estimating expenses in retirement

[mrfeh]

Hi folks.

Hopefully I will be in the class of 2016. I want to get a good estimate of what our expenses will be in retirement. This is crucial for me, as I'll only be 50, thus I'm looking at 40+ years of retirement, plus I'll need to fund the years until IRAs can be tapped, and then SS.

Is there a list (or a spreadsheet, or even a web based tool) of expenses that can be used as a starting point for estimation purposes?

Thanks.

 

[bUU]

We're currently going through an exercise with a financial planner to help us project our retirement. I haven't seen anything speak well of building up an expense plan from the ground up. Rather, everything I've been told and read points toward working from your existing expenses, after getting a very firm handle on precisely how much you're spending and on what, and making only highly defensible adjustments to that (i.e., mortgage paid off in 20XX, so reduce mortgage principal and mortgage interest categories both to $0 at that time, etc.)

We haven't gone through all the adjustments I've thought about, so far, but (beyond the mortgage being paid off), some of these include recalculating likely income taxes based on where the money you'll be using to live in will be coming from; and replacing health expenses with a directly applicable estimate from a reliable calculator, that factors in the ACA-related changes coming.

 

[mrfeh]

We're currently going through an exercise with a financial planner to help us project our retirement. I haven't seen anything speak well of building up an expense plan from the ground up. Rather, everything I've been told and read points toward working from your existing expenses, after getting a very firm handle on precisely how much you're spending and on what, and making only highly defensible adjustments to that (i.e., mortgage paid off in 20XX, so reduce mortgage principal and mortgage interest categories both to $0 at that time, etc.)

I actually have a very good idea of our expenses today (I've been using mint.com for about 3 years). My main concern is new expenses in retirement, such as paying for our own health insurance.

I could probably come up with a fairly comprehensive list, but I'd prefer one that's been peer-reviewed.

 

[bUU]

Yup, as I mentioned, "health expenses" is one replacement you definitely need to make.

I live in Massachusetts, so ACA isn't going to change much of anything here, so it was easy to just go into the current health exchange and get a quote. (Turned out it was $11K for a non-smoker, age 60-65, the years I'll need private insurance. We also needed to factor in $5K for a supplemental plan for my spouse, who will be on Medicare. I just eliminated the cost of employer-subsidized health insurance that we've been paying and used these new numbers instead.) By October 1, you'll be able to check for yourself, for your own state.

You're the only one who knows if you're going to have unusual expenses different from your current expenses, i.e., travel, relocation, etc. Barring such, I've been told that your current expenses are the best estimates of your retirement expenses, especially while you're a relatively young old person. Expenses do gradually go down, but in the interest of being conservative in estimates, we've generally been advised to ignore that.

 

[Midpack]

I actually have a very good idea of our expenses today (I've been using mint.com for about 3 years). My main concern is new expenses in retirement, such as paying for our own health insurance.

I could probably come up with a fairly comprehensive list, but I'd prefer one that's been peer-reviewed.

I have a detailed, somewhat elaborate spreadsheet with our spending before and after my retirement, but it's of no real use to anyone else. Your ahead of the game in having a good record of your actual spending over the last three years. I doubt you can do better with "peer reviewed" than you could by simply starting with what you're already spending, and then reviewing each spending category and estimating what you'd spend in retirement. Many people spend less on clothes and care of clothes once retired. And presumably you'll stop saving if you have no employment income, and pay less in federal/state/local taxes.

But many others spend more on travel, dinner out, movies/theater/concerts, cable/satellite TV packages, etc. If you plan to stay in your current house, no changes in those categories. But if you downsize and/or move to a higher/lower COL region you'll have to adjust accordingly. Just go through each category and think about it - you're the only one who knows what you'll be spending.

And don't forget to budget something for those large, infrequent expenses like replacing cars, replacing roofs/appliances/furniture/consumer electronics/etc. Some years you'll have almost no unexpected expenses, other years you'll probably have "unusual" expenses in the $10's of thousands. Many people also have substantially higher 'end of life costs' too with higher medical expenses and/or nursing home /assisted living expenses - might be something to plan for.

As for health care from retirement until near the end, premiums have been all over the map, and some have retiree health care (former employer) subsides which further clouds the issue. Presumably this will all become clearer by the end of the year when ACA goes into effect. Check your state exchange for what those premiums might be for you.

Lots of good resources online too http://lmgtfy.com/?q=Estimating+retirement+expenses

 

[Independent]

Like Midpack, I can recall lots of discussions on specific items, but I can't remember anybody assembling a comprehensive list of all the things the various people have mentioned.

If it hasn't been done, it might be an interesting thread topic.

(Adding to the above: changes in disability or life insurance, set-aside for kids weddings or big gifts, new or abandoned hobbies)

 

[veremchuka]

I went through my Visa statements and checkbook for 2 full years, added up expenses categorizing them as recurring or one time/once every several years. After doing that I retired 2 years earlier (2007) than I planned (2009).

 

[packrat44]

Same as Midpack.

 

[Meadbh]

I went through my Visa statements and checkbook for 2 full years, added up expenses categorizing them as recurring or one time/once every several years. After doing that I retired 2 years earlier (2007) than I planned (2009).

I did something similar. A lookback gives you real data as opposed to what you imagine you will spend. Once you have the data you can categorize them and develop a budget. I started with the Excel retirement budget spreadsheet template (link below), and customized it to my own needs. I find that it is not helpful to have too many categories as you will waste time wondering where everything goes. I collect all my receipts and enter data at the end of each month. I have tweaked my spreadsheet a few times and in particular, I have found it very useful to separate debt repayment and taxes from other spending. I also inserted a Variance column, so I can easily see whether I'm overspending on any category.

Retirement budget - Templates - Office.com

 

[imoldernu]

For tailored budgets, try this:

https://drive.google.com/templates?q=budget&category=14&sort=users&view=public#

 

[dtbach]

Or, just determine how much you will able to take from your "stash" and live within it.

 

[daylatedollarshort]

Same as midpack. Or an easy way is we have looked at what is the median income in coastal California, the UK two hours outside of London, and France two hours outside of Paris. If we have that more than covered we'll make do, since we won't be likely to live any where more expensive than those locations.

We cut a lot off our expenses comparing our budget to the U.S Consumer Expenditure Survey and figuring out where our expenses were out of line -

http://www.bls.gov/cex/

 

[Katsmeow]

I have long kept track of my expenses (years ago using Microsoft Money and Quicken at different times, currently using YNAB). So I've done spreadsheets projecting out expenses over the future, making modifications depending on factors that are likely to change.

That said - I have some of the projected budgets that I did several years ago and our actual spending doesn't necessarily match the projection in the particulars. Some are higher and some are lower. However, the overall expenditures are largely consistent with the overall projections that I made which is really what is important.

 

[nash031]

I actually have a very good idea of our expenses today (I've been using mint.com for about 3 years). My main concern is new expenses in retirement, such as paying for our own health insurance.

I could probably come up with a fairly comprehensive list, but I'd prefer one that's been peer-reviewed.

I second the mint.com idea. Though I have only been working with mint for about six months, it's served to validate our assumed spending levels. Since I am still a ways away form retirement (6+ years), I plan on using it to further refine those numbers, and in the meantime to help us identify places we can save more.

Already in place:
Refi'ed the house, switched to prepaid cell phone plan. Total savings ~$520/month.

 

[pb4uski]

I think the best approach is if you have some recent history in Quicken, mint or one of the other personal finance programs and then use that history as a base and adjust it for how you think it might change in retirement. If you don't have history, you can analyze the last couple years of expenses by looking at checks written, credit card statements, etc.

 

[Major Tom]

Or, just determine how much you will able to take from your "stash" and live within it.

That was my approach too, but there are quite a few very analytical people here. It's a good thing - I'm certainly not knocking it, but it wasn't my way of doing it. However, to give you some background, just the word "spreadsheet" is anathema to me.

I had a good idea of how much I could live on from when I was working. I just made a few rough adjustments to the budget based on my expected changes in expenditure and figured that any fine tuning could be made by adjusting my spending once I was ER'ed. Done. Time to go hang out with the kitties.

 

[scrabbler1]

I have been keeping track of various types of expenses since the early 1990s and that was before I bought my first PC. Some of them are easy to keep track of such as utilities and other expenses you get a bill for every month. I don't use my credit card often, so I do have a broad category called "Cash" which consists of around 2 ATM withdrawals per month.

In the years leading up to my ER in late 2008, I was trying to estimate my expenses post-working. I basically used my current expenses but made the following adjustments:

(1) Eliminate commutation expenses.
(2) Eliminate FICA taxes.
(3) Added the cost of an individual health insurance policy.

At the time, items (1) and (2) were roughly offset by item (3).

I figured out that my day-to-day cash expenses would be roughly the same due to some small increases (entertainment) and decreases coslty (lunch food at work) roughly offset each other.

I figured out that my income taxes would drop some (but not by a lot because I was working part-time before I ERed) because of the partial tax deductibility of buying HI and paying for dental bills instead of having dental coverage (which I figured out was a wash). In the years after I ERed, I have changed my HI policy and it will change again once I sign up for one of the ACA exchanges.

My expenses have been very close to my projections.

 

[obgyn65]

Have you seen this: http://office.microsoft.com/en-us/templates/expense-budget-spreadsheet-TC001061833.aspx

Hi folks.

Hopefully I will be in the class of 2016. I want to get a good estimate of what our expenses will be in retirement. This is crucial for me, as I'll only be 50, thus I'm looking at 40+ years of retirement, plus I'll need to fund the years until IRAs can be tapped, and then SS.

Is there a list (or a spreadsheet, or even a web based tool) of expenses that can be used as a starting point for estimation purposes?

Thanks.

 

[W2R]

Hi folks.

Hopefully I will be in the class of 2016. I want to get a good estimate of what our expenses will be in retirement. This is crucial for me, as I'll only be 50, thus I'm looking at 40+ years of retirement, plus I'll need to fund the years until IRAs can be tapped, and then SS.

Is there a list (or a spreadsheet, or even a web based tool) of expenses that can be used as a starting point for estimation purposes?

Thanks.

I actually have a very good idea of our expenses today

Hi mrfeh. You have already done 95% of the work, in that you do have a very good idea of what you are spending now. Congratulations on having already done that.

In my experience, the best way to estimate retirement expenses is to first look at what you are spending now and then alter those spending categories which will change due to retiring. For example, often people dream of travel in retirement, and if so you should add that as an expense along with other additional leisure time expenses. On the other hand, you will no longer have commuting expenses or expenses of work clothing, for example. Don't forget that medical expenses and income tax expenses may both change considerably.

You will still be YOU when you retire, and so your basic spending philosophies probably won't change that much. Once you have thought about what your individual retirement will be like, and have thought carefully about what alterations to your present spending will be involved, I think you will have a retirement estimate that is tailored to fit your particular retirement and that will work much better for you than some generic list. Hope this helps.

 

[siamond]

I am not retired yet, but actively planning for it. I've been doing the same as what Midpack and others explained, track my net revenue per spending category for a couple of years, and make a guess about what may change during retirement. While being real careful about big/infrequent expenses (we're upgrading our heating system in a couple of weeks, this was a good wake-up call!). Only you can figure out the proper categories to look at and how to adjust.

Please note that I spoke of NET revenue. This easily excludes FICA on wages, ongoing 401k contributions, ESPP, and a bunch of stuff that will no longer exist in our retired world. Of course, then I had to back-compute expected taxes and gross revenue goals when retired, but that was a good thing as such tax math is so completely different from our current 'employed' situation.

Something obvious to add to the reasoning: children-related expenses. This should go down quite a lot, but maybe now when you retire (give your target of 50)... I also included some provisions for grandchildren to come (a bit of help for 529s; christmas gifts), just a very coarse guess.

I also questioned myself on things to add. We do next to zero yard work right now (yeah, your backyard is a mess). When retiring, we'll probably do a better job and spend some regular money on it. Same for various hobbies and activities (more books, more fishing gear, go to the pool/gym, etc).

Overall, if not for the kids side of the equation, I would be projecting HIGHER (net) expenses. Which isn't quite common wisdom, right? Just our personal situation...

 

[kramer]

I had a lot of uncertainty on future expenses when I was retiring (age 41). I was not sure if I would be living abroad or in the USA, if I would be traveling a lot while maintaining a year around home base in the USA, etc. I was also leaving a high cost of living area. And there was the issue of health insurance.

I just tried to be conservative and estimate the most expensive outcome. My estimates turned out to be pretty good.

Even though everything worked out fine, I know that I should have tracked my expenses better both before and after retiring. I track my total spending carefully now, and I almost can't imagine not doing so in the future. So it is best to get in the habit as early as possible.

If I did not track my spending now, I would be a lot less secure about my retirement. But knowing that I am (only) spending X% of assets assures me that everything is OK.

 

[mrfeh]

Thanks for the replies everybody. They've been helpful.

One quick thought, if an admin or a regular is feeling proactive - it would be nice to have a list of expenses in a sticky post, noting which ones tend to be completely new in retirement (ie. health insurance), as well as those that commonly increase or decrease.

 

[imoldernu]

FWIW... our plan:

Our plan is extremely simple... On the spending side, we have three different budgets that we can adjust as circumstances warrant. Best case... Nominal... and Austerity.

On the Asset/Nest Egg side, We boil our assets down into three categories.
1. Fixed assets... house, auto, and other valuable non cash items... real property, jewelry, . We do not count household goods... (experience tells us that this is not realistic)
2. Non Income producing assets... bank accounts, cash, cash value life insurance policies.
3. Income producing assets... stocks, bonds, annuity.

All of these items are kept on a spread sheet and periodically updated. It's easy to come up with a total value... and then to average the income from the total...

To calculate where we stand in our retirement plan, we add
a. Social security amount.
b. Amount of interest earned on income producing assets.
c. ... and add the Total Assets divided by the number of years between now and age 85.

That establishes how much we can spend, which we then adjust to our best/nominal/austerity budget.

Sounds funky, but it works,and it takes about 2 minutes to tell if we're on budget or not.

from here:
http://www.early-retirement.org/forums/f27/sharing-23-years-of-frugal-retirement-62251.html

 

[Midpack]

One quick thought, if an admin or a regular is feeling proactive - it would be nice to have a list of expenses in a sticky post, noting which ones tend to be completely new in retirement (ie. health insurance), as well as those that commonly increase or decrease.

Lots of useful thoughts online already on what expenses typically increase or decrease FWIW Let me google that for you

 

[siamond]

One last thought. If you can afford to retire at 50, maybe you have a pretty well-paid job. And this often comes with bonuses. This is my case (lucky me). But then I have a tendency to use some chunk of my bonuses to pay for exceptional stuff, like a big vacation trip every few years or some big expense at home. And it's real easy to overlook when studying your budget with minutia based on your monthly expenses...