How close to estimating Retirement $ needed

[sheehs1]

One last thought. Since the SPIA was purchased with only 10% of our joint portfolio value (in early 2007), we still have 90% of our portfolio to "make up" for inflation loss. BTW, as of this point in time, our joint portfolio slightly exceeds its value of when I retired - even with the purchase of the SPIA.

I guess the plan is working. Once we have our respective SS payments starting, the SPIA (even if worth less) will just be "icing on the cake" when the time comes.

Thanks rescueme. Understand your logic for doing things this way. Instead of lifetime joint I was looking at a shorter term SPIA. For now my plan is to buy a shorter term 5 year SPIA. Save my other income sources for that same 5 years...(does not include investment income or SS). At the end of the 5 years turn around and do it again. But I may go back and research the lifetime quotes and benefits....to see if that is something that makes more sense. It is certainly less leg work than having to revisit it every 5 years.

 

[Independent]

We kept detailed spending records for many years before retirement. So I just looked at the categories and figured which would go up, down, or stay the same (allowing for changes in family size).

That provided a baseline "continue spending" level. Then I added some for fun spending (travel) that we hadn't been doing, for gifts to kids (e.g. weddings), and put a cushion on top of that. It turns out the cushion was significant.

 

[megacorp-firee]

Forever, we have lived on what we called a tight budget. As our fortunes increased, so did our spending, but not extravagantly. So our new budget was what we were spending minus work related expenses, plus planned travel. We also threw in some 'fluff' for emergencies, like a new (used) car every (?) so often), a new roof, something major breaking (which was business as usual actually). So our FIRE budget actually was about the same as our old budget.

We came out about where we thought we would be.
I believe we are fairly disciplined (and still cheap).

 

[Backpacker]

@ Gary M: Thanks for starting this topic, I had searched past posts for this very topic and couldn't find one. I have long thought the "experts" and various calculators that claim you need to shoot for 80% of your pre-retirement income were whacked. I just can't imagine needing that much. We are on track to payoff the house in 7 years (which is our only debt). My wifes pension will be approx $30k per year and I don't think it will take much beyond that to support the basics needs. 401k's, Roth's and liquidating rental properties, not to mention possible SS should all be icing on the cake.

@Katsmeow: Yeah if we needed to duplicate 70-80% of our income I think we'd have to work til we dropped dead at the office. I'd rather control the expense side, retire early and enjoy life while we are physically able to.

 

[scrabbler1]

I echo the posts of many others here.

In the years leading to my ER in late 2008, I was often updating and fine-tuning the spreadsheet I had created to compare and project my income and expenses in an early retirement. I never, ever, used as a starting point a percentage of my income. I calculated my expenses from the ground up, not the top (i.e. income) down.

I did use some of my current expenses as a starting point. Those included things such as utilities, car insurance, and home insurance. From my then-current expense list, I removed FICA taxes and commutation expenses. I made small adjustments to my general cash expenses (i.e. food, which decreased slightly because lunches were cheaper at home than at my office; entertainment, which increased slightly because I would be dancing one more night per week; these items nearly offset each other).

I had to adjust my health insurance upward because an individual HI policy would cost more than COBRA. However, my dental costs compared to COBRA+deductible+copay would be about the same.

The toughest part of my new budget was determining my income taxes. I included in my spreadsheet a skeleton version of my federal and state income tax forms, similar to what I do now for my current budget. I, too, was pleasantly surprised at how much lower they became in my ER budget. For example, more of my income was not taxed (i.e. 0% cap gains and muni bonds) and I would now be itemizing my med expenses on Schedule A.

Also in my spreadsheet was a projection of my income which included reinvesting any surplus investment income as well as a projected growth in my IRA for the next 15 years until I could tap into it at age 59.5. I separated my overall expenses into 2 categories (medical and non-medical) so I could assign separate inflation rates for each.

All of this gave me a pretty good idea of what my income and expenses would be from age 45-60, the key years of my ER, before I could begin tapping into the first of three "reinforcements," my IRA, to be followed later by my frozen company pension and Social Security. I felt I needed to run a surplus in these early years because inflation would cause my expenses to rise more quickly than my income, probably erasing that surplus in my late 50s.

 

[Geoffrey]

I envy those who were able to track their actual expenses prior to retiring and thus use those figures as a starting point for estimating their post-retirement needs. Having lived the last 10 years overseas (on a military base) my wife and I don't have a very good sense of what it actually costs to live in the United States. We have been forced to create an estimate based on SWAGs that may or may not be accurate. The net result is that I have felt compelled to work longer to help ensure that we have enough to cover shortfalls in our estimating. BTW, I fully concur that one's pre-retirement income bears no direct relationship to what one's post-retirement expenses will be.

 

[MasterBlaster]

For those that believe they can estimate retirement expenses to very high precision...

What about future medical expenses, future tax rates, inflation, diminished SS and Medicare payments and so on.

Everything is in play now. And really, I wouldn't assume that current taxes/entitlements/expenses/inflation are what they will be going foreward.

And for those of you who have enough now in retirement... The future doesn't look so bright. Things could get kind of grim going foreward.

To characterize Rumsfield... The known - unknowns, and unknown - unknowns need to be (somehow) factored in.

 

[mickeyd]

I read of many varied ways to calculate how much we'll need when retired as a % of what we are currently earning. I am interested in how close folks have come to estimating what they need and how they calculated it.

Hey Gary,

Been retired for a few years now and seem to have plenty of money to do just about anything or buy anything that we need. When I first started saving for retirement I had no clue what I would need or how I would get there. Easy to use retirement calculators were not available in the 70's. I assumed that SS would not be there when I retired (it's there and it's big). I'm fortunate to have qualified for a couple of pension plans. I always maxed out IRA, thrift savings plans, 401Ks etc. for myself and spouse and stashed as much as I could into taxable accounts. In other words, I saved as much as I could save and never looked back. It was a very easy plan that I feel lucky to have followed for over 40 years.

 

[JohnDoe]

2 of the things I don't quite have a handle on are taxes and auto expenses.

I should probably run some scenarios in turbo tax with the reduced income or 401k withdrawals.

Our vehicles are currently 2000 and 2003. Who knows when they'll need to be replaced. I've never bought a used car before and I've never had a car for less then 7 years. Not sure how to account for new/used vehicle expense.

This might put off our early retirement if we need 2 vehicles at the same time.

JD

 

[megacorp-firee]

Not sure how to account for new/used vehicle expense.

This might put off our early retirement if we need 2 vehicles at the same time.

JD

We have a 'guideline' budget (it's my 'whatif xcel file) which grossly lays out our yearly portfolio, i.e. our portfolio with a 5% (I am conservative) growth rate minus our budgeted expenses, when it happens I add in SS payment. Every 5 years, I deduct the cost of a (used) car. I guess I could amortize the expense each year, but it's not the way I did it. My 'planned budget' shows that due to our LBYM ways, we will actually have growth in our portfolio.

 

[lovinglife1]

Same situation.....10 years in Europe and Asia so I made the decision to purchase a home one year before retirement, set it up, establish costs, furnish etc....Now I know the naked truth on the costs to live in my retirement venue...some good news, some surprising..ahh...But, I am glad I did it.

 

[rescueme]

This might put off our early retirement if we need 2 vehicles at the same time.

JD

So you are saying that you are putting off retirement (for the rest of your life) just because you may have to purchase two cars, at the same time?

In that case, you are not ready for retirement IMHO...

BTW, I've been retired four years thus far, and even though my car(s) have been paid off for many years, I still throw in $500/mo into my expense budget for vehicle replacement (it just sits in my TIRA, but I do have a separate budget line item to see what the accrual is thus far).

It's nothing more than what I did during my wor*ing years. Vehicles have to be repaced somewhere along the line, and you need to account for that eventual expense - regardless if you pay cash or have car payments.

 

[jkirzec]

Gary_M

I too have established a budget that seems to be accurate (but I still wonder sometimes), and then I decided I would need a safety cushion of $10,000 per year to allow for extra expenses like travel, vacations, etc. This extra $10k is about 15% greater than the budget I want to live on.

I read somewhere that "you should not enter retirement undercapitalized" and that struck a responsive cord with me.

 

[sheehs1]

While I don't track every dollar of expenses, I do have an excel spread sheet for a projected retirement budget. It is current expenses minus mortgage and is running fairly true to form. I call it my "bare bones" budget..which is basically the way I am living now (to test drive it). Probably like others here...I am more comfortable knowing my bare bones budget is a percentage of the income projected to be coming in. I've also set up buckets of years (again like others here), that are in 5 to 7 year increments.
Bucket 1 is now and the percentage I spend relative to income is 30%. Bucket 2 is age 59 - 65 and the percentage moves up to 45%. Bucket 3 is to age 65 to 70, percentage moves down to 40%...etc. Same for 75 and beyond. Knowing I have "buffer" between expenses and income is all I really need to know. This does not include "investment income" since I can't predict it...and will consider it gravy in the good years and something to ride thru in the bad. Also plan on continuing to save and LBYMing...until I'm 65 or beyond,,...giving my investments more time to appreciate along with additional contributions. (just turned 56-). The "paycheck" stops at age 59...but I will have money coming in.
When I get anxious worrying about health care costs, inflation and the "unknown", I go back to my spreadsheet to see that I am "projected" to be just fine. It's the best I can do.

 

[scrabbler1]

Gary_M

I too have established a budget that seems to be accurate (but I still wonder sometimes), and then I decided I would need a safety cushion of $10,000 per year to allow for extra expenses like travel, vacations, etc. This extra $10k is about 15% greater than the budget I want to live on.

I read somewhere that "you should not enter retirement undercapitalized" and that struck a responsive cord with me.

When developing my long-range ER budget, I made sure to include a surplus, or cushion, in the early years not only to cover any unforeseen expenses but because it was likely my expenses would rise more quickly than my investmnent income as the years went on. Having this cushion measn that if something arises (generally a small expense but it could be larger), I won't have to worry about whether I can cover the expense.

 

[JohnDoe]

So you are saying that you are putting off retirement (for the rest of your life) just because you may have to purchase two cars, at the same time?

I am only 41 and hope to retire in amount 8 years. I don't really have a budget for new vehicles since my overall budget is pretty tight right now. I am putting additional monthly money into a MMS account which is my emergency fund.

I would probably use some of the MMS to fund at least a down payment on a vehicle if needed. I don't anticipate needing one anytime soon, though.

When I say my budget is tight, I mean in regards to ER. I am saving about 28k a year and paying down a mortgage.

 

[W2R]

Just musing here - - - you know, my expenses in retirement have been pretty much the same as before retirement, more or less, even though I have purchased some nice things since ER.

So now I am thinking that maybe my expenses when I am over 85 will be the same as they are now at age 62. Sure, I will be able to do fewer of the things that I presently do. Still, if I live to be as old as I hope, then eventually I will need things like a nice walker, handicapped modifications to my shower so I don't slip, and visual aids (maybe a wall sized computer monitor will be common by that time, who knows, but it might be pricey). I might want to hire more help around the house or someone to shop for me once I am too old to do that.

 

[kyounge1956]

I'm using a combination of ideas that have already been mentioned—basing a retirement budget on my actual expenses (I use Quicken to track where the money went), and allowing a cushion in case of higher taxes, lower Social Security payments, and for hard-to-estimate expenses like future health care costs. The other thing I've been doing is test driving my pension for the last few years. At the beginning of the year, I use the retirement system website to estimate what my pension would be if I had just retired, and base my spending for the upcoming year on that amount, less taxes and tithe. The first year was an uncomfortably tight budget, last year not quite so much so, and this year even a little better. My target date is two years away and I expect I will have a pretty good feel by then for what I'll be able to spend when I pull the plug for real.

 

[redduck]

Just musing here - - - you know, my expenses in retirement have been pretty much the same as before retirement, more or less, even though I have purchased some nice things since ER.

So now I am thinking that maybe my expenses when I am over 85 will be the same as they are now at age 62. Sure, I will be able to do fewer of the things that I presently do. Still, if I live to be as old as I hope, then eventually I will need things like a nice walker, handicapped modifications to my shower so I don't slip, and visual aids (maybe a wall sized computer monitor will be common by that time, who knows, but it might be pricey). I might want to hire more help around the house or someone to shop for me once I am too old to do that.

W2R: OK, when you're 85 and need a walker (hopefully, you won't), and assuming you have as much money as you do now, do you think you'd spring for a top-of-the-line walker (the walker you absolutely fall in love with, maybe even spending an extra $20 for the color walker you want) or would you make some compromises as to the walker you select?

 

[rescueme]

While I don't track every dollar of expenses...

How can you plan for where you are going, if you don't know where you have been?

 

[rescueme]

I am only 41 and hope to retire in amount 8 years. I don't really have a budget for new vehicles since my overall budget is pretty tight right now.

Regardless of age (and retired or not), you still have to budget for vehicle replacement.

IMHO, your "plan" is not a plan at all, for your current possible expenses, let alone retirement...

 

[Alan]

While I don't track every dollar of expenses...

How can you plan for where you are going, if you don't know where you have been?

I don't track every dollar of expenses either, but I know exactly how much I spend every year. The big stuff is easy to track and plan for. I'm fortunate that I don't need to sweat the small stuff, although there have been many years in the past when I've needed to do that.

 

[W2R]

W2R: OK, when you're 85 and need a walker (hopefully, you won't), and assuming you have as much money as you do now, do you think you'd spring for a top-of-the-line walker (the walker you absolutely fall in love with, maybe even spending an extra $20 for the color walker you want) or would you make some compromises as to the walker you select?

Yes, probably the top of the line in my favorite color! I remember that my (dear departed) mother wanted the snazziest walker in the assisted living facility, and got it. She loved all the features - - compartments in which to hold her stuff, and who knows what else. It wasn't cheap, either, and all the other old folks there loved it and wanted to see it, and some ordered the same one. She went for the best one she could find. And like mother, like daughter...

 

[redduck]

Wow, you're as classy as your avatar.

 

[sakowitzm]

Interesting stuff here...
Long time lurker, with a question.
I don't believe I've ever seen a discussion of how costs go down, over time, during retirement.
I'm not talking about well-covered things like increased costs (vacations, health insurance, restaurants) and decreased costs (no commute, no expensive work clothes) and the like.
And I'm not talking about inflation.
I'm talking about a gradual reduction in day-to-day and big-ticket expenses simply because one is less active, etc. For example, I expect to travel a fair amount... for some number of years. But not more than maybe ten years. So after that, travel costs go way down. I expect to go out to a restaurant more often. But not so much as I age. If/when we sell the big expensive house and move to an apartment or condo, I would expense repair and maintenance costs to drop significantly.

Am I on solid ground here? Does FireCalc allow for this kind of reduction, over time? Do other calculators?

Thanks for your inputs.
Cheers!