Who has tried this? (Living on a fixed amount to prepare for retirement)

[chris2008]

We track expenses for more than 30 years now.
Our retirement budget is like our expenses of today plus some extra dough for car ( I can use a company car for free now) and more travelling.
We are dedicated LBYMers. So there is some room between our expenses of today and our income. That is where our savings come from...

 

[Animorph]

We always had a budget and did well within it. But we used to save a fixed percentage of our income towards retirement. For the last 2-3 years before retiring we froze the budget, adjusted it by the SS inflation rate at the start of each year, and everything else, raises, bonuses, tax cuts and whatever went into the retirement portfolio. Doing that kept our retirement spending level a little lower and increased our savings a little bit. We have been just fine with the SS inflation rate increases for 8 years now, including skipping the 5.8% increase that was clearly not going to be needed in a recession.

The sooner you can fix your standard of living, the sooner you can retire.

 

[Katsmeow]

Well....we didn't do it. That isn't to say that we didn't analyze the numbers to death however.

The thing is that our expenses pre-retirement and those post-retirement for a variety of reasons were not remotely similar. Pre-retirement my husband had a daily compute of over 100 miles a day. Pre-retirement I had a daily commute of about 70 miles a day (and DH and I worked in opposite directions so having a home close to both of us was impossible). We had 3 kids at home and working full time we had a full time au pair. With retiring a lot of that changed. One son moved out. We didn't need the au pair any more, etc.

Also, we sold the expensive house that had been great when we had 6 people living there and was a good location for work. We are just about to buy a house that is much less expensive than the old house but is not located where I would have wanted to be located when I was working full time.

There are a lot of other things as well. Our maintenance expenses and yard expenses are much less now because we have more time to do things ourselves. When I was working full time (I still work very, very part time) I spent over $100 a month on dry cleaning. Now it is minimal and so on.

We did track our expenses for years so we knew how much we were spending and I did a lot of projections for expenses. In our case we have high expenses for the first 5 years since we have adolescents at home but I projected out expenses years in the future.

DH retired almost 2 years ago and, yes, some of those projections were wrong but we have adapted (in some case we projected too low but in other cases we projected too high). The bottom line is that we will make the adjustments we need to make as things go. But there was just no way to live on our final retirement budget while working unless we waited until all of our kids were grown and gone and we didn't want to do that (DH was almost 63 when he retired. He will be almost 66 when our daughter graduates high school).

 

[Sirka]

Good idea

Retirement reality check

This article is all over the place IMO:
Here's a bit of advice if you haven't saved a dime for your retirement: Try it out first. ??

 

[Sirka]

I thought this was how one retires, and something everyone does. Work as hard as as possible on increasing savings and decreasing spending (nicely complementary efforts, BTW). When you have proven to yourself that your savings are enough to support your spending, plus any additional you might be planning for travel etc, then retire.

+1

 

[Koolau]

I guess we did it all wrong. Never actually documented spending until last year (5 years post ER). When w*rking and living in the Midwest, I estimated spending as the difference between what I (and DW) earned and what we saved. Crude, but effective when you are still w*rking. Since the savings were anywhere from 25% to 40% most years, I knew there was some "give" in the budget if we ever wanted to change our lifestyle.

BUT, our real ER goal was to move to Paradise. Although we had visited many times and even had our living quarters paid for here, we found it difficult to plan anything approaching a budget. Back-of-the envelope was about as good as we were going to get. My plan was to "over-plan" in case we got it wrong (or lost the envelope).

Update: Our spending last year (discussed in another thread) turned out to be considerably higher than the old envelope would have suggested (well, full disclosure, we DID actually lose the envelope!) We spent more than I ever earned - probably more than I and DW earned together some years (especially when she was FT stay-at-home-with-kids and PT empl*yed).

The good news is that the "over-plan" plan is working. Quite simply, the plan was to save enough to more than meet the "envelope" budget, plus have backups to our backups, e.g., DW takes her small SS, but I'm waiting until 70 or until the envelope method starts to fail. Additionally, we have never exceeded a 3% SWR - and the stash is now significantly larger than it was at ER.

I DO NOT recommend this to anyone else. It was just a matter of practicality on our parts. Without living the lifestyle, it is difficult to budget effectively - nor was budgeting our usual MO. We also encountered several "surprises" post-move. Our medical has been twice the cost we predicted and OUR inflation has far exceeded the "official" rate.

Still, it has gone according to "plan", so, even though it's not for everyone, it works for us. YMMV

 

[NW-Bound]

Unless your RE budget is going to be substantially different than your working budget, I don't think an actual "test drive" would be all that important. You get tossed in the water, you learn to swim...

A close friend of mine is contemplating retirement later this year. Knowing that his wife is a big spender, I politely asked if he knew if his future pension+SS would cover his current expenses. He truthfully admitted that he did not know. I was taken aback that he did not even seem to care!

Yes, one can swim, but with an anchor tied to his neck?

Anyway, one does not need to actually try to live on a budget if he has been tracking it and knows what he spends on, and has enough buffer for surprises.

 

[jkern]

For me, I established a standard of living (budget) for my entire life based on my income at each stage. Transitioning from working to retirement had absolutley no effect on my budget. My entire retirment plan was based on my current standard of living.

Why retire early if you cannot maintain you current stabdard of living? This article doesn't make sense to me!

 

[Lagniappe]

My retirement budget is 1.6X my current spending. It includes lots of travel and hobbies I don't have time to indulge in while working. I have not tried to live on this amount. I think I will manage.

 

[WestLake]

My retirement budget is 1.6X my current spending. It includes lots of travel and hobbies I don't have time to indulge in while working. I have not tried to live on this amount. I think I will manage.

My budget will also be more as I have been an extreme saver (with the exception of a couple of good trips each year).

 

[Alan]

My retirement budget is 1.6X my current spending. It includes lots of travel and hobbies I don't have time to indulge in while working. I have not tried to live on this amount. I think I will manage.

Same here except 1.3X

2 years in and we are achieving that extra spending as planned. It feels so,..... liberating

 

[Frugalityisthenewblack]

In only a week I start a "trial retirement" year ( a sabattical). As I have been saving for four years for this special year off (first time my life since I was 14 that I didn't have some sort of a job) I will do as much as I can. I hope to travel extensively and at the end of the year I will see how much it would cost to live a "dream retirement". I have heard from retired friends that the yearning to travel diminishes the longer one is retired. I will at the end of the year be able to see how much a simple frugal lifestyle would cost and how much "extra" I would need for the freedom to explore and discover the world.

 

[Meadbh]

Nowadays all my earnings go to my corporation. I am paying myself dividends. My goal is not to have to top up during the year. It's one way to test the waters.

 

[KeyserSoze]

My retirement budget is 1.6X my current spending. It includes lots of travel and hobbies I don't have time to indulge in while working. I have not tried to live on this amount. I think I will manage.

That is my number also... I have been LBYM for many years and my current annual budget is only 15% of my gross annual pay... Target date is set and I'm counting the days until ER...

 

[palomalou]

You could say we are, but the other way around. We have been tallying every cent for nearly 25 years. Then we looked carefully at what will change vs. what say the same and plan to live at no more than 5K more than now. We are pretty frugal. Some things will increase (entertainment, for example) and some decrease (transportation, utilities).

 

[youbet]

A close friend of mine is contemplating retirement later this year. Knowing that his wife is a big spender, I politely asked if he knew if his future pension+SS would cover his current expenses. He truthfully admitted that he did not know. I was taken aback that he did not even seem to care!

Yes, one can swim, but with an anchor tied to his neck?

Anyway, one does not need to actually try to live on a budget if he has been tracking it and knows what he spends on, and has enough buffer for surprises.

Why doesn't your friend simply cut the anchor rope and sail away?

 

[jclarksnakes]

We are faced with the opposite problem. DW and I are both 59, me retired, DW planning to retire next year. With two cola'd pensions and SS (whenever we do decide to draw the SS) we will have considerably more income than we now have with my pension and DW working. When we reach 70.5 and have to start taking RMDs it will only get much worse. We could do fine on just the pensions but why delay spending now and have even more later? We will take money out of the tIRAs and 403b accounts as a bridge from when DW retires till we start drawing SS. We decided to stop DW's 403b contributions now to see how we can live on some extra income.

 

[Midpack]

We are faced with the opposite problem. DW and I are both 59, me retired, DW planning to retire next year. With two cola'd pensions and SS (whenever we do decide to draw the SS) we will have considerably more income than we now have with my pension and DW working. When we reach 70.5 and have to start taking RMDs it will only get much worse. We could do fine on just the pensions but why delay spending now and have even more later? We will take money out of the tIRAs and 403b accounts as a bridge from when DW retires till we start drawing SS. We decided to stop DW's 403b contributions now to see how we can live on some extra income.

Don't you hate when that happens? No matter how much income we have, we're not mentally capable of thinking we have more than we need, regardless of what any metric may suggest. Seriously, good for you, enjoy yourselves...

 

[haha]

We are faced with the opposite problem. DW and I are both 59, me retired, DW planning to retire next year. With two cola'd pensions and SS (whenever we do decide to draw the SS) we will have considerably more income than we now have with my pension and DW working. When we reach 70.5 and have to start taking RMDs it will only get much worse. We could do fine on just the pensions but why delay spending now and have even more later? We will take money out of the tIRAs and 403b accounts as a bridge from when DW retires till we start drawing SS. We decided to stop DW's 403b contributions now to see how we can live on some extra income.

Just send the excess to haha, % general delivery 98104, seattle.

 

[sheehs1]

+1

I couldn't imagine ER'ing without knowing how much I needed, and know better way of knowing it can be done than by actually living on that budget for a while.

+2
I've been doing this for several years with 2 years to go. Otherwise I would not know.

 

[Risingsunbob]

I've started to do a lit bit of this although not 100%. I've tracked our expenses for several years each month and 3 years ago I set up my mock budget for retirement on both my DW's retirement income and my expected retirement income. I did not take into account any part time income that DW makes. My spreadsheet has our income and excepted expenses post retirement (I purposely estimated income low and expenses at the high end of what I have paid over the years and did not include any SS or $ from retirement accounts). I figured worse case senario. When I compare the current and projected side by side we are fine the one variable is the dreaded consumable expenses (shopping, dinner, gas, etc..) which can make some months a negative. The months when I have the additional mortage payment makes it a negative month.

 

[Finance Dave]

I guess we sort of do this...but in a backwards way. We live on a budget, and that budget is lower than what we anticipate spending in rehirement. So, by default, we can afford it so long as we create the income stream that equals our annual spend....for 30+ years.

IMO the difficult part is accurately determining how your spending will change by category. For example, we are relatively healthy now, so spend modest amounts on health care. It's difficult to determine how much that will increase. Even if you assume the full deductible as an expense, there are many items not covered by insurance such as home medical devices, walkers, knee braces, non-prescription drugs, eyeglasses, and on and on.

There are some upsides however. I can see almost no circumstance where we'll need two "nice" cars like we have today after the age of 85. And as for my two sports cars I have today...as long as they'll carry a bag of Depends, I may be able to keep one.

 

[Koolau]

IMO the difficult part is accurately determining how your spending will change by category. For example, we are relatively healthy now, so spend modest amounts on health care. It's difficult to determine how much that will increase. Even if you assume the full deductible as an expense, there are many items not covered by insurance such as home medical devices, walkers, knee braces, non-prescription drugs, eyeglasses, and on and on.

Another thing that is very difficult to predict about health care is how much of it will be covered by your insurance in the future. I have felt (and feel) very blessed to have Megacorp subsidized insurance going into retirement. Having said that, last year when we happened to also be big consumers of health care "product", Megacorp "changed" the rules on us. They doubled the total out-of-pocket we would be responsible for at the same time they significantly increased our share of the premiums. (The good news: They did NOT cancel the insurance!!) Between the "big year" and the increases in our share of the payout to the health "community", 2011 cost us almost $6K more than 2010. I'm not looking for a j*b, but such an increase in expense in one year makes one reflect on the "plan". If there is any good news in all of this, it would be that I will probably be eligible for some tax write-offs beyond the 7.5% of AGI that we spent on HC.

Trying to tie this to the original thread topic, it would seem those attempting to live on a fixed amount would be considering altering their ER plans or altering their ER budgets about now, had this been their experience. Obviously, YMMV.

YMMV

 

[Finance Dave]

good point Koolau. Currently we are in such a high income bracket that there's little likelihood I'd reach the 7.5% AGI limit. HOwever, once rehired...it becomes almost likely at some point.

 

[Craiger]

Jargon on this site

That is my number also... I have been LBYM for many years and my current annual budget is only 15% of my gross annual pay... Target date is set and I'm counting the days until ER...

New to this board. Is there a jargon translation chart available? I am guessing ER means early retirement. LBYM makes no sense if it stands for "living beyond your means". I think you mean "LWYM" ie. "living within your means"?

For what it's worth, the key to early retirement is simple. I retired at 50, the company's choice, not mine. It's called downsizing. Start saving in tax sheltered retirement accounts and regular investments the day you start working. Stay out of debt, pay credit cards in full each month, and pay off your mortgage as soon as you can. Don't buy new or used cars with loans. Cook more meals at home. Don't try to keep on the cutting edge of consumer goods. Fix stuff yourself. I can think of lots more, but those are the biggies.