Current Retirees Spending Actuals vs Estimates (How Accurate)?

[chinaco]

This Poll is for people who have retired.

One of the most critical aspects of a safe and secure financial plan for retirement is expense planning. It defines the income need and therefore thie income stream part of the equation.

I have been looking at our for quite a while. I am using our current expenses with some adjustments. Essentially, we have a mortgage that will go away. We will still have the same vehicle and gas needs when we quit work since we intend to do a lot of driving for domestic travel. Our travel expenses will go up. We will down-size the house. Insurance, property tax, heating/cooling reduces. As we age, we will likely have some increase medical expenses (I am not talking about catastrophic situations here). All in all, I am planning for us to spend more money that we actually spend today (including our mortgage). I have planned about a 50% increase over our current spending habit (150% total). The reason for the extra expense is travel. However, I have no way of knowing how it will play out. I figure if we travel less than I expect we will have a lot of cushion in our plan.

I know many of you may not have accurate information, so an estimate is fine. But please provide an answer as to how accurate your planned expenses were versus your actual experience now that you are retired.

Just to clarify. In my poll:

• Underestimated % means your actual expenses are greater than anticipated
• Overestimated % means your actual expenses are less than anticipated

Retirees - Please place comments about what caused the inaccuracy (if your estimate was inaccurate). OR if you are accurate only because you changed your spending habits... please comment there also. If you had to change your spending habit because you missed your estimate was wrong, please show a vote that reflects your pre-reality adjusted spending habit. The goal is to understand how accurate people are in planning retirement spending (not that they can ratchet spending up or down).


Non-Retirees - Please do not vote. But feel free to comment on concerns that you have about estimating your spending in retirement.

Thanks to all in advance.

 

[grumpy]

I have actually been surprised at how accurate my estimates turned out to be. I have been retired 5 years. For the year before I retired, I put all expenses into Quicken and then made adjustments I expected in retirement. My second year in retirement I again put all expenses into Quicken and they came within $2k of my estimate. Probably just luck! My planning was very conservative and since my investments have continued to perform well, last month I decided to treat DW to a new, top of the line Honda Accord (leather, nav system, etc.) that I paid for in cash. That's the first new car she has had since 1993.

So, five years into retirement money has not been any concern and the future looks very well assured.

Grumpy

 

[Moemg]

I'm only seven months into retirement so it's probably too soon to tell .I put in a generous travel allowance that may have been a little too much.

 

[CyclingInvestor]

I have been retired 8 months now, and am 48. My 'take home pay' from 72t withdrawals
and dividends from non-IRA stocks (gross - est tax payments - health insurance)
is roughly equal to my old work take-home pay. I have never had a budget, pre- or
post- retirement, since my natural LBYM tendencies are plenty strong. Overall, I seem
to be spending a bit more (intentionally) due to travel and toys than I used to, but still
somewhat less than I expected. I always had a hard time spending much money
because "it delayed my ER date" - now I seem to be able to spend more on luxuries.

 

[bosco]

I'll tell you in a year

 

[REWahoo]

Just passed the two year mark and our estimated spending has turned out to be right on the money.

We made no adjustments to our spending habits. The three years I tracked spending prior to retiring gave me a very good feeling for what we would need to draw from savings each year once the paychecks stopped.

Don't voluntarily leave the working world without it (knowing your actual expenses).

 

[Rich_by_the_Bay]

Just passed the two year mark and our estimated spending has turned out to be right on the money.

Just curious as to how you factor in major non-emergency lump sum expenses (car, air conditioner, driveway, etc.)?

Seems like a $30,000 car would be treated as something other than an expense, at least for this poll. Do you keep a "major expense" fund, slice it directly from the nest egg as needed, or diligently set aside from monthly "allowance" for when the time comes (in which case maybe it is a traditional expense).

 

[kcowan]

On target. However the mix is much different. Car expenses have dropped dramatically as have clothing and miscellaneous (buying lunches and coffees). Entertainment and travel is higher. We travel four times a year by air. We have used points. However, we also travel off prime time and shop on price. We home swap and that eliminates hotel charges and house/cat sitter expenses.

Because we have more time, we can plan to take the bus around town. Take some reading material and relax. Or chat with other relaxed travelers. So our parking charges are way down as well. Plus we schedule appointments in mid-morning or mid-afternoon so there are seats and less cell phone chatter.

We downsized our banking expenses by cutting out duplication on accounts and credit cards. Our brokerage expenses have dropped. This is all since 2002. We are every happy and acquire less stuff to justify our lifestyle.

Housing costs did not change (CAGR 2%). Cable/internet did not change (CAGR 3%). LD has gone down (down 70%) mainly because we can talk without as much telephone tag overhead. We have switched both cell phones to PayGo.

We walk and bike much more and schedule shopping so we can easily carry stuff home rather than have a marathon session on Saturday. We always shop at Costco during their slack times to avoid shopping cart gridlock. We create more meals from scratch rather than purchasing pre-packaged stuff. Better quality and cheaper.

We drink more wine which we buy on sales.

 

[megacorp-firee]

Just curious as to how you factor in major non-emergency lump sum expenses (car, air conditioner, driveway, etc.)?

Seems like a $30,000 car would be treated as something other than an expense, at least for this poll. Do you keep a "major expense" fund, slice it directly from the nest egg as needed, or diligently set aside from monthly "allowance" for when the time comes (in which case maybe it is a traditional expense).

I handle these types of 'known' items by estimating when and how much $s I will need and stick that into the yearly budget plan. It is spent as a slice from the 'nest egg' at various intervals, if you want to look at it that way, .... if you are a 'bucket'er', your buckets swell for a few years and then empty out.
.... works for me, being a simple minded dude

 

[Nords]

Five years into it-- no fiscal surprises but a few temporal & consumer ones.

Just curious as to how you factor in major non-emergency lump sum expenses (car, air conditioner, driveway, etc.)?
Seems like a $30,000 car would be treated as something other than an expense, at least for this poll. Do you keep a "major expense" fund, slice it directly from the nest egg as needed, or diligently set aside from monthly "allowance" for when the time comes (in which case maybe it is a traditional expense).

Well, the first step is to avoid the emergencies whenever possible (hopefully through maintenance). The emergencies are funded right away from a HELOC and then we decide how we want to modify our spending-- go over 4% this year or cut back on something else. Of course going from 3.5% to 4% isn't considered an emergency, just a year when I'll buy fewer longboards.

One of the advantages of ER is that you have the time to devote to things that you used to have to handle with money. Now that we're home a lot more, we tend to catch the house problems pretty early and to do a lot of the work ourselves. It's been many years since we've arrived home, opened the garage door, and said "Ruh-roh..."

Now that we have a few years' ER under our belts, any underspending from one year stays in the ER portfolio as a cushion against future surprises. So in effect we're both setting aside and keeping a "major expense" reserve.

I gotta admit, Rich, that to me spending $30K on cars would put 3-4 of them in our driveway. But then next year's Prius will probably be the first time in my life that a car purchase has hit five figures. Our bete noire expenses have been home improvement.

We try to plan ahead for the lump sums. When I was [-]obsessively[/-] carefully forecasting our ER spending I capitalized a car a decade, a new roof every 20 years, and a couple of major home-improvement projects that we were going to "tackle as soon as we had the time". Car repairs came from a decade of of Quicken data on old used cars-- if a car's repair bill was more than $150/month (yes, $1800/year) then it went on the watch list for replacement. Usually, though, an aging vehicle would chew through a couple years' worth in a few months and then stay trouble-free for another five years. Same for spending on the house.

Because we have more time, we can plan to take the bus around town. Take some reading material and relax. Or chat with other relaxed travelers. So our parking charges are way down as well. Plus we schedule appointments in mid-morning or mid-afternoon so there are seats and less cell phone chatter.
We are very happy and acquire less stuff to justify our lifestyle.
LD has gone down (down 70%) mainly because we can talk without as much telephone tag overhead. We have switched both cell phones to PayGo.
We walk and bike much more and schedule shopping so we can easily carry stuff home rather than have a marathon session on Saturday.
We always shop at Costco during their slack times to avoid shopping cart gridlock.
We create more meals from scratch rather than purchasing pre-packaged stuff. Better quality and cheaper.

This has been an extremely pleasant surprise-- time really saves money. I knew that I wouldn't have to cram my home-improvement projects into a week of leave, but I never realized that I'd be able to plan & execute them so much more effectively. I didn't really appreciate how much time (and money) I was wasting by doing the errands on weekends with the rest of the world. I didn't realize how much less urgent some tasks would seem when we were free to schedule them at just about any time.

I'm especially impressed by how much time we have to shop for bargains. We can read about products on the Internet and decide how important they are (or not) to our lifestyle. We can watch technology & price trends and figure out the best time to drop by with a wad of cash. We can read Craigslist every day and actually get to someone before the other eager buyers. We can be at Goodwill on discount days and right after major donations roll out to the floor. When you're at Wal-Mart 9:30 Tuesday morning, the staff will happily chat with you and tell you about upcoming sales.

So, yeah, ER expenses can actually rise-- especially if you do a lot of entertainment or traveling-- and you should see that coming. But if you're the kind of person who already likes to stalk a bargain then ER will avoid a surprising amount of expenses.

 

[megacorp-firee]

Wow, I must be the outlayer on this board.

Lottsa of obsessive/compulsive types here. I am a 'planner' and project manager by habit, but I tend to lean on the 'hand grenade' side of things rather than the pin point accuracy that I see here.

Sorry, not trying to hijack this thread... just an observation. This is interesting ... and again thanks for all of your enlightenment. This board is better than people watching in Las Vegas ... and that's pretty entertaining.

 

[youbet]

In one week, we'll celebrate one year of ER. It's flown by. In the survery, I chose "on target" although my target was intentionally planned to be as easy to hit as a barn door with a scatter-gun. We've purchased a number of unplanned items and participated in a number of unplanned entertainment activities and trips, all of which popped into our lives unanticipated. But our planned budget included categories to allow for this.

We thought it important to start ER with a flexible budget. Many items like property taxes, utility bills and health insurance were easy to estimate. But the key stuff like travel, entertainment, gifts to family, etc., were tough to nail down and we left those categories as open as possible.

We've really enjoyed this first year and learned a lot about how to have fun and estimating future expenditures. FIRE: you can't beat it!

 

[aenlighten]

Since mine was unplanned

I can't say they were more or less than expected, but they have changed very little other than my paying off the house. I tracked my financial position all my working life so there were no surprises. I always expensed everything, but when I finally did put together a capital budget, even that was quite reasonable and not even all that lumpy. There is always something coming up that I plan for next when the preceding one is taken care of. The largest items, car and remodeling, are long term items, but fairly flexible about when to undertake them.

 

[lazygood4nothinbum]

Underestimated % means your actual expenses are greater than anticipated

sorry, i screwed up my poll answer. i'm one of those guys who tears open the box, pours everything out, puts it all together and then checks the instructions for what to do with all those extra pieces.

i'm spending way less. not having the benefit of this forum when i quit work, and just sort of pouring retirement out the box, i checked all my expenses from the previous year and said to myself, i can do this. but also i padded everything, incorporated deductibles and some vacation money. over two years i haven't spent any of the deducts, hardly spent much of the vacation funds and some increases i projected like insurance & taxes have actually come down in size.

on the other hand, my net worth is so much less than what i projected that maybe i did answer the poll correctly.

 

[REWahoo]

Just curious as to how you factor in major non-emergency lump sum expenses (car, air conditioner, driveway, etc.)?

I budget X dollars per month for contingencies, and roll any unspent amount forward for future car replacements, a new roof, etc. That appears to be working well so far.

Not sure how I'm going to rationalize the expense [-]if[/-] when I wake up one morning with a massive hangover and a motorhome parked in the driveway.

 

[Nords]

Not sure how I'm going to rationalize the expense [-]if[/-] when I wake up one morning with a massive hangover and a motorhome parked in the driveway.

Roll over, kiss your wife, and say "Happy BirthdayAnniversaryChristmas, honey!"

 

[Moemg]

.

Not sure how I'm going to rationalize the expense [-]if[/-] when I wake up one morning with a massive hangover and a motorhome parked in the driveway.

The same way I'm going to rationalize a sports car following me home.!

 

[Khan]

Overestimated by about 25%.

I retired rather suddenly, without much expense tracking, although I was saving large amounts. I was a bit worried about living on 1/3 of my gross salary; but I found out I am cheaper than I thought I was. I was still saving money most months.

But then I don't care for stylish clothes, jewelry, travel, fancy cars, or impressive electronics.

Lately I have actually been making an effort to spend more.

 

[Goonie]

Although I'm only 3 months into my 'endless days of play', I'm about where I thought I'd be. Expenses are about the same as when I was still [-]enslaved[/-] employed, although they've been rearranged a little here and there. Like instead of eating lunch out 5 days a week, I eat better grub at a much nicer place once or twice a week.....but spend about the same per week. Other than that, not much difference in expenses. That's how I had it planned!

My health/dental insurance monthly premiums are 5% more than while employed. Also I now have a LTC policy to pay for. But those things were all planned for.

The real bummer is that I don't have my 'employer paid' $450/year clothing allowance anymore either....but I won't notice the lack until 2008 since I spent my 2007 allowance a month before I bailed out.

 

[heyyou]

What all those other posters said--practiced living on ER budget before ER, same spending now but on different activities, having time to shop better saves money, etc. Living a relaxed life with all the time I need is priceless. The financial part seems so unimportant compared to the joys of ER.

 

[ExHermit]

I've been retired for eleven years.

I voted "on target". I'm not sure this answers the OP's question precisely. Our budget was based on our expenses before retirement and our financial resources. We targeted a level of expenditure (with inflation increases) that gave us an acceptably high probability of our money lasting longer than we do. We have kept pretty closely to our original budget, hence my "on target" vote.

Some changes in spending after we retired: House maintenance and medical care (deductibles and co-pays) expenses have increased. We spend more on travel. We buy better quality food, but eat out less often. Taxes have varied greatly from year to year.

How much we spend is a variable under our control, so we adjust our spending all the time to match the budget. There are optional things which we now spend more money on; longer trips, better wine, more fresh and organic food, etc. There are things we may spend more money on, such as trips to more expensive countries. And there and things that would be fun that we will probably never be able to afford. A vacation house on beach front acreage with pleasantly warm weather year round and a live-in caretaker comes to mind.

In my opinion, "income needed" is what is required to provide food, plus clothing and shelter as necessitated by the local climate. Medical care is a peculiar category which may be a true need of unpredictable and almost unlimited size. The medical care need can be met via insurance, several spare millions of dollars, or good fortune.

Of course, income needed is not the same thing as income desired. I try to keep the difference clearly in mind. We are spending many times what we need, but I don't ever expect to have more money than I know what to do with. I can live with that.

 

[chinaco]

What all those other posters said--practiced living on ER budget before ER, same spending now but on different activities, having time to shop better saves money, etc. Living a relaxed life with all the time I need is priceless. The financial part seems so unimportant compared to the joys of ER.

I agree that it makes sense to test the retirement budget. Currently we LBYM. We do not deprive ourselves, but we are fairly conservative and do not waste money on a continuous purchases of (stuff). We do have big expensitures from time to time, but they are for cars, furniture, etc... By far our largest discretionary expense is entertainment and travel. In our case our expense budget will actually increase due to travel allocation. We could live with our current expenses and not have a problem. When we ER, our Income will be just about my current pre-tax salary. We will lose DW's salary. We are currently living on the amount DW makes and we save just about the amount of my salary (Post tax). Of course, our tax bracket will drop when we ER. Plus we will not be paying into SS and Medicare (tax). We are going to down-size the house. That will cut our property tax by about 1/3. We will have some increased expenses in a couple of areas (under $5k/yr). All in all, our allocated expenses is about 30% more than our current expenses.

I suspect that we are overestimating our expenses due to our expectation of traveling (several months a year). That pool of money is just a big slush fund.

If our run rate on expenses is less, I will probably find something (discretionary expense) to spend it on that we have not identified so far. For example: We are planning on buying modest cars going forward. But heck, if we have the money and it is not being spent... perhaps we will buy fancier vehicles. We are going to enjoy it in some way. After seeing my parents spend most of their money on the nursing home... why not. But I think we have the NH covered (hope we don't need it), we have LTC policies.

 

[cute fuzzy bunny]

Tough to answer this one. I added plenty of pads and extras, along with a pretty detailed "other" category and I also calculated how much extra I needed to make every year to pay for the capital items like cars, home upgrades and the like. I ended up busting it down to decade level amounts and fractionalized the cost when an item had a multiple decade lifespan.

Then I made sure I could make enough money to cover all of it, no surprises.

So up until this year i was way short on spending towards my budget, but thats a "good and intentional failure" as far as i'm concerned.

I sort of made up for the shortfall in the last year or so...but thats what happens when you realize that you're making a lot more money than you thought and you elect to strike a different balance between quality of life and financial independence.

 

[Rustic23]

I voted on target. I too followed expenses prior to retirement and figured I would spend just about the same amount retired as working. I also planned for a new car every 8 years. Like REWahoo I budget for contingencies and roll up the savings. As this money is not spent yet, I could be underbudget, however, if the expenses come in early, I would be over.

 

[Lsbcal]

This one depends a lot on just how stable things are for you. In our case our withdrawal rates have been: 6.4%, 3.7%, 4.5%. Had some part time work income which helped (unexpected). Also didn't expect such a nice stock market since April 2003. Some unexpected expenses were: needed new car when we gave old one to son, new 30yr roof, redid house duct work. Also another unexpected ongoing expense incurred when son decided that the trades were not for him and maybe he should really get serious about college -- of course, since he's an adult now he has to work hard to convince us to keep helping him , no free lunch.

Les