Estimating expenses

[fh2000]

I have always been using $95K to estimate my ER annual expenses. 95K seems high but when I break it into small sections, I am not able to reduce any further.

DW and I are on OMY mode. She is 51 (I am 57), so not sure when the time comes, she will go thru OMOMY (one more one-more-year).

My actual living expenses and travel estimates are about $50K. That seems to be as low as we would like to be.

Then there are these below. Totaled $45K, which is almost 1/2 of the estimated expenses.

US residence--------- $7K (property tax, insurance, security; no mortgage)
Foreign residence----- $8K (mortgage, tax, insurance)
Tax (Fed and State)-- $15K (mainly for Roth conversion)
Health care----------- $15K (joining ACA before 65)

The only 2 items that I see will change are tax and health care. But I am not sure by how much, and how do you estimate the future numbers and put those into FIRECalc?

 

[brett]

We never did bother to break down our retirement expenses.

What we did was estimate what we needed, on an after tax basis. We did it by adding up our cash, cheque, and credit card purchases, backing out any non expense items or capital items, and came up with a number. We increased it even though we anticipated our daily expenses would decrease because we wanted to spend more on travel.

So, after two years on this after tax budget, we came in on our estimated budget. 2012 was $500. under budget. So far, 2013 is under budget however our travel plans will soon change that.

 

[aida2003]

IMO, you'd start with your current expenses and then add/subtract expenses you foresee in the future plus have a cushion for unpredictable things. The latter is the hardest part, I admit, but necessary.

 

[Live And Learn]

IMO, you'd start with your current expenses and then add/subtract expenses you foresee in the future plus have a cushion for unpredictable things. The latter is the hardest part, I admit, but necessary.

+1

Most calculators will assume a "normal" rate of inflation. The risk is that taxes and healthcare may have a completely different (and higher) inflation rate than all other expenses. The Fidelity RIP tool uses a higher inflation rate for Healthcare.

For my own purposes I have a starting point for "actual" expenses that is actually a bit higher than what I am spending today (I have carefully tracked my spending for 3+ years). I am also only using 90% of my portfolio in my calculations. Those two cushions should (I hope) make up for anything I might have missed.

 

[mickeyd]

My ER expenses are about what they were what I was w**king. Plan on that. If you can live on less, your income/investments will last longer and you will sleep much better.

Don't over-think it.

 

[scrabbler1]

IMO, you'd start with your current expenses and then add/subtract expenses you foresee in the future plus have a cushion for unpredictable things. The latter is the hardest part, I admit, but necessary.

+1 this is what I did when I planning my ER. The main things which changed were the elimination of commutation expenses, the elimination of FICA taxes, and the increase in health insurance costs. Income taxes dropped a bit, too. Overall, these changes roughly canceled each other out.

 

[Finance Dave]

I don't understand your figures about foreign residence, etc. but that's ok...

I have my expenses broken by category in Excel, then I have a column to the right of each one with a "post-FIRE-factor". For items that will go down, the factor is less than 1.0. Opposite for those that will increase. I also break them into needs and wants. If, in FIRE, the markets don't do well, then we cut out or cut down the wants for the following year.

Example
Travel $5k/year pre-FIRE x 2.0 = $10k/year post-FIRE (want)
Auto expenses $2,000/year pre-FIRE x .8 = $1,600/year post-FIRE (need)

Etc.

 

[fh2000]

I don't understand your figures about foreign residence, etc. but that's ok...

.

It is cheaper in total value. Mortgage interest is much lower than US rate. Property tax is negligible, that is why.

 

[jollystomper]

Quicken helps for us, we have 16 years of data that we can use to somewhat predict future expenses in our budget categories. For the last few years we also have held "retirement months" where in a given month we tried to live on our target retirement expenses. That has helped us refine our estimate.

 

[Katsmeow]

I am confused by you saying you can't get it lower than 95k but then you say your expenses are 50k...

For taxes, go here

TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator

and forecast taxes for future years. Sure, rates may change and all but it gives you something based upon current situation.

I use a spreadsheet and have lots of expenses from the past in YNAB (You Need a Budget). In the spreadsheet I project expenses out for about 10 years. It changes a lot since we still have kids we are supporting.

I then took the projected numbers then ran them through taxcaster or through TurboTax to project future taxes.

 

[bUU]

I have always been using $95K to estimate my ER annual expenses. 95K seems high but when I break it into small sections, I am not able to reduce any further.

Our current expenses are a little bit higher than yours, my spouse is a couple of years older and I'm a year younger, both otherwise, we're pretty-much the same boat. I'll be interested to read the feedback you get.

 

[Huston55]

My ER expenses are about what they were what I was w**king. Plan on that. If you can live on less, your income/investments will last longer and you will sleep much better.

Don't over-think it.

You'll get advice that spans the whole spectrum; from this simple method to something more complicated like FinanceDave's spreadsheets below. Personally, I'm somewhere in between, and I think there are advantages to both.

We started by calculating our expenses for 3 yrs using a simple method to tell us what expenses neighborhood we're in. That method is:

W2 Earnings - Taxes (of all kinds) - Retirement Savings = Expenses

Those 3 yrs calculated to ~ the same amount; within 10%.

For the past two years, we've used an approach similar to FinanceDave's with a spreadsheet which distinguishes btwn essential and discretionary expenses; this also incorporates Mickeyd's philosophy of pre & post FIRE expenses being about the same. I use that data in the Fidelity RIP tool to run FIRE secenarios. This extra specificity gives me confidence. We've also examined our "reduced" budget in case of market down turn (which is easy to do with 'essential' and 'discretionary' expenses segregated), to gain more confidence.

Over time, we've found that most of our expense categories are very stable and take little to no management. For us, it's typically a few "discretionary" categories that we have to manage.

I don't understand your figures about foreign residence, etc. but that's ok...

I have my expenses broken by category in Excel, then I have a column to the right of each one with a "post-FIRE-factor". For items that will go down, the factor is less than 1.0. Opposite for those that will increase. I also break them into needs and wants. If, in FIRE, the markets don't do well, then we cut out or cut down the wants for the following year.

Example
Travel $5k/year pre-FIRE x 2.0 = $10k/year post-FIRE (want)
Auto expenses $2,000/year pre-FIRE x .8 = $1,600/year post-FIRE (need)

Etc.

 

[pb4uski]

I was lucky to have used Quicken for many years so I had some good data to start from. If you don't have good data you could do an analysis for your actual spending for the last couple years (from credit card records, checks written, etc.)

I then put together a retirement budget using past spending as a base and then adjusting it for changes expected in retirement (more travel, more entertainment, less taxes, higher health insurance, less outside maintenance, etc.). It turned out to be very close in aggregate. Our health care costs (health insurance and provision for deductibles) are about $10k a year.

I estimated health care based on COBRA premiums. I also looked at on-line sources for individual/small group insurance coverage. We ultimately went with a small group plan that was about 1/3 less than COBRA.

I estimated taxes by taking my last year's tax return and adjusting it to take out wages and making other adjustments for changes in retirement. My taxes were MUCH lower because of the 0% rate on qualified dividends and capital gains if you stay in the 15% bracket.

 

[aida2003]

[mod edit]

What language is this?

 

[aida2003]

I thought this thread initiated by Christina Benz on M* would be interesting to read for those planning retirement expenses. I read it for inspiration to continue dreaming : Your Spending Patterns in Retirement

When trying to find this particular thread, I noticed there are some more older threads as well.

 

[bUU]

What language is this?

Google translates the start of it as, "Need to sell 2 computer metallic dictionary..." and it seems to be Vietnamese.

 

[BigNick]

What language is this?

Vietnamese, FWIW.

 

[MichaelB]

Sorry, folks. Some spam that sneaked past us. It's now gone, and the part that was in quotes along with it. You can always use the "report post" button

when you see a post that needs attention.