Best Laid Plans...

[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.

 

[Mdlerth]

Gang aft agley

I believe this is the biggest threat to retirement. There is no end of calculators for projecting future income, with an endless variety of assumptions available. Between historical hard data and Monte Carlo simulations, you can forecast with reassuring statistical comfort the range of your future resources.

But the expense side is typically just hand-waved. "How much do you spend now? Expect to spend the same amount plus or minus X pct.".

I can't be sure whether DW will become addicted to travel and want to be on the road 6 months per year, or get the bug out of her system quickly and be happy staying at our comfy lake home. With tons of free time, will hobbies grow into expensive obsessions or will I save so much by DIY-ing more tasks that we'll make bank like never before?

Of course, everything changes with time. Maybe your expenses are perfectly legitimate, lumpy ones which just happen to be clustering together, making it look like you're going crazy. Maybe you're in a transition mode, and in a year or two you'll asymptotically settle in closer to your plan. Good luck.

 

[mountainsoft]

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.

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.

 

[Retire52]

The out of budget spending is mostly driven by my better half and two college age children. Big house, living in Barcelona for a year with two grade school age children in private school, continued dependance on parental umbilical cord for the older two after graduating, and in all fairness, I have contributed as well with some family trips

It's okay as my DW and I are in our early 50s and want to live it up while we can during our go-go years. I've had to adjust my financial plan and will not leave as big an inheritance!

 

[Bamaman]

We'd be much better off had we not had to take over raising our 8 year old granddaughter permanently. But she's a joy to be around. Leaving her financial secure is our main concern as the children can take care of themselves.

My wife's had 6 surgeries in the last 15 months, with deductibles and co-pays hitting our pocketbook. Hopefully she's got everything fixed because she's otherwise healthy.

And thankfully I won't have to start RMD's for another 2 years after the withdrawal age was changed to 72 years. I had nothing to do with the money anyway.

 

[Retire52]

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.

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.

 

[pb4uski]

I have observed a couple new retiree couples that we know that have gone on spending sprees on their personal residences just after retirement... in one case adding a new generator, solar, mini-splits and a new two-car garage and renovation of their main floor of their home... and in another case new windows, residing and a master bedroom suite addition with a deck off the master.

For their sake I hope they have factored all of that spending into their plans.

 

[tb001]

This is my concern as well. Having two young children adds to the uncertainty. DH is still consulting, but his income is variable and could easily go away. My position ended as of Jan 1.

With more time, getting my to do list done is actually possible, but there’s $ associated with every item. And looking forward to hobby time! Also more time to shop and have a meal out and just generally relax, but again, need to get out of the habit of stopping by the store every time I leave the house.

I budgeted a pretty decent chunk for home improvement, household goods and hobbies, but I’d like to see us underspend for a while, so don’t want to max all those things out.

As a doer, not used to the extra time, I want to do ALL the things, right now. I’m trying to focus on health and exercise and getting some of the cost savings in place first and spacing out my extra projects...

 

[tmm99]

I guess the best laid out plan is still just a plan. I don't know what the future will bring, but my budget I laid out before my retirement has been what I've been sticking with. Well, I've made some adjustments recently (because I can), but it is still not far off from my original planned budget.

 

[madsquopper]

Nearing the first of year of retirement. We did a lot more traveling than usual (doubt this much overseas every year would continue), plus I took up golf. Overall, I think I ended up spending about 10% more than an average year. This is still less than what I used to run retirement scenarios, though. I was pretty conservative with that and used a spending number of 20% higher than what I'd been averaging.

 

[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

 

[Bestwifeever]

The out of budget spending is mostly driven by my better half and two college age children. Big house, living in Barcelona for a year with two grade school age children in private school, continued dependance on parental umbilical cord for the older two after graduating, and in all fairness, I have contributed as well with some family trips

It's okay as my DW and I are in our early 50s and want to live it up while we can during our go-go years. I've had to adjust my financial plan and will not leave as big an inheritance!

Re my bolded above—that could run down a nest egg.

 

[Retire52]

BestWifeEver,

You can say that again. My red lines are we help as long as my young adults are: helping themselves and making progress, and we are not having to tap into Principal or crimping too much on our spoiled life styles.

 

[jollystomper]

Although our spending was about 12% higher than our plan for my first full year of retirement, our actual outgoing cash flow (since any spending beyond my pension comes from cash) was half of what was expected. DW's part time work brought in more than we expected (we did not include any of her income in our retirement plan). Investment income was higher than expected).

At least 20% of our spending was deliberately higher (e.g. adding a third car, taxes for Roth conversions, charitable and gift giving). Had we wanted to stick to our plan spending, we could have.

My biggest expense concern - medical premiums before Medicare - is turning out to be not as big as issue, it looks like they will be half of what I had planned (and this is without qualifying for ACA subsidies).

Spending was still $30K-$80K below what various financial calculators and advisors said was our "safe" spending level. But we are living very well on our current spending level so unless we deliberate choose to spend more I think we will be fine.

Edited to add: we did not use the "rule of thumb" percentages for retirement spending. We used many years of Quicken data along with appropriate planned adjustments to create our plan. We also spend a lot on long term improvements before we retired, to eliminate or reduce the odds of them occurring during retirements.

 

[Retire52]

Although our spending was about 12% higher than our plan for my first full year of retirement, our actual outgoing cash flow (since any spending beyond my pension comes from cash) was half of what was expected. DW's part time work brought in more than we expected (we did not include any of her income in our retirement plan). Investment income was higher than expected).

At least 20% of our spending was deliberately higher (e.g. adding a third car, taxes for Roth conversions, charitable and gift giving). Had we wanted to stick to our plan spending, we could have.

My biggest expense concern - medical premiums before Medicare - is turning out to be not as big as issue, it looks like they will be half of what I had planned (and this is without qualifying for ACA subsidies).

Spending was still $30K-$80K below what various financial calculators and advisors said was our "safe" spending level. But we are living very well on our current spending level so unless we deliberate choose to spend more I think we will be fine.

Edited to add: we did not use the "rule of thumb" percentages for retirement spending. We used many years of Quicken data along with appropriate planned adjustments to create our plan. We also spend a lot on long term improvements before we retired, to eliminate or reduce the odds of them occurring during retirements.

My DW has also been bringing in unexpected income from an AirBnB that helps. The great run up in investments the last two plus years of retirement is another unexpected bonus.

Since we returned from overseas where we were paying 25% more for housing plus private school tuition for two grade schoolers and settled into a LCOL area with public school, we have settled into a reasonable spending level.

A plan lasts until the first bullets start flying, then you make adjustments.

 

[athena53]

I never really planned expenses by category- too many variables. I knew what DH was getting in SS, what I made in my job, and how much we saved (a lot) so that was a rough estimate of what went out every year. I then compared current income net of savings (so, roughy what we spent) to 3 or 4% of invested assets and it was reasonable. I still budget that way: I know the amount I consider safe to withdraw and that's what I live on. Fortunately, there's plenty of "fat" in that amount and the market has been very kind since I retired in mid-2014.

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

I'm in the same boat- essentials such as mortgage, property taxes, utilities and groceries are a pretty small % of my total spend (two biggest tems are travel and charity). I could even file for SS on my own record- I'm almost 67 and collecting Survivor benefits on DH's record but that would be one way to increase income if needed in a bad market. I'm hoping to wait till 70.

 

[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?

 

[Teacher Terry]

When we retired it was understood by both of us what we could afford, etc. My husband’s retirement was unexpected and he was not happy about it. We sat down together and worked out a budget. We have both worked some during the past 8 years.

 

[retiredunder50]

A couple of years prior to retirement, I purchased a new car, roof, HVAC system, hot water heater, replaced a few decade(s)-old appliances and had previously paid off the mortgage early. That helped minimize some of the known big ticket items going in to retirement. I knew some unplanned shocks were ahead and tried as best I could to set aside a $^!# happens fund. I have had to tap into it a few times - superstorm Sandy home damage, kids' braces, replacing sidewalk & stairs due to tunneling vermin, some medical... but we do have costs mostly under control and surprisingly close enough to original planning. College for our 1st 2 went better than planned with merit scholarships. However, we didn't anticipate that our youngest would get in a health & sciences stem high school - this could present some painful funding shock depending on path taken. Tapping into retirement savings plan & IRAs and the decision when to collect SS might happen earlier than planned. Our house also could use some work (replace windows & siding, driveway,...) but we won't do much until the nest is empty.

 

[2017ish]

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?

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.

 

[2017ish]

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]

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]

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]

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]

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.