Retirement Budgeting... how did it go for you?

[Golden sunsets]

This bolded section is an area where IMHO there are 2 main thoughts on this site.
Does one develop their budget first and then spend their monies to keep to the budget for the most part? or
Does one spend within reason as they wish and see where the WR% falls out in the end?

I am in the former camp, as you appear to be too.

I'd say we go to the same camp. It's a challenge though to stick to deferred gratification, when our SWR hovers around 1%. We could spend more but choose not to.

 

[scrabbler1]

This bolded section is an area where IMHO there are 2 main thoughts on this site.
Does one develop their budget first and then spend their monies to keep to the budget for the most part? or
Does one spend within reason as they wish and see where the WR% falls out in the end?

I am in the former camp, as you appear to be too.

I am in the latter camp, with one exception. When my HI premiums rose by 50% in my first 2 years of ER (2009-2010), I switched to a cheaper, bare-bones policy from mid-2011 through the end of 2013. The ACA had been passed by mid-2011 and it was known the exchanges would be coming around by early 2014. I didn't like being so vastly underinsured, but it was only temporary for about 2 1/2 years.

My WR was still under 3%, even after the premiums had risen by 50%. But the WR was rising quickly and I had to do something about it.

 

[Amethyst]

Also-I think your travel budget is a bit low given your wearwithall, unless you are homebodies.


Sent from my iPad using Early Retirement Forum

Funny, I was thinking the same, considering what our few recent ventures into pre-paid travel tours are costing us. Perhaps OP and his DW are just savvy travel planners. We have plenty of those on the forum.

What you call "lumpy expenses," I call "load-smoothing" - doing one or two home improvements per year while deferring others; allowing an expense account for home improvements and repairs, etc. to accumulate, so when several problems hit at once, they are less likely to cause panic (other than the difficulty of finding contractors to deal with them).

 

[Oz investor]

my retirement was a bit of a shock ( to me )

then came the doctor's directions on lifestyle ( re-enforced by the warnings specific to each medication apart from the usual .. NO citric acid , garlic , restricted includes potassium and types of lettuce !!! )

then there is the fun police mandate .. NO cuts ,bruises , broken bones ... and skin punctures are heavily restricted .. too late for tattoos and piercings now .

then there is the activity plan .... NO walking much more than 200 yards a day ( i can barely do a basic shop .. and have to keep the weight carried below 25 pounds )

on second thoughts i will concentrate on Financial Independence next ... the budget should be okay for the next two years

LOL

 

[Rianne]

15 K / year - Includes homeowners, umbrella, car, life insurances, HC, YMCA, cable and utilities and property taxes. Expenses we consider non negotiable for now.

Car maintenance, clothes, entertainment, travel, food, fun...45K. Than seems absurd but we can't seem to get lower than that. We do have a yellow lab.

 

[Crewer]

We budget more than OP for travel and spend it all (and more probably). I don't track it as long as total spend is in line with budget (and withdrawal rate is at or below our target amount). I keep thinking travel amount will go down but as we get older we upscale more so maybe not for a long time. LOL

 

[Golden sunsets]

Funny, I was thinking the same, considering what our few recent ventures into pre-paid travel tours are costing us. Perhaps OP and his DW are just savvy travel planners. We have plenty of those on the forum.

What you call "lumpy expenses," I call "load-smoothing" - doing one or two home improvements per year while deferring others; allowing an expense account for home improvements and repairs, etc. to accumulate, so when several problems hit at once, they are less likely to cause panic (other than the difficulty of finding contractors to deal with them).

Load smoothing. I like that . I may change that expense category name. My kids, who are 35 and 33 think lumpy items is a silly term. Yes we have a Home Improvement bucket in our Cash account for big ticket items. It's looking pretty light these days, after two years of making some major improvements. I'm going to increase the monthly contribution to that account this December when I go from collecting spousal to on my own record, a pretty nice raise. That and not spending on the house next year (the car cash is in a separate bucket), I hope to replenish the account in case the frig or something else big goes.

 

[Independent]

More curious as to how your initial plan adjusted with reality. Did you spend more/less in these areas then planned and how it trended over time in RE. Being conservative, I am planning for a perpetual static spend (+ inflation), but realize certain spend categories change. Eg Medical could become a big one later if my $hit breaks down!

Our spending on almost all those categories was about the same during retirement as pre-retirement.

The only exception is travel where we explicitly planned for more travel in retirement.

Certainly you understand that your numbers give you plenty of discretion in every category.

 

[tb001]

My Clothing: $4K/yr (honestly, I could cut this sucker back... T-shirt and jeans are fine by me)
DW Clothing: $6K/yr (she is spending around $10K now, SAHM. 1 area I need to reign in)
Entertainment: $12,000/yr (this is dinners out, movies)
Groceries: $13,200/yr (food for the house inc entertainment at home, no liquor)
Liquor: $6K/yr (what can I say, we enjoy good wine and a good cocktail!)
My mad $ $2600/yr (may not be enough as I may want to pursue golf more regularly)
DW mad $: $7K/yr (tennis/haircuts/beauty stuff/friend lunches)
Other Misc: $5K/yr (cleaning supplies/misc home goods)
Travel: $20K/yr

So how did you start out in some of these spending areas and how did it play out over a number of years in RE?

IIRC, we have pretty similar budget plans, so it's interesting to see how others break down spending targets. I can't comment on how things went post-retirement, since we're still in the planning phase. Overall, our numbers are remarkably similar in these categories. A couple of things stand out:

Travel, as others have noted, looks low. I initially had this budgeted at 15-20K, but bumped it up to 24k after looking at travel budgets from other forum members. If you're picking up the tab for kids on occasion as well, that could easily go up.

I've budgeted exactly half what you have for clothing, but it's an area I see *me* struggling with in the early years. DH could probably be fine on 2k/yr.

Groceries--I think this depends on how much you entertain at home. That can get expensive fast if you're having a large group over. I was going to say this area looks low, as this is our target and we really struggle to meet it, but then I realized I'm lumping liquor in this budget. We're probably a little under your combined total, but don't entertain a ton.

Entertainment--how often do you see yourself going out to eat and at what type of restaurants. For us, $150 for dinner is pretty typical if you add in alcohol, so dinner once a week is 8k/yr. Add in a few lunches out, because you're not working during the day, and this could easily be a budget killer. It's an area we're going to have to be better at for sure.

Mad money--I've budgeted $500/mo for hobbies. I think, as you noted, your $2600 looks low if you see yourself golfing more...

Would love to hear from others in this spending range r.e. 'gifting' budget and $ to kids/extended family. Also home repairs/improvements, but I suppose this depends on home size. These are areas I worry about.

 

[Dtail]

Load smoothing. I like that . I may change that expense category name. My kids, who are 35 and 33 think lumpy items is a silly term. Yes we have a Home Improvement bucket in our Cash account for big ticket items. It's looking pretty light these days, after two years of making some major improvements. I'm going to increase the monthly contribution to that account this December when I go from collecting spousal to on my own record, a pretty nice raise. That and not spending on the house next year (the car cash is in a separate bucket), I hope to replenish the account in case the frig or something else big goes.

I call it "Short Term Expenses" which I fund monthly equally, but it only includes "lumpy" lol expenses like car maintenance, large one off dinner expenses, under 1k household exp, etc.
I do keep a separate expense line outside of our portfolio for much larger expenses such as a car purchase, etc. Money is fungible, but this works for me.

 

[Dtail]

IIRC, we have pretty similar budget plans, so it's interesting to see how others break down spending targets. I can't comment on how things went post-retirement, since we're still in the planning phase. Overall, our numbers are remarkably similar in these categories. A couple of things stand out:

Travel, as others have noted, looks low. I initially had this budgeted at 15-20K, but bumped it up to 24k after looking at travel budgets from other forum members. If you're picking up the tab for kids on occasion as well, that could easily go up.

I've budgeted exactly half what you have for clothing, but it's an area I see *me* struggling with in the early years. DH could probably be fine on 2k/yr.

Groceries--I think this depends on how much you entertain at home. That can get expensive fast if you're having a large group over. I was going to say this area looks low, as this is our target and we really struggle to meet it, but then I realized I'm lumping liquor in this budget. We're probably a little under your combined total, but don't entertain a ton.

Entertainment--how often do you see yourself going out to eat and at what type of restaurants. For us, $150 for dinner is pretty typical if you add in alcohol, so dinner once a week is 8k/yr. Add in a few lunches out, because you're not working during the day, and this could easily be a budget killer. It's an area we're going to have to be better at for sure.

Mad money--I've budgeted $500/mo for hobbies. I think, as you noted, your $2600 looks low if you see yourself golfing more...

Would love to hear from others in this spending range r.e. 'gifting' budget and $ to kids/extended family. Also home repairs/improvements, but I suppose this depends on home size. These are areas I worry about.

We budget only 3k yearly for gifts to family. If our portfolio grows over the years, then might increase it.
Costs for eating out has been a big change for us pre vs. post retirement.
We almost never cooked pre retirement, plus had many expensive meals in NYC. Most of our dinners out now are between 50-75 for a couple with an occasional dinner for around 125-150. Restaurants also are cheaper to some extent by us.
Have also cut down greatly on clothing and our budget is now $1,200 yearly.

 

[jebmke]

I don't track the details anymore; did it for a couple of years just to verify the budget but after that was a waste of time. I do track the totals. On average over the last six years we are +2% over the budget created in 2007 ... so less than inflation. The individual years range from -6% to +9%. Not surprised by the sub-inflation; for some reason our health insurance was flat for the last four years of retiree medical. Our property taxes haven't increased in 10 years. A few other things have been basically flat for 10 years as well.

 

[tb001]

I call it "Short Term Expenses" which I fund monthly equally, but it only includes "lumpy" lol expenses like car maintenance, large one off dinner expenses, under 1k household exp, etc.
I do keep a separate expense line outside of our portfolio for much larger expenses such as a car purchase, etc. Money is fungible, but this works for me.

So do you actually withdraw this amount annually, even if you don't spend it? For example, I have a line item for an annual budget towards new car purchase, but this ends up being a once every 5-10 year occurrence. My thought was to account for it in our budget, but not actually withdraw the $ as this is one of those discretionary areas we would delay if we saw a big downturn in the mkt.

 

[Huston55]

OP-

A few comments (we’re 4 yrs into FIRE).

- Your travel budget is light
- I expect you’ll spend much more of what you call ‘mad $’ in retirement; especially if you take up golf or another serious hobby
- WADR, based on your comments, you & DW need to reach a common understanding of your budget; I detect some resentment, and that will not end well if not addressed in a constructive manner.

 

[Oz investor]

So do you actually withdraw this amount annually, even if you don't spend it? For example, I have a line item for an annual budget towards new car purchase, but this ends up being a once every 5-10 year occurrence. My thought was to account for it in our budget, but not actually withdraw the $ as this is one of those discretionary areas we would delay if we saw a big downturn in the mkt.

is your nest egg generating good returns

if so i would tend to leave the 'car money ' with the nest as long as possible

if NOT what about starting a side fund ... say 5 year interest bearing securities but inflation adjusted ( floating rate in Australia ) and putting the cash in annually and using as needed ... so you have a head-start on the car after the next one

 

[Dtail]

So do you actually withdraw this amount annually, even if you don't spend it? For example, I have a line item for an annual budget towards new car purchase, but this ends up being a once every 5-10 year occurrence. My thought was to account for it in our budget, but not actually withdraw the $ as this is one of those discretionary areas we would delay if we saw a big downturn in the mkt.

Let me explain in more granular detail.
We don't fund the "Large item" expense category on a monthly basis (unlike the Short Term expense). Our goal is to fund the LI category with excess monies we don't spend yearly vs. the budget and any other "unexpected" monies which come our way.
Thus conceptually, we DO/WILL withdraw the monies yearly and fund this account.
This concept goes back to a non majority concept in this forum.
Keeping a separate account outside the portfolio for unused monies leftover.

Does my response make it clearer?

 

[tmm99]

When I was in the accumulation phase, I pretty much made it within my budget. I was saving 30% of my income with my set budget. Now, I'm in my withdrawal phase, and for some reason, I try to come way under my target so I can save money. It's like the idea of saving is built into my psyche and it's hard to get rid of it. I am getting closer to my target budget after 3 years of this. My spending has decreased partly because of this reason, plus I live in Canada and my USD goes pretty far here (right now $1.32 CAD to $1 USD).

 

[Cobra9777]

My retirement spreadsheet has a tab called "budget" with 19 categories. But for the most part, we don't really constrain our spending to conform to these numbers. It's just there as a guideline for long-term planning. Under normal circumstances, this is the amount we would expect to spend in each of the 19 categories.

When working, I would update monthly and look for areas where spending was drifting too high. The goal then was to contain spending and maximize savings, especially in the last 5-7 years prior to ER. Now, I only update at the end of each year and then adjust the "budget" numbers to represent our current spending trends so that I have the latest baseline for long-term planning.

We have a fairly large budget for travel, home improvement, and other large discretionary items, like a new car or some major repair like a new HVAC system. DW and I always have a discussion at the beginning of each year about priorities, i.e. what to do this year and what to push out to next year. So for these large discretionary items, we do sort-of conform to the budget.

Our actual spend has been very close to expectations when I first retired 5 years ago. We have 2 pensions plus some rental income and dividends that fund the basics. We haven't sold shares except to cover the occasional large discretionary item, so our WR is quite low. As I've become more comfortable with how the plan is playing out, and more confident that SS will be there, we are starting to spend more. For example this year, we will spend about 2X the budget for travel and home improvements. Also, I'm more "at peace" with DW's retail shopping hobby. There was a time when I would gently harass her about it. But I now realize that's just what she does for happiness. Nowadays, she mostly buys gifts for the kids and grandkids.

 

[SumDay]

This has been fascinating, especially since we're both retiring next month.


Here are some of our annual line items:

Mortgage (small!), insurance (cars too) HOA & property taxes: $14,750
Clothing & mad $ for two (liquor would be in here): $15,000
Emergency fund - cars, roof, HVAC, appliances (starting with a $25,00 balance): $9600
Medical (LTC, my ER Retiree Med & DH's Medicare): $9,000
Eating out: $4,200
Groceries: $8,400
Entertainment (concerts, etc): $2400
Dog: $2,000 (d*mned dogs... - some of this is boarding for when we do travel)
Travel: $5,000


I haven't included charity, utilities, gym membership, HSA contribution, and taxes. The latter is because I honestly don't know what to expect next year, being our first living on SS, Pension & withdrawals.


Actually, it looks as if we can spend more than we did when we were w*rking. I feel no obligation to leave those kids more than enough to cremate us.

 

[youbet]

So how did you start out in some of these spending areas and how did it play out over a number of years in RE?

We didn't get to do a lot of retirement budget planning since I was RIF'd at 58 yo without much notice and decided to call it "FIRE'd" instead of "fired" and never returned to work. (Nuttin', no consulting, part time, hobby income, nuttin".) That was 12 years ago. DW had already voluntarily retired at 55.

Trying to figure it out on the fly and without a lot of detailed records, we just looked at the gross amount we had been spending and, following Mr. Pareto's advise, looked at the major buckets which accounted for roughly 85% - 90%. Taxes, car and house amortization and upkeep, ongoing bills for insurance and utilities, etc., travel, entertainment and so forth.

DW was collecting a pension and I got a fairly generous severance, so we had some time to learn by trial and error. By far, our biggest concern was that we'd panic and cut back too much and later regret not doing age-appropriate things at the time.

Just when we thought we had things figured out, the Great Recession hit throwing us into another "now what?" period and much new head-scratching. Again, we we were concerned we'd over-compensate and not do things we wanted to do and which might not be available to us as we aged. We charged ahead with all plans despite a 30% drop in our FIRE portfolio.

I know I'm not really answering your question as you seem to be looking for a level of detail we never really tried to micro-manage. But, I just wanted to throw out......

1. Allow enough for the activities you really want to do early on and which might be less appealing or even impossible as you age.

2. Be flexible. Instead of fretting over a few hundred bux one way or the other in your clothing budget, for example, fret over how you would respond to the need to make a 30% budget cut or spend a windfall.

One of the biggest things we're learned in these 12 years of FIRE is to not procrastinate on desired activities (even when it borders on being imprudent) and to be flexible since things don't seem to go according to plan, at least not for us.

 

[Dtail]

We didn't get to do a lot of retirement budget planning since I was RIF'd at 58 yo without much notice and decided to call it "FIRE'd" instead of "fired" and never returned to work. (Nuttin', no consulting, part time, hobby income, nuttin".) That was 12 years ago. DW had already voluntarily retired at 55.

Trying to figure it out on the fly and without a lot of detailed records, we just looked at the gross amount we had been spending and, following Mr. Pareto's advise, looked at the major buckets which accounted for roughly 85% - 90%. Taxes, car and house amortization and upkeep, ongoing bills for insurance and utilities, etc., travel, entertainment and so forth.

DW was collecting a pension and I got a fairly generous severance, so we had some time to learn by trial and error. By far, our biggest concern was that we'd panic and cut back too much and later regret not doing age-appropriate things at the time.

Just when we thought we had things figured out, the Great Recession hit throwing us into another "now what?" period and much new planning. Again, we we were concerned we'd over-compensate and not do things we wanted to do and which might not be available to us as we aged. We pressed on despite a 30% drop in our FIRE portfolio.

I know I'm not really answering your question as you seem to be looking for a level of detail we never really tried to micro-manage. But, I just wanted to throw out......

1. Allow enough for the activities you really want to do early on and which might be less appealing or even impossible as you age.

2. Be flexible. Instead of fretting over a few hundred bux one way or the other in your clothing budget, for example, fret over how you would respond to the need to make a 30% budget cut or spend a windfall.

One of the biggest things we're learned in these 12 years of FIRE is to not procrastinate on desired activities (even when it borders on being imprudent) and to be flexible since things don't seem to go according to plan, at least not for us.

The above bolded is close to my situation.
I volunteered for a RIF at 57 knowing no one in my office was over 60. Got a large severance and looked but couldn't find work for a year. Discovered this site and calculators and then officially retired.

So though not in the majority of situations here, one sometimes has to figure it out on the fly, in terms of investment strategy/expense management.
Luckily, I was already keeping track of every expense for 2 years when it happened. Luck with the ACA, luck with DGF receiving payments through 2021, luck with DGF already receiving SS.

 

[tb001]

One of the biggest things we're learned in these 12 years of FIRE is to not procrastinate on desired activities (even when it borders on being imprudent) and to be flexible since things don't seem to go according to plan, at least not for us.

Now, I'm in my withdrawal phase, and for some reason, I try to come way under my target so I can save money. It's like the idea of saving is built into my psyche and it's hard to get rid of it.

I think this is one of the hardest aspects to manage! Knowing so much is really discretionary and not wanting to spend down your nest egg in a market downturn, but also recognizing that there's limited time we may be healthy enough to enjoy some things.

And eta, thanks dtail, for explaining your strategy. Makes perfect sense.

 

[DawgMan]

We didn't get to do a lot of retirement budget planning since I was RIF'd at 58 yo without much notice and decided to call it "FIRE'd" instead of "fired" and never returned to work. (Nuttin', no consulting, part time, hobby income, nuttin".) That was 12 years ago. DW had already voluntarily retired at 55.

Trying to figure it out on the fly and without a lot of detailed records, we just looked at the gross amount we had been spending and, following Mr. Pareto's advise, looked at the major buckets which accounted for roughly 85% - 90%. Taxes, car and house amortization and upkeep, ongoing bills for insurance and utilities, etc., travel, entertainment and so forth.

DW was collecting a pension and I got a fairly generous severance, so we had some time to learn by trial and error. By far, our biggest concern was that we'd panic and cut back too much and later regret not doing age-appropriate things at the time.

Just when we thought we had things figured out, the Great Recession hit throwing us into another "now what?" period and much new head-scratching. Again, we we were concerned we'd over-compensate and not do things we wanted to do and which might not be available to us as we aged. We charged ahead with all plans despite a 30% drop in our FIRE portfolio.

I know I'm not really answering your question as you seem to be looking for a level of detail we never really tried to micro-manage. But, I just wanted to throw out......

1. Allow enough for the activities you really want to do early on and which might be less appealing or even impossible as you age.

2. Be flexible. Instead of fretting over a few hundred bux one way or the other in your clothing budget, for example, fret over how you would respond to the need to make a 30% budget cut or spend a windfall.

One of the biggest things we're learned in these 12 years of FIRE is to not procrastinate on desired activities (even when it borders on being imprudent) and to be flexible since things don't seem to go according to plan, at least not for us.

Good advice!

Kahunas for saying WTF and spending in the Great Recession. Not sure I would have the ball$$ to do it, but I am sure in hind site, you have no regrets.

While I am planning for a static WR (plus inflation) till I drop, short of a major medical condition becoming a big long term expense, I somewhat subscribe to the philosophy most ER folks will spend more in the earlier years (i.e. travel) and expenses will then naturally taper off until somewhat until you are drooling in your PJs in a wheel chair in front of the TV. One could argue if the big medical expenses did hit, you would most likely be doing less of some of the costly other discretionary items. Point being, your risk of spending $$ on goodies you may only be able to enjoy in the early years, despite a 30% drop in your portfolio, was a good calculated risk to take.

I hope I can make the same decision when/if I hit that cross in the road.

 

[FIREd]

In retirement, we decided to have a loose budget for discretionary expenses:

1) her mad money: to buy all the things that she wants for herself (including clothes, hobbies, entertainment, gadgets, etc...)
2) my mad money: to buy all the things that I want for myself (same as above)
3) our joint mad money: to buy all the things that we both get to enjoy: travel, eating out, home improvement, liquor, etc...

We don't break it down further because I don't really care how our mad money gets spent. Some year we decide to spend more on home improvement, and some years travel is our top budget item. There is no long term trend.

Fixed expenses are subjected to a more rigorous review though.

 

[jebmke]

We didn't get to do a lot of retirement budget planning since I was RIF'd at 58 yo without much notice and decided to call it "FIRE'd" instead of "fired" and never returned to work. (Nuttin', no consulting, part time, hobby income, nuttin".) That was 12 years ago. DW had already voluntarily retired at 55.

Trying to figure it out on the fly and without a lot of detailed records, we just looked at the gross amount we had been spending and, following Mr. Pareto's advise, looked at the major buckets which accounted for roughly 85% - 90%. Taxes, car and house amortization and upkeep, ongoing bills for insurance and utilities, etc., travel, entertainment and so forth.

DW was collecting a pension and I got a fairly generous severance, so we had some time to learn by trial and error. By far, our biggest concern was that we'd panic and cut back too much and later regret not doing age-appropriate things at the time.

Just when we thought we had things figured out, the Great Recession hit throwing us into another "now what?" period and much new head-scratching. Again, we we were concerned we'd over-compensate and not do things we wanted to do and which might not be available to us as we aged. We charged ahead with all plans despite a 30% drop in our FIRE portfolio.

I know I'm not really answering your question as you seem to be looking for a level of detail we never really tried to micro-manage. But, I just wanted to throw out......

1. Allow enough for the activities you really want to do early on and which might be less appealing or even impossible as you age.

2. Be flexible. Instead of fretting over a few hundred bux one way or the other in your clothing budget, for example, fret over how you would respond to the need to make a 30% budget cut or spend a windfall.

One of the biggest things we're learned in these 12 years of FIRE is to not procrastinate on desired activities (even when it borders on being imprudent) and to be flexible since things don't seem to go according to plan, at least not for us.

I retired in December 2007.



2008 was a fairly normal spending year because we didn't travel much and we were just getting settled in a new location having recently returned to the US from an expat life.


We actually increased our outflow significantly in 2009 and 10 because the prices of travel and contractors for home improvement were too good to pass up. Those were some of the highest spend periods we have had since retiring.