Underestimating Living Expenses

[kcowan]

There is a middle ground here too Senator, in fact in your three year FIRE update you said you wished you had retired sooner. Obviously you could have done so.

Yes! After we our SWR declined to 1.8% last year, I traded in my micrometer for a chainsaw. I do an eyeball at mid-year and an annual reconciliation. After 17 years, I figure I deserve to be wild and crazy for the last ten years.

 

[24601NoMore]

No offense, but of you are worried about such small expenses like gas to do errands and a few small local trips, you are definitely not ready.

I have a different take on that - the small expenses can (and do) add up to thousands of dollars a year. If you're not tracking or accounting for "everything" (and I mean everything), then you can easily be 10-20% (or more) off what you think you're going to come in at.

I enter every single expense we have into Quicken and have dozens of categories I split things out across. I know, pretty much to the penny, what our spending is and more importantly, what we need to plan for. Then, there are still the unexpected expenses that I have a "lumpy/unexpected spending" line item in the budget to cover..

It's always a bit surprising when people post their expected spending and only seem to focus on the big ticket items (housing, cars, taxes, etc). It's the little things that add up to far more than you'd ever expect..

JMHO and different things work for different people, but to me, the very first thing you need to do when considering ER is to know what your expenses TRULY are with a very high degree of confidence. And without accounting for "everything", it's entirely possible and likely that your numbers are going to be a SWAG at best..

 

[kcowan]

Just a question, if a lot of the expenses are for the MIL, can you ask MIL to help pay for some of the gas and related expenses for her? Is she financially able to help?

We had the same dilemma with MIL. She lived 45 minute drive away and expected us to drive her to the store (even though there was a free shuttle twice a week). We would go 3x a week.

She said that she had sacrificed for many years and now it was our turn. Payback was the term she used. Oh well, it did build the size of her estate.

 

[mountainsoft]

May I suggest using an automated tool that automatically categorized and adds it up such as Mint?

I haven't seen a tool that lets me combine expenses from various accounts (credit card, savings, checking, etc.) to figure out my total spending. I also prefer to categorize things myself.

My manual method is slow, but it's accurate and lets me take a detailed look at each transaction to know what they are. I've done it plenty of times in the past, but I don't think I combined all the various accounts and looked at things in as much detail.

 

[24601NoMore]

I haven't seen a tool that lets me combine expenses from various accounts (credit card, savings, checking, etc.) to figure out my total spending. I also prefer to categorize things myself.

Quicken (what I use) does that..you setup cash, checking, savings, etc accounts and either download or manually enter transactions that can split across multiple spending categories.

 

[brett]

I don't need a spreadsheet to tell me that our house insurance or auto insurance renewals are at a higher rate that inflation or anything else. So we go out to the market for a price check. Not much we can do about it. Same for just about all of our spending. For travel...we spend what we spend. Not about to the hostel route or go Greyhound.

We spend more time reviewing our investment returns, risk, allocations, and evaluating our fee for service advice against these two. From our perspective revenue gains through investment vehicle selection and tax efficient planning far exceed the financial benefit of any item by item expense category review.

 

[mountainsoft]

if a lot of the expenses are for the MIL, can you ask MIL to help pay for some of the gas and related expenses for her? Is she financially able to help?

She tries to give a few dollars here and there, but she's on Medicaid and doesn't have much to spare. She lives 45 minutes away, so that's four trips each way to go to a doctor visit.

We've also done several home improvements at her house that she has paid us for, but I was only looking at expenses in my budget, not income sources (paychecks, money from MIL, product returns, etc.). So my estimate still includes a lot of things we didn't really spend money on, but I left them in as an extra buffer for planning purposes.

 

[NW-Bound]

...After 17 years, I figure I deserve to be wild and crazy for the last ten years.

Whoo Wee, 10% WR baby. And add SS or whatever other income on top of that.

That's a lot of Dom Perignon, real beluga caviar, Kobe beef, French foie gras, lobster, white truffle, Louis XIII Cognac... Just thinking about it makes me feel fat already.

Gotta throw in a new car each year, because I doubt anyone can eat that much.

 

[Dtail]

Whoo Wee, 10% WR baby. And add SS or whatever other income on top of that.

That's a lot of Dom Perignon, real beluga caviar, Kobe beef, French foie gras, lobster, white truffle, Louis XIII Cognac... Just thinking about it makes me feel fat already.

Gotta throw in a new car each year, because I doubt anyone can eat that much.

Could challenge Robbie B...

 

[mountainsoft]

I have a different take on that - the small expenses can (and do) add up to thousands of dollars a year. If you're not tracking or accounting for "everything" (and I mean everything), then you can easily be 10-20% (or more) off what you think you're going to come in at.

Exactly! It was surprising how much all those little expenses added up over six months. I've always looked at our expenses from a more general viewpoint, and obviously underestimated how much we actually spend. I am NOT worried about these extra costs, it would be very easy to eliminate the majority of these without even noticing. But I like to plan on the safe side, and decided to increase my estimated retirement expenses just to ensure we'll be comfortable.

I won't accept anything less than 100% success rate estimates in Flexible Retirement Planner and Firecalc!

I'm already erring on the side of caution, higher than average inflation rates, higher than actual taxes, lower rates of return on investments, higher medical expenses than we're likely to spend, etc. There's plenty of flexibility built into my budget planning. Better safe than sorry.

 

[Dtail]

I have a different take on that - the small expenses can (and do) add up to thousands of dollars a year. If you're not tracking or accounting for "everything" (and I mean everything), then you can easily be 10-20% (or more) off what you think you're going to come in at.

I enter every single expense we have into Quicken and have dozens of categories I split things out across. I know, pretty much to the penny, what our spending is and more importantly, what we need to plan for. Then, there are still the unexpected expenses that I have a "lumpy/unexpected spending" line item in the budget to cover..

It's always a bit surprising when people post their expected spending and only seem to focus on the big ticket items (housing, cars, taxes, etc). It's the little things that add up to far more than you'd ever expect..

JMHO and different things work for different people, but to me, the very first thing you need to do when considering ER is to know what your expenses TRULY are with a very high degree of confidence. And without accounting for "everything", it's entirely possible and likely that your numbers are going to be a SWAG at best..

Big +1 on this.
We see posted by many who don't track expenses, that if they are over their WR%, then just grab more monies from the other funds or the investment funds.
Why this concept works is that the WR% is on the low side in the first place and one doesn't have to worry about SORR, etc.

Yes the little expenses can add up and not talking about Starbucks. More so for example paying $200 monthly for cable vs. $50, etc.

Lastly, some of us just like tracking the expenses vs. budget. It doesn't mean that one can never go over budget.
My mostly daily tracking takes ........5 minutes.

 

[mountainsoft]

We had the same dilemma with MIL. She lived 45 minute drive away and expected us to drive her to the store (even though there was a free shuttle twice a week). We would go 3x a week.

My MIL had a heart valve replaced in January, so my wife was having to take her to physical therapy twice a week, plus various doctor visits. This lasted about four months. She had a heart attack two weeks ago, and ended up in the hospital again a couple days ago, so we've been making lots of runs back and forth.

I also have to take my own mom to doctor visits and grocery shopping.

It takes a lot of time and all those extra little expenses add up.

 

[Teacher Terry]

We changed cable and internet providers and saved 130/month. I also compare prices for auto and home insurance yearly and switch if it’s worth it.

 

[NW-Bound]

Could challenge Robbie B...

If Kcowan does 10%WR+his other income, he has my bet.

 

[daylatedollarshort]

I have a different take on that - the small expenses can (and do) add up to thousands of dollars a year. If you're not tracking or accounting for "everything" (and I mean everything), then you can easily be 10-20% (or more) off what you think you're going to come in at.

I enter every single expense we have into Quicken and have dozens of categories I split things out across. I know, pretty much to the penny, what our spending is and more importantly, what we need to plan for. Then, there are still the unexpected expenses that I have a "lumpy/unexpected spending" line item in the budget to cover..

It's always a bit surprising when people post their expected spending and only seem to focus on the big ticket items (housing, cars, taxes, etc). It's the little things that add up to far more than you'd ever expect..

JMHO and different things work for different people, but to me, the very first thing you need to do when considering ER is to know what your expenses TRULY are with a very high degree of confidence. And without accounting for "everything", it's entirely possible and likely that your numbers are going to be a SWAG at best..

+1. I like optimizing expenses and find the benefits well worth it. It is not a chore for me but a fun hobby. When we first retired we thought we would need to downsize or move to a lower cost of living area, but by really tracking expenses and thinking about our spending, we ended up staying put and long term should be able to live well and only need to spend about half of what we could. Amy Dacyczyn from the Tightwad Gazette noted that most households don't have that many major expense categories, but there are often thousands of opportunities to cut on the smaller expenses.

Last night we went to a really well done play and concert including a full symphony orchestra with a 100 musicians and performers for $10 a ticket because it was a preview performance as well as a university and nonprofit arts group production. I made an extra donation, but still it was a fun night out and a great value. We like to go out pretty often so over a month saving on entertainment like that really adds up, especially combined with optimizing all our other expense categories.

 

[mamadogmamacat]

40K sounded low to me for two of you, so I'm not at all surprised you are seeing 44k to 45k when tracking actual expenditures. In fact, even 45k sounds low to me. I tracked expenses for several years prior to ER and it was about 55k to 60k for just myself, pets, charities. Once in ER, I no longer track, just keep total withdrawals under the 65k (range now at 65K as I do account for inflation each yr) mark. This does not include lumpy expenses such as when the tree hit the roof and I did some upgrades along with what the insurance covered. I have a separate amount that is not included in my SWR calculation, for lumpy events.

 

[ncbill]

May I suggest using an automated tool that automatically categorized and adds it up such as Mint? My personal philosophy was I needed several years of pre retirement spending to know what it really was. Then I added and subtracted for changes in retirement such as healthcare and travel and big capital items like New car , new HVAC etc. so far this approach seems to have worked for me.

If doing it this way doesn’t give you the green light it means you may not be able to afford the lifestyle you have and or want in retirement

Yep, I just use Mint to track spending.

Not perfect (it often counts transfers between brokerage & bank accounts as income) but manual corrections aren't needed too often.

 

[Teacher Terry]

Whether it’s low or not depends on each individual situation. If everything is paid off in retirement it wouldn’t be that hard to do.

 

[Retire2023]

I have used Quicken to track/budget expenses since the 90's. One of the most useful things for me, is that I can quickly find out when and how much we spent on any purchase. We do this a lot..."when did we buy tires last for the Tahoe and how much did we spend?" or "What year was that cruise to Canada?" I like having this data at hand, especially if it let's me win a "discussion"!

I do comparison reports going back years to look at the spending patterns and because of this, I also increased the projected amounts to budget for retirement. I knew there were lumpy expenses, but this review showed just how regular those lumpy expenses really were. They may be different, but they are always there with amazing frequency.

 

[mountainsoft]

40K sounded low to me for two of you, so I'm not at all surprised you are seeing 44k to 45k when tracking actual expenditures. In fact, even 45k sounds low to me.

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[FONT=&quot]I suppose it depends on where you live and what your lifestyle is like. I still think we could live quite comfortably on 40K per year. Our total income last year (while still working) was less than 58K (before taxes), and a good chunk of that goes to savings or work related expenses that we won't have after retirement.
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[FONT=&quot]My most recent expense estimate comes to just over 44K, based on what we are spending now. [/FONT][FONT=&quot][FONT=&quot]There are still many areas we could cut back if we needed to.[/FONT][/FONT]
[FONT=&quot][FONT=&quot]
[/FONT][/FONT]
[FONT=&quot]1800 Electric (150/mo - current is 125/mo)[/FONT]
[FONT=&quot]270 Garbage (45 every other month)[/FONT]
[FONT=&quot]9600 Grocery (800/mo)[/FONT]
[FONT=&quot]1080 Wife Gas (90/mo)[/FONT]
[FONT=&quot]1080 Husband Gas (90/mo)[/FONT]
[FONT=&quot]950 Home Insurance[/FONT]
[FONT=&quot]4600 Property Taxes[/FONT]
[FONT=&quot]800 Insurance for Vehicles[/FONT]
[FONT=&quot]200 Vehicle Licenses[/FONT]
[FONT=&quot]60 Safe Deposit Box[/FONT]
[FONT=&quot]600 Home and Cell Phones[/FONT]
[FONT=&quot]960 Internet (80/mo)[/FONT]
[FONT=&quot]360 Netflix[/FONT]
[FONT=&quot]300 Web Site Expenses[/FONT]
[FONT=&quot]7000 Health Care[/FONT]
[FONT=&quot]1500 Automotive Maintenance and Repairs[/FONT]
[FONT=&quot]2500 Home Improvement (repairs, painting, etc.)[/FONT]
[FONT=&quot]4500 Miscellaneous (clothing, computer parts, craft supplies, etc.)[/FONT]
[FONT=&quot]6000 Recreation (movies, dinners out, hiking, vacations, etc.)[/FONT]
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[Kim451]

I had no way to estimate how much I'd spend since I've been living overseas for years, and frankly I've been somewhat awed at how much I can spend in retirement without even trying (and a condo too small to add more Stuff). Fortunately my budget covers it and my former employers have a program where they use their retirees to cover staffing gaps so I'll be working a short while to cover some unexpected moving expenses. My plan when I retired was 'this is how much you can spend; don't spend more than that, and if you do, get a job'. Works so far.

 

[daylatedollarshort]

We found the Consumer Expenditure Survey helpful to compare to our retirement budget for a reasonableness check. We were spending much more on groceries so we took a close look at that category and brought the cost down while trying to buy healthier food.

 

[SumDay]

Just a few days ago, I looked at the expenses for last year for some info, and observed that there was no income tax listed. What? I knew I withheld some taxes when making IRA withdrawals. Where did that go?

It turned out that Quicken properly got the online report from the IRA custodian about the federal and state withholdings. However, Quicken will not show tax withholding under the "Expenses - Taxes" category, if the withholding is paid out of a tax deferred account. In order for it to show correctly in the Expenses Summary, I have to create a fictitious transfer of the withholding out of the IRA into my banking account, then another fictitious tax payment from the banking account. I found this workaround when looking on the Quicken forum.

Ditto. In fact, I decided that next year I'll have VG withhold ZERO from my annual withdrawal, and I'll just pay them quarterly via IRS Direct Pay. I'll let the balance sit in my savings account and earn interest until the next quarter.

 

[Dash man]

I don’t track anything except my checking account. At the beginning of each month I add funds up to my monthly spending level plus a $5k cushion. If I don’t have to add any during the month, all is good. If some is left at the end of the month, I’m under my planned spending. If I have to add more during the month it’s easy to figure out why. Each year I redo my net worth and portfolio analysis. So far net worth has been up each year, so all is good.

 

[jpeter1093]

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[FONT=&quot]I suppose it depends on where you live and what your lifestyle is like. I still think we could live quite comfortably on 40K per year. Our total income last year (while still working) was less than 58K (before taxes), and a good chunk of that goes to savings or work related expenses that we won't have after retirement.
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[FONT=&quot]
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[FONT=&quot]My most recent expense estimate comes to just over 44K, based on what we are spending now. [/FONT][FONT=&quot][FONT=&quot]There are still many areas we could cut back if we needed to.[/FONT][/FONT]
[FONT=&quot][FONT=&quot]
[/FONT][/FONT]
[FONT=&quot]1800 Electric (150/mo - current is 125/mo)[/FONT]
[FONT=&quot]270 Garbage (45 every other month)[/FONT]
[FONT=&quot]9600 Grocery (800/mo)[/FONT]
[FONT=&quot]1080 Wife Gas (90/mo)[/FONT]
[FONT=&quot]1080 Husband Gas (90/mo)[/FONT]
[FONT=&quot]950 Home Insurance[/FONT]
[FONT=&quot]4600 Property Taxes[/FONT]
[FONT=&quot]800 Insurance for Vehicles[/FONT]
[FONT=&quot]200 Vehicle Licenses[/FONT]
[FONT=&quot]60 Safe Deposit Box[/FONT]
[FONT=&quot]600 Home and Cell Phones[/FONT]
[FONT=&quot]960 Internet (80/mo)[/FONT]
[FONT=&quot]360 Netflix[/FONT]
[FONT=&quot]300 Web Site Expenses[/FONT]
[FONT=&quot]7000 Health Care[/FONT]
[FONT=&quot]1500 Automotive Maintenance and Repairs[/FONT]
[FONT=&quot]2500 Home Improvement (repairs, painting, etc.)[/FONT]
[FONT=&quot]4500 Miscellaneous (clothing, computer parts, craft supplies, etc.)[/FONT]
[FONT=&quot]6000 Recreation (movies, dinners out, hiking, vacations, etc.)[/FONT]
[FONT=&quot]
[/FONT]

Would getting rid of your home landline be a quick (positive) hit? We both have cells and got rid of ours years ago