Why is my budget so high ??

[FANOFJESUS]

I keep reading threads where people can live on $30 - $50k per year. My budget is $84k and I think its pretty bare bones.

Home is fully paid - 1600 sq ft. No car payments (cars are 3 and 10 years old). Boat is a 16 ft jon boat - nothing fancy. Dog expenses are high - even tho she's only 6 yo she has some health challenges.

"Future one time purchases" budget includes big ticket items - car replacements, applicance replacements. Ongoing purchases includes replacements of smaller items (televisions, small appliances) and purchase of new things (towels, books, etc).

I could probably take 10k out of this budget (dog 2k, vacation 3k, boat 1k, cellphones 1k, entertainment 1k, pocket money 2k) but thats all I see.

What am I doing wrong ?

We live on about 16k. Our house is a little bit smaller than yours. Ours budget looks like this in the Midwest.
Taxes/insurance 275
health insurance 105
utilities 250
eating at home 400
eating out 200
running an old car 150
I looked at your budget it looks like death by a thousand cuts as some call it. A lot of small holes can sink a large ship. I would look very careful at all your small bills. We live on less than your health insurance. You might try to shop around more on that one. It also depends were you live I think all posters should tell what state they live in it would help at budget time.

 

[ERD50]

What am I doing wrong ?

I don't know if you are doing anything wrong, but I can tell a few things you are doing right:

"Future one time purchases" budget includes big ticket items - car replacements, applicance replacements. Ongoing purchases includes replacements of smaller items (televisions, small appliances) and purchase of new things (towels, books, etc).

Many of those posts you may have seen with much lower spending are not accounting for these things. I can recall things like 'Oh, my car is paid for - no monthly payment!' (OK, where does the money come from to replace it?). Or 'Oh, we needed a new water heater last year, but that came out of our 'emergency fund'!' (OK, where does the money come from to rebuild the emergency fund?). And so on.

It's smart to question everything and see if there are opportunities to save. But as others have said, if it is of value, and you can afford it, what's the problem? Life is to be lived.

-ERD50

 

[rbmrtn]

Many of those posts you may have seen with much lower spending are not accounting for these things. I can recall things like 'Oh, my car is paid for - no monthly payment!' (OK, where does the money come from to replace it?). Or 'Oh, we needed a new water heater last year, but that came out of our 'emergency fund'!' (OK, where does the money come from to rebuild the emergency fund?). And so on.

-ERD50

I believe I have accounted for those items. I didn't include it in the budget because I'm not currently spending it. The budget reflects retirement spending not retirement income. I agree that if you have not planned for those unexpected/replacement cost then you have an issue.

 

[obgyn65]

I agree with Katsmeow in their post below.

I live on $3k a month on average and spend thousands of dollars a year on free clinics and trips abroad. And I feel like I live like a king... All the rest is saved. Quite frugal indeed !

If there anyway you can cut your healthcare expenses ? You may find cheaper insurance policies and quotes.

I don't think you are doing anything wrong exactly but there are a lot of things that affect budgets including where you live, what your lifestyle is and what standard of living you want. I've looked at many of the really low budgets around here and sometimes those budgets leave out expenses that are more irregular in nature such as your one time expenses.

 

[obgyn65]

Another idea is to look here and compare where your costs make sense according to your income: ftp://ftp.bls.gov/pub/special.requests/ce/standard/2010/income.txt

What am I doing wrong ?

 

[grasshopper]

Here is what 41K a year spending looks like
Birds, hummers and songbirds and quail
Pets, 4 dogs 3 cats and an African spurred tortoise
Taxes, property only
Telephone, land and pay as you go cell

 

[FatCyclist]

I agree with what appears to be the consensus opinion: you aren't doing anything wrong and HI is a killer. FYIW, my HI budget is pretty much identical to yours. One question I haven't seen in this thread: will you still need life insurance when you FIRE? If your assets are sufficient to fund retirement for two, won't they be sufficient to provide for your beneficiary?

 

[FANOFJESUS]

Maybe I should start with what is your income? If it is really high you might not need to cut back.

 

[Lazarus]

My budget for basic expenses is about $2200 a month. If I include replacement costs and maintenance on cars and maintenance on the house over time it would work out to be about $2900. Included $400 for health care. Just estimates at this point though. I have not been retired long enough to validate.

 

[Live And Learn]

Thanks everyone. The budget I posted is my post-retirement budget (not retired yet but hoping to get there in a year). Based on this budget I need to work another 2 -3 years. If I had overstated it (which doesn't seem to be the case !) by 6 - 8k then I could retire this year or next (looking for 90% confidence level of my portfolio lasting to age 95).

HI is based upon my own estimate as we both have pre-existing conditions. Right now I am partially covered through work and haven't yet seriously shopped for individual HI.

I'm sure I've overstated by about 1 - 2k per year but I see that as my cushion.

Looks like I'm left with the same choices I've had for awhile (a) assume the risk of my portfolio running dry at 85 and needing to live on SSI from there on. (b) suck it up and w*rk through 2014. (c) give up the dog and vacations (not gonna happen !).

 

[walkinwood]

Your taxes may go down once you retire. It may be worthwhile working through turbo-tax to figure out just what your taxes will be if you have the same amount of cap gains & divs, but no (or reduced) income.

If you don't have pre-existing health conditions, shop around for health insurance. Do it even if you do - who knows? you may get a better deal.

All the best

 

[Mulligan]

Thanks everyone. The budget I posted is my post-retirement budget (not retired yet but hoping to get there in a year). Based on this budget I need to work another 2 -3 years. If I had overstated it (which doesn't seem to be the case !) by 6 - 8k then I could retire this year or next (looking for 90% confidence level of my portfolio lasting to age 95).

HI is based upon my own estimate as we both have pre-existing conditions. Right now I am partially covered through work and haven't yet seriously shopped for individual HI.

I'm sure I've overstated by about 1 - 2k per year but I see that as my cushion.

Looks like I'm left with the same choices I've had for awhile (a) assume the risk of my portfolio running dry at 85 and needing to live on SSI from there on. (b) suck it up and w*rk through 2014. (c) give up the dog and vacations (not gonna happen !).

I know wishing and hoping is not the sound basis for retirement planning, but if the healthcare act survives, it sure seems that you would be a beneficiary of its implementation and maybe your premiums wont be so bad. I remember we had a thread that had some numbers for possible premium costs and it benefitted people with preexisting conditions. Here is a link you might plug a few numbers in to give you a possible guesstimate in 2 years. It will show you an approximate cost without the subsidy that Im sure you will not qualify for.

http://healthreform.kff.org/Subsidycalculator.aspx

 

[gauss]

I am planning on an annual retirement budget of ~ $80,000 for DW and I which includes taxes and replacement costs.

This was created by looking at years of categorized quicken spending and then eliminating expenses that will go away in retirement (ie mortgage, fica, 401k etc).

DW and I are both technical professionals without children and have always lived below our means.

 

[Live And Learn]

It will show you an approximate cost without the subsidy that Im sure you will not qualify for.

Health Reform Subsidy Calculator - Kaiser Health Reform

Yikes - looks like I may not have budgeted enough !

 

[Mulligan]

Yikes - looks like I may not have budgeted enough !

Sorry, I was certain it would provide you some comfort, not anxiety! Its not a great comfort, but remember you will be able to deduct all healthcare expenses including health insurance above 10% of your AGI. So if your costs are indeed that high, you should get some relief in your income taxes assuming your income level is more modest in retirement.

 

[Independent]

I think the Bureau of Labor Statistics has some useful comparisons. The BLS gets people to keep detailed spending diaries, and puts the results online.

This ftp://ftp.bls.gov/pub/special.requests/ce/CrossTabs/y0910/SIZbyINC/xtwo.TXT
is an example for two person households. You could go down the list and compare your expenses to other higher income people.

If you do this, you should adjust the housing expenses to reflect the distribution of homeowners/renters as shown in the "Housing Tenure" section.

(Note that this table is also available as an Excel file, if that helps.)

 

[teejayevans]

HI is based upon my own estimate as we both have pre-existing conditions. Right now I am partially covered through work and haven't yet seriously shopped for individual HI.

I was rejected when I applied for HI, you may not be able to get it and if you can, it will be high, your estimate might be tad low, but it's a good estimate.
TJ

 

[MichaelB]

Yikes - looks like I may not have budgeted enough !

It's a good estimate IMHO.

 

[panhead]

I'm still (or back maybe I should say) working for the time being. I have a retirement budget that is constantly evolving, but below is what it looks like. The "fun" category is empty for now as I am working on building the assetts simply to support this which does have some fun in it (toy insurance is for motorcycle/boat). R&R is my "repair and replace" budget for house and cars. House covers RE taxes and insurance (1000sqft) I also do almost all repairs myself. House would be paid for. So at this level about 28k, with $1000 added into fun category, about 40k, which is what I'm shooting for, but I should be at the $28k level by year end! I'm in Mass, so my health care is quoted from the exchange at one of the higher income levels, adjusted for copays and meds and should be reasonable. Also, I live alone.
(Sorry about the formatting)


Budget
R&R $250.00
House $300.00
Electric $75.00
Heat $250.00
Water $50.00
misc* $100.00
Food $400.00
hm phone $0.00
Cable $60.00
cell phone $75.00
car ins $55.00
toy ins $20.00
Excise $25.00
Gas $200.00
Clothes $30.00
Gym $30.00
health care $350.00
isp $60.00
income tx $0.00
fun $0

total $2,330.00
annual $27,960.00

 

[Live And Learn]

Panhead, yours is one of those examples that I've been comparing myself to.

28 Panhead
12 Panhead fun not included
17 Health insurance difference
12 Taxes
69 Subtotal
8 Second person "fun"
76

The remaining variance between your budget and mine is home + utilities + home maintenance which I calculate as about 8k annual. So ... my 84k looks like its on track given the fact that (a) we have two people (b) healthcare is crazy (c) my home is larger

 

[panhead]

L&L:
Yes, I agree. It's been said, but once you subtract out health care and taxes your budget is extremely reasonable. You could always try to restructure your portfolio to reduce taxes (more dividends than interest in taxable side) and move bond allocation to tax advantaged, but if you plan to live off the income from the taxable account until 59.5, than that may not make sense. Then there's the fiscal cliff.....

If PPACA holds up, it may help you out as you would still be paying regular rates even with pre-existing conditions.

I'm planning a budget for very close to half of yours, so I think you are ok, but hopefully you will be able to get the health insurance down to about half of what you are paying. As for taxes, they are a consequence of making money.

-Pan-

 

[Mulligan]

The way you calculate budgets certainly effects the way it looks. My general monthly costs are this. House (including escrows) 800, child support 500 monthly bills (all utility, tv, internet,phone) 400, health and car insurance 105, gasoline 200, food 400, entertainment 400, misc. 400. That is about $3200 a month which has stayed consistent for the 2 plus years I have been retired. However, most people prudently plan for sinking costs in their budget which I do not. The reason why is I live off a pension instead of drawing down investments. I usually have about $1500 a month left over and dump it in my savings, IBonds, etc. If some big ticket item needed purchased I would take from there. I also probably spend at least $5-6k a year in trips and my golf membership, but my tax refund covers all of that, so I do not take it out of my monthly budget either.

 

[rescueme]

I don't travel. Hate it, had my fill it with megacorp

So do I, due to all the international travel I had to do while still employed (wo*ked for two different Euro firms, for 30 years).

However, since DW considers travel as a "necessary" part of her life (along with me ), I still go quite often (BTW, off to Scotland next month).

It has been, and remains our largest ongoing budget expense line item, both before and after retirement...

 

[panhead]

.....most people prudently plan for sinking costs in their budget which I do not. The reason why is I live off a pension...

That pension you have can make a big difference, esp if you are also collecting SS, when considering sinking costs. I would likely do it your way if I was in your situation. Alas, I will never see a pension. I have my $250/mo R&R, plus I have also set up a HELOC. My goal would be to never touch it, but if a big expense came about I could tap that and use the R&R fund to pay it back without raiding a chunk of my nest egg. Before I retire, I plan on talking to the bank to reset the drawdown/payback periods.

I'm working on retiring at/around 45, so I will have a long way to go before I see any SS dollars or have unfettered access to my retirement accts.

 

[Live And Learn]

I'm revising this. I seriously overestimated my taxes. Assuming that every dollar I spend comes from taxable sources, all taxed at ordinary tax rates, I think my bill would be about $7500 / year (ie: taxes on 74k of spend + tax bill of 8k). If I bump that up by 20% as a cushion I get a tax bill of $9k as opposed to my original budget of $12k. I know I'm overstating in that at least some of my income will come from tax free sources, but (like most of us) I like to err on the high side.

As for health insurance: I'm looking at the PCIP.gov site and the quote for a Florida resident. The per person amt for the extended plan is $505/month with a $7k out of pocket maximum. That should give me max health care costs of $26k. My budget is $21k which is probably reasonable as I doubt both DH and will both spend the out of pocket max each year, every year.

Of course I can't get the PCIP insurance unless we are uninsured for 6 months (something I'd never let happen if I could help it !), but I can't imagine that the PPACA costs would be more than the PCIP plan.

Anyone see any flaws in any of the above ?