Retirement on $x a year

[TickTock]

So one of my big interests is: how much will retirement cost for me?

After reading the existing threads on the matter, I have the following (non-original but hopefully helpful) thoughts:

Every situation is different. Every location has different costs. Every lifestlye has different costs.

Still, there can be useful guidelines.

'I live on $x' is too vague. What does it include? What does it exclude?

The big differences are in these areas: health care, residence (paid for, rent, mortgage), amortising extraordinary costs, taxes.

Any statement of 'living on x$' needs to explicitly state these assumptions: for example, owning a paid-off house valued at $150k is the same (at a SWR of 4%) as $6k of income. Likewise health insurance provided by an employer or the government. Likewise, expenses gross or net of taxes, and what those tax rates are. And, allowing for car replacement every x years, or x% repair costs for a house, and so on.

And the relative cost of living (New York City vs. rural Idaho).

And finally, the comforts and luxuries.

Given these variables, perhaps we can come to a more meaningful idea of what nest egg is required to retire.

Thoughts?

[Safe Harbour]

Three questions:

1. How much do you spend and how will that change?
2. What much will your portfolio return (asset allocation, expenses, taxes)?
3. What probability of success are you comfortable with?

If you answer these three questions - you will find your answer.
There are many good tools but they all depend on these answers.

[youbet]

Quote:

Originally Posted by TickTock So one of my big interests is: how much will retirement cost for me?

In the concurrent related thread, I think we all learned about retirement expense variability depending on circumstances and desires. You won't learn much about what annual income YOU need by asking others what THEY need. Rather, why don't you take a pass at a detailed budget. Specify which line items you're pretty confident on, which line items you're foggy on and which line items simply express personal desires (entertainment, vacation, etc.). Include your personal circumstances such as marital status, etc. Then post the budget for comments and take the responses into consideration.

I think you'll learn a lot more that way.

[RunningBum]

Agree, plus people are going to post whatever personal info they feel is appropriate. I'll disclose whatever I want to share or think I need to share to get a good answer to a question of mine. Sorry if that doesn't help you, but as youbet says, my situation isn't your situation.

[ERD50]

TickTock - very good way to phrase the question.

My approach was what Safe Harbour stated - my situation was mostly going to be the same, I wasn't moving, wasn't planning any major lifestyle changes in terms of $, so I could just add/subtract a few things for an estimate.

For me: Add health insurance. Most other things were likely a wash - I'd likely spend a bit more on activities, but less on gas, and I spend a bit more time researching purchases or ways to save money which helps.

So, another person might be planning expensive vacations, or a new expensive hobby, or maybe they can actually spend less w/o the work demands - so it is still very individual.

youbet makes a good point, I just have not been disciplined yet to make a detailed budget, but I know I should. But it is fairly easy to think through it, and think which items would be impacted and by how much. But detail would be better if you are up to the task.

-ERD50

[maddythebeagle]

This question should always start with tracking your own current expenses and estimating future ones.....and why start yet another thread when there already is one floating around?

[retire@40]

Quote:

Originally Posted by TickTock So one of my big interests is: how much will retirement cost for me?...'I live on $x' is too vague. What does it include? What does it exclude?...

I made three budgets for myself:

• Current Budget during the accumulation phase
• Expected Budget at retirement
• Bare Bones Budget for a worse-case situation

Once a year I'll look at them and make a little tweak here and there if necessary.

[W2R]

Does the following provide what you need to know? Instead of dollar figures it seems like percentages might be what is wanted?

I will have lifetime medical through work. My planning has always included a 150% increase in my ER spending compared with what it has been for the past five years (including emergency and unexpected expenses). Now, it looks like I will have considerably more than that 150% due to a windfall. It's nice to know that I can live happily on less, though, in case the market tanks.

I am single, and with social security and small pension providing 56% of the ER income that is my goal, and my projected portfolio (not including the windfall) providing the rest, I will only actually need an SWR of 2.5% to reach my goal income. So, I am quite sure that my plans will not fall through. This makes me happy, being a nervous Nellie at heart.

For me - - I am moving to a place with a lower cost of living, and lower housing prices. So, the difference in prices between my (paid off) house here and the nicest new house I might want there will pay for the move, redecorating, and even a new Camry. It helps that I would rather not live in a McMansion.

No travel for me, other than possibly some short trips by car with Frank. I want roots and stability and to become entrenched in my new community, instead of travel. I spent much of my childhood abroad and it holds no magic for me at this age.

As for cultural activities available in big cities, for the most part I have no need for them. If I decide to attend a live concert, I would prefer opera done by local Midwestern students to the same opera at the Met, and a symphony played by a local student orchestra to the same symphony played by the NY Philharmonic, because of the enthusiasm and great hopes of the kids. Not to mention the fact that I take no joy in dressing to the teeth, and often these student concerts take place in school auditoriums or outside in an amphitheater or on the grass, so casual dress is de rigeur. Most of the time, a CD or PBS will satisfy my need for musical experiences. Now, art is an exception. I love art, and I know that the St. Louis Art Museum is all that I could ever want as far as art. I have spent much time there a long time ago. It is free, though I usually donate something. It will be less than 4 hours away by car, and once every few years it would be fun to go up there.

And, do I need Superbowl tickets? NO.... I don't watch football. Most of the things I truly enjoy doing are relatively inexpensive.

[JonnyM]

Quote:

Originally Posted by TickTock Any statement of 'living on x$' needs to explicitly state these assumptions: for example, owning a paid-off house valued at $150k is the same (at a SWR of 4%) as $6k of income. Thoughts?

My thoughts on having no Mortgage don't resolve in my mind as some calculated extra income, more a calculated (as in cleverly planned) avoided expense. My home is a place to live without paying rent, in exchange I agree to pay taxes and upkeep on it (that would be avoided if I rented). It's intrinsic value i.e. what someone else would give me for it is mostly on useful in planning our move to the PNW sometime in the future, hopefully to be able to trade home in midpriced area in CA for Home /plus land in lowpriced area up North.

[Running_Man]

Quote:

Originally Posted by retire@40 I made three budgets for myself: Current Budget during the accumulation phase Expected Budget at retirement Bare Bones Budget for a worse-case situation Once a year I'll look at them and make a little tweak here and there if necessary.

This is exactly what I do

[mickeyd]

Hey TickTock,

Quote:

Given these variables, perhaps we can come to a more meaningful idea of what nest egg is required to retire.

There are so darn many variables to work through that it is darn-rear impossible to come up with a formula that fits us all.

The big variable is "income stream"- Pensions, SS, annuities etc

Or, is the big variable "investment draw down"?~ 4%, 5%, 6%

Maybe asset allocation is a key ~ 60/40, 50/50. 40/60?

We all wear different coats when it comes to how we arrive at our "nest egg requirement", I believe.

[TickTock]

Folks, I goofed on the initial post; it wasn't meant to ask for advice on my personal situation, but instead to develop a better general model for retirement expenses that anyone could use to estimate their own required assets.

Looking at the responses and then re-reading my inital post, I was not stating that clearly at all. Sorry.

That's also why I broke off from the other thread; trying to develop a model here vs. various examples of retirement expenses there.

When I see a post of "I live on $x per year", the first thing that I think is what are those four factors mentioned in the inital post (health care, residence, cost amortization, taxes).

[Rich_by_the_Bay]

Well, still not retired but I've concluded that we'll consume the same after retirement as before. However, our tax bracket will be lower, deduct current retirement savings and there you have it.

Yep, 100% of pre-retirement expenses. Work costs will be consumed by play and travel costs. Let's hope some of the recently retired folks will chime in.

[heyyou]

What Rich said. Prior to retirement, we were saving such that our living expenses matched our post retirement income. We were unintentionally practicing for retirement living. Same net income, more time now.

Your net income minus your annual savings is your current spending. Mortgage and medical need to be in there too. Where it is spent needs tracking, but the amount is easy to see.

[REWahoo]

What Rich and heyyou said. We practiced retirement spending 2-3 years prior to retiring. We're spending roughly the same after retiring as before, with some shifting away from work related expenses to increased health insurance costs.

[W2R]

I'm planning to spend more after retirement than I spend now!! I'll have all that extra time, so I'm allowing some "fun money" to spend on hobbies and various pursuits. ETA: Oops, I already posted that. Never mind........

[TickTock]

I plan on spending the same amount as we do now - plus healthcare costs, minus mortage (and possibly downsizing the house), minus total income tax burden % - and the biggest issue between DW and I, how much to set aside for travel.

The choice is time vs. lifestlye. I believe we could RE now (albiet at a standard of living that neither of us would accept). The longer we wait and save, the higher the standard of living that we can afford... but, the shorter we have to enjoy it.

That choice, I belive, is the central one facing those who LBTM.

[UncleHoney]

Just do some reasonable planning and things will work out.

I'm a belt and suspenders type of guy and our monthly income in retirement is about 2.5 time what we plan to spend. I like the feeling that I'm not trapped into just-getting-by and worrying about where every penny goes. Life wouldn't be any fun operating in that mode for sure.

I guarantee life will look different on the other side of the ER fence and you want lots of breathing room to enjoy it.

Right now we are blowing the budget out of the water doing a few planned house projects but but I feel comfortable with it and things will recover in a few months.

[Moemg]

One piece of advice I can give after learning it the hard way is make sure when you are planning as a couple also plan as a single . I moved to Florida to retire and shortly after my husband died .He had planned well so I received 55% of his pension and medical benefits . I continued to work to save and let our nest egg grow until finally at 59 I called it quits and am living on the same amount as I did pre retirement (My part time salary + 55% of his pension ).I also have an extra travel allowance that some years I use and some years it will roll over .

[SecondCor521]

Long long ago in a galaxy far far away, I did a poll of retirees to find out how their actual post-retirement living expenses compared with their pre-retirement living expenses, after adjusting for any big one time expenses. The consensus seemed to be that the vast majority lived on between 95% and 105% of their pre-retirement expenses. In other words, it seems that those expenses that drop generally equal those expenses that increase.

I've also noticed that any monthly or annual fluctuations in my expenses pretty much level out completely when I consider a rolling six-month window of my expenditures.

Based on those two, my plan is to target retirement when my last six months of expenses is 2% of my FIRE stash, for the 4% withdrawal rate.

2Cor521