Retirement Expenses Rule of Thumb

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305pelusa
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Retirement Expenses Rule of Thumb

Post by 305pelusa » Sun Aug 25, 2019 6:59 pm

Hello,
I am trying to get a rough estimate of my potential future retirement expenses and income needs. Mainly, I want to know approximately how much income I want my nest egg to produce. That way, using a SWR (say 3.25-4%) and SS, I can figure out my approximate nest egg target.

The only rule of thumb I've heard is that you want your savings+SS to replace around 50, 60, 70 or even 80% of your pre-retirement income. The only problem with that is that I currently save a significant chunk of my post-tax income due to living well below means (like many other BHs I'm sure). So if I created a nest egg that could produce 80% of pre-retirement income, that might be way more than I would really need based on my expenses.

So I'm looking for a rough rule of thumb along the lines of "whatever you spend before retirement, multiply by 2, and that's a good number to plan for in terms of retirement expenses". Obviously, I know this is very individual (some might want to start traveling much more, some might end up spending much less than before retirement, etc). So I'm just looking for a rough rule of thumb for those that tend to save quite a bit during their working years and are looking to increase their living standard during retirement.

Any thoughts are appreciated.

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Re: Retirement Expenses Rule of Thumb

Post by dknightd » Sun Aug 25, 2019 7:09 pm

Look to replace 100% of your current spending. Perhaps reduce since you'll not be paying SS and medicare any more.

Silk McCue
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Re: Retirement Expenses Rule of Thumb

Post by Silk McCue » Sun Aug 25, 2019 7:09 pm

You won’t find any value in a rule of thumb due to varying thumb sizes. You need to work up your own budget. There are plenty of threads here on this subject and the spending levels are broadly diverse.

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Re: Retirement Expenses Rule of Thumb

Post by ClaycordJCA » Sun Aug 25, 2019 7:19 pm

Annual Income - Annual Savings = Annual Expenses. Save 25x your annual expenses and you are in the neighborhood of a 4% SWR, which is viewed as likely to last for 30 years. There are also variables. For example, will you move to a LCOL area or payoff your mortgage? That will reduce your expenses. How will you pay for healthcare if employer subsidized healthcare is not available? Are you budgeting to replace your vehicles, roof, etc.?
Last edited by ClaycordJCA on Sun Aug 25, 2019 7:20 pm, edited 1 time in total.

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Re: Retirement Expenses Rule of Thumb

Post by 305pelusa » Sun Aug 25, 2019 7:20 pm

dknightd wrote:
Sun Aug 25, 2019 7:09 pm
Look to replace 100% of your current spending. Perhaps reduce since you'll not be paying SS and medicare any more.
Yes so I definitely want to replace 100% since I want to maintain my standard of living. That seems good for the average Joe. However, for a person that is living well below their means to potentially retire early (I imagine many BHs are in a similar boat), I'm looking to hopefully increase my standard of living during retirement. I'm trying to figure out what others in a similar position have found is a good multiplier.

I'm asking as someone with little clue about medical costs/insurance, what 1-3 nice vacations might cost, etc.

Another way of asking is what percent of expenses of people with nice, comfortable retirements tends to be discretionary spending as a portion of their total expenses. I would consider my expenses to be mostly non-discretionary (aka bare-minimum living) and want to know how much to multiply that by to come up with a good number for retirement expenses that do include plenty of discretionary spending.

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Re: Retirement Expenses Rule of Thumb

Post by dknightd » Sun Aug 25, 2019 7:43 pm

305pelusa wrote:
Sun Aug 25, 2019 7:20 pm

Another way of asking is what percent of expenses of people with nice, comfortable retirements tends to be discretionary spending as a portion of their total expenses. I would consider my expenses to be mostly non-discretionary (aka bare-minimum living) and want to know how much to multiply that by to come up with a good number for retirement expenses that do include plenty of discretionary spending.
The sky is the limit !

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Re: Retirement Expenses Rule of Thumb

Post by MathIsMyWayr » Sun Aug 25, 2019 7:47 pm

For your reference, max. SS is about $35k and $45k at FRA and 70, respectively. Your spouse will also get 1/2 of $35K or her own benefit. For those with sizable SS, SS satisfies a fairly large percentage of the retirement expense. SS is important not just for low income retirees. If your expected retirement income requirement is $180k, SS could meet as much as 50%. I am hesitant to call $180k per year poor.

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Re: Retirement Expenses Rule of Thumb

Post by Sandtrap » Sun Aug 25, 2019 8:39 pm

OP:
This might be helpful to you for calculations and projections.
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Re: Retirement Expenses Rule of Thumb

Post by RetiredAL » Sun Aug 25, 2019 8:40 pm

I retired 3 years ago at age 66. My wife is a year younger than me.

Our the cost for our regular Medicare + supplement is just about what our out-of-pocket yearly expenses were for my work's plan.

In deciding on how much to withdraw my IRA's ( 401K and lump sum retirement ), I set it so that SS ( mine and DW's ) + IRA distributions into checking = what my take-home deposit was minus the Roth IRA contribution. 3 year later, I have not had to adjust this. It's approx a 2% withdrawal rate.

I strongly suggest that you model various incomes and taxes using either the BH tools or a tax software's calculator. I used both the BH's Excel model and TaxAct's calculator. These models made me very comfortable with what I was planning to do, and the cost of doing it. I planned for and have been doing IRA to ROTH conversions with its somewhat added complexity, but I understood what to conversions were going to cost. Without conversions, my taxes would be minimal, less than 20% of my working days taxes. Based on this modeling, I initially set the retirement taxes withheld about 3/4 the taxes had been while working and I adjust taxes withheld based on what I finally convert. I live in Ca where SS is not taxed.

BTW, I convert mainly because when one of us dies, the RMD will push a lot of $ above of 12% bracket, enough so that the total tax bill will approx double.

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Re: Retirement Expenses Rule of Thumb

Post by dbr » Sun Aug 25, 2019 8:45 pm

I would say that it is very difficult to estimate how much one wants to spend in retirement until one gets close or closer o retiring. It is also very difficult to use a percent of income because it is very difficult to estimate future income until one is nearly there. There are too many variables operating over time to do those things. Retirement planning is an exercise in successive approximation.

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Re: Retirement Expenses Rule of Thumb

Post by trueblueky » Sun Aug 25, 2019 9:00 pm

I looked at my paystub. Some payroll deductions (examples: retirement contribution, Medicare tax) ended when I retired. Some remained the same (vision insurance). Some increased (health insurance no longer pre-tax). Moved, so state tax changed. Federal tax also changed since part of pension is a return of contributions. Etc. Reviewing that showed me that 75% would have the same take-home.

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Re: Retirement Expenses Rule of Thumb

Post by Jack FFR1846 » Sun Aug 25, 2019 9:50 pm

305pelusa wrote:
Sun Aug 25, 2019 7:20 pm
dknightd wrote:
Sun Aug 25, 2019 7:09 pm
Look to replace 100% of your current spending. Perhaps reduce since you'll not be paying SS and medicare any more.
Yes so I definitely want to replace 100% since I want to maintain my standard of living. That seems good for the average Joe. However, for a person that is living well below their means to potentially retire early (I imagine many BHs are in a similar boat), I'm looking to hopefully increase my standard of living during retirement. I'm trying to figure out what others in a similar position have found is a good multiplier.

I'm asking as someone with little clue about medical costs/insurance, what 1-3 nice vacations might cost, etc.

Another way of asking is what percent of expenses of people with nice, comfortable retirements tends to be discretionary spending as a portion of their total expenses. I would consider my expenses to be mostly non-discretionary (aka bare-minimum living) and want to know how much to multiply that by to come up with a good number for retirement expenses that do include plenty of discretionary spending.
Make a list of major things you now spend money on.
Make another list for things you will spend money on when you retire.

I've seen more than one BH post of travel, travel, travel in retirement. That can't be cheap.
Health insurance ain't cheap either.
Without income from work, taxes should be less.
Perks you might get at work disappear.

Do the work and figure these things out for your specific expectations.
Bogle: Smart Beta is stupid

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Re: Retirement Expenses Rule of Thumb

Post by AlohaJoe » Sun Aug 25, 2019 10:27 pm

305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
So I'm looking for a rough rule of thumb along the lines of "whatever you spend before retirement, multiply by 2, and that's a good number to plan for in terms of retirement expenses". Obviously, I know this is very individual (some might want to start traveling much more, some might end up spending much less than before retirement, etc). So I'm just looking for a rough rule of thumb for those that tend to save quite a bit during their working years and are looking to increase their living standard during retirement.
I agree with the many replies that you are on a Quixotic question for an "individual" "rule of thumb". That said, I also understand that retirement induces a lot of financial anxieties and people try to find data & knowledge to mitigate that anxiety.

The closest you will find to what you are looking for is David Blanchett's research in Exploring the Retirement Consumption Puzzle.

Scroll down to figure 3 and find the line for "low spend, high net worth"

Image

What the line is telling us that people in category retire and realize "Hey, I have so much money I don't need to be stingy anymore". They loosen up their spending but, on the whole not dramatically. Eye-balling the chart, it looks like spending increases 5% or 6% in the first year of retirement and continues to increase but at a decreasing rate. That might look something like this:

Code: Select all

$50,000 spending before retirement
Age 65 -- $53,000 (6% increase)
Age 66 -- $55,650 (5% increase)
Age 67 -- $58,154 (4.5% increase)
Age 68 -- $60,480 (4% increase)
If you think your spending is going to double in retirement then you are so vastly removed from any semblance of "average retiree" (even "rich average retirees" don't double their spending) that it is foolhardy to look for rules of thumb.

I also kinda question how out of touch you are to think that many people double their spending during retirement?!? :shock:

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Re: Retirement Expenses Rule of Thumb

Post by 305pelusa » Sun Aug 25, 2019 10:53 pm

AlohaJoe wrote:
Sun Aug 25, 2019 10:27 pm
305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
So I'm looking for a rough rule of thumb along the lines of "whatever you spend before retirement, multiply by 2, and that's a good number to plan for in terms of retirement expenses". Obviously, I know this is very individual (some might want to start traveling much more, some might end up spending much less than before retirement, etc). So I'm just looking for a rough rule of thumb for those that tend to save quite a bit during their working years and are looking to increase their living standard during retirement.
I agree with the many replies that you are on a Quixotic question for an "individual" "rule of thumb". That said, I also understand that retirement induces a lot of financial anxieties and people try to find data & knowledge to mitigate that anxiety.

The closest you will find to what you are looking for is David Blanchett's research in Exploring the Retirement Consumption Puzzle.

Scroll down to figure 3 and find the line for "low spend, high net worth"

Image

What the line is telling us that people in category retire and realize "Hey, I have so much money I don't need to be stingy anymore". They loosen up their spending but, on the whole not dramatically. Eye-balling the chart, it looks like spending increases 5% or 6% in the first year of retirement and continues to increase but at a decreasing rate. That might look something like this:

Code: Select all

$50,000 spending before retirement
Age 65 -- $53,000 (6% increase)
Age 66 -- $55,650 (5% increase)
Age 67 -- $58,154 (4.5% increase)
Age 68 -- $60,480 (4% increase)
If you think your spending is going to double in retirement then you are so vastly removed from any semblance of "average retiree" (even "rich average retirees" don't double their spending) that it is foolhardy to look for rules of thumb.

I also kinda question how out of touch you are to think that many people double their spending during retirement?!? :shock:
Whoah thanks, this is very helpful.

And yeah I guess I'm out of touch with what people do. That's why I opened a thread and asked 0_o

I currently spend 28k a year. It didn't seem crazy to me that I'd want to bump that up to 56k during retirement in today's dollars.

Hopefully others will chime in with some personal experience about their retirement expenses as well :)

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Re: Retirement Expenses Rule of Thumb

Post by 22twain » Sun Aug 25, 2019 11:07 pm

dbr wrote:
Sun Aug 25, 2019 8:45 pm
I would say that it is very difficult to estimate how much one wants to spend in retirement until one gets close or closer o retiring. It is also very difficult to use a percent of income because it is very difficult to estimate future income until one is nearly there.
Especially since the OP is 25, according to a previous post. Even assuming early retirement around age 50 or even 45, a lot of stuff can happen in between: marriage, kids, buying a house, moving to some other more expensive (or less expensive) part of the country for a new job...
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: Retirement Expenses Rule of Thumb

Post by Dandy » Mon Aug 26, 2019 6:13 am

Unless you are close to retirement it is more of a guessing game. What expenses will go away? mortgage? commuting? what expenses might increase? medical? dental? travel? hobbies like golf? Will you relocate? Will you have a pension? when will you get Social Security?

What you are living on now is a decent starting point.

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Re: Retirement Expenses Rule of Thumb

Post by Small Savanna » Mon Aug 26, 2019 6:24 am

I would start with 100% of current expenses, and then subtract any large expenses that have a definite end point - for example, if your mortgage will be paid off soon, or if you are in the last few years of tuition payments for a child. You could also consider adding any major new expenses that you anticipate, for example if you are retiring before Medicare, the cost of health insurance. Starting with current actual expenses as a baseline is probably more realistic than a "bottom up" budget, unless you are extremely thorough in capturing all of the one-off expenses that happen in real life.

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Re: Retirement Expenses Rule of Thumb

Post by oldcomputerguy » Mon Aug 26, 2019 6:49 am

305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
Hello,
I am trying to get a rough estimate of my potential future retirement expenses and income needs. Mainly, I want to know approximately how much income I want my nest egg to produce. That way, using a SWR (say 3.25-4%) and SS, I can figure out my approximate nest egg target.

When I began thinking about retirement, I ran across this discussion from Paul Merriman. I think it's probably what you're looking for. It's not a "rule of thumb" because, as others here have noted, everyone's situation is different and a rule of thumb just doesn't apply. However, it's a good description of the thought process you should go through to try to get a rough idea of a plan of action. Item 1 of the Bogleheads Philosophy is "develop a workable plan". This information from Mr. Merriman should help you do that.
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)

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Re: Retirement Expenses Rule of Thumb

Post by David Althaus » Mon Aug 26, 2019 7:23 am

You seem like people who will have more than sufficient resources and thinking power. At 72 we have never done a budget. Here's our thinking. Hope it can help you. Divide your spending (after taxes, utilities, etc.) into A, B, and C priorities. A--I absolutely want to spend the winter in warm weather. B--It would be nice to spend the winter in warm weather. C--There are more important things than spending the winter in warm weather.

Your list need not be perfect. We cut from the bottom of the C pile in our daily thought process and that daily process sets up a method for decision-making. May be controversial but budgeting can encourage a false comfort and can be construed as precision lacking much purpose.

Obviously, you'll seek to save money on purchases at all times in this daily process.

All the best

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Re: Retirement Expenses Rule of Thumb

Post by 305pelusa » Mon Aug 26, 2019 7:37 am

Thank you for the responses albeit I still haven't gotten a particularly satisfactory answer. So I'll rephrase the question:

How much after-tax dollars per year does one retiree need to live a fairly comfortable retirement ? Assume it is neither a HCOL nor a LCOL (say just neutral or average COL). Assume the retiree wants to do 2-3 trips a year, 1-2 of those international for 2 weeks at a time. Assume the retiree's health care is not covered by Medicare and he/she is renting.

I'm looking ballpark so feel free to give a range. Are we talking 30-40k? 50-60k? 80-90k?

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Re: Retirement Expenses Rule of Thumb

Post by RetireBy55 » Mon Aug 26, 2019 7:59 am

One thing I've observed having been on this and other early retirement forums for quite some time is the answer is going to vary WILDLY. For example - some people on one (other) forum truly believe they can be "comfortable" on $20-30K per year. Others need $150K+. As others have said, it truly does come down to your own expenses and there is no shortcut to developing a detailed budget and including "everything" you might possible expect to spend. That's your answer.

In our own case, we live in a MCOL area, have no mortgage, buy our clothes mostly at Kohls, drive average cars (nothing fancy) and our "core" expenses (property tax, utilities, groceries, insurance, etc) are ~$55-60K/yr. Add in a "nice" vacation ($10-20K), Taxes, Healthcare ($15-20K) and it jumps to $100K+ easily.

I often wonder if those who are saying they can live comfortably on $20-30K / yr are tracking EVERY penny they spend via Quicken or a similar program. We've tracked for many, many years and while I probably don't get 100% (especially cash spend) in there, we do have at least 98% of all income and expense tracked religiously - and it's staggering how many small things there are to spend money on that you never would otherwise think of. Sure, it's easy to add up your "big" expenses and come up with a small number - but it's the hundreds of other, non-big expenses that add up to a much larger chunk than most ever think to account for in my experience.

As always, YMMV and as mentioned there's no substitute for tracking your expenses (ideally for at least a year or two) and developing a detailed budget in Excel or similar with what you expect to spend in retirement..

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Re: Retirement Expenses Rule of Thumb

Post by goblue100 » Mon Aug 26, 2019 8:09 am

305pelusa wrote:
Mon Aug 26, 2019 7:37 am
Thank you for the responses albeit I still haven't gotten a particularly satisfactory answer. So I'll rephrase the question:

How much after-tax dollars per year does one retiree need to live a fairly comfortable retirement ? Assume it is neither a HCOL nor a LCOL (say just neutral or average COL). Assume the retiree wants to do 2-3 trips a year, 1-2 of those international for 2 weeks at a time. Assume the retiree's health care is not covered by Medicare and he/she is renting.

I'm looking ballpark so feel free to give a range. Are we talking 30-40k? 50-60k? 80-90k?
I'm looking to retire at 60, so I'm on my own for health care for 5 years. I have a paid for house, and I hope to travel about the amount you specified. My portfolio should sustain ~60,000 a year, so I believe I can do it on that. The nice thing is that travel is a discretionary expense, so if an international trip becomes a domestic trip due to budget, so be it.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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Re: Retirement Expenses Rule of Thumb

Post by randomguy » Mon Aug 26, 2019 8:28 am

dknightd wrote:
Sun Aug 25, 2019 7:09 pm
s
Look to replace 100% of your current spending. Perhaps reduce since you'll not be paying SS and medicare any more.
That has the problem of accounting for taxes(they are a function of spending) and changes in spending upon retirement. Health care tends to be the wild card (both before medicare and medicare costs). At the other end housing cots might drop like a rock (i.e. you pay off the mortgage and no longer need to make Principle and interest payments).

Any rule of thumb is going to break down because of things like that. Depending on where you are on the income scale, the difference could be close to 0 (you are already paying 5k for health insurance and you don't pay taxes) to 50%+ (you pick up 15k/year in health care costs taxes are 25%+).

Personally I just aimed to replace salary income (I don't spend investment income right now)-savings. It isn't remotely exact (I do pay my own health care) and overestimates taxes, but it is close enough for planning purposes.

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Re: Retirement Expenses Rule of Thumb

Post by midareff » Mon Aug 26, 2019 8:53 am

dknightd wrote:
Sun Aug 25, 2019 7:09 pm
Look to replace 100% of your current spending. Perhaps reduce since you'll not be paying SS and medicare any more.
I'd say more than that. You are retired... you are in decumulation not accumulation. Generally, medical and dental costs will go up as will entertainment and travel.

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Re: Retirement Expenses Rule of Thumb

Post by Silk McCue » Mon Aug 26, 2019 8:58 am

305pelusa wrote:
Mon Aug 26, 2019 7:37 am
Thank you for the responses albeit I still haven't gotten a particularly satisfactory answer. So I'll rephrase the question:

How much after-tax dollars per year does one retiree need to live a fairly comfortable retirement ? Assume it is neither a HCOL nor a LCOL (say just neutral or average COL). Assume the retiree wants to do 2-3 trips a year, 1-2 of those international for 2 weeks at a time. Assume the retiree's health care is not covered by Medicare and he/she is renting.

I'm looking ballpark so feel free to give a range. Are we talking 30-40k? 50-60k? 80-90k?
You are capable of estimating the costs of the vacations that you imagine and can ballpark healthcare prior to Medicare (since no one knows). Since you are 25 years old you have plenty of time to model your finances and investing over the next 70 years. We've modeled ours.

There is no response beyond what has already been provided in this thread that will give you an actionable answer apart from you developing your own personal budget. Vacation spends are widely diverse based upon personal taste and financial means.

Cheers

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Re: Retirement Expenses Rule of Thumb

Post by HomerJ » Mon Aug 26, 2019 9:06 am

305pelusa wrote:
Sun Aug 25, 2019 7:20 pm
dknightd wrote:
Sun Aug 25, 2019 7:09 pm
Look to replace 100% of your current spending. Perhaps reduce since you'll not be paying SS and medicare any more.
Yes so I definitely want to replace 100% since I want to maintain my standard of living. That seems good for the average Joe. However, for a person that is living well below their means to potentially retire early (I imagine many BHs are in a similar boat), I'm looking to hopefully increase my standard of living during retirement. I'm trying to figure out what others in a similar position have found is a good multiplier.

I'm asking as someone with little clue about medical costs/insurance, what 1-3 nice vacations might cost, etc.

Another way of asking is what percent of expenses of people with nice, comfortable retirements tends to be discretionary spending as a portion of their total expenses. I would consider my expenses to be mostly non-discretionary (aka bare-minimum living) and want to know how much to multiply that by to come up with a good number for retirement expenses that do include plenty of discretionary spending.
#1... NEVER look at "replacing income". It's all about the expenses...

And expenses are all personal... There is no standard "multiplier".

It sounds like you're depriving yourself too much now, if you can't figure out how much you will want in retirement (or perhaps retirement is far away).

If retirement is far away, yes it is difficult to get a handle on what you will want to spend. Just save a good solid amount, and treat yourself now and then. You don't want to wait until retirement to actually have a little fun.

When retirement is closer, look at your CURRENT expenses, and then do the simple math of adding a bit of a buffer for fun. You should have some idea what your vacations cost, because you've been on some, right? You can do some research and find out how much it costs to play golf 3/week if that's what you want to do, right?

So add some rough numbers... Give yourself $2000/month ($24,000 a year) for traveling, like I plan to do. Or more or less... It's all personal, all subjective. You have to figure this out for yourself.
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Re: Retirement Expenses Rule of Thumb

Post by RetireBy55 » Mon Aug 26, 2019 9:12 am

I somehow missed that OP is apparently 25..

OP - since you have many years to retirement, I'd recommend you start tracking your expenses religiously. Use Quicken or whatever method (Excel spreadsheet, etc) you are comfortable with. But whatever you decide - just do it. And track EVERYTHING - and I mean "everything" down to every last thing you spend $$ on from cash, checking, credit cards, etc. Do this for at least 2 and preferably more years.

Then, make assumptions about your life going forward. Will you have any major life change events? (Not sure if you are married, single, have kids, etc). Include kids college costs. Housing. Housing repairs. Big vacations. Big purchases (new boat, RV, etc). Put that all into a spreadsheet with income and expenses broken out by year, through whatever year your expected life expectancy says you'll be around.

Finally, adjust everything for inflation. That's going to be tough as no-one knows year by year where we'll be..but assume at least 2% annually and possibly higher.

Lastly, all bets are off with regard to taxes and healthcare. I'm 55 trying to get through the next 10 years to Medicare, and even this close don't have any confidence in what could/would happen to "the system" as it exists today or will exist tomorrow. Ditto, taxes.

Hope that helps..as others have said, any numbers that any of us throw out are going to be all but meaningless to your own personal situation. There simply is no "average" number that's applicable across the board (in today or future $s) that people would generally agree means a "comfortable" and not opulent or "Fat FIRE" retirement.

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Re: Retirement Expenses Rule of Thumb

Post by HomerJ » Mon Aug 26, 2019 9:14 am

Silk McCue wrote:
Mon Aug 26, 2019 8:58 am
305pelusa wrote:
Mon Aug 26, 2019 7:37 am
Thank you for the responses albeit I still haven't gotten a particularly satisfactory answer. So I'll rephrase the question:

How much after-tax dollars per year does one retiree need to live a fairly comfortable retirement ? Assume it is neither a HCOL nor a LCOL (say just neutral or average COL). Assume the retiree wants to do 2-3 trips a year, 1-2 of those international for 2 weeks at a time. Assume the retiree's health care is not covered by Medicare and he/she is renting.

I'm looking ballpark so feel free to give a range. Are we talking 30-40k? 50-60k? 80-90k?
You are capable of estimating the costs of the vacations that you imagine and can ballpark healthcare prior to Medicare (since no one knows). Since you are 25 years old you have plenty of time to model your finances and investing over the next 70 years. We've modeled ours.

There is no response beyond what has already been provided in this thread that will give you an actionable answer apart from you developing your own personal budget. Vacation spends are widely diverse based upon personal taste and financial means.

Cheers
Oh the OP is 25... Yeah that makes it hard to model retirement.

OP, if you want hard numbers... With a paid-off house in a MCOL area, one can easily live very comfortably on $50k a year. Throw in $25k a year for fun and travel, and you're at $75k.

Renting, I suppose you'd have to increase that a bit, but then you'd also wouldn't have a bunch of money tied up in your house, and wouldn't have to worry about upkeep or repairs...

But again, this is all personal... Are you talking a 1 or 2 bedroom apartment in a high-rise or are you renting a 3-bedroom house with a view?

International trips, are you backpacking, and using the trains and staying in hostels or local hotels? Or are you river cruising or ocean cruising with a room with a balcony and room service?

My annual numbers are $75k or so... Your numbers are likely going to be very different.
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Re: Retirement Expenses Rule of Thumb

Post by RetireBy55 » Mon Aug 26, 2019 9:15 am

HomerJ wrote:
Mon Aug 26, 2019 9:06 am
#1... NEVER look at "replacing income". It's all about the expenses...
AMEN! It always boggles my mind that so-called "professionals" (including just the other day Fidelity and one other large WS firm that I don't remember at the moment) throw out "advice" like aiming for 80% or whatever magic number they believe that day you need as a % of your pre-retirement income.

The only way to plan is to base it off projected expenses. Forget today's income entirely. That's totally irrelevant.

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Re: Retirement Expenses Rule of Thumb

Post by 305pelusa » Mon Aug 26, 2019 9:34 am

Thank you for the responses.

I'm 25 yes but planning to retire within 10-15 years. That's far enough that I can't figure out exactly what I want to do, but close enough that I want to get a sense of the expenses.

I appreciate those who have given me some numbers. Even if they're just personal experience, they do give perspective.

That said, it sounds like I might get more representative answers if I post in a FIRE forum.

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Re: Retirement Expenses Rule of Thumb

Post by mptfan » Mon Aug 26, 2019 9:37 am

305pelusa wrote:
Mon Aug 26, 2019 9:34 am
I'm 25 yes but planning to retire within 10-15 years. That's far enough that I can't figure out exactly what I want to do, but close enough that I want to get a sense of the expenses.
Some say that retirement is a mindset, so all you have to do is change your mindset and *poof* you are retired! No need to stop working.
:wink:

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Re: Retirement Expenses Rule of Thumb

Post by smitcat » Mon Aug 26, 2019 9:38 am

305pelusa wrote:
Mon Aug 26, 2019 9:34 am
Thank you for the responses.

I'm 25 yes but planning to retire within 10-15 years. That's far enough that I can't figure out exactly what I want to do, but close enough that I want to get a sense of the expenses.

I appreciate those who have given me some numbers. Even if they're just personal experience, they do give perspective.

That said, it sounds like I might get more representative answers if I post in a FIRE forum.
"That said, it sounds like I might get more representative answers if I post in a FIRE forum."
What you have learned here is the it is based upon expenses and not income and that required income in retirement is very personal.
No matter where you post those rules will still apply and you will need to do your own calculations dependent upon your proposed costs not someone else's.
Last edited by smitcat on Mon Aug 26, 2019 9:45 am, edited 1 time in total.

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Re: Retirement Expenses Rule of Thumb

Post by Silk McCue » Mon Aug 26, 2019 9:42 am

305pelusa wrote:
Mon Aug 26, 2019 9:34 am
Thank you for the responses.

I'm 25 yes but planning to retire within 10-15 years. That's far enough that I can't figure out exactly what I want to do, but close enough that I want to get a sense of the expenses.

I appreciate those who have given me some numbers. Even if they're just personal experience, they do give perspective.

That said, it sounds like I might get more representative answers if I post in a FIRE forum.
Leaving out details in your post such as your age, how many years until you wish to retire, current spend level, current savings level, total current assets in deferred, Roth and taxable, income tax, marital status and dependents etc puts responders at a disadvantage. I would suggest you post in a FIRE forum and that you share sufficient information such that you can get the meaningful responses you desire. Even there, you shouldn't expect others to tell you how much vacations cost.

Cheers

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Re: Retirement Expenses Rule of Thumb

Post by HeelaMonster » Mon Aug 26, 2019 9:45 am

305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
The only rule of thumb I've heard is that you want your savings+SS to replace around 50, 60, 70 or even 80% of your pre-retirement income. The only problem with that is that I currently save a significant chunk of my post-tax income due to living well below means (like many other BHs I'm sure). So if I created a nest egg that could produce 80% of pre-retirement income, that might be way more than I would really need based on my expenses.
I find targets based on income to be meaningless, unless you are spending every cent you earn and saving nothing (hopefully not the case for anyone here). Like you, we are good savers. For example, we have been living for many years on less than half of our income (after taxes and deductions), and investing the rest. It would be a gross overestimate to think we needed to replace 80% of pre-retirement income (or even 50%, since many deductions will stop and taxes will change).

As many others have said, income matters much less than EXPENSES. With that in mind, I sat down with our bank statements, where EVERYthing we spend is ultimately paid from (and therefore tracked in) one account... including utilities, groceries, credit cards, taxes, donations, vacations, restaurants, concerts... everything. I added up the monthly debit, excluding only big-ticket items relating to savings/investments (e.g., annual contributions to IRAs, moving cash to a mutual fund, and the like). I came up with $5k per month ($60k per year), which held remarkably consistent over the last 5 years. That is the figure I am looking to replace as we move into retirement, which is happening now. We can basically cover that with SS and pensions, which means investment accounts are gravy, and I can be very confident that our funds will last through retirement.

That number, however, may not help you (or anyone else) at all, because we all have different circumstances and habits (single vs married, kids, spending habits, location, etc, etc, etc). YMMV, but the thought process can be applied. You are obviously looking down the road, which is good.

[ETA: I do need to second the observations that you are a looooooongggg way out, which makes it even less likely that numbers from someone entering retirement (like me) will do you any good. The retirement balance needed to sustain you for 30 years of early retirement will be greatly different than those retiring in their 60s, after 35 year careers. But more power to you, if you can make it happen!)
Last edited by HeelaMonster on Mon Aug 26, 2019 9:54 am, edited 2 times in total.

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Re: Retirement Expenses Rule of Thumb

Post by dodecahedron » Mon Aug 26, 2019 9:45 am

305pelusa wrote:
Mon Aug 26, 2019 9:34 am
Thank you for the responses.

I'm 25 yes but planning to retire within 10-15 years. That's far enough that I can't figure out exactly what I want to do, but close enough that I want to get a sense of the expenses.
Oh my! You have an awfully long forecast (assuming typical life expectancy.)

When my late husband and I were 25 (late 1970s), inflation and interest rates were roaring into the double digits and looked to be a fire burning out of control. Inflation has since then mostly moderated but certain sectors wound up growing far more than general inflation (particularly health care and college tuition.) Although we were both professional economists with PhDs, there would never have been any way that long ago to reasonably project our expenses (in either nominal or real terms) for the rest of our lives.

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Re: Retirement Expenses Rule of Thumb

Post by rich126 » Mon Aug 26, 2019 9:51 am

HeelaMonster wrote:
Mon Aug 26, 2019 9:45 am
305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
The only rule of thumb I've heard is that you want your savings+SS to replace around 50, 60, 70 or even 80% of your pre-retirement income. The only problem with that is that I currently save a significant chunk of my post-tax income due to living well below means (like many other BHs I'm sure). So if I created a nest egg that could produce 80% of pre-retirement income, that might be way more than I would really need based on my expenses.
I find targets based on income to be meaningless, unless you are spending every cent you earn and saving nothing (hopefully not the case for anyone here). Like you, we are good savers. For example, we have been living for many years on less than half of our income (after taxes and deductions), and investing the rest. It would be a gross overestimate to think we needed to replace 80% of pre-retirement income (or even 50%, since many deductions will stop and taxes will change).

As many others have said, income matters much less than EXPENSES. I recently sat down with our bank statement, where EVERYthing we spend is ultimately paid from (and therefore tracked in) one account... including utilities, groceries, credit cards, taxes, donations, vacations, restaurants, concerts... everything. I added up the monthly debit, excluding only big-ticket items relating to savings/investments (e.g., annual contributions to IRAs, moving cash to a mutual fund, and the like). I came up with $5k per month ($60k per year), which held remarkably consistent over the last 5 years. That is the figure I am looking to replace as we move into retirement, which is happening now. We can basically cover that with SS and pensions, which means investment accounts are gravy, and I can be very confident that our funds will last through retirement.

That number, however, may not help you (or anyone else) at all, because we all have different circumstances and habits (single vs married, kids, spending habits, location, etc, etc, etc). YMMV, but the thought process can be applied. You are obviously looking down the road, which is good.
Why did anyone ever consider income instead of expenses? Seems like a terrible way of doing stuff. If I'm bringing home $250K a year but only spending $100K a year, the spending number is the only relevant number for retirement.

Figure out what goes into your bank account per paycheck, adjust it for a year, factor in taxes and health insurance, remove the mortgage if it will be paid off and generally you have what you may need. If I'm putting $3K biweekly in my bank account, have a $1500 mortgage but it will be paid off in retirement then my need is $78K-$18K or $60K. And adjust that for taxes and however you will get health insurance and go you have good number to use.

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Re: Retirement Expenses Rule of Thumb

Post by RetireBy55 » Mon Aug 26, 2019 9:54 am

305pelusa wrote:
Mon Aug 26, 2019 9:34 am
Thank you for the responses.

I'm 25 yes but planning to retire within 10-15 years. That's far enough that I can't figure out exactly what I want to do, but close enough that I want to get a sense of the expenses.

I appreciate those who have given me some numbers. Even if they're just personal experience, they do give perspective.

That said, it sounds like I might get more representative answers if I post in a FIRE forum.
Unless your expenses are quite minimal and/or you have an amazing pension (very rare for people your age), you're going to need a boatload of assets to get you from 35-40 through the rest of your life.

Not to rain on anyone's parade but retiring at 35-40 seems extremely aggressive, and having a VERY good plan (preferably prepared by a very good "fee-only" fiduciary CFP) would be highly recommended. I thought turning off the W-2 income stream at 55 was risky as there are simply too many things out of my control (market / sequence or return risk, healthcare, taxes, inflation, SS cuts, potential pre-mature death of me or my spouse which would impact our expected SS income). I can't imagine doing it 15-20 years earlier.

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Re: Retirement Expenses Rule of Thumb

Post by cherijoh » Mon Aug 26, 2019 9:59 am

dbr wrote:
Sun Aug 25, 2019 8:45 pm
I would say that it is very difficult to estimate how much one wants to spend in retirement until one gets close or closer o retiring. It is also very difficult to use a percent of income because it is very difficult to estimate future income until one is nearly there. There are too many variables operating over time to do those things. Retirement planning is an exercise in successive approximation.
+1

When you aren't yet near retirement, I recommend running multiple scenarios.

If you are using a retirement calculator like Firecalc that relies on historical data, then you can vary your future savings amounts (current percentage +/- certain percentage to start off) and your desired spending amounts (current level + 10%, 20%, 30%, etc.). You could also add in AA - presumably at some point you will want to be more conservative than now. Then plot out your success ratios to guestimate a sweet spot for now.

If you are using a calulator that requires you enter your own returns, then add in various return rates in terms of real returns including something conservative like 0% real return on bonds and 5% real return on stocks. Then get a blended rate based on your AA. Run several levels of this along with the savings rates and retirement spending rates mentioned above.

Keep in mind that if you shoot past your target, you can either retire early or ease off the gas pedal and coast into retirement. If you fall short of your goal as you approach retirement, you may not be able to cut back on lifestyle or work as long as you may need to to have the retirement you want.

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Re: Retirement Expenses Rule of Thumb

Post by Hyperborea » Mon Aug 26, 2019 5:25 pm

mptfan wrote:
Mon Aug 26, 2019 9:37 am
305pelusa wrote:
Mon Aug 26, 2019 9:34 am
I'm 25 yes but planning to retire within 10-15 years. That's far enough that I can't figure out exactly what I want to do, but close enough that I want to get a sense of the expenses.
Some say that retirement is a mindset, so all you have to do is change your mindset and *poof* you are retired! No need to stop working.
:wink:
:oops:
Well, the mindset change and being financially independent - i.e. not needing to work for money for the sake of the money but may do so because of other non-monetary benefits from the job (social interaction, personal challenge, unique opportunities or experiences, etc.).
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

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Re: Retirement Expenses Rule of Thumb

Post by mrb09 » Mon Aug 26, 2019 5:45 pm

I'm not retired, but I'm starting to get a plan, this was my simple model:

- Take the income that I spend every year (not going into taxes or pre/post tax retirement savings)
- Remove the expenses that will go away (like paid off house)
- Add new expenses I plan to have (like medicare gap insurance)

That was it. I didn't like the first answer I got five years, so I'm trying to be more budget conscious, with saving more and spending less, but I'm planning for my spending budget on day one of my retirement to be exactly the same as the day before subject to the adjustments above.

One thing I really earned from this forum is to be financially independent you need to know your expenses and have a plan for an income stream. Things like "net worth" and " percentage of income" are just noise.

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Re: Retirement Expenses Rule of Thumb

Post by mrc » Tue Aug 27, 2019 4:52 am

mrb09 wrote:
Mon Aug 26, 2019 5:45 pm
I'm not retired, but I'm starting to get a plan, this was my simple model:

- Take the income that I spend every year (not going into taxes or pre/post tax retirement savings)
- Remove the expenses that will go away (like paid off house)
- Add new expenses I plan to have (like medicare gap insurance)

That was it. I didn't like the first answer I got five years, so I'm trying to be more budget conscious, with saving more and spending less, but I'm planning for my spending budget on day one of my retirement to be exactly the same as the day before subject to the adjustments above.

One thing I really earned from this forum is to be financially independent you need to know your expenses and have a plan for an income stream. Things like "net worth" and " percentage of income" are just noise.
We are retired. We did the same thing. Don't forget to include any expenses paid via payroll deduction that will not stop at retirement, e.g., health insurance premiums and for us, home/auto/umbrella premiums.

I don't know our net worth b/c it doesn't matter and changes every day.

The "percent of income" method is fraught with potential errors: We are DINKs with a high savings rate, and a paid off home. To achieve a 90% of working income stream in retirement would be difficult and isn't necessary. Our expenses are ~50% of working income, and with one pension and two SS streams, our portfolio only has to support the difference. Including RMDs, our income comfortably exceeds expected expenses. Using the percent of working income method, we would have over-saved.
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Re: Retirement Expenses Rule of Thumb

Post by MJS » Tue Aug 27, 2019 6:01 am

305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
The only rule of thumb I've heard is that you want your savings+SS to replace around 50, 60, 70 or even 80% of your pre-retirement income.
That rule of thumb is based on x% of expenses when there's 25 more years of retirement ahead. To approximate an age 65 income, run a simple inflation calculator . $28k in 2019 would be $75k in 2059 when a 25 year old would be 65 and could expect to reach 90.

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Re: Retirement Expenses Rule of Thumb

Post by JoeRetire » Tue Aug 27, 2019 6:22 am

305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
So I'm looking for a rough rule of thumb along the lines of "whatever you spend before retirement, multiply by 2, and that's a good number to plan for in terms of retirement expenses". Obviously, I know this is very individual (some might want to start traveling much more, some might end up spending much less than before retirement, etc). So I'm just looking for a rough rule of thumb for those that tend to save quite a bit during their working years and are looking to increase their living standard during retirement.
Here's my rule of thumb:
- imagine what you want your life in retirement to be, what you want to do, where you want to go, what your goals might be
- estimate how much money it would take to life that life each year
- as you age, refine your estimate

There's no magic here.
Don't be a lemming.

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305pelusa
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Re: Retirement Expenses Rule of Thumb

Post by 305pelusa » Tue Aug 27, 2019 6:56 am

MJS wrote:
Tue Aug 27, 2019 6:01 am
305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
The only rule of thumb I've heard is that you want your savings+SS to replace around 50, 60, 70 or even 80% of your pre-retirement income.
That rule of thumb is based on x% of expenses when there's 25 more years of retirement ahead. To approximate an age 65 income, run a simple inflation calculator . $28k in 2019 would be $75k in 2059 when a 25 year old would be 65 and could expect to reach 90.
I'm a little confused. My income is not 28k, those are my expenses.
JoeRetire wrote:
Tue Aug 27, 2019 6:22 am
305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
So I'm looking for a rough rule of thumb along the lines of "whatever you spend before retirement, multiply by 2, and that's a good number to plan for in terms of retirement expenses". Obviously, I know this is very individual (some might want to start traveling much more, some might end up spending much less than before retirement, etc). So I'm just looking for a rough rule of thumb for those that tend to save quite a bit during their working years and are looking to increase their living standard during retirement.
Here's my rule of thumb:
- imagine what you want your life in retirement to be, what you want to do, where you want to go, what your goals might be
- estimate how much money it would take to life that life each year
- as you age, refine your estimate

There's no magic here.
Yeah, I'll just have to do this haha.
RetireBy55 wrote:
Mon Aug 26, 2019 9:54 am
Unless your expenses are quite minimal and/or you have an amazing pension (very rare for people your age), you're going to need a boatload of assets to get you from 35-40 through the rest of your life.

Not to rain on anyone's parade but retiring at 35-40 seems extremely aggressive, and having a VERY good plan (preferably prepared by a very good "fee-only" fiduciary CFP) would be highly recommended. I thought turning off the W-2 income stream at 55 was risky as there are simply too many things out of my control (market / sequence or return risk, healthcare, taxes, inflation, SS cuts, potential pre-mature death of me or my spouse which would impact our expected SS income). I can't imagine doing it 15-20 years earlier.
Lol I didn't want to mention my age since I thought the thread might turn into the likelihood of FIRE.

Any ways, for purposes of this thread, just assume I'm 40, looking to retire by 55. I get that this decreases my failure rate during retirement; but that can be tweaked via the SWR.

Thanks for the responses so far. If anyone has any more personal experience, I'd like to hear it.

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Re: Retirement Expenses Rule of Thumb

Post by longinvest » Tue Aug 27, 2019 7:05 am

305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
That way, using a SWR (say 3.25-4%) and SS, I can figure out my approximate nest egg target.
I suggest to avoid basing one's plans on SWR, a method which has a high probability of an undesirable outcome:
  1. it leads the most of its adopters to severely underspend during retirement and die with a gigantic portfolio, and
  2. it leads part of the remaining adopters to overspend and deplete their portfolio while still alive.
305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
The only rule of thumb I've heard is that you want your savings+SS to replace around 50, 60, 70 or even 80% of your pre-retirement income. The only problem with that is that I currently save a significant chunk of my post-tax income due to living well below means (like many other BHs I'm sure). So if I created a nest egg that could produce 80% of pre-retirement income, that might be way more than I would really need based on my expenses.

So I'm looking for a rough rule of thumb along the lines of "whatever you spend before retirement, multiply by 2, and that's a good number to plan for in terms of retirement expenses". Obviously, I know this is very individual (some might want to start traveling much more, some might end up spending much less than before retirement, etc). So I'm just looking for a rough rule of thumb for those that tend to save quite a bit during their working years and are looking to increase their living standard during retirement.
Our wiki's VPW Accumulation And Retirement Worksheet contains an Accumulation sheet specifically targeted at accumulators.

It's based on our wiki's flexible variable percentage withdrawal (VPW) method which allows the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

The Accumulation sheet aims to balance accumulation-time and retirement-time spending by considering how much money is available for taxes and expenses (after savings). It's based on the principle of successive approximations over time, adapting savings every year to the new reality of the investor: new salary, new portfolio balance, etc. It's also based on the idea that, after retirement, there won't be a need to save for retirement anymore, and that many accumulation-time expenses are likely to be replaced with new equivalent retirement-time expenses. For example, the mortgage payment might disappear, but home equity line of credit (HELOC) payments might be required to pay for a new roof or other major house repairs. Children might be gone, but the retiree might travel more and wish to gift money to children. Healthcare expenses might increase, too, etc.

The Accumulation sheet is easy to use. Here's a screenshot:

Image

The most difficult part, for a young investor, is to estimate future Social Security (SS) payments. But, it's actually quite easy to do using forum member Neuroshpere's Social Security Estimator, entering the investor's historical salaries for previous years, and filling the rest using the investor's current salary until the projected retirement. I suggest to use the projected amount when Social Security is claimed at age 70 in the VPW Accumulation sheet.

Note that the Accumulation sheet is only concerned with retirement savings. Any other savings (house downpayment, college funding, etc.) has to be done in addition to retirement savings.

The savings amount suggestion is approximate, but as calculations are redone every year, the process is self-correcting over time.

I suggest calculating with various retirement target ages (this requires getting new SS estimates). The impact of changing the retirement target age can have a dramatic impact on the required amount of savings.
Last edited by longinvest on Tue Aug 27, 2019 7:07 am, edited 2 times in total.
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Re: Retirement Expenses Rule of Thumb

Post by MikeG62 » Tue Aug 27, 2019 7:06 am

305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
...So I'm just looking for a rough rule of thumb for those that tend to save quite a bit during their working years and are looking to increase their living standard during retirement.

Any thoughts are appreciated.
Early retired four years now. Here is my view. Build a budget off what you spend now. Then adjust it for expenses that might go away and add expenses that would increase (healthcare being one, travel and entertainment being another - there may be others). Make adjustments if you plan to relocate or for any other factors that might cause your current expense run rate to differ in the future.

I don’t think using a rule of thumb (% of your current income) is going to be that helpful.

FWIW, DW and I spend more (considerably more) in retirement than we spent while I was working. Mostly due to T&E and healthcare expenses.
Real Knowledge Comes Only From Experience

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Re: Retirement Expenses Rule of Thumb

Post by smitcat » Tue Aug 27, 2019 7:19 am

305pelusa wrote:
Tue Aug 27, 2019 6:56 am
MJS wrote:
Tue Aug 27, 2019 6:01 am
305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
The only rule of thumb I've heard is that you want your savings+SS to replace around 50, 60, 70 or even 80% of your pre-retirement income.
That rule of thumb is based on x% of expenses when there's 25 more years of retirement ahead. To approximate an age 65 income, run a simple inflation calculator . $28k in 2019 would be $75k in 2059 when a 25 year old would be 65 and could expect to reach 90.
I'm a little confused. My income is not 28k, those are my expenses.
JoeRetire wrote:
Tue Aug 27, 2019 6:22 am
305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
So I'm looking for a rough rule of thumb along the lines of "whatever you spend before retirement, multiply by 2, and that's a good number to plan for in terms of retirement expenses". Obviously, I know this is very individual (some might want to start traveling much more, some might end up spending much less than before retirement, etc). So I'm just looking for a rough rule of thumb for those that tend to save quite a bit during their working years and are looking to increase their living standard during retirement.
Here's my rule of thumb:
- imagine what you want your life in retirement to be, what you want to do, where you want to go, what your goals might be
- estimate how much money it would take to life that life each year
- as you age, refine your estimate

There's no magic here.
Yeah, I'll just have to do this haha.
RetireBy55 wrote:
Mon Aug 26, 2019 9:54 am
Unless your expenses are quite minimal and/or you have an amazing pension (very rare for people your age), you're going to need a boatload of assets to get you from 35-40 through the rest of your life.

Not to rain on anyone's parade but retiring at 35-40 seems extremely aggressive, and having a VERY good plan (preferably prepared by a very good "fee-only" fiduciary CFP) would be highly recommended. I thought turning off the W-2 income stream at 55 was risky as there are simply too many things out of my control (market / sequence or return risk, healthcare, taxes, inflation, SS cuts, potential pre-mature death of me or my spouse which would impact our expected SS income). I can't imagine doing it 15-20 years earlier.
Lol I didn't want to mention my age since I thought the thread might turn into the likelihood of FIRE.

Any ways, for purposes of this thread, just assume I'm 40, looking to retire by 55. I get that this decreases my failure rate during retirement; but that can be tweaked via the SWR.

Thanks for the responses so far , if anyone has any more personal experience, I'd like to hear it.


"Any ways, for purposes of this thread, just assume I'm 40, looking to retire by 55"
You stated you were 25 , if you do not utilize accurate information with inputs most all of the advice and outputs will be worthless.

"if anyone has any more personal experience, I'd like to hear it"
- goals and expenses change dramatically each 10 years of life , more so when you are younger
- where you live changes income and expenses greatly, the likelihood of moving location increases with age
- tax laws and healthcare have changed dramatically over time and likely will do so again
- inflation has varied greatly over time and is a variable to consider

What you control now is your current and future income , your savings rate and your intelligence. Utilizing those to construct a personalized ''best guess' plan to reach your goals is much more valuable than any 'rule of thumb might be.

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Re: Retirement Expenses Rule of Thumb

Post by Silk McCue » Tue Aug 27, 2019 7:30 am

305pelusa wrote:
Tue Aug 27, 2019 6:56 am
MJS wrote:
Tue Aug 27, 2019 6:01 am
305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
The only rule of thumb I've heard is that you want your savings+SS to replace around 50, 60, 70 or even 80% of your pre-retirement income.
That rule of thumb is based on x% of expenses when there's 25 more years of retirement ahead. To approximate an age 65 income, run a simple inflation calculator . $28k in 2019 would be $75k in 2059 when a 25 year old would be 65 and could expect to reach 90.
I'm a little confused. My income is not 28k, those are my expenses.
To estimate expenses you actually have to estimate expenses. One way to do that is to start with your current expenses and apply inflationary growth to see what they will rise to in real numbers. MJS clearly stated it was based upon x% of expenses. You then build on this with other desired spending.
305pelusa wrote:
Tue Aug 27, 2019 6:56 am
JoeRetire wrote:
Tue Aug 27, 2019 6:22 am
305pelusa wrote:
Sun Aug 25, 2019 6:59 pm
So I'm looking for a rough rule of thumb along the lines of "whatever you spend before retirement, multiply by 2, and that's a good number to plan for in terms of retirement expenses". Obviously, I know this is very individual (some might want to start traveling much more, some might end up spending much less than before retirement, etc). So I'm just looking for a rough rule of thumb for those that tend to save quite a bit during their working years and are looking to increase their living standard during retirement.
Here's my rule of thumb:
- imagine what you want your life in retirement to be, what you want to do, where you want to go, what your goals might be
- estimate how much money it would take to life that life each year
- as you age, refine your estimate

There's no magic here.
Yeah, I'll just have to do this haha.
Until you realize that you actually need to create a budget based upon your own personal goals. plans and needs in retirement you will never find the answer. Folks here have repeatedly told you that any rule of thumb is useless and when they suggest that you you dismiss it.
305pelusa wrote:
Tue Aug 27, 2019 6:56 am
RetireBy55 wrote:
Mon Aug 26, 2019 9:54 am
Unless your expenses are quite minimal and/or you have an amazing pension (very rare for people your age), you're going to need a boatload of assets to get you from 35-40 through the rest of your life.

Not to rain on anyone's parade but retiring at 35-40 seems extremely aggressive, and having a VERY good plan (preferably prepared by a very good "fee-only" fiduciary CFP) would be highly recommended. I thought turning off the W-2 income stream at 55 was risky as there are simply too many things out of my control (market / sequence or return risk, healthcare, taxes, inflation, SS cuts, potential pre-mature death of me or my spouse which would impact our expected SS income). I can't imagine doing it 15-20 years earlier.
Lol I didn't want to mention my age since I thought the thread might turn into the likelihood of FIRE.

Any ways, for purposes of this thread, just assume I'm 40, looking to retire by 55. I get that this decreases my failure rate during retirement; but that can be tweaked via the SWR.

Thanks for the responses so far. If anyone has any more personal experience, I'd like to hear it.
Here is my personal experience. I developed a budget including fixed and variable expenses plus travel and entertainment on top. Performed an analysis of our income streams in future retirement from pension and SS, evaluated SS claiming strategies, determined how much to convert to Roth to smooth out the tax burden, developed a plan to leave enough in tax deferred to give to charity via QCD's while paying 0% tax on those gifts, positioned a portion of our funds in assets that would carry us through a prolonged downturn without impacting our quality of life ... Not once did I use a Rule of Thumb or apply percentage spend level. Because doing so is useless.

Open up Excel, or pick a pencil and paper and get to work.

Cheers
Last edited by Silk McCue on Tue Aug 27, 2019 7:53 am, edited 1 time in total.

livesoft
Posts: 68669
Joined: Thu Mar 01, 2007 8:00 pm

Re: Retirement Expenses Rule of Thumb

Post by livesoft » Tue Aug 27, 2019 7:36 am

305pelusa wrote:
Sun Aug 25, 2019 7:20 pm
.... I'm looking to hopefully increase my standard of living during retirement. I'm trying to figure out what others in a similar position have found is a good multiplier.

I'm asking as someone with little clue about medical costs/insurance, what 1-3 nice vacations might cost, etc.
My advice is also to plan on replacing 100% of what you spend now. As for adding 1-3 nice vacations, I think you need to start taking those vacations NOW so that you know what they will cost. You may have noticed that you are not getting any younger, too.

I didn't increase my expenses when I retired. Taxes went way down for sure. College expenses became a thing of the past. My kids buy me dinner now, too.
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wtjbatman
Posts: 29
Joined: Fri Dec 06, 2013 10:55 am

Re: Retirement Expenses Rule of Thumb

Post by wtjbatman » Tue Aug 27, 2019 8:20 am

RetireBy55 wrote:
Mon Aug 26, 2019 7:59 am
In our own case, we live in a MCOL area, have no mortgage, buy our clothes mostly at Kohls, drive average cars (nothing fancy) and our "core" expenses (property tax, utilities, groceries, insurance, etc) are ~$55-60K/yr. Add in a "nice" vacation ($10-20K), Taxes, Healthcare ($15-20K) and it jumps to $100K+ easily.

I often wonder if those who are saying they can live comfortably on $20-30K / yr are tracking EVERY penny they spend via Quicken or a similar program.
We live in a LCOL/VLCOL area, we have a mortgage, buy clothes at Kohl's, drive average cars (2011 and 2016 Ford fusion) with the 2016 having a car payment, and we live on approx 75k combined income while saving 20%. We've also never spent more than $1k on a vacation (we drive instead of fly, stay at Airbnb instead of expensive hotels, etc). Taxes are low here. We're early/mid 30s so maybe we're just used to living modestly.

Medical wise, my wife was diagnosed with cancer last year. She went through a surgery then 6 months of chemo. We have $6k max out of pocket, which she met each year, so total cost was $12k. Not including the lost income while she was on STD.

$20-30k a year is really low. Lower than we'd be comfortable with. At the same time, not everyone needs $100k+.

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