mpeirce
Thinks s/he gets paid by the post
+1
Seriously. No matter what your net worth is it's very possible to over spend.
No different from having a $1,400,000 net worth and spending $75,000 each year instead of $50,000.
making a budget for retirement
- Thread starter medved
- Start date
+1
Seriously. No matter what your net worth is it's very possible to over spend.
No different from having a $1,400,000 net worth and spending $75,000 each year instead of $50,000.
MedVed, we have exchanged private messages in the past. Just sold my firm and I am working three days per week until December 31 and then full time retirement. I am 56. Never did a budget. I determined that 3% of my investable assets will be more than enough for us to live on, so after procrastinating for 4 years took the plunge. I do have an idea of our annual expenses (+/- $50,000.00 per year). However, I am also receiving a 5 year payout that exceeds our expenses on an annual basis. Also, I believe my kids are older than yours.
The issue for me was not money. I simply no longer liked going to work and running the business and realized that more than half my gas tank has been used. My father owned a different type business, worked until he was 75 then came down with Alzheimers and passed away. Since money was not the issue, there was nothing stopping me from pulling the trigger. Already booked 5 vacations and auditing a history class at a local university. Shopping online for woodworking equipment to make furniture. I actually go out to dinner now without my telephone. It has only been two weeks since the closing but the ball and chain has been removed from my ankle.
The issue for me was not money. I simply no longer liked going to work and running the business and realized that more than half my gas tank has been used. My father owned a different type business, worked until he was 75 then came down with Alzheimers and passed away. Since money was not the issue, there was nothing stopping me from pulling the trigger. Already booked 5 vacations and auditing a history class at a local university. Shopping online for woodworking equipment to make furniture. I actually go out to dinner now without my telephone. It has only been two weeks since the closing but the ball and chain has been removed from my ankle.
I've been tracking our monthly spend since 1989. I use 19 categories in Excel. I also have the same 19 categories projected to age 100. Each category has it's own rate of inflation, and most have a carefully planned consumption profile based on age and other planned lifestyle changes, like downsizing the house and reduced travel. I don't really consider this a "budget," since it doesn't guide our spending. It's just a baseline projection, mainly used to assess the soundness of the overall retirement plan.
Most of our basic living expenses didn't change dramatically after retirement. Obviously some work-related expenses went away, like commuting, clothes, dry cleaning, and expensive lunches. We also cut some other areas like cable and insurance just because we had more time to pay attention to those items. However, these reductions have been offset by increased travel and increased health insurance.
What DID change dramatically after ER are the large discreet items... income tax down by a factor of 10, payroll tax gone, mortgage paid off, kids out of college and off the car insurance, health insurance, and cell phone plan. Once these larger items were "in the books," the remaining spend is rather stable and predictable. But I still like to track it monthly and tweak the projections from time to time. Just my way of making sure we don't drift too far in either direction.
Most of our basic living expenses didn't change dramatically after retirement. Obviously some work-related expenses went away, like commuting, clothes, dry cleaning, and expensive lunches. We also cut some other areas like cable and insurance just because we had more time to pay attention to those items. However, these reductions have been offset by increased travel and increased health insurance.
What DID change dramatically after ER are the large discreet items... income tax down by a factor of 10, payroll tax gone, mortgage paid off, kids out of college and off the car insurance, health insurance, and cell phone plan. Once these larger items were "in the books," the remaining spend is rather stable and predictable. But I still like to track it monthly and tweak the projections from time to time. Just my way of making sure we don't drift too far in either direction.
brett
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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We always lived below our means and were careful so to speak.
Never got granular, not even after retiring. Prior to retirement I simply took a tape of our monthly after tax burn. Very easy for us to do from our bank statement. Then we added some travel dollars, a ten percent cushion for error and another five percent for just in case. We based our projections on that. We just add up the credit card payments, automatic debits, and cash withdrawals.
Four years into retirement I still take a monthly tape of our bank statement to verify our burn rate. Still on budget. Some months we go way over due to travel or prepaid, other months are well under budget. Extraordinary items like daughter's wedding is outside of this number.
We are not as much focussed on monthly as we are on annual. Seems to have worked out well for us. I am just not interested in keeping track of every meal, every grocery purchase, every gas fill up, etc. No cheese for us in doing that.
Never got granular, not even after retiring. Prior to retirement I simply took a tape of our monthly after tax burn. Very easy for us to do from our bank statement. Then we added some travel dollars, a ten percent cushion for error and another five percent for just in case. We based our projections on that. We just add up the credit card payments, automatic debits, and cash withdrawals.
Four years into retirement I still take a monthly tape of our bank statement to verify our burn rate. Still on budget. Some months we go way over due to travel or prepaid, other months are well under budget. Extraordinary items like daughter's wedding is outside of this number.
We are not as much focussed on monthly as we are on annual. Seems to have worked out well for us. I am just not interested in keeping track of every meal, every grocery purchase, every gas fill up, etc. No cheese for us in doing that.
It is interesting to read all the responses, and I sincerely appreciate all of them (even the slightly snarky one about how I have saved more money than most people and I should realize that -- which I do, and I am grateful for it, and I know that it is as much a function of luck as anything else). It is particularly interesting to see the range of responses -- from no budgeting at all, to super-detailed 50+ line spreadsheets updated frequently -- mostly without regard to net worth. It suggests to me this may have more to do with personality or inclination than with economic circumstances. I suspect people on this Board tend to do more financial planning and monitoring than the general population -- and perhaps even more than the universe of early retired people.
I was most amused by the observation that if things go worse than expected, I could "sell one of the mansions and dump the Tesla." Smiled when I read that. (I drive a car that I bought new for $15,000 out the door and we have a nice but far from elaborate house -- and no vacation homes, etc.).
One of the things I am thinking about is my spending habits versus my wife's. I spend very little. I just don't care much about material goods. My wife spends more. Not ridiculous, by any means, but certainly cares more about material goods than I do. There is a potential for that to become more of a concern -- at least psychologically, if not financially, when I retire. Just something for me to think through...
I was most amused by the observation that if things go worse than expected, I could "sell one of the mansions and dump the Tesla." Smiled when I read that. (I drive a car that I bought new for $15,000 out the door and we have a nice but far from elaborate house -- and no vacation homes, etc.).
One of the things I am thinking about is my spending habits versus my wife's. I spend very little. I just don't care much about material goods. My wife spends more. Not ridiculous, by any means, but certainly cares more about material goods than I do. There is a potential for that to become more of a concern -- at least psychologically, if not financially, when I retire. Just something for me to think through...
wmc1000
Thinks s/he gets paid by the post
Brett - what is a bank statement? Ha JK!! We haven't balanced a checkbook in decades!
Gotadimple
Thinks s/he gets paid by the post
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Medved,
Keep thinking - you'll get there. Retirement is not just a physical change, it is a change in mindset. If you are to enjoy retirement, you need to be comfortable with your circumstances (whether in the mansion, or the very well-maintained comfortable home), physically and emotionally.
Rita
Keep thinking - you'll get there. Retirement is not just a physical change, it is a change in mindset. If you are to enjoy retirement, you need to be comfortable with your circumstances (whether in the mansion, or the very well-maintained comfortable home), physically and emotionally.
Rita
kcowan
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Five years into retirement, I knew exactly the impact of purchasing our condo in Mexico. It reduced our annual spend, giving us more runway.
kcowan
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Glad to see you are normal. DW looks after the spending and I look after earning and paying. She even spends on me.
FANOFJESUS
Thinks s/he gets paid by the post
How much are you spending a year right now?
YVRRocketSurgery
Full time employment: Posting here.
This is kind of an oddball example but one example that sticks in my mind is in the Michael Jackson interview like a decade ago where he was in a high end store in Vegas selling ridiculous/impractical items saying "I want that one, two of those, this one too, and that one." In later years, the discussion point was that MJ's finances were not as strong as expected because of his heavy spend.
The other examples that pop to mind are all the professional athletes that pulled in millions, some over $100M in career earnings, and had to file for bankruptcy.
So, yeah, watching your spend is pretty important.
---
For me, the exercise in documenting and categorizing your cashflow/spend in prior to retirement is to determine if you are on track for your goals and to determine if there are any areas of leakage you may want to adjust for efficiency. Eg. My electrical bill was somewhat high, particularly due to a second fee tier if above a, so I changed our incandescent bulbs to LED which seemed to do the trick.
In prep for retirement, I'm forecasting potential changes to regular costs (eg. Our electric company announced they will be raising rates over the next five years at 9%, 6%, 4%, 3.5%, 3%) and adding in new spends (eg We want to travel 6 months of the year) to determine if my forecasted retirement spend will be able to support it on top of a margin of safety.
The cashflow exercise is to confirm how much buffer room one has and how much lifestyle change one would consider if circumstances/needs change. eg Maybe you have a sailboat that has significant yearly maintenance costs and sailing is a core activity for you. But in retirement, you have a child that wants to get a post-graduate degree overseas that you want to support.
If the OP knows they are living significantly within their means, the exercise is likely moot, particularly since it sounds like scale is working in their favour. At worst it serves as a bit of a sanity check and spending tune-up.
GravitySucks
Thinks s/he gets paid by the post
My after Retirement budget work out:
How much did I withdraw and receive back from IRS minus what's in my checking account equals my spending.
When money runs low I stop traveling and eating out.
FIDO retirement calculator (used to be RIP) is good for building an estimated retirement budget.
How much did I withdraw and receive back from IRS minus what's in my checking account equals my spending.
When money runs low I stop traveling and eating out.
FIDO retirement calculator (used to be RIP) is good for building an estimated retirement budget.
Danmar
Thinks s/he gets paid by the post
Obviously it depends on your circumstances and personality/ experience. Both my wife and I are accountants and have a huge need to fully understand and control our finances. This personality was crucial in my working life (CFO of large bank), and it has carried on in retirement. As long as you have the data you need to make spending/investment decisions it doesn't really matter where you get that data or how precise it is. If it works for you, carry on.
As to spousal spending, we have worked out the following. She has her own portfolio and pension which throws off enough income for her personal spending, ie her clothing, shoes, hand bags, gifts, etc. I don't budget for her income nor her expenses. My income from our main portfolio and my pension pays for all joint expenses as well as my modest personal items. I manage both portfolios with her full involvement and understanding. I find that keeping the day-to-day personal items separate works well.
As to spousal spending, we have worked out the following. She has her own portfolio and pension which throws off enough income for her personal spending, ie her clothing, shoes, hand bags, gifts, etc. I don't budget for her income nor her expenses. My income from our main portfolio and my pension pays for all joint expenses as well as my modest personal items. I manage both portfolios with her full involvement and understanding. I find that keeping the day-to-day personal items separate works well.
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As lot of people said, 14M or 4M, you CAN always run out of money if you overspend so I would really encourage you to figure out how much you spend today and how much you want to spend in retirement.
I am years away from RE but I have been tracking my expenses for a decade now. It is fairly automated with "My Portfolio" service from Bank of America (backend is Yodlee). This free service will auto-download and auto-categorize the transactions for you. I download the transaction CSV file once in a while and keep them in a giant spreadsheet. I use "pivot tables" to track monthly personal spending, earned income saving, cashflow form investments, Cashflow from rentals, Networth, IRR of net worth, IRR of investments, "MY" spending inflation, etc.
This spreadsheet is my compass to gauge my financial health and my path forward.
I am years away from RE but I have been tracking my expenses for a decade now. It is fairly automated with "My Portfolio" service from Bank of America (backend is Yodlee). This free service will auto-download and auto-categorize the transactions for you. I download the transaction CSV file once in a while and keep them in a giant spreadsheet. I use "pivot tables" to track monthly personal spending, earned income saving, cashflow form investments, Cashflow from rentals, Networth, IRR of net worth, IRR of investments, "MY" spending inflation, etc.
This spreadsheet is my compass to gauge my financial health and my path forward.
