Best Laid Plans...

[Retire52]

This is exactly why I moved us off the DIY route and have hired an inexpensive advisor with Vanguard Personal Advisor Services. By having a neutral, knowledgeable third party force us to talk about our respective needs, wants and wishes, those things go into the multi-year plan, so there should be fewer surprises.

That might be a good approach back when we first retired. Although, I think we are over the hurdle at this point. I also am not so fond of losing a percentage of AUM even to Vanguard.

From the collective responses I see that spend plans have to be flexible and having a cushion in your NW is necessary for the majority of us mere mortals.

 

[BeachOrCity]

Year one spending was under budget but year 2 is well over budget. Since I track spending and the over budget is largely discretionary I don’t worry about it.
The markets are doing well these past years and if they tank the discretionary spending will simply go down.

I think for anyone who is fatfire there is no need to force oneself to a skimpy WD rate as long as your balance sheet looks good.

Variable WD rate works well in these cases

 

[DrRoy]

We are absolutely spending more in RE, driven by travel and remodeling the house

 

[ArkTinkerer]

I'm not sure my spending plans apply to the last few years. I am spending more due to protracted construction on my garage/shop but due to numerous outside incomes that were not planned we have yet to touch our retirement accounts. Instead we did use up the stock that was set aside for the garage but that has now lasted us over two years of living expenses as well as all the progress on the building. Hopefully the next 12 months will see us settling down into a more predictable pattern.

 

[Retire52]

.

I think for anyone who is fatfire there is no need to force oneself to a skimpy WD rate as long as your balance sheet looks good.

Variable WD rate works well in these cases

I think so too but cant help but hedge against sequence of return risk little bit as I'm only on year 2 of RE. WD is 2.5% right now but plan to ratchet up as I go.

One caveat being if the market tanks--10 maybe 20% or greater for over two years? Haven't had to grapple with this yet and will know when I get there--I plan to slow the burn rate.

 

[Retire52]

ArkT.,

It's nicer to have unplanned income coming in vs a more predictable pattern that doesn't include it

We experienced nearly the same thing. We had set aside cash for finishing a 1000 sqft apartment over our garage but used it instead to buy a car for one my DDs, pay off a large cred card balance stemming from our 1 year of International Living experiment that went awry, and severely underestimated taxes. Here one minute and gone the next; about $50k.

I attributed this to growing pains with our transition into RE. Now after about 2.5 years we've landed back on our feet a regrew our garage fund without having to dip deeper into our nest egg. This really restored a lot of my confidence that I wouldn't be going back to W*rk.

Now we are steady state with our budget and it sure feels good.

 

[Out-to-Lunch]

We experienced nearly the same thing. We had set aside cash for finishing a 1000 sqft apartment over our garage but used it instead to buy a car for one my DDs, pay off a large cred card balance stemming from our 1 year of International Living experiment that went awry, and severely underestimated taxes. Here one minute and gone the next; about $50k.

I attributed this to growing pains with our transition into RE.

I like how you roll!

 

[mh]

That's one of my biggest concerns as we approach retirement. I've run the numbers hundreds of times, tracked expenses over the last six years as much as possible, but still worry about what we'll actually spend once we retire. I never felt comfortable with the 75-80% guideline, so I've always planned for 100% of what we live on now. Still, I can't help but feel a little uncertain whether that's good enough.

+1

I always assumed mine would be something like 110% or more of pre retire budget. I knew I was going to spend more on hobbies and travel with more free time.

 

[HadEnuff]

The cold slap in the face will be when those of us who are spending more than we thought are faced with looking at our balances after a large market correction followed by a few years of poor-to-negative returns on our investments.

Right now it's much easier to spend while the market is making up for it by climbing ever higher.
"Sure we spent more than we planned, but look! We have more money now than we had before."

 

[pj.mask]

For early early retirement, I look at things after tax (typically 85% value) since I’ll have 15+ years at that rate.

I’d imagine with a low 3.5% SWR that if you don’t use a variable withdrawal rate your balance will be significantly different 15 years from now so a detailed plan is not required at this stage for Retirement account withdrawals. I don’t plan on including conversions in my ‘spend’ but will need to include in the budget to have money to pull for taxes (3.5% SWR + 0.5% conversion tax)

Even then, tax planning is something I wouldn’t get into details unless I’m <5 years away because of potential changes in the law and also that stage of life frequently has large budget changes (kids go to college/leave home/finish college).

Like others said, a large buffer (or discretionary portion of budget) allows for adjustment.

 

[Retire52]

I agree, we've had an exceptional ride in the market and my inner pessimist is screaming MARKET CORRECTION ahead.

I try to remember when this voice is loudest, I've got food and roof over my head covered and a crash only affects my Vegas money.

The cold slap in the face will be when those of us who are spending more than we thought are faced with looking at our balances after a large market correction followed by a few years of poor-to-negative returns on our investments.

Right now it's much easier to spend while the market is making up for it by climbing ever higher.
"Sure we spent more than we planned, but look! We have more money now than we had before."

 

[zippy2020]

I noticed the other day my spending in retirement is no where close to my post retirement budget plan.

In fact if I were to have followed the financial advisor rule-of-thumb of 80% of working income, I'd have to go back to the salt mines. My actual spending is closer to 120% of my pre retirement spend and about 200% of my plan Luckily I built in plenty of fudge.

I did a post on another forum 5-6 yrs ago that explained I look at retirement as a series of phases.

The first phase, Active Retirement, is almost always going to cost more. Think about what you spent on a week's vacation when you worked - then multiply that times however many of the 52 weeks you plan to spend traveling once you have endless free time!

As you age, traveling slows down. You travel less - maybe more lavishly, maybe not, depending on budget - so that expense begins to shrink.

It can be offset, negatively, by the cost of ill-health. That, too, affects one's ability to travel.

On average, as you age your discretionary expenditures go down....but your healthcare costs will probably rise.

 

[Retire52]

I did a post on another forum 5-6 yrs ago that explained I look at retirement as a series of phases.

The first phase, Active Retirement, is almost always going to cost more. Think about what you spent on a week's vacation when you worked - then multiply that times however many of the 52 weeks you plan to spend traveling once you have endless free time!

As you age, traveling slows down. You travel less - maybe more lavishly, maybe not, depending on budget - so that expense begins to shrink.

It can be offset, negatively, by the cost of ill-health. That, too, affects one's ability to travel.

On average, as you age your discretionary expenditures go down....but your healthcare costs will probably rise.

Good point. I like the three phases of retirement spending model from CFP Michael Stein. DW and I are in our go-go phase. We are in our early 50s now with max spending--travel and kids; we will enter slow-go in our 70s, I hoping it's not earlier, where our spend should come down some; no-go starting around 80-85ish our spending should be at its lowest. Long term health care costs may turn this model upside down.

 

[Retired Expat]

I would offer up one big lesson learned from this experience. I needed to rein in my DW, which is very unlikely to have succeeded as I haven't been able to in 20 years of marriage, or had better aligned my expectations with her.

For instance, I assumed we would down size as we became empty nesters: however, She wanted a big retirement house, for all the future grand children our four daughters would be bringing to visit? She wanted to try a year of international living, she said costs would be about half of the actual costs we incurred. Not just her fault as I am the budgetier in the family and I was a sleep at the wheel when she drove the planning for her bucket list item #417!

A few more detailed conversations about what we both wanted in retirement would have helped alleviate my shock and awe.

This reply touches on what many have said but I won’t list all quoted posts.

There was no reigning in my DW and had tried for years and the arguments were horrendous. So without a Divorce there would have been no retirement and I would still be working and miserable. Have heard she has gotten herself into money troubles while my half of the settlement has doubled in the years since.

But that goes directly to the expense discussion. I moved from a HCOL area to an Extremely LCOL area. Stopped buying new cars and buy used. Downsized my house by more than half, and learned to make do with what I have. She on the other hand moved to a very nice area and lives in a house almost 2x the size of where I bought. If we don’t change our thinking in retirement about money, what is a need, want or wish list being on a “fixed income” will be tough.

But it can be done and I think it is quite freeing once you do so. After 25 years of First class travel it was hard to deal with coach, fortunately I had millions of award miles for lots of upgrades but still used them sparingly. Now 8 years into retirement, some very good investments, income generating properties and expenses under control and a substantially grown nest egg am rethinking budget restrictions I placed on myself.

But being thrifty is still part of every day life. Have had my computer 8 years now. In my life I have never held one for so long. So other week in the Apple store drooling over the newest MacBook and thing it high time to upgrade, but realized mine works fine, not working at a job so if it is a little slower who cares? Saved $3,000 just by questioning my motivation. Could I afford it, or course, but did I need it? Ask that same question now about the Starbucks latte, or the dessert in the restaurant. Ultimately, spending less, eating less, doing more and feeling better.

Retirement is awesome!

 

[Time2]

I noticed the other day my spending in retirement is no where close to my post retirement budget plan.

In fact if I were to have followed the financial advisor rule-of-thumb of 80% of working income, I'd have to go back to the salt mines. My actual spending is closer to 120% of my pre retirement spend and about 200% of my plan Luckily I built in plenty of fudge.

I set our first year of retirement spending at $50k, it end up at about $60k.
That's not a problem, we have plenty of reserve.
I'm going for the same $50k this year because last year was a very exceptional year for us. We had a hurricane and about $80k of damage to our home, most of it was covered, but we had some additional expense. I still have two kids on my dole. I have tried to get their expenses into another column to help me know just what our spending is, but I didn't get them separated well for 2019. In fact I slipped up yesterday and paid my son's tuition out of our spending account instead of the other money account. Only six months and he should be off our dole, and about two more years for my daughter, she's the expensive one, she going to dental school and we are paying the tuition, which costs more than our expenses last year.
Love my kids, but it will be nice when they are on their own.

 

[imnontrad]

Budgeting and keeping completely out of debt are two great ways to ensure your funds last longer.

 

[TheWizard]

I focus on Adjusted Gross Income for the year, not "spending".
AGI includes Roth conversions, of course.
Levelizing your AGI from your 60s into your 70s is the best course.
This assumes, of course, that your income exceeds your actual expenses by a comfortable amount, which isn't the case for everyone...

 

[catii]

Just finished first year of RE, with the budgeted & actual spends within $100, & we breathed a sigh of relief.

Pulled out $79K, & the market made that up, plus $35K, so if the politicians don't screw things up, wife & I should be in petty good shape, indefinitely.

 

[JDARNELL]

so if the politicians don't screw things up, wife & I should be in petty good shape, indefinitely.

From your mouth to God’s ears. I don’t have much faith in that group.

 

[Time2]

I focus on Adjusted Gross Income for the year, not "spending".
AGI includes Roth conversions, of course.
Levelizing your AGI from your 60s into your 70s is the best course.
This assumes, of course, that your income exceeds your actual expenses by a comfortable amount, which isn't the case for everyone...

I'm not sure what that means, I can almost make my income whatever I want other than the dividends and interest from VTSAX. So I have a few things that I'm working at while generating enough income. I want to minimize taxes now and in the future and I want to do Roth conversions.
This year I had some income that I won't have in future years and I couldn't get a good handle on predicting my total income, (turns out I think I did). My plan was to Roth convert as much as I could staying in the 12% bracket. But, Like I previously said, I paying one of my childrens high tuition bill, I needed to generate income to cover that, so I sold LTCGs up to the $78,750* 0% tax limit and generated enough income and tuition money for 2020 in 2019. When I get towards the end of 2020, I'll be planning how to cause the lowest tax bill while generating the income I expect to need in 2021. Hopefully by then I'll be able to figure my tax bill more precisely.


*I had enough of a gain that I pulled out $126k, but only $78,750 of that was gains.

 

[Bir48die]

Haven't had an issue with this. Have a pretty decent budget and have been within 5% of what I forecasted for four years. I built in some fluff but feel comfortable so far. Things can change but know SS in in the back pocket takes any stress off.

 

[TheWizard]

I'm not sure what that means, I can almost make my income whatever I want other than the dividends and interest from VTSAX. So I have a few things that I'm working at while generating enough income. I want to minimize taxes now and in the future and I want to do Roth conversions.
This year I had some income that I won't have in future years and I couldn't get a good handle on predicting my total income, (turns out I think I did). My plan was to Roth convert as much as I could staying in the 12% bracket. But, Like I previously said, I paying one of my childrens high tuition bill, I needed to generate income to cover that, so I sold LTCGs up to the $78,750* 0% tax limit and generated enough income and tuition money for 2020 in 2019. When I get towards the end of 2020, I'll be planning how to cause the lowest tax bill while generating the income I expect to need in 2021. Hopefully by then I'll be able to figure my tax bill more precisely.


*I had enough of a gain that I pulled out $126k, but only $78,750 of that was gains.

Levelizing your AGI tends to keep your income taxes about the same year to year rather than having a big jump in taxes when you start SS and RMDs, for instance. And it keeps your Medicare IRMAA tier somewhat stable.

So I've been projecting my AGI for future years since I retired in 2013. My age 72 year (2022) is now my target with the change in RMD age.
So yes, I will continue doing moderate Roth conversions for two more years while avoiding the next higher IRMAA threshold...

 

[Retire52]

I set our first year of retirement spending at $50k, it end up at about $60k.
That's not a problem, we have plenty of reserve.
I'm going for the same $50k this year because last year was a very exceptional year for us. We had a hurricane and about $80k of damage to our home, most of it was covered, but we had some additional expense. I still have two kids on my dole. I have tried to get their expenses into another column to help me know just what our spending is, but I didn't get them separated well for 2019. In fact I slipped up yesterday and paid my son's tuition out of our spending account instead of the other money account. Only six months and he should be off our dole, and about two more years for my daughter, she's the expensive one, she going to dental school and we are paying the tuition, which costs more than our expenses last year.
Love my kids, but it will be nice when they are on their own.

Wow, paying for dental school is incredibly generous. In our pre retirement budget, we drew the "line" at grad school, but my wife and I will probably kick in most of their expenses for that as well. It will be significant but it really doesn't impact our retirement life style and as long as the schooling leads to good career possibilities, we look at it as ROI.

I have also given up trying to track the spending for my adult kids or detailed spending tracking in general. Why bother when I am no longer trying to maximize my savings to reach RE, and I've the wiggle room. Now keeping an eye on credit cards at the end of each month, tamping down on recurring expenses, and planning for lumpy expenses seems to be enough.

 

[Time2]

Wow, paying for dental school is incredibly generous. In our pre retirement budget, we drew the "line" at grad school, but my wife and I will probably kick in most of their expenses for that as well. It will be significant but it really doesn't impact our retirement life style and as long as the schooling leads to good career possibilities, we look at it as ROI.

I consider we are so lucky to be in the position to be able to pay her tuition. Things have just worked out for us as far as our investment life.
A while back, using our SS statements, I used an inflation calculator and took our income from 1981 and found what that is in today's dollars. I put this in a spread sheet for every year until we retired. Our average income
over our married (savings) years, in today's dollars is about $72k. So we were not high earners, but good savers. We retired in the 94th percentile of the net worth of Americans. Our first year of marriage (1981) we earned
$18k and saved $6k, first time I ever saved any money was our first year of marriage.
To add to this, these last 9 years, when we had already accumulated a sustainable nest egg, the market just took off like a rocket!
We have everything we need and just aren't big spenders, so we have way more than we need, I expect the kids will get a nice inheritance, so why not give it to them now*, if it is for a great cause. We do have a trust and expect some of that tuition subtracted and the other child will get that same amount added to inheritance.
Also, I would hate to see my kid start life $275,000 in debt, after growing up with parents who never had any debt.

I have also given up trying to track the spending for my adult kids or detailed spending tracking in general. Why bother when I am no longer trying to maximize my savings to reach RE, and I've the wiggle room. Now keeping an eye on credit cards at the end of each month, tamping down on recurring expenses, and planning for lumpy expenses seems to be enough.

I just want to put kids in another spending category because I want to know my spending. In our second year of retirement, so still need to get our real yearly spending pinned down.


*There is one downside, I like to crunch and watch the numbers. Writing these big checks, I may not always see the net worth get bigger, this year net worth grew 5% after all our spending, so that's good, but in a more normal 10% stock market, my net worth would have dropped.

 

[SpinDoctorTX]

Budgeting and keeping completely out of debt are two great ways to ensure your funds last longer.

Exactly.