Year to year spending variation

[scrabbler1]

On he spending side, since I retired at the end of 2008 I have had a few spikes in my annual expenses. The first was in 2010 when I had a big tax bill from an unexpectedly large short-term cap gain distribution from my main bond fund which supplies me with my monthly income I use to cover my expenses. I reinvest the cap gain distribution so it "felt" like an increase in my expenses. I pulled the extra money from another account to pay the added taxes. Also in 2010 I had a big increase in my health insurance premium.


In 2011, I faced another big increase in my health insurance premiums but at least the income tax bill returned to normal. In the middle of 2011, I ditched the health insurance plan and took a much lower, bare-bones policy just to hold me over until the end of 2013 when I could sign up with an ACA exchange policy for 2014.


For 2012, 2013, and 2014, my expenses were roughly at the 2009 level.


In 2015, I got sick and spend 12 days in the hospital. But thanks to the ACA, my covered OOP expenses were capped at the annual deductible. Nevertheless, I did see a spike in my annual expenses.


For 2016, as long as I can stay out of the hospital (so far, so good!), my expenses will return to nearly their 2014 level. I do have some doctor copays and I had some other unexpected medical/dental bills. Nothing huge like in 2015, but my expenses will rise a little compared to 2014.


On the income side, the monthly dividend income from my main bond fund has declined gradually since 2009. In 2014, to supplement the cash inflow to my local bank account, I stopped reinvesting the quarterly dividend income from a stock fund and began taking it as cash. This boost enables me to more easily cover my monthly expenses while providing me a decent cushion to cover me for small, unforeseen expenses (such as the recent medical and dental bills).


I keep a slush fund, or first-tier emergency fund, I can tap into in case those small, unforeseen expenses can't be covered by the usual cushion in my local bank account. It has checkwriting privileges which enables me to have extra liquidity.

 

[walkinwood]

The uneven spending in retirement is an issue that hasn't been adequately addressed in the research literature. I think that's because it is almost impossible to model.

I marked a small part of our portfolio (which is all invested 60/40) as an emergency/slush bucket. The budget (SWR) is calculated as a percentage of the remaining portfolio (based on Jan 1 value).

The emergency bucket does the following for me:
- I can withdraw from it it if the % of portfolio based annual budget is too low for comfort. That hasn't happened yet, but 2009 came very close.
- I can withdraw for unexpected expenses that we dont' count as day to day expenses. Eg: we withdrew some money to pay for moving costs. We'll withdraw money for a new car or home improvements.
- In years with good returns, I can add money to the fund if needed (hasn't happened yet) or move money to the SWR portion, if the amount in the emergency fund grows too high (happened once)

Our annual budget (SWR) is usually (2009 was an exception) a little less than what we need to maintain our desired lifestyle, so we don't stress too much about budgeting. I am so glad that we waited to ER till we had this slack. We keep track of a rolling 12 month expense amount so we can adjust if needed and we look over that expense "report" each month to make sure we're getting the appropriate satisfaction from our spending. Adjusting spending this way is much easier and less disruptive.

After 8+ years of ER, I've learned not to over think the process or try to estimate/guess detailed amounts. Life is just too variable. And too short.

Good luck.

 

[Koolau]

Our expenses have varied quite a lot over the past 11 years post ER. Relocation, two major remodels and one house "exchange" plus pre-death inheritance to the kids, etc. have been part of the reason. The way we manage these fluctuations is to have a relatively large pot of cash (0.5x to 1x yearly expenses.) We don't currently track expenses nor worry too much about them. I monitor (at least yearly) our total port. If it remains stable (or trends upward) we figure we are fine. Of course, after 11 years, our time horizon may no longer be 30 years as it is for many folks on this forum. I also calculate roughly our WR. If it's less than about 4%, I figure we're good unless a black swan looms on the horizon.

In short, we probably have more than we need (short of world catastrophe) so have learned to let our life-long frugal attitudes be our guide. We try not to overthink our spending nor worry too much about year to year (maybe decade to decade is good enough.) Now pushing age 70, we occasionally begin to worry about leaving too much on the table ("no brag, just fact" as Will Sonnet used to say.) YMMV

 

[FUEGO]

We're buying a new car next year, so I informed DW that we can't go crazy with travel planning. Maybe take a car trip.

We bought our new car primarily to take a long summer road trip plus other shorter road trips during the year. So yeah, we spent $8k on it this year but also managed to "only" spend $1000 for our big summer vacation since transportation was nearly free (after capital cost of the van, of course). I didn't really plan to avoid the big vacation expenses, it sort of worked out that way ("hey honey, what do you want to do this summer? Oh, road trip across US and Canada? Ok, let's replace the cars with a bigger van then.")

 

[bob boag]

We were at a steady ~100k/year for about five years (We live in SoCal with two large teen boys). This year we spent an extra ~70K on two cars and a lawn and a Japan trip and an Alaska trip. Perhaps not coincidentally I just turned 59 and a half. Taxes should be interesting next April. I anticipate we'll be back to ~100k next year and less when the kids move out.

 

[Independent]

Our annual spending varied before we retired. We'd occasionally have a new roof, an expensive vacation, a new car, etc.

Our base spending was comfortably LBYM, and we maintained a good-sized money market balance to smooth things out.

Similarly, our spending varies in retirement. The only change is that we don't need the MMF because we can just withdraw when needed/wanted from the IRA. Once a year I look to see if we're getting off track.