What's a good way to arrive at your number?

[pjigar]

Just to elaborate. I used to budget using quicken when I was younger, but at some point I abandon it when I got married (also quicken started to become a subscription) and instead use the pay yourself first method. Now I am getting closer to retirement, I am starting to try to track my expenses again. Part of it is that I need to separate out kids expenses.

I use "account aggregation" service from Bank of America to track expenses for free. There was a thread on various providers. Search.

You don't have to micro-manage the categories like kids expenses. Because lot of the expenses you think will be gone in retirement will be instead replaced with the new expenses. e.g. for us, extra food/cloth/etc for kids will be replaced with higher entertainment/eating out costs. Work related expenses will be replaced by hobbies. In fact, we would spend a lot more than today in retirement once travel and extra healthcare costs are added.

I am trying to get some sort of number together. I do have one in my head that is in the ballpark, but I figure I better double-check that it's correct.

Like I said in my previous post, focus on WR instead. Estimate how long your retirement will be? (30, 40, 50 years). Decide a comfortable WR that matches the retirement period. We use 3% SWR for 50 years (or longer) retirement period. Nestegg number = 100*(annual expenses in retirement)/SWR

 

[YellowSubmarine]

I am curious the method that one would arrive at the retirement number. My thought were

1. Estimate your current expense and probably predict any future creep.
2. Get an estimate of SS.
3. Subtract your SS and other retirement income (like a pension) from the expense.]
4. Estimate 25x for a 30 years retirement.
5. Run some calculation using different methods to check how realistic the plan is. I think typical recommendation is about 90%.
   • A direct method using a pessimistic, and average.
   • A historical; calc like firecalc or ********.
   • A Monte Carlo like in portfolio Visualizer or Fidelity Retirement Planner.

However, things never go as plan. I am curious about the following.

1. How do you avoid underestimating expense? My thought was that expenses must be recalculated every couple of years.
2. How do you handle that SS estimate will vary depending on when you file? I have known people that are forced to retire early and had to file early. My current mitigation is to be able to at least survive with no SS.
3. 25x expense is a good number for a 30 year retirement. What would be the expense for a longer or shorter retirement?
4. Do people even find the calculator useful? They seems to be very input sensitive. Calc result often vary a lot because they have different assumptions on inflation rate, tax treatment, etc. I suppose investigating their difference can dig up assumptions that you can see if you need to incorporate into your model.

Not everyone wants to be this detail. What's the simplest plan you can think of?

I ran the Fidelity Retirement Planner for many years prior to retirement. I always used the worse case scenario. I did not include SS as that was my 'fudge factor'. I planned to age 98.

 

[Yegey]

I use "account aggregation" service from Bank of America to track expenses for free. There was a thread on various providers. Search.

You don't have to micro-manage the categories like kids expenses. Because lot of the expenses you think will be gone in retirement will be instead replaced with the new expenses. e.g. for us, extra food/cloth/etc for kids will be replaced with higher entertainment/eating out costs. Work related expenses will be replaced by hobbies. In fact, we would spend a lot more than today in retirement once travel and extra healthcare costs are added.


Like I said in my previous post, focus on WR instead. Estimate how long your retirement will be? (30, 40, 50 years). Decide a comfortable WR that matches the retirement period. We use 3% SWR for 50 years (or longer) retirement period. Nestegg number = 100*(annual expenses in retirement)/SWR

Good point, I don't know if I will upgrade my lifestyle after the kids are gone. My guess is may be a little but probably not a lot more.. At the very least, $20K a year into college saving will go away along with the $30K morttgage, but a lot of the expense like home repair and property tax will remain. May be my appliance will last longer if it's not running 3x a day.

I look next door and see that all of my neighbor's kids have come back with their grandkids, but I think it's temporary. Boomerng kids are a possibility. A friend's mom actually filled his room with stuff after college graduation so he couldn't come back.

 

[street]

What's a good way to arrive at your number?​

For me it was finding Boggleheads and ER sites. They taught me what I need to find, to find what I would needed to ER. Without this site I would have went in blind for the most part. The help here gave me all the confidence and answers I needed.

When I asked if I could ER, the answer was, if you can't retire no one else can. lol

 

[old medic]

A friend's mom actually filled his room with stuff after college graduation so he couldn't come back.

We sold the home and downsized to a 964 SqFt 2 bedroom....

 

[Midpack]

It's not a good idea to try to nail down "your number" - there are just too many variables and unknowns. I'd use FIRECALC using your numbers, and then decide on what additional safety factor (if any) will allow you to sleep at night. I assumed no Soc Sec, even though I knew we'd always have some benefit, even if it's 70% of estimates. I decided I'd be comfortable retiring when I had 2X our number - but I realize not everyone needs or wants that much extra. YMMV

 

[Yegey]

It's not a good idea to try to nail down "your number" - there are just too many variables and unknowns. I'd use FIRECALC using your numbers, and then decide on what additional safety factor (if any) will allow you to sleep at night. I assumed no Soc Sec, even though I knew we'd always have some benefit, even if it's 70% of estimates. I decided I'd be comfortable retiring when I had 2X our number - but I realize not everyone needs or wants that much extra. YMMV

A lot of retiree just wing it. The downside is that many get to retirement and find out that they don't have enough and have to work longer but cannot due to circumstances.

At the other extreme, you can plan to nail down a specific number, but this is not really realistic either, since there is no way to know your portfolio size at retirement.

I am shooting for something in between where I have a rough range where I hope to be able to live sparsely comfortable at the lower range. I also factor out SS just in case.Although I might have difficulty if my portfolio do poorly and I have no SS.

 

[pjigar]

I am shooting for something in between where I have a rough range where I hope to be able to live sparsely comfortable at the lower range. I also factor out SS just in case.Although I might have difficulty if my portfolio do poorly and I have no SS.

I have used FireCalc to estimate "when" I should be able to retire for over 15 years now. Be sure to explore all the tabs, especially "Not retired?" tab where you can enter annual savings. By changing annual savings, annual expense, and years to retire; I was able to see how my success rates changes and portfolio valued balances change. The firecalc quarterly feedback was important for me to keep the discipline with the saving and investing. Side note: I e-mailed myself the firecalc result page (copy/paste which has a link to this data) all those years so I can clearly see how my savings and nest egg have gone up over the last 15 years.

 

[audreyh1]

Before retiring I thoroughly reviewed our spending. I had years of expense data from Quicken, and I also looked at what we would no longer spend on plus new things we would likely spend on. So I had a pretty good handle on both baseline (fixed) expenses plus discretionary expenses.

 

[CalBird]

We know what our salary provided so we have fairly good idea what we need to keep the same life style. Once the portfolio can provide what salary did we know we are ready. Working a bit more just to have some cushion.

 

[Diogenes]

One problem with tracking my expense is that my 20 year old self is nothing like today. There is life style creep over the decades, but that is mostly because my 20 year old self lived in a bombed out apartment in a dangerous neighborhood and that wasn't desirable in the long run. At that point in time, my feeling is that I need to concentrate on saving and investing and staying invested rather than coming up with numbers.

Some of us never advanced from the 20-year-old stage, both in terms of lifestyle, and in the "concentration" as you describe it. If the focus remains perpetually on saving and investment, there's no cause for doing budgets or for running what-if scenarios in FireCalc. The only insuperable expense, is taxes... that's a punitive amount that only grows, as one's wealth rises (and then grows some more, if/when reaching RMD age).

 

[Yegey]

Some of us never advanced from the 20-year-old stage, both in terms of lifestyle, and in the "concentration" as you describe it. If the focus remains perpetually on saving and investment, there's no cause for doing budgets or for running what-if scenarios in FireCalc. The only insuperable expense, is taxes... that's a punitive amount that only grows, as one's wealth rises (and then grows some more, if/when reaching RMD age).

I think it depends on the starting point and the spouse. My standard of living has upgraded from my childhood and my early working years. My spouse's has remain the same.

 

[bonvoyage]

Before retiring I thoroughly reviewed our spending. I had years of expense data from Quicken, and I also looked at what we would no longer spend on plus new things we would likely spend on. So I had a pretty good handle on both baseline (fixed) expenses plus discretionary expenses.

This is worth emphasizing - you need to have an understanding of your core, lumpy and discretionary expenses before you can derive a number.

 

[Gumby]

Like many here, I carefully tracked our expenses for many, many years (and still do) so I had a good idea of what they probably would be in retirement. I also discounted social security. But in the end, it was pretty simple. I just worked until I was eligible for retiree health insurance for the two of us, and then one more year until the young wife hit 30 years of service in her job, which resulted in a step jump in her pension. Two pensions and social security now cover all our everyday expenses and the completely discretionary ones like travel and charitable giving (which together constitute about 30% of our spending). Lumpy and/or unexpected expenses can be covered by draws on our still growing portfolio without changing our day to day life.

It helped a lot that we were NOT focused on escaping the rat race as soon as humanly possible. We both enjoyed our jobs, but we reached the point where we had the money and wanted the time to do other things that were also important to us.

 

[brett]

I did not find retirement financial planning dreadfully difficult. In fact, I believe that it is straightforward. If you do it right the number simply falls out at the bottom of the equation. Whether you like or dislike the bottom right hand number is an entirely different issue. On the back of an envelope or on a retirement program ss.

I still feel the same way after 14 years of retirement. It is/was not rocket science.

Understand you expenses, your go forward expenses. Ditto for revenue flows. Be realistic. Be conservative on revenue, add in expense monies for just in case, and even more dollars for e&o. Understand how inflation, your inflation rate, could impact both sides of the equation.

I have always approached it as a classic 'T' account model.


And the golden rule....don't fall into the trap of fooling yourself, expect the unexpected from time to time.

Once you have made the decision move forward to take advantage of your new life. Forget about those rear view mirror exercises and adding up or comparing your net worth to whatever every twenty minutes.

And.....don't sweat the small stuff. At the end of the day it is only money!

 

[engineernerd]

I really believe in the historical calculators like FIRECalc and FI Calc (FI Calc).

They are of course not a guarantee, but they have the advantage that they realistically model the interaction of inflation rates and investment returns over a very long period of time (1871 on). It is my belief that inflation and investment returns are both influenced by economic conditions of the time and are not independent variables.

These calculators are most accurate for Boglehead-style investing choices (total stock market index funds, broadly diversified bond funds or cash equivalents), which suits me fine since I have no ambitions to invest differently.

I'm not sure of the necessity to track spending by category, for me it's sufficient to look at the total for each year, and also the total with optional big expenses removed (travel, in our case). I look to see not only the total for the most recent year but also the trend in the basic spending so I can see my own personal inflation rate.

We don't have kids so never had to decide how to model their moving out, but from what I read, something approaching half of all young adults in this country are now still/again living in their parents' homes years after completing their schooling. So if we did have kids we would want to be able to help them financially if they did turn out to need that. We have heard enough from our niece and nephews about how hard it is to get a decent job nowadays to convince us that it really is a tough world for young people now.

BTW, someone in this thread said FIRECalc was too simple, I disagree and wonder if that person failed to notice all the input tabs across the top ("Other Income/Spending" etc).

And one more thought: FI Calc lets you easily see which historical retirement years would have caused your portfolio to go negative before the end. It is very unlikely that anyone on this forum retired in one of those bad years, so just be aware that everyone delightedly reporting here how their portfolios keep growing more than their spending might be painting a more rosy outlook than you might experience.

 

[SnowballCamper]

I like this one for its simplicity Rich, Broke or Dead? Post-Retirement FIRE Calculator: Visualizing Early Retirement Success and Longevity Risk - Engaging Data
But you have to input your savings, as opposed to getting how much you need to save as a result.
I never tracked my spending meticulously since I lived on less than the paycheck. I did make the observation that our savings rate was especially high as we approached retirement.

 

[brett]

I used a retirement program for several years. Did a lot of what ifs. Got to know my primary drivers...there were few.

For the next three or four years prior to actual retirement I was able to do it on the back on an envelope. Most of the givens had not change appreciable. My career has involved numbers so I found the subsequent manual approach much faster. It turned out to be fairly accurate.

 

[Out of Steam]

You don't estimate expenses, you use actuals, going back a couple of years at least. And then you pad, and pad some more, and think about things like a new roof, car, healthcare, taxes, and pad again. And then 10 years later you find you want to travel more, and are glad you padded that 8th time.

Yes need actuals. And then you want an estimate for "lumpy expenses" such a new car, new roof, new appliances, remodeling whatever.

Because we moved at retirement, and were less than two years from having paid college tuition, actual expense history was of limited use to us. If we had relied too much on actuals, we would not have retired when we did. Six years after retirement, we're living on about 75% of our pre-retirement income, though we could draw another 10% from savings if need be.

We had expected to replace one car in the first five years of retirement, but ended up replacing two, and have also delayed some house expenses. 2026 will include some tree work and a repaved driveway.

 

[brett]

I believe that it comes down to basic math, common sense, and an understanding of your income and expenses.

Definitely not rocket science.

 

[Koolau]

I really believe in the historical calculators like FIRECalc and FI Calc (FI Calc).

They are of course not a guarantee, but they have the advantage that they realistically model the interaction of inflation rates and investment returns over a very long period of time (1871 on). It is my belief that inflation and investment returns are both influenced by economic conditions of the time and are not independent variables.

These calculators are most accurate for Boglehead-style investing choices (total stock market index funds, broadly diversified bond funds or cash equivalents), which suits me fine since I have no ambitions to invest differently.

I'm not sure of the necessity to track spending by category, for me it's sufficient to look at the total for each year, and also the total with optional big expenses removed (travel, in our case). I look to see not only the total for the most recent year but also the trend in the basic spending so I can see my own personal inflation rate.

We don't have kids so never had to decide how to model their moving out, but from what I read, something approaching half of all young adults in this country are now still/again living in their parents' homes years after completing their schooling. So if we did have kids we would want to be able to help them financially if they did turn out to need that. We have heard enough from our niece and nephews about how hard it is to get a decent job nowadays to convince us that it really is a tough world for young people now.

BTW, someone in this thread said FIRECalc was too simple, I disagree and wonder if that person failed to notice all the input tabs across the top ("Other Income/Spending" etc).

And one more thought: FI Calc lets you easily see which historical retirement years would have caused your portfolio to go negative before the end. It is very unlikely that anyone on this forum retired in one of those bad years, so just be aware that everyone delightedly reporting here how their portfolios keep growing more than their spending might be painting a more rosy outlook than you might experience.

A good number of us here retired shortly before 2008. There were worse times in history, but that period will do in the "stress-the-plan" arena. "Stick to the plan" was my mantra and it has seemed to w*rk.

 

[Fermion]

Once 4% of your investment portfolio throws off the median household income, you can retire. Currently this is $83,730, so you need $2,093,250 in your portfolio to retire today. This is for early retirement, say around age 50. This should allow you the lifestyle of better than half the households in the USA. Might be a little gravy in there with SS which would allow you to do a few more things in the later years.

 

[fognostic]

I've been tracking expenses, net worth and asset allocation in Empower Personal Capital for years. It's free and helped me get a good handle on our expenses (total and categories). They do call very occasionally to sell their portfolio management services and the web interface employs a few psychological tricks to nudge users to sign up for same, but they're by no means pushy about it. If you can resist the marketing, I think it's a great tool. Their retirement planner is too conservative for my taste though - I find ~75% success in Empower equates to ~100% success in FIRECalc. Empower appears to sample average asset class performance and inflation about their standard deviations instead of historical data. The former will be more conservative. But I suppose that conservatism offsets losses to their AUM portfolio management fees if you turn over your nest egg to them.

I primarily rely on FIRECalc for retirement planning. I also use ERN's google sheet model, which offers more flexibility and options, but it is a little more complicated and time consuming to use. Both models agree well with each other, which increases my confidence neither have catastrophic implementation errors.

 

[HI Bill]

FWIW, I started with a goal of having an income stream equal to 100% of my pre-retirement income. Since I had been saving 49% of my income, this meant almost a 100% increase in spending (less taxes). But then I decided to buy a house in ER, and that we wanted to travel more. And looked up the cost of insurance. In my first ER year, I had almost 0% federal tax rate, and met my original goal. Then a friend died in his early 60s and I set out to spend as much as possible as early as possible.

FWIW, the "4% rule" is much more than a back of the napkin number. The originator wrote two books on his research. If you follow even the updated 'rule', you're not likely to ever run out of $ based on previous data. FIRECALC and Monte Carlo simulations provide similar safe withdrawal rates.

 

[RetireBy90]

I guess we are lucky in the fact we managed paycheck to paycheck for so many years, both worked (DW still working till Oct) to a fair pension. We figured out our est pensions and spent several years just taking that amount and the rest went to 401Ks.

Retired 7 years now, so I think I’ve got a handle on the financial aspects. We have 3 small COLA adjusted pensions, will have 2 SS in Jan and income from a rental.
I used our take home pay plus taxes as necessary budget and planned on a 3% return from investments. My “number” was the amount needed to complete other income (without SS) to meet our working income. I built in several underestimates to account for those unforeseen events or expenses. We were FI, Then I worked till it was time.
1- leave room in case your plan goes haywire
2- Expect that you will have to adjust to change financially and in other ways.
3- Spend some time e time thinking or dreaming about life in retirement. Some report they just slid into it, took me some time to adjust.
Enjoy the journey