreciated. We're here now (vacation) and it's even better with 20.5 exchange rate. Rent, utilities and Internet cost us a whopping $500 / month on the beginning and ending with $400... exchange went from 12-13 up to 14-16.

Traveling is our biggest thing. Back stateside airfare was a budget item for us... traveling without restriction gave us flexibility to adapt to the cheapest opportunities for travel. Went to Europe for 40 days, including a 10 day cruise to Greece and Turkey via Rome, was a total of $9k for everything, for 2. I still have the spreadsheet on that trip.

We did have a really good pulse of our spending, so communication is key there. What is important to you will be unique...

 

[Danmar]

Agree that this is an interesting topic. I'm 66 and been retired a little over 10 years. I am not a typical example. For the first 6 years of my retirement I was effectively living off my cash balance and employee incentive comp cash outs as my pension didn't start until I was 62. Accordingly the financial crises was a harrowing experience. My portfolio of stock and uncashed employee options/RSU's declined by about 80% but thankfully fully recovered by the end of 2009. I certainly cut back expenses during this period. Due to a large cash balance, I didn't have to sell anything.

My spending pattern has been a little irregular, very high right out of the gate with large amounts spent on cars, vacation home, and trips. 2006-2008 were very "big" years. The financial crises brought a little reality back into focus. Since then we have settled into a more normal stable spend level other than buying another vacation home in Arizona. Since 2009 my "actual" portfolio has done very well and since we have only been spending dividends so far, it has about doubled. Accordingly, I think it is time to institute a systematic liquidation program. Plan to sell maybe .5-1% of portfolio next year. This will allow a spending/giving increase of about 10%..

Advice? Try to build a healthy buffer into your plans. It's easy (for most people) to spend a little more as opposed to having to cut back. Keep a good sized cash balance. You'll feel better and hopefully you won't have to sell in a down market.

 

[Moemg]

I have been retired 9 years in January . I retired in 2008 so by the end of 2009 I had lost almost 40% of my portfolio .Since I do 3.5% of portfolio my budget took a hit . I smoothed this out by applying for my SS Survivor benefit and then switching to my benefit early . Stupid mistake but it helped my sanity . Eventually my portfolio came back and spending has been steady but LBYM . I have no intention of spending less as I age . I can already see having to add more help as I age .This will probably be the year of the cleaning lady .I traveled a lot in my 40,50 &60,s now almost 70 traveling is losing it's appeal so that is a big chunk of money I will be not spending . I agree with Danmar about keeping a large buffer and a good sized cash balance .It will help you weather the dips.

 

[RunningBum]

I have been retired 9 years in January . I retired in 2008 so by the end of 2009 I had lost almost 40% of my portfolio .Since I do 3.5% of portfolio my budget took a hit . I smoothed this out by applying for my SS Survivor benefit and then switching to my benefit early . Stupid mistake but it helped my sanity . Eventually my portfolio came back and spending has been steady but LBYM . ...

Doesn't sound like a stupid mistake unless I'm not understanding something about the SS benefit. The stock market was low, so it makes sense to sell as little as possible. Taking SS early is the most obvious way to reduce how much of your nestegg you have to sell to live on, so that you can allow your investments to recover. I'm generally an advocate of delaying SS for longevity insurance, but I'm also against selling low so starting SS after a downturn can definitely make sense.

 

[braumeister]

I am not a typical example.

Hard to say whether anyone here is typical since our situations vary all over the map.

Pensions cover about 150% of my basic expenses, so portfolio draw is purely for discretionary spending. That makes me about as untypical as anyone, in my own way.

 

[pjigar]

I would love to hear from people who have no pensions at all and retired before 50. MY target retirement age is 48 with only 401K and after-tax investments to carry me through my retired life.

 

[scrabbler1]

I would love to hear from people who have no pensions at all and retired before 50. MY target retirement age is 48 with only 401K and after-tax investments to carry me through my retired life.

I retired in late 2008 at 45, relying only on my after-tax investments until I near age 60 when the first of my "reinforcements" arrives. That is unfettered access to my IRA. Then, SS and my frozen company pension arrive in my 60s.

My overall spending patterns haven't changed a whole lot despite my being sick in 2015 and being diagnosed with diabetes. What has changed the most in the 8 years of ER has been the gradual decline in my main bond fund's monthly income. To supplement that, a few years ago I changed the distribution option in my stock fund from "reinvest" to "cash." That quarterly boost restores my taken-as-cash income to what it was in 2009. I had always anticipated the possibility of doing this.

 

[W2R]

- What has been your actual annual spending as compared to your planned spending for the years you have been RE?

I have been spending less, averaging 2% every year instead of 3.5% which was my plan. But this is GOOD, because after a time I realized that I could spend more so I bought my dream house. For me this is a dream come true that I didn't previously think I could afford. Lower spending also helps when the big unexpected expenses pop up.

- How does your current age/health play into your spending plan? In other words, are you spending more in your 50's with a plan to spend less in your 70's?

I retired at 61, over 7 years ago, and my spending has been going up each year. I am spending more now than I spent in my 50's, when I was working and saving for retirement. I think the common belief that we spend less as we age, is NOT valid for me. As I age, I want to pamper myself more with items that make life easier, for example. Perhaps that belief of spending less as we age, is more applicable to those who spend huge amounts on travel and can't travel in their old age.

- What surprises/observations (good or bad) have you found in your spending plan over the years in RE when you look back and compare it to what you had planned for (i.e. didn't travel like you thought, unprepared for 1 time expenses like new cars/home repairs)?

I guess the only one is that buying/selling/moving into my dream house and fixing it up, ended up costing more than I expected. I am glad I did not buy the most expensive house that I thought I could afford. So if you plan to move in retirement, I'd suggest saving up half again what you think it will cost. To me it was still totally worth it because this is literally my dream come true.

- After X yrs, what deliberate adjustments have you made to your spending plans going forward and what were the drivers (i.e. market performing better/worse relative to your SWR, actual expenses higher/lower than you thought, your conservative mind set keeps you frugal, health issues hit, some event occurred where you say WTF... you only live once!)?

Well, I averaged 2% WR for my first 6 years of retirement so I deliberately decided I could afford to spend more and spent considerable time figuring out what to spend it on. Buying a dream house won that contest. It's not easy for me to loosen the purse strings.

 

[Danmar]

Hard to say whether anyone here is typical since our situations vary all over the map.

Pensions cover about 150% of my basic expenses, so portfolio draw is purely for discretionary spending. That makes me about as untypical as anyone, in my own way.

Agree that there probably is a fair bit a "atypicality" here, but hard to tell for sure as most input is pretty "typical". This would be a truism, I guess. Posting atypical positions often results in responses like, "well that certainly isn't typical". Fairly high degree of conformity.

My view of the typical condition is someone who saved a fairly high percentage of his(her) comp over several decades to end up with a portfolio in the $1-$2 million range. No significant pensions other than SS. Retired shortly after hitting their "number" and started withdrawing from their portfolio. Many appear to draw pretty low percentages in the 2-3% range but those with higher draws probably don't disclose such. Spending generally appears to be in the $30-$80k range with a few over $100k. Many seem fascinated by Firecalc and worried about health care costs. Not complaining, just observing.

 

[razztazz]

I have been retired for 21 years. I was living on 50% of my take-home pay for a few years before I retired. All I really wanted was for every day to be like a Saturday so I had no big plans or unusual expenses built into retirement that I didn't have in pretirement.

On another current thread here I just posted my annual normal ongoing expenses 1999-2015. They are within 500 or 600 bucks of each other.

I anticipated some honkus big future expenses and unknown-unknowns. A new car is probably the largest and most predictable one for most people here. I took money off the table in 2000 for that and put it in I-bonds. In 2013 I bought a new (slightly used) car. Was budgeted for $30,000 ... bought one for $15,000. (Took the money from the MMF and left the I-bonds untouched.)

Had to bail out some sick relatives for a few yrs before the ACA kicked in, and moved into a new place. ALL that money came out of a separate money bag so it didn't affect my retirement fund math at all. I would not have done the move if I hadn't had the money and was glad I had the secret stash for the relatives. But if I hadn't had it they wouldn't have gotten any.

I would really hope to hear from those who have been retired for over 10 years so that it includes your insight to how you handled the years around the 2008 market crash.

I was out of the market entirely Mid 2000 to April 2003 and late 2007 till April 2009. Call me crazy but I can look at the charts and hear the buzz. I make no claims to omniscience and I know, like everything else in life, there was an element of luck involved in both those moves. I can remember watching the murder & mayhem on CNBC and feeling a peaceful, easy feeling.

 

[bradaz2488]

Only been retired 3.5 years so not a lot of data. Current age is 53. DW still working. I have been under "plan" budget every year so far. Average WR rate is ~2.2% and when DW retires it will increase to 3.4% per "the plan". Had 36X expenses at retirement now have 40X. Trending to 8X at end of plan at age 95. Future healthcare cost and inflation still scare the crap out of me so not willing to increase plan expenses. However, I do not feel I have had to sacrifice any desired purchases but I have not had any surprise "big ticket" expenses either. I think I'll have to see my plan survive a recession to gain more confidence to spend more. My buffer is assuming no SS. If it looks SS will be there at FRA then I'll have to figure out how to spend more money since we have no kids. The curse of LBYM ...

 

[mpeirce]

I would love to hear from people who have no pensions at all and retired before 50. MY target retirement age is 48 with only 401K and after-tax investments to carry me through my retired life.

I retired at 49 and it's been about six years now.

No pensions here, just investments. We own our house outright, so if the economy really tanks, we'd can cut spending quite a lot.

We spend a percentage of our total financial assets (based on an averaged of the last three years), so we've been able to increase spending some every year so far. Most of the increase has gone into the travel budget. We're enjoying it a lot, but plan to cut this back when the market inevitably retreats.

Looking back at our budget we always end the year with some left over. Much of this is because we include our large health insurance deductible in the budget and have never spend anywhere near that. But we still plan for it.

As to future spending. I assume we'll spend more as we get older. Less on travel, but more on healthcare. If living in our own home, I plan on paying for "help". If living in a facility, I plan on squandering whatever wealth is left on as nice a place as I can find. I had two grandparents who each lived in retirement homes. They both were fine, but one was definitely in a nicer place than the other.

You asked about surprises. None for us really. We maintained pretty much the same budget as we had the last few years before retiring. We've ramped up the travel budget, but beyond that it's been pretty much the same.

 

[walkinwood]

Great thread and it is wonderful to read about how others have handled this ER journey.

I have been posting about our ER all along, so if you're interested, you can search for the posts using the advanced search:
User : Walkinwood (search for threads started by me)
Tags : "ER Plan" for our plan, "ER Countdown" for the countdown to ER and "ER Update" for updates along the way.

 

[Options]

I just finished reading thru the thread http://www.early-retirement.org/forums/f28/being-worth-more-at-the-end-than-the-84393.html, and it prompted some related questions so I thought a new thread was warranted. Questions for you folks who have some years under your belt in RE...

I hesitated to respond as I'm only going on 2 years in after retiring at 60, but I think my experience is interesting enough that it maybe educational:

- What has been your actual annual spending as compared to your planned spending for the years you have been RE?

My biggest surprise is how much my weekly entertainment spending has dropped, probably by about 30%. It was confusing at first as I didn't purposely reduce entertainment spending but every week I always had and still do have a lot of money left over. I found that once retired, I don't need to spend money to make myself feel better after having been miserable all week at work. This new "found" money now covers all sorts of extras such as clothing, taking friends to dinner, buying lots of small things like printers, shredders, hard drives, etc.

- How does your current age/health play into your spending plan? In other words, are you spending more in your 50's with a plan to spend less in your 70's?

My personality is such that I would never spend more now thinking I will spend less as I get older--there are just too many unknowns for me to take that risk. A surprise for me is that even though I will leave hefty legacy for my heirs even after experiencing the worst market conditions, I still don't feel comfortable spending more with so many unknown variables in the future.

- What surprises/observations (good or bad) have you found in your spending plan over the years in RE when you look back and compare it to what you had planned for (i.e. didn't travel like you thought, unprepared for 1 time expenses like new cars/home repairs)?

No surprises regarding unplanned expenses. Planned expenses included buying a needlessly expensive car last year, doing a much needed home remodel, and generally spending much more than before I was retired (although this spending was planned for).

- After X yrs, what deliberate adjustments have you made to your spending plans going forward and what were the drivers (i.e. market performing better/worse relative to your SWR, actual expenses higher/lower than you thought, your conservative mind set keeps you frugal, health issues hit, some event occurred where you say WTF... you only live once!)?

My IPS calls for reducing all discretionary spending immediately should we experience another 2008-like event. I'm hoping the markets don't go crazy before early January because if they do there goes my travel budget for next year...

I think hearing from many of you who have been RE 5+ yrs would be extremely helpful to many of us on this site, especially those of us being very close to FIRE. Personally, I anticipate spending more $$ while healthy/young and enjoy my $ WITH my family/kids in the form of experiences as opposed to leaving a pot of $$ in the end. OTOH, I know I will sleep better at night knowing I am not drawing down my principle in RE which probably has me stashing away much more $$ than I will need come the big dirt nap. None the less, I am sure their is a balance there.

I should add one reason I'm reasonably comfortable at only about 2 years going in is that my PF is doing better than the worst case scenario I anticipated and planned for at the start of retirement. Hope this helps for those on the brink of retirement.

 

[robnplunder]

It's been a full year since my ER. I under spent my budget by about 15%. The only adjustment I've made to my spending (life style) after ER was that I didn't travel this year. I usually had 1 - 2 major travels before ER. This year, I wanted to be cautious with big spending items. Next year, I plan to bring the major travels back in my life.

 

[donheff]

ERd 12 years ago at 58. DW ERd about 7 years ago. We set initial SWR at 3.5% which was more than enough to meet our expenses. Actual spending has been at about 3% with the remainder going into an emergency/mad money fund. When we sold our weekend house earlier this year we switched to a 3% rate and have been actually spending at about 2% for the year. DW wants to start flying business class.

 

[Teacher Terry]

We retired almost 5 years ago at 58 & 53. Since then I have picked up a teaching gig that pays me 20k/year p.t and my DH does not work some years and some he does. He does contract work so it varies. The first 2 years we worked and spent a lot of $ on our foreclosure home. Then we both needed cars so bought 3-4 yo used ones. The first year I was worried so we lived on our pensions alone which total 40k with our insurance being 10 of that. Then we added a few big trips/year so are spending between 65-70k/year. If we ever need to we could cut out the traveling or if we get to an age that we no longer enjoy it.

 

[pletal]

I would love to hear from people who have no pensions at all and retired before 50. MY target retirement age is 48 with only 401K and after-tax investments to carry me through my retired life.

May not be that person, I am 51 and FI ! Have IRA's, Muni's and taxable CD's

These kick off about 160k per year. No child bills, no mortgage. No Pensions. Watch health care costs. Though I was done working this year but am not going to do it! retiring sounded great but my company brings in a great profit and my wife and I can donate more to charity and community if we keep going. Good luck.

 

[Katsmeow]

This is an interesting thread.

DH and I are not typical either. DH retired in 2010 when he was 62. I was 54 at the time went from working full-time to working very part-time (1 to 2 days a week). I am still doing a very little part-time work entirely from home (made about $10k this year for example although this has varied quite a bit each year).

Anyway, we knew going into it that we were going to spend a huge amount of our portfolio from when DH retired through the end of this year. We had kids in high school or just graduating when DH retired and we knew there would be a lot of expenses related to that.

A few years ago I set aside some money in non-equities that I knew we would spend beyond 4% per year. I wanted that money to not be subject to volatility.

At the time I projected how much money we expected/wanted (well, we would always want more but this was an amount we felt would be sufficient) to have in our portfolio at the end of this year. Currently with less than a month to go we are modestly ahead of that goal.

Our spending has intended up being higher than we anticipated. Part of that was related to a loss on a house and part due to some unexpected child related expenses. Still, investment returns have been better than we anticipated so we are a little ahead of where we expected to be at this time.

From this point on, our expenses will be going down a lot. 2017 is projected to be well below this year -- this is our last year paying for a child in college. We also anticipate moving to a smaller home in a few years that will further reduce expenses.

Even with our spending in some years since 2010 being higher than anticipated we are spending much less than we spent when we were working fulltime. I expect our spending 5 years from now to be well below what I expect to spend for 2017, mostly due to lower future housing costs and likely lower insurance costs once I am on Medicare and we are not insuring any kids.

We are not big on travel so that isn't really a factor. And, most of our hobbies are not things that are terribly expensive. My mother is in her 90s and I've seen how her expenses (and those of other family) plunged from the mid-70s on and I expect to see ours do the same as we become less mobile. Yes, my mom does pay for more services now than she paid for before, but she doesn't go out much and doesn't really have much else she wants to spend money on so she doesn't spend much.

 

[street]

Agree that this is an interesting topic. I'm 66 and been retired a little over 10 years. I am not a typical example. For the first 6 years of my retirement I was effectively living off my cash balance and employee incentive comp cash outs as my pension didn't start until I was 62. Accordingly the financial crises was a harrowing experience. My portfolio of stock and uncashed employee options/RSU's declined by about 80% but thankfully fully recovered by the end of 2009. I certainly cut back expenses during this period. Due to a large cash balance, I didn't have to sell anything.

My spending pattern has been a little irregular, very high right out of the gate with large amounts spent on cars, vacation home, and trips. 2006-2008 were very "big" years. The financial crises brought a little reality back into focus. Since then we have settled into a more normal stable spend level other than buying another vacation home in Arizona. Since 2009 my "actual" portfolio has done very well and since we have only been spending dividends so far, it has about doubled. Accordingly, I think it is time to institute a systematic liquidation program. Plan to sell maybe .5-1% of portfolio next year. This will allow a spending/giving increase of about 10%..

Advice? Try to build a healthy buffer into your plans. It's easy (for most people) to spend a little more as opposed to having to cut back. Keep a good sized cash balance. You'll feel better and hopefully you won't have to sell in a down market.

I haven't been retired for a year yet but my strategy was to have enough money in cash to live well into my old age and not to touch investments. This would save my investments through the dips in stock markets. My goal is to live off of returns and not touch principal.

 

[Danmar]

I haven't been retired for a year yet but my strategy was to have enough money in cash to live well into my old age and not to touch investments. This would save my investments through the dips in stock markets. My goal is to live off of returns and not touch principal.

Im a little confused by your post. Are you saying you will spend dividends and leave the "principal" intact? If so you must have a plan to deal with the likely large legacy you will leave?

 

[RunningBum]

Im a little confused by your post. Are you saying you will spend dividends and leave the "principal" intact? If so you must have a plan to deal with the likely large legacy you will leave?

I'm also confused by why he/she asked the question in http://www.early-retirement.org/forums/f28/being-worth-more-at-the-end-than-the-start-84393.html when not touching principal almost guarantees you'll have more.

 

[street]

Im a little confused by your post. Are you saying you will spend dividends and leave the "principal" intact? If so you must have a plan to deal with the likely large legacy you will leave?

Yes that wasn't very clear. My plan was when I retired to have enough in saving account to not have to touch any investments not even dividends. That is my plan now and doing the numbers with SS coming in a few years that plan should be realistic. As time goes I want to see how much my portfolio grows then make a plan at that time. I do have one heir and I have a charity I am involved with. My hope is at the end I can leave money to groups that will continue for years after I'm gone.

I currently have 18% in cash savings etc. that will provide for me.