It feels like I will never get in front of the wave....

[Another Reader]

"I'm among the crowd that views the COLA'd SS benefit as very important longevity insurance, so we'll be putting off taking it for quite awhile (there's no cheaper way to buy a COLA'd lifetime annuity, assuming SS keeps their promises). "

I took mine at 62. One of several reasons for that decision was the concern that if I waited until 70, I would get a significantly reduced benefit. My hope now is that those of us already on the annuity get to keep what we have.

If I were planning today, I would reduce my anticipated SS annuity substantially, maybe more than the 25 or 30 percent used by many people based on the anticipated benefits to be paid when the trust fund is empty.

 

[Major Tom]

Wow, I can't even imagine how I could possibly blow 150K a year- I think I'm super spendy in a lot of areas now (though no mortgage) and I spent 47K last year. No horses though.

Although I haven't calculated it yet, I think my expenditure this year will come to ~22K, including 5K for dental work. In the previous few years, my spend was fairly constant at about $17K. Nevertheless, I have no problem envisaging how a much higher income could be spent. A nice house in a high COL area, a new car or two, and some nice vacations would take care of most, if not all, of it.

All I have to say to moderate and lower income folk who don't know how they'd spend $150K or more a year is - you have no imagination

 

[Walt34]

All I have to say to moderate and lower income folk who don't know how they'd spend $150K or more a year is - you have no imagination

Oh, I have no trouble at all imagining how I'd spend $150k a year! A snowbird place in FL, maybe a Cessna 182 or similar, a small boat at the FL place, more dining out, that would about take care of it.

 

[samclem]

I took mine [SS] at 62. One of several reasons for that decision was the concern that if I waited until 70, I would get a significantly reduced benefit. My hope now is that those of us already on the annuity get to keep what we have.

1) As I mentioned, the calculations change quite a bit if a person has a younger spouse who will be claiming on their SS work record. In that case, waiting later to claim makes even more sense.
2) I don't think there's much reason to believe that starting SS checks will somehow "grandfather" a claimant, locking in the size of their check and protecting them from changes in the calculation of benefits. The proposed ideas I've seen are age-based, not "are you already getting a check?" based. This makes sense, particularly if we consider the case of someone who is delaying SS because their anticipated SS benefits at FRA would be small and they have to remain in the workforce until age 70 just to make ends meet. Would we really think it likely that their benefits would be cut because they waited? I'd say some sort of means testing (likely based on other income, including pensions, TIRA/401K RMD's and disbursements from Roth IRAs, etc) is a more likely factor that will be used to calculate any reduction in SS benefits, and that in all cases it will be phased in over 5 or more years.

 

[NW-Bound]

The OP wrote "It feels like I will never get in front of the wave...."

Not being a surfer, the only way I get that feeling is when I listen to this song.

 

[check6]

I will probably have a mortgage, so that is lets say $24k annually. We will have 2 horses, which is probably $4000 annually, if nothing goes wrong. I hope to take 2 or 3 good vacations annually....maybe $24,000 (on the high side). Normal bills (telco, elect, heat, Ins) are probably $5000. Food $12000 annually including restaurants. $69000/ annually, after tax income. And then another $8000 for health insurance. So, very conservatively, rough top of head I would need $77000 annually, after taxes. $150k pre tax would give me about $115K after tax, so I would have a cushion of approx. $38K.

I do need to work on getting better numbers, but that back of the envelope calc makes me feel better....if I can get there.

All of your numbers are almost identical to ours including retirement income and your cushion. We don't have mortgages but my hobby cost twice as much as your horses and we take two big trips to Europe every year. We live very well w/o touching savings and so should you.

 

[W2R]

Although I haven't calculated it yet, I think my expenditure this year will come to ~22K, including 5K for dental work. In the previous few years, my spend was fairly constant at about $17K. Nevertheless, I have no problem envisaging how a much higher income could be spent. A nice house in a high COL area, a new car or two, and some nice vacations would take care of most, if not all, of it.

All I have to say to moderate and lower income folk who don't know how they'd spend $150K or more a year is - you have no imagination

You're right! I just have no imagination.

(1) I wouldn't want a house in a high COL area, because I already have a nice house in a moderate COL area that was priced below the median US home price. It is my dream house and I'll never leave without a fight. This house is everything I always wanted my whole life. I'm serious. Not many people ever get to realize a lifelong dream but I did.

(2) I don't want a new car or two because they are so full of electronics and feature creep and the newer they are, the less driving you get to do because the cars want to do it all for you. They make all the decisions now and I hate it.

(3) Vacations? Eww. I prefer staying home. That is why I was so picky when choosing my home; I don't want to be anyplace else.

Oh, I have no trouble at all imagining how I'd spend $150k a year! A snowbird place in FL, maybe a Cessna 182 or similar, a small boat at the FL place, more dining out, that would about take care of it.

(4) A snowbird place in FL? Not one but TWO homes to maintain and worry about and clean? And required traveling twice a year? No thanks. I'm living in a nice warm climate year around and don't need that. I am in my favorite home in the world and I have no desire to spend half the year living elsewhere.

(5) A Cessna 182? I can't even fly and don't want to at my age. Besides, it's too dangerous (or scary?) for me. Cluck cluck cluck, I'm chicken.

(6) A small boat? Uh, excuse me, no WAY. F and I talk about this all the time, and we are so glad that neither of us owns a boat. Both of us have owned one in the past, and know the down side of that quite well. Yes, there is a down side. Look at all the boats for sale on Craig's List, for almost nothing. The happiest two days in a boat owner's life are the day he buys the boat, and the day he sells it.

(7) More dining out? He eats every meal out already, and I eat lunches out with him every day. The limiting factor is overweight, not money.

Honestly I simply cannot imagine how I would spend that much money. Although, I admit that I have spent a lot in the past year and a half since I bought my Dream Home. Hopefully that is a one time expenditure.

 

[pb4uski]

I will probably have a mortgage, so that is lets say $24k annually. We will have 2 horses, which is probably $4000 annually, if nothing goes wrong. I hope to take 2 or 3 good vacations annually....maybe $24,000 (on the high side). Normal bills (telco, elect, heat, Ins) are probably $5000. Food $12000 annually including restaurants. $69000/ annually, after tax income. And then another $8000 for health insurance. So, very conservatively, rough top of head I would need $77000 annually, after taxes. $150k pre tax would give me about $115K after tax, so I would have a cushion of approx. $38K.

I do need to work on getting better numbers, but that back of the envelope calc makes me feel better....if I can get there.

Well for one thing, if you currently have a 15 year mortgage in 9 years you will only have 6 years left... at most $150k so carve that out of assets and take the $24k a year out of spending.

$4k a year for two hayburners seems a bit low but whatever.

I think you really need to do some analysis of your 2016 expenses and then start tracking them in 2017 using Quicken or Mint or whatever. I think you'll find $100k is a lot.

$38k each year is a ridiculous cushion.

 

[Sniggle]

$4k a year for two hayburners seems a bit low but whatever.

You may be right. I am thinking pasture in summer, 150 bales from December to April ($900), 8 ferrier bills (4 each, $400), 4 vet visits ($400), dentist ($200), supplemental grain and alfalfa ($800), shavings ($200), dewormer ($120), misc ($900). Note I did predicate that on nothing going wrong, for last summer one cost me over $5000 in vet bills.

I think you really need to do some analysis of your 2016 expenses and then start tracking them in 2017 using Quicken or Mint or whatever. I think you'll find $100k is a lot.

Yes I do. A long time ago I did quicken for a few years, but I think I need to get much smarter on my expenses.

$38k each year is a ridiculous cushion.

That cushion would allow me to reduce my withdrawl from the 401K to 2.5% in a down year...at least that is the way I would plan to play it at the start.

 

[NW-Bound]

...$38k each year is a ridiculous cushion.

When SS is included, FIRECalc tells me that my cushion level is higher than that. Should I believe that?

 

[Gumby]

A long time ago I did quicken for a few years, but I think I need to get much smarter on my expenses.

You don't even need Quicken or another program. Just Excel and the discipline to keep track.

I have a spreadsheet that I created myself, with a column for each month and a row for each class of expense (I have about 30 rows, but you can go as granular as you like). At the beginning of the year, I make an estimate for each type of expense, usually based on last year's total and accounting for any known changes this year. I calculate a monthly average and keep a running total against the yearly estimate for each row.

I pay the vast majority of my bills using a credit card, so when the statements come in, I sum up the charges by class and put that in the spreadsheet. When I write the rare check, I put that amount in the appropriate row. Cash is a little harder to track, but I try to add it to my spreadsheet as soon after I spend it as I can. At the end of the year, I see how close I came to my estimate and refine my guess for the next year. I'm getting pretty good at estimating now.

This is not really a budget -- we spend whatever we want. However, we always keep track of what we spend, and the very act of putting the numbers into the spreadsheet forces me to think about what and how we spend and gives me ideas for where we might profitably economize.

Having done this for over 10 years, I have a very good idea of how much income we'll need when we retire in the near future.

 

[NW-Bound]

I am too lazy to use a spreadsheet and prefer to use Quicken so that all I have to do is to hit "download". My wife still keeps her Excel spreadsheet, starting back from long ago, so that she can pay the bills at the end of each month. She does not know exactly how much money we have though, because it is my job (and I tell her).

I used to use MS Money to keep track of investment accounts. Ever since MS Money went defunct and I switched to Quicken, I decided that I might as well allow it to download all checking and credit card accounts.

We both do not really plan per se because we do not overspend, but want to know where our money goes. It can be surprising when we look back.

 

[38Chevy454]

I know a couple of people here have mentioned losing a pension.... but everybody that I have ever heard of taking away a DB plan started a DC plan...

This was the point I was going to make. Assuming your company changes over, you will have a substantially increased savings due to the DC bump.

 

[SteveNU]

A quick and dirty way to see how much you spend is to just make a spreadsheet that totals up your annual expenditures by adding up anything that goes out of the bank. You don't see where the money goes in detail but you can see that you are spending xx a month/year etc. I do that and I only have 10 to 20 bills where money is spent to enter each month.

It's something you can put together quickly in a few hours for the past few years and it will give you a starting point. And once you see what you spend in average each month you can use that as a forecast for future years adjusting for things that you know will change.

For example most of our expenses are charged to credit cards and only a few checks are written. So I don't worry about everything I spend money on daily I just enter the credit card bill monthly. If I pull $100 out of the ATM I just enter that in and don't worry about where every dollar goes.

Before I retired I kept track of every penny and where it went for several months at a time. After doing that a few times over a couple years it helped to give me a better understanding of the numbers. It was hard to do that every day but you don't have to keep it up forever so it worked for us.

 

[skipro33]

Try this calculator, I like it because you figure in SS and a pension. Good job on your savings so far.

Future Value/Annuity Calculation

I like this calculator for comparing application of Social Security at minimum age; 62 and FRA 66 years old. I opened two browsers so I could toggle between the two options. For me, my budget, pension, savings and SS, the 'break-even' is at age 75. If I live past age 75, then it would be better to go with the FRA for withdraws of SS.

HOWEVER!!!!......

My money, the funds I have in my IRA, requires I withdraw at age 70 1/2 a minimum amount based on life expectancy actuarial. The table says I would live to age 87, or 17 years past age 70 1/2 when minimum amount was required to be withdrawn. So, if I have to withdraw 1/17th of my IRA, that throws the whole shebang off for figuring out which is better; early withdraw of SS or FRA, because the amount in my IRA is required to be withdrawn, even if I don't want to spend it. And since it's withdrawn and about 28% has been collected in taxes, my net worth isn't going to grow as fast as this calculator says it's gonna grow.

In my case, at age 62 and taking SS I'll be forced to withdraw $43,000 the first year I reach age 70 1/2, going up in amount each year I age and the actuarial table for my life expediency goes down. However, if I wait to FRA to draw SS, I'll have a smaller amount in my IRA, having been withdrawing more of that for the additional 4 years, and only have to withdraw $38,000 at 70 1/2. All of a sudden, the difference between drawing SS early at 62 and at FRA isn't so big any more. Instead of about $10,000 a year difference average after 70 1/2, it's maybe only $4,000 a year. Considering I get to maintain a larger net worth, not spending MY money between age 62 and age 66, and keeping my IRA balance high, and inheritable,

 

[EastWest Gal]

My two cents. I'm not a spending tracker either. So, two years ago, inspired by our spreadsheet pros here, I did a 36 month look back on everything spent and found our regular expenditures were about $60K.

It was reassuring. I also found that categorizing expenditures helped us find simple ways to cut expenses and shed a light on where we could spend less with no lifestyle loss.

Examples: switch to OOMA, cooking great meals at home, cheap gym vs expensive gym. Netflix/library/internet for reading and entertainment. Got rid of a timeshare.

You are currently worried about a loss of $11K per year. But you have two pensions, SS and health care covered way better than many. And you have a healthy IRA. And your wife is unlikely to be spending at the same level on horse hobby for the next 30 years. I think once you crunch the numbers you'll be more than ok.

There was discussion of what to do with unspent RMDs in this thread. If that money isn't getting spent, pay the taxes and do a ROTH conversion with the rest. Then it's still inheritable without all those pesky inherited IRA RMDs, available, and still invested, but grows tax free.