Best Laid Plans...

[2017ish]

Quote:

Originally Posted by Gumby Since a very large portion of our spending is discretionary (travel, restaurants, etc.), we can cut back if need be. The people with a real problem are those who cannot cover their fixed expenses

Yep. Looking at post-tax spending, our yearly travel expenditures in retirement are greater than our total annual spend whilst working. But, that was planned for and is readily correctable for variable spending in down years.

Never understood the rules of thumb based on working annual income to decide what you'd spend in retirement. We are nowhere near 80% despite spending ~ double what we did back then. (Again, ignoring taxes, which were more than 50% of expenditures when employed.)

[braumeister]

Quote:

Originally Posted by Gumby Since a very large portion of our spending is discretionary (travel, restaurants, etc.), we can cut back if need be. The people with a real problem are those who cannot cover their fixed expenses

Same here. I never would have believed we would spend as much on travel as we do, but since we can afford it we're enjoying it to the hilt. All our basic expenses are covered by stable income so 100% of our WR is for discretionary spending.

[Gumby]

Quote:

Originally Posted by 2017ish FWIW, we do not include tax on roth conversions from spending numbers; that is spending purely for the benefit of future us, and reduces the pot for calculating next years' withdrawals. Don't know that I've read anything definitive on this, but seems appropriate to me. If I were to go to the process of modeling it, I suspect that since the dollars in roth are worth more than the dollars in traditional, the "spending" is a wash. Of course, before age 59.5, nonetheless need to make sure you've got the cash to pay the tax bill.

If I were modeling, such as in Firecalc, I would either: 1)include the taxes incurred on a Roth conversion as spending or 2) discount the value of my tIRA assets by my marginal tax rate. I don't think you can ignore the taxes due entirely, although, as you note, dollars in a Roth are more valuable than dollars in a taxable account invested in the same thing, so my approach is perhaps a little conservative.

[jimbee]

Quote:

Originally Posted by Dalmore When planning budgets and spending over the next few years, how do you deal with the tax burden on Roth conversions? Doesn't that impact your WDR, or is it considered a wash on the balance sheet?

I include tax paid on Roth conversions as part of my spending for the year. It's income tax, and I include income tax as an expense.

[Markola]

Quote:

Originally Posted by Retire52 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 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.

[Retire52]

Quote:

Originally Posted by Markola 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]

Quote:

Originally Posted by BeachOrCity . 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]

Quote:

Originally Posted by Retire52 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]

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Originally Posted by mountainsoft 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.

Quote:

Originally Posted by 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."

[zippy2020]

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Originally Posted by Retire52 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]

Quote:

Originally Posted by zippy2020 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]

Quote:

Originally Posted by Retire52 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]

Quote:

Originally Posted by Retire52 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.