Spending Budget Recalibration

[daylatedollarshort]

We were spending close to $200K a year prior to retirement but have worked to get than down quite a bit by optimizing every expense and trying to continually live better for less. We like to live sustainably and low consumption these days. The less we have to buy from corporations, the less we are subject to inflation and price gouging. Last year we cut our budget by thousands so our personal inflation rate went down instead of up.

My end goal is to make our cars and house all electric, install solar panels, xeriscape outside, indoor food garden, get what we can from charity thrift shops or freecycle type sites, have capsule wardrobes, eat plant based, etc. If I could live well and get the budget to $0 I would, though realistically we will always have some expenses like taxes, Medicare, insurance and groceries.

 

[audreyh1]

Basically, looking back is what I do as it's a base for us and nothing really is changing, spending wise, anymore. It's really that a some point in your life, day to day living gets pretty constant. (There are surprises, though)

I gave up with Quicken as all I use it for is our checking account and balancing the checkbook each month. I track spending by keeping monthly records of the use of two CC's and the one checking account.

Somehow, I am starting to feel like "imoldernu" is helping me post this.

Ha ha - a good tribute then!

I’m definitely seeing some changes mostly due to inflation, but since our spending never seems to catch up to our income (knock on wood!) I don’t stress over it at all. We just make sure our spending is on priority things and look at our annual spending after the end of the year to see where it is going.

We’ve way underspent these past two years due to no leisure travel. So we definitely have some catching up to do!

 

[38Chevy454]

I'm the same, more of a lookback to see how it compares to past. I can say that expenses are higher now, as fuel, restaurants, groceries have all gone up. But I still can eat out when I want, fill up the car, frig full of food, and just takes a bit more to pay the bill for all that. Withdrawal rate is still below 3%, even with the new snowbird place which adds additional expense. I don't break out my budget into categories, simply monitor total at end of the month which majority is on the credit card; and then a total for the year. I can do math in my head, so I always have pretty good idea where the credit card bill stands at any given time.


Back to the OP's original question, I do think it is wise to review results vs projected. It could be time to get a bit more conservative if things continue going bad for inflation and market results for the rest of the year.

 

[FANOFJESUS]

Using average anything over a 30 year retirement is dangerous, for sure. The worst year to retire for our model was 1969. The average real return for a 60/40 portfolio over 30 years starting in 1969 was 5.64%. If I plug that real return into my deterministic model, I am rich! It's the sequence of the returns that kills ya.

But I like having a deterministic model so I picked the worst 30 year rolling average real return since 1872 to use as my real return. I don't put a lot of faith in the deterministic output, but it is nice to look at.

The first chart is a plot of the 30 year rolling average for various metrics. The blue line is for my 60/40 AA. For now, I just use the minimum it has been since 1872 which is 2.92%.

The second chart shows the output of my model. The thick green line is based on that 2.92% average real return. The dotted red line is the worst case (1969) output from my firecalc model. As you can see, the dotted red line is a lot worse than the solid green line.

I would recommend picking something for deterministic calculations but always consult the firecalc output to make sure it still works. I could spend a lot more money if I just ignored firecalc and went with the average model. Although I have found that in my case, 0% average real return closely tracks the fireclac worst case output. But I think that is more coincidence (third chart).

So if a person retired in 1969 what is the maximum percent they could have spent each year?

 

[levindb]

This is an example of my main concern. When inflation is at todays levels and market returns, including bonds, does it still make sense to assume the market will return something equal to or greater than inflation. I guess if you look at the long term, current times are just a point in time and one needs to look at historical averages. I feel I bit uncomfortable doing that as I never expected this level of inflation.

Things are going to wiggle a bit, and maybe a lot. Over the past 10 years I have seen inflation average 2.0% while our 70/30 AA has a 9.0% ROI. Will things continue just as they have been? I doubt it.

When driving long distances, I don't set the cruise control and hope things go well...I take control of the gas and brake pedals to make sure I get to where I am going safely. I watch the gauges to make sure I am going at the correct speed, the engines is not running too hot, and of course, I watch that gas gauge. Slow down if it is raining, or maybe a little icy.

Same thing with finances...have a good plan, and watch your gauges (COLA, inflation, ROI, spending, etc.), slow down, if necessary...just to make sure you get to where you want to be...after all, YOU are the one driving!!

 

[corn18]

So if a person retired in 1969 what is the maximum percent they could have spent each year?

4% with a 95% chance of success, just like any other firecalc run.

 

[FANOFJESUS]

4% with a 95% chance of success, just like any other firecalc run.

Or is it 5.64% in hindsight.

 

[corn18]

Or is it 5.64% in hindsight.

No, it's just 4% WR @ 95% probability of success. The safe WR has absolutely nothing to do with the average return.

 

[RobbieB]

We've been doing over 4% for the last seven years. Well over -

Just bought a boat for 93 grand. Still got more dough than when I retired. A lot more -

What are these budgets you speak of?

 

[corn18]

We've been doing over 4% for the last seven years. Well over -

Just bought a boat for 93 grand. Still got more dough than when I retired. A lot more -

What are these budgets you speak of?

Easy to be smug in a 12 year running of the bulls.

 

[FANOFJESUS]

No, it's just 4% WR @ 95% probability of success. The safe WR has absolutely nothing to do with the average return.

I read somewhere that if you retired in 1982 a withdrawal rate of 10% it would have worked. But we only know these numbers in hindsight. That is why I asked you about 1969.

 

[tb001]

Yes, the worst stagflation years of the 60s would have failed the 4% rule. Those were some of the 5% failures in that 95% success rate numbers. We of course only know that in hindsight, but sorr is definitely on my mind right now. We have a few more projects we would like to spend on, but it’s getting harder to pull the trigger.

 

[FANOFJESUS]

4% is the standard canned answer but in hindsight every year has a different percent. Some years will fail the 4% rule on other years you could have taken twice that with no problem.

 

[corn18]

Yes, the worst stagflation years of the 60s would have failed the 4% rule. Those were some of the 5% failures in that 95% success rate numbers. We of course only know that in hindsight, but sorr is definitely on my mind right now. We have a few more projects we would like to spend on, but it’s getting harder to pull the trigger.

We're in the same boat but decided to pull the trigger on all of them. Cash is set aside. Still puts us @ 100% per firecalc, just not as big of a cushion.

 

[RobbieB]

Easy to be smug in a 12 year running of the bulls.

Yeah. I wasn't a victim of the "war on savers"

 

[Out-to-Lunch]

So if a person retired in 1969 what is the maximum percent they could have spent each year?

My understanding is that it was 4.02%, provided the retiree had the foresight to have the optimas AA: http://www3.grips.ac.jp/~pinc/data/10-12.pdf

 

[wyecrabber1]

We don't have a budget, but I track our spending. Spending is ~$100K. DW has been retired for 6 years and I retired 4 years ago. We are one of the lucky ones whose retirement and pensions cover our expenses. We have not touched our investments -- with a 90/10 AA. We have no debt and the house is only two years old and paid for. Was able to take health care from my previous employer. We moved from MD to NE Florida to be with family & friends and have enjoyed the tax friendly state.

Need to take RMD's these year. Decided to BTD -- going to Red Rocks for a concert in May. Then a long vacation along the pacific coast and a week in Hawaii.