Living Expenses - what's "reasonable"?

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RetiredMule
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Living Expenses - what's "reasonable"?

Post by RetiredMule » Wed Aug 23, 2017 11:33 pm

Dear BHs,

I've been looking at a variety of posts on retirement related topics where people ask if they're saving enough/saved enough to retire now/expected yearly expenses in retirement etc. It is always interesting to go through the specifics people post, and I have always wondered about the wide variability in "annual spending" budgets that are mentioned. Obviously, people have different life styles, different interests and expensive traits can impact how much one needs. Being frugal/ability to cut down on some expenses go a long way to make one afford early retirement.

My general question to you all:

Assuming no dependent children, no other debts, no mortgage to pay and not including property taxes and health care expenses (wide variability based on regional demographics, and very personal health status) from the question here, how much do people budget for their "essentials' (needed to live) and "leisure" (hobbies etc.)budgets? I fully well realize there is no magic formula, but, just curious as to how each of you arrive at the #s.

In my case, I live in a HCOL area; but, my habits are more on the frugal side (much less eating out, but, love to travel - so, "leisure budget" high for that)- I can limit my "essentials" to with-in 24K/year. My "leisure" budget goes up to 16K/year for a total budget of around $40K/year in 2017 $s.

MathWizard
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Re: Living Expenses - what's "reasonable"?

Post by MathWizard » Wed Aug 23, 2017 11:40 pm

I expect to need $56K after health ins. and taxes as a married couple.

This is based on expenses as I have them now, with a paid off house.

Some expenses are medicine, dental, car replacement, car and house/yard maintenance, food, clothing, heating/cooling, utilities
fuel expenses for car, expenses for pets, charitable donations.

knightrider
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Re: Living Expenses - what's "reasonable"?

Post by knightrider » Wed Aug 23, 2017 11:47 pm

If you like travelling look into "credit card churning".. I've accumulated millions of airline miles for nearly free over the past ten years.

IMO
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Re: Living Expenses - what's "reasonable"?

Post by IMO » Thu Aug 24, 2017 12:04 am

I think it may be more reasonable to break down the essential category, since their is so much variation. But even then, there can be overlap on items, for example, food. Some don't eat out a lot, others quite a bit.

Perhaps following would help people trying to better plan?:

Qualify if LCOL, MCOL, HCOL and marital status (1 or 2 people budgets)
Again, with the assumption, kids are adults, no other people to support.

Essentials:
a) Food (keep it simple, all food groceries and eating out)
b) Housing (whatever your housing entails, rent, mortgage, no mortgage, insurance, utilities -even cell phones since landlines were common past,
maintenance, cable, internet, Netflix, etc)
c) Transportation related day to day (auto's/gas/insurance/subways/Uber/taxi's)
d) Health expenses (insurance/out of pockets, even long term care insurance, etc)
e) Other types of "essentials" such as life insurance/other that are required to allow self/spouse to maintain lifestyle in retirement

Non-essentials:
-Everything that essentially is not related to the above, travel, hobbies, etc. Doesn't matter what your vice is, just how much is everything that if
you cut out all non-essentials (again, there's that food issue on eating out or not eating out).


Otherwise, just seems like too much variability. The real bottom line is it is very individual. Budgets are so variable during working years, one would expect a similar level of variability on the retirement budget.
Last edited by IMO on Thu Aug 24, 2017 12:10 am, edited 4 times in total.

cookiez
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Re: Living Expenses - what's "reasonable"?

Post by cookiez » Thu Aug 24, 2017 12:04 am

We are on the same ball park. Monthly basic (including grocery, utility, internet, phone, hbo/netflix, insurance, gas, dining out, toys for kid, entertainment, and whatnot) is ~$1,700, which is $20,000 annual. Other expenses (family trip, gifts, big purchases) add up to $5,000 - $10,000. So basic living expense is below $30,000. We own both cars so there is no expense on that in short term.

That said, my annual expense on preschool is $15,000 (high living cost area) and rent (a 2b/2b apartment) is $36,000.

Basically, it's hard for me to be any more "frugal", only thing I can save is some entertainment (maybe $300/mo?) and family trip (maybe $5,000/year) which is about $8,000/year - and it'll be a miserable life.

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RetiredMule
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Re: Living Expenses - what's "reasonable"?

Post by RetiredMule » Thu Aug 24, 2017 12:56 am

knightrider wrote:
Wed Aug 23, 2017 11:47 pm
If you like travelling look into "credit card churning".. I've accumulated millions of airline miles for nearly free over the past ten years.
Wow! Millions of miles mostly free? You MUST be a real guru at this! 8-)

I'm a miles junkie too, though most of my miles have been from actual travel (personal and business/official), and some - less than 40 thousand - are from credit cards; always worried about churning, (don't have solid logic why I should worry) so, my "free" miles were with just a couple of cards.

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Re: Living Expenses - what's "reasonable"?

Post by The Wizard » Thu Aug 24, 2017 6:04 am

You can get into trouble if you start excluding things from your retirement budget.
If I exclude my $8000 annual property tax bill per the OP's instructions, then maybe my basic monthly expenses are in the $1500 to $2000 range.

I will agree that it's good if you can keep basic expenses on the low side in retirement, less than half of your net income.
This gives you more funds for recreational pursuits...
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Re: Living Expenses - what's "reasonable"?

Post by The Wizard » Thu Aug 24, 2017 6:29 am

cookiez wrote:
Thu Aug 24, 2017 12:04 am
We are on the same ball park. Monthly basic (including grocery, utility, internet, phone, hbo/netflix, insurance, gas, dining out, toys for kid, entertainment, and whatnot) is ~$1,700, which is $20,000 annual. Other expenses (family trip, gifts, big purchases) add up to $5,000 - $10,000. So basic living expense is below $30,000. We own both cars so there is no expense on that in short term.

That said, my annual expense on preschool is $15,000 (high living cost area) and rent (a 2b/2b apartment) is $36,000.

Basically, it's hard for me to be any more "frugal", only thing I can save is some entertainment (maybe $300/mo?) and family trip (maybe $5,000/year) which is about $8,000/year - and it'll be a miserable life.
Most retirees are no longer paying preschool expenses, so you can reasonably expect that expense to be gone then.

And the goal in retirement is NOT to be "frugal" as regards entertainment and travel, but to spend MORE on them. And one good start to doing this is to keep your Basic Expenses on the low side...
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Jags4186
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Re: Living Expenses - what's "reasonable"?

Post by Jags4186 » Thu Aug 24, 2017 6:38 am

Reasonable expenses are relative to your income and savings. If you have $10,000,000 and are retired it's perfectly reasonable to have $30,000 of monthly expenses, regardless of what they're on.

If you only make $35,000/yr and have no savings it's not reasonable to have $3,000/mo in expenses.

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Re: Living Expenses - what's "reasonable"?

Post by The Wizard » Thu Aug 24, 2017 6:50 am

Jags4186 wrote:
Thu Aug 24, 2017 6:38 am
Reasonable expenses are relative to your income and savings. If you have $10,000,000 and are retired it's perfectly reasonable to have $30,000 of monthly expenses, regardless of what they're on...
Remember what the OP asked: essential expenses vs leisure (discretionary) expenses.
If you spend $30,000 a a month in retirement, perhaps only $10,000 are to maintain the homestead and vehicles?
This leaves the other $20,000 to fund travel to Europe, the Caribbean, trans-Pacific, etc...
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Re: Living Expenses - what's "reasonable"?

Post by SQRT » Thu Aug 24, 2017 6:53 am

The Wizard wrote:
Thu Aug 24, 2017 6:50 am
Jags4186 wrote:
Thu Aug 24, 2017 6:38 am
Reasonable expenses are relative to your income and savings. If you have $10,000,000 and are retired it's perfectly reasonable to have $30,000 of monthly expenses, regardless of what they're on...
Remember what the OP asked: essential expenses vs leisure (discretionary) expenses.
If you spend $30,000 a a month in retirement, perhaps only $10,000 are to maintain the homestead and vehicles?
This leaves the other $20,000 to fund travel to Europe, the Caribbean, trans-Pacific, etc...
Unless you have multiple home and vehicles,no? There is a very wide range of what can be considered "reasonable". But I think the OP is looking for an "average". This is much easier to determine.

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Re: Living Expenses - what's "reasonable"?

Post by mptfan » Thu Aug 24, 2017 7:01 am

The average household expenditures in the U.S. as of 2015 was $56,000 according to the BLS, I think that is a good reference point for determining what is reasonable.
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Re: Living Expenses - what's "reasonable"?

Post by jharkin » Thu Aug 24, 2017 7:29 am

mptfan wrote:
Thu Aug 24, 2017 7:01 am
The average household expenditures in the U.S. as of 2015 was $56,000 according to the BLS, I think that is a good reference point for determining what is reasonable.
I believe you mean average household income, not expenditure. Even assuming the average household is saving nothing, after taxes their expenses are lower than that figure.


Regardless, to the OP I think its impossible to give some universal "reasonable" figure as everyone's circumstances and local costs differ. In some other countries one could live all year for less than what even a poor USA family spends in a month. Everything is relative.

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Re: Living Expenses - what's "reasonable"?

Post by The Wizard » Thu Aug 24, 2017 7:38 am

mptfan wrote:
Thu Aug 24, 2017 7:01 am
The average household expenditures in the U.S. as of 2015 was $56,000 according to the BLS, I think that is a good reference point for determining what is reasonable.
OP is asking for RETIREMENT expenditures in which living quarters typically are paid for, or close to it...
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Re: Living Expenses - what's "reasonable"?

Post by The Wizard » Thu Aug 24, 2017 7:56 am

SQRT wrote:
Thu Aug 24, 2017 6:53 am
The Wizard wrote:
Thu Aug 24, 2017 6:50 am
Jags4186 wrote:
Thu Aug 24, 2017 6:38 am
Reasonable expenses are relative to your income and savings. If you have $10,000,000 and are retired it's perfectly reasonable to have $30,000 of monthly expenses, regardless of what they're on...
Remember what the OP asked: essential expenses vs leisure (discretionary) expenses.
If you spend $30,000 a a month in retirement, perhaps only $10,000 are to maintain the homestead and vehicles?
This leaves the other $20,000 to fund travel to Europe, the Caribbean, trans-Pacific, etc...
Unless you have multiple home and vehicles,no? There is a very wide range of what can be considered "reasonable". But I think the OP is looking for an "average"...
Quite true on variability in home and vehicle costs.
That $30,000 monthly figure was just thrown out there by another poster; don't think it was his personal retirement monthly income.

Unclear what OP is looking for, but an important metric in retirement is the ratio of your "essential expenses" to your net income. I recommend having essential expenses, including home maintenance and vehicle replacement, at no more than 50% of net retirement income in your first year of retirement...
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student
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Re: Living Expenses - what's "reasonable"?

Post by student » Thu Aug 24, 2017 8:32 am

Do answer the OP's question, I spend about $28,000 per year with the exclusions from the OP list.

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Re: Living Expenses - what's "reasonable"?

Post by KlangFool » Thu Aug 24, 2017 8:54 am

OP,

I do not budget. I do "Pay Yourself First" saving method. I save one year of annual expense per year.

My annual expense excluding my kids' college expense is 60K per year with the mortgage. If I pay off the mortgage, my annual expense will be 45K per year.

KlangFool

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Re: Living Expenses - what's "reasonable"?

Post by Jags4186 » Thu Aug 24, 2017 9:09 am

The Wizard wrote:
Thu Aug 24, 2017 6:50 am
Jags4186 wrote:
Thu Aug 24, 2017 6:38 am
Reasonable expenses are relative to your income and savings. If you have $10,000,000 and are retired it's perfectly reasonable to have $30,000 of monthly expenses, regardless of what they're on...
Remember what the OP asked: essential expenses vs leisure (discretionary) expenses.
If you spend $30,000 a a month in retirement, perhaps only $10,000 are to maintain the homestead and vehicles?
This leaves the other $20,000 to fund travel to Europe, the Caribbean, trans-Pacific, etc...
OP asked for reasonable essential and leisure expenses and that he spent $24k on living costs and $16k on leisure. What's reasonable, IMO, all has to do with how much one has to spend as its only unreasonable if it's unsustainable IMO.

At the end of the day, unless you have way over saved for retirement, people are going to spend all of their retirement income. They'll spend what it takes to keep the lights on and the water running, and the rest on whatever gives them joy.

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Re: Living Expenses - what's "reasonable"?

Post by DaftInvestor » Thu Aug 24, 2017 9:13 am

My current estimate for retirement spending based upon what we spend today with an additional (above what we already spend) $10K for vacations and $3K for hobbies (in today's dollars) is $93K per year which includes essentials and leisure - but I'm a number of years away so may adjust (in some of my need calculations I'm looking at $120K spending). We don't tend to be as frugal as some (dine-out, like good quality organic foods for home, etc.) - our mortgage is paid off but we do pay nearly $10K yearly for property tax (plus Home-owners insurance, maintenance - basked into the $93K).

To me - medical is the biggest unknown/question - will I pay $10K out-of-pocket yearly or triple? How do folks make a guess at medical?

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Re: Living Expenses - what's "reasonable"?

Post by mptfan » Thu Aug 24, 2017 9:30 am

jharkin wrote:
Thu Aug 24, 2017 7:29 am
mptfan wrote:
Thu Aug 24, 2017 7:01 am
The average household expenditures in the U.S. as of 2015 was $56,000 according to the BLS, I think that is a good reference point for determining what is reasonable.
I believe you mean average household income, not expenditure. Even assuming the average household is saving nothing, after taxes their expenses are lower than that figure.
Nope, when I said expenditure, I actually did mean expenditure. The link below shows that according to the BLS consumer expenditure survey in 2015 the average household in the U.S. spent $55,978. The average household income, before taxes, was $69,629.

https://www.bls.gov/news.release/cesan.nr0.htm
Last edited by mptfan on Thu Aug 24, 2017 9:36 am, edited 3 times in total.
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Re: Living Expenses - what's "reasonable"?

Post by Pajamas » Thu Aug 24, 2017 9:32 am

DaftInvestor wrote:
Thu Aug 24, 2017 9:13 am

To me - medical is the biggest unknown/question - will I pay $10K out-of-pocket yearly or triple? How do folks make a guess at medical?
It is the biggest unknown for me, too. I have gotten health insurance from my state marketplace for two years. Costs have been low but of course there is a great deal of uncertainty about future costs. For budget planning, I am currently considering $18k a year as the potential current cost for health care coverage, copays, etc. That's a little under twice what COBRA premiums were for me a couple of years ago. (I live in a state that I think will have some kind of health insurance available to me at that cost regardless of what happens at a federal level in the near to intermediate future.) That would make health care by far my largest expense, much more than all housing costs.
mptfan wrote:
Thu Aug 24, 2017 9:30 am
jharkin wrote:
Thu Aug 24, 2017 7:29 am
mptfan wrote:
Thu Aug 24, 2017 7:01 am
The average household expenditures in the U.S. as of 2015 was $56,000 according to the BLS, I think that is a good reference point for determining what is reasonable.
I believe you mean average household income, not expenditure. Even assuming the average household is saving nothing, after taxes their expenses are lower than that figure.
Nope, I actually did mean expenditure. The link below shows that according to the BLS consumer expenditure survey in 2015 the average household in the U.S. spent $55,978.

https://www.bls.gov/news.release/cesan.nr0.htm
Makes sense that average household income and expenditure in the U.S. are very similar if you look at average net worth and similar measures. Many people live above their means.

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Re: Living Expenses - what's "reasonable"?

Post by mptfan » Thu Aug 24, 2017 9:51 am

Pajamas wrote:
Thu Aug 24, 2017 9:32 am
Makes sense that average household income and expenditure in the U.S. are very similar if you look at average net worth and similar measures. Many people live above their means.
The average spending is $56,978 and the average before tax income is $69,629. If you account for taxes, then I would agree that the average after tax income is probably close to the average expenditures since most people live at or near their means and save very little.
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Re: Living Expenses - what's "reasonable"?

Post by Iliketoridemybike » Thu Aug 24, 2017 9:56 am

All in, insurance, property taxes, replacing the car every 7 years, everything, for essentials, for us is $5500/month with no change in lifestyle. Non essentials, I have budgeted another $4000 a month and that is mostly for travel.

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Re: Living Expenses - what's "reasonable"?

Post by Pajamas » Thu Aug 24, 2017 9:57 am

mptfan wrote:
Thu Aug 24, 2017 9:51 am
Pajamas wrote:
Thu Aug 24, 2017 9:32 am
Makes sense that average household income and expenditure in the U.S. are very similar if you look at average net worth and similar measures. Many people live above their means.
The average spending is $56,978 and the average before tax income is $69,629. If you account for taxes, then I would agree that the average after tax income is probably close to the average expenditures since most people live at or near their means and save very little.
I consider taxes to be an expense rather than exclude them from income.

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Re: Living Expenses - what's "reasonable"?

Post by AlohaJoe » Thu Aug 24, 2017 10:19 am

mptfan wrote:
Thu Aug 24, 2017 7:01 am
The average household expenditures in the U.S. as of 2015 was $56,000 according to the BLS, I think that is a good reference point for determining what is reasonable.
I think you're on the right track -- why not look at actual data instead of a useless internet forum survey? -- but we can do better than just overall averages of spending!

The Health and Retirement Study from the University of Michigan looks at exactly what the OP is asking about -- detailed expenditure data in 32 categories for an older section of the population. You can find one of many papers written based on their data in "Expenditure patterns of older Americans, 2001-2009"

As of 2009, people aged 65-74 spent:

$14,471 on housing
$3,896 on food
$3,504 on health
$3,887 on transport
$830 on clothing
$2,417 on entertainment
$1,185 on "other"

whereas people aged 75-84 spent
$11,775 on housing
$3,555 on food
$3,692 on health
$2,712 on transport
$622 on clothing
$1,502 on entertainment
$1,197 on "other"

Alternatively, we could look at JP Morgan's "Spending in Retirement" which is based on data from 600,000+ Chase customers.

For someone who is "mass affluent" (i.e. investible wealth of $1-2 million), at age 65-69 they are spending $83,919 on average and $75,864 at age 70-74.

They used statistical analysis to group spending profiles and found there were four similar groups (and a fifth "everyone else" bucket). 75% of people fit into 1 of the 4 main groups. They were "foodies", "homebodies", "globetrotters", and "health care spenders". Foodies were 39%, Homebodies 24%, Globetrotters 5%, and Healthcare Spenders 4%.

Just based on that brief synopsis we can see some of the main factors that answer the OP's question of "how you arrive the #s":

- your investible wealth
- your current age
- your spending profile/preferences

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Re: Living Expenses - what's "reasonable"?

Post by mptfan » Thu Aug 24, 2017 10:21 am

The Wizard wrote:
Thu Aug 24, 2017 7:38 am
OP is asking for RETIREMENT expenditures in which living quarters typically are paid for, or close to it...
Do you have a source for this conclusion? According to the article cited below, approximately 32% of housing units are rented. I don't know if older retired people are more or less likely to rent, so I am going to conclude that the 32% figure also applies to retired people, that leaves 68% who own their own residence. The article goes on to estimate that 32% of homeowners have paid off their mortgage, although it does show that for those over 65, there is a greater number of people without mortgages than with mortgages, it appears to be almost 2-1 in favor of no mortgage. So let's assume that 66% of retired homeowners have a paid off mortgage of the 68% who own their own homes.

So that means about 45% of retired people own their own home and do not have a mortage, and about 23% own their own home with a mortgage, and about 32% rent. If those numbers are correct, then it is fair to say that a majority of retired people (55%) continue to pay for housing.

https://fivethirtyeight.com/datalab/how ... mortgages/
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Re: Living Expenses - what's "reasonable"?

Post by JGoneRiding » Thu Aug 24, 2017 10:29 am

I have previously gone through my current budget and once I remove all "debt repayment" and "retirement savings/general savings" lines my budget is between 24-35k a year, excluding taxes. BUT that doesn't include large one off items like roof replacement and car replacement (though it does include extensive car maintenance) It does include hobbies (horses) and travel but not at the level I would like to do in retirement.

The result ran through a retirement analysis program was that my rentals and SS will 100% plus cover my "expenses" and I will die with 17 mil based on current projections (I found this super humorous) that 17 mil was calculated with having about 2-2.5 mil at retirement age and living to 100. I think it assumed 3% inflation and 5% returns post retirement and 8% returns pre retirement

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Re: Living Expenses - what's "reasonable"?

Post by jharkin » Thu Aug 24, 2017 10:34 am

mptfan wrote:
Thu Aug 24, 2017 9:30 am

Nope, when I said expenditure, I actually did mean expenditure. The link below shows that according to the BLS consumer expenditure survey in 2015 the average household in the U.S. spent $55,978. The average household income, before taxes, was $69,629.

https://www.bls.gov/news.release/cesan.nr0.htm
Oh, I see... I confused average and median.

The median HI figure was calculated at 56k in 2015 from Fed reserve or census bureau data (forget which).

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Re: Living Expenses - what's "reasonable"?

Post by delamer » Thu Aug 24, 2017 10:39 am

I keep track of our expenses in Quicken, so I am able to estimate quite well what our budget will be when we are fully retired. Even if you aren't interested in tracking expenses regularly, doing an estimate is worthwhile when you are closing in on retirement.

Of the expenses that the OP asked us to include our largest category is travel, then food, then (interestingly enough) utilities for our house. But utilities includes cable/internet/phone and we have a pretty high end package.

For us, total expenses about 75% higher than the OP's, with proportionally less going to travel (but more dollars). No expenses hobbies.

Healthcare, property taxes, and incomes taxes are also significant expenses for us, but vary for different people widely based on location and individual circumstances as OP said, and aren't included in the above.

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Re: Living Expenses - what's "reasonable"?

Post by jharkin » Thu Aug 24, 2017 10:40 am

mptfan wrote:
Thu Aug 24, 2017 10:21 am
The Wizard wrote:
Thu Aug 24, 2017 7:38 am
OP is asking for RETIREMENT expenditures in which living quarters typically are paid for, or close to it...
Do you have a source for this conclusion? According to the article cited below, approximately 32% of housing units are rented. I don't know if older retired people are more or less likely to rent, so I am going to conclude that the 32% figure also applies to retired people, that leaves 68% who own their own residence. The article goes on to estimate that 32% of homeowners have paid off their mortgage, although it does show that for those over 65, there is a greater number of people without mortgages than with mortgages, it appears to be almost 2-1 in favor of no mortgage. So let's assume that 66% of retired homeowners have a paid off mortgage of the 68% who own their own homes.

So that means about 45% of retired people own their own home and do not have a mortage, and about 23% own their own home with a mortgage, and about 32% rent. If those numbers are correct, then it is fair to say that a majority of retired people (55%) continue to pay for housing.

https://fivethirtyeight.com/datalab/how ... mortgages/

The claim is typical boglehead bubble thinking. We all need to realize that us members are NOT average, or anywhere close to it.

A google search turns up a CFPB statistic that as far back as 2011 a third of households over 65 had a mortgage... That was up from only 20% a decade prior.

So we can guess the number is closer to 40% now, and if you add in households that are lifelong renters, seniors in assisted living and living with relatives, I wouldn't not be surprised if less than half of retired people actually have a paid off home.
Last edited by jharkin on Fri Aug 25, 2017 7:35 am, edited 1 time in total.

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Re: Living Expenses - what's "reasonable"?

Post by mptfan » Thu Aug 24, 2017 10:46 am

jharkin wrote:
Thu Aug 24, 2017 10:40 am
...I wouldn't not be surprised if less than half of retired people actually have a paid off home.
I agree, and that is consistent with my estimated conclusion that 45% of retired people have a paid off home.
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Re: Living Expenses - what's "reasonable"?

Post by delamer » Thu Aug 24, 2017 10:51 am

mptfan wrote:
Thu Aug 24, 2017 10:21 am
The Wizard wrote:
Thu Aug 24, 2017 7:38 am
OP is asking for RETIREMENT expenditures in which living quarters typically are paid for, or close to it...
Do you have a source for this conclusion? According to the article cited below, approximately 32% of housing units are rented. I don't know if older retired people are more or less likely to rent, so I am going to conclude that the 32% figure also applies to retired people, that leaves 68% who own their own residence. The article goes on to estimate that 32% of homeowners have paid off their mortgage, although it does show that for those over 65, there is a greater number of people without mortgages than with mortgages, it appears to be almost 2-1 in favor of no mortgage. So let's assume that 66% of retired homeowners have a paid off mortgage of the 68% who own their own homes.

So that means about 45% of retired people own their own home and do not have a mortage, and about 23% own their own home with a mortgage, and about 32% rent. If those numbers are correct, then it is fair to say that a majority of retired people (55%) continue to pay for housing.

https://fivethirtyeight.com/datalab/how ... mortgages/
While living in a non-mortgaged home is a benefit in retirement, it does not by any means eliminate housing expenses.

Our expenses for our home run about what is shown for the housing expenditures above in the retiree budgets (between $10,000 and $15,000). And that includes just property taxes, utilities, and insurance, not repairs or our lawn service. The house is about 2000 square feet, so we aren't talking mini-mansion.

mptfan
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Re: Living Expenses - what's "reasonable"?

Post by mptfan » Thu Aug 24, 2017 10:52 am

jharkin wrote:
Thu Aug 24, 2017 10:34 am
mptfan wrote:
Thu Aug 24, 2017 9:30 am

Nope, when I said expenditure, I actually did mean expenditure. The link below shows that according to the BLS consumer expenditure survey in 2015 the average household in the U.S. spent $55,978. The average household income, before taxes, was $69,629.

https://www.bls.gov/news.release/cesan.nr0.htm
Oh, I see... I confused average and median.
Right. I do think that the median income number is a better representation of the typical household income than the average income number, because the average income includes the very small number of people who have very high incomes into the millions, so that skews the average higher than the median.
I eat risk for breakfast. :)

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HomerJ
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Re: Living Expenses - what's "reasonable"?

Post by HomerJ » Thu Aug 24, 2017 10:59 am

With a paid off house, one can live very cheaply in many parts of the country.

"Essentials" at that point is just property taxes, insurance, food, utilities, gas for car, occasional repairs for house and car.

One could be fed and warm and dry, with access to all the books in the world, TV, movies, and Internet for $2000 a month or less.

Health care though should be considered an "essential" expense, and it's hard to budget for that. Another $1000 a month?

I know that I could easily live at my lake condo for $3000 a month, and that's a great view, with walks along the lake, and includes a boat and a jetski.

But that's just essentials. My wife (and me too, to be honest) have expensive "wants" as well, so we're budgeting another $3000 a month for travel, hobbies, going out, toys beyond the jetski, etc.

So I'm looking for $6000 a month in retirement. But you can see there's a lot of discretionary spending in there.

retire57
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Re: Living Expenses - what's "reasonable"?

Post by retire57 » Thu Aug 24, 2017 11:06 am

We fit your criteria. Spend 42 - 45K annually. LCOL area, not interested in material possessions or dining out, but do have 2 rather pricey hobbies - travel and golf. We also give.

mak1277
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Re: Living Expenses - what's "reasonable"?

Post by mak1277 » Thu Aug 24, 2017 11:12 am

I'm quite happy with the lifestyle I live currently, which includes spending on numerous "luxuries" above and beyond what is essential. Since I intend to maintain this lifestyle in retirement, I don't see the point in the mental gymnastics required to figure out exactly how little I *could* spend if I wanted to. I know I have numerous levers to pull if I ever needed to cut back spending (e.g., Charitable giving and tithing is currently my #1 expense annually, over and above even my mortgage).

marcopolo
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Re: Living Expenses - what's "reasonable"?

Post by marcopolo » Thu Aug 24, 2017 11:29 am

DaftInvestor wrote:
Thu Aug 24, 2017 9:13 am
My current estimate for retirement spending based upon what we spend today with an additional (above what we already spend) $10K for vacations and $3K for hobbies (in today's dollars) is $93K per year which includes essentials and leisure - but I'm a number of years away so may adjust (in some of my need calculations I'm looking at $120K spending). We don't tend to be as frugal as some (dine-out, like good quality organic foods for home, etc.) - our mortgage is paid off but we do pay nearly $10K yearly for property tax (plus Home-owners insurance, maintenance - basked into the $93K).

To me - medical is the biggest unknown/question - will I pay $10K out-of-pocket yearly or triple? How do folks make a guess at medical?
We are very close to these numbers. I have been tracking expenses very closely, and anticipate our retirement expense (hopefully, in less than 2 years) to be about $90k/year, excluding healthcare. Some current expenses will go away, but likely increase travel and leisure expenses, so a bit of guess work involved in that estimate.

As always in these discussions, healthcare is the big unknown. We are budgeting for $30k/year for the two of us between retirement at age 52 until Medicare starts (assuming 67 for start of medicare). While it is still available, we can manage our income to stay below the 400% of FPL to at least have capped premiums under ACA, and maybe even get a small subsidy. That should keep healthcare spending well below our budgeted number, we will "bank" the difference to cover any shortfall in future years. Once Medicare eligible, we are hopeful (but not counting on) that Social Security will cover our healthcare costs, and our portfolio will support the rest of our spending needs.


Who knows if that is sufficient. But, I figure if it gets much worse than that, the vast majority of people will be less prepared, and something will have to change. I don't think healthcare costs can grow to be the entire GDP, but how any individuals are impacted is anyone's guess.
Once in a while you get shown the light, in the strangest of places if you look at it right.

marcopolo
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Re: Living Expenses - what's "reasonable"?

Post by marcopolo » Thu Aug 24, 2017 11:32 am

mptfan wrote:
Thu Aug 24, 2017 9:51 am
Pajamas wrote:
Thu Aug 24, 2017 9:32 am
Makes sense that average household income and expenditure in the U.S. are very similar if you look at average net worth and similar measures. Many people live above their means.
The average spending is $56,978 and the average before tax income is $69,629. If you account for taxes, then I would agree that the average after tax income is probably close to the average expenditures since most people live at or near their means and save very little.
Averages may not be the most representative way to look at this, as it is highly impacted by relatively small number of outlier earners and spenders. A median number might be more representative.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Admiral
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Re: Living Expenses - what's "reasonable"?

Post by Admiral » Thu Aug 24, 2017 11:44 am

Not retired yet but here's my projection:

Non-vacation/travel expenses: $55k per year (housing, utils, food, entertainment, etc)
Vacation and travel: 18-20k per year

TOTAL: 73-75k per year

EDIT to add: As far as medical, we will be covered by either my (from my age 57, assuming retired) or my wife's medical plan (from her age 60, if she has separated from employer) to some degree. Not the entire premium amount, hard to project, but the majority of it will be covered. Have not included that amount as I have no idea what it will be in 10-12 years. Perhaps more than I think!

LiterallyIronic
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Re: Living Expenses - what's "reasonable"?

Post by LiterallyIronic » Thu Aug 24, 2017 12:07 pm

RetiredMule wrote:
Wed Aug 23, 2017 11:33 pm
Assuming no dependent children, no other debts, no mortgage to pay and not including property taxes and health care expenses (wide variability based on regional demographics, and very personal health status) from the question here, how much do people budget for their "essentials' (needed to live) and "leisure" (hobbies etc.)budgets?
This is our monthly expenses, striking out those you don't want included:
Taxes: $976
401k: $100
Roth IRAs: $916
Rent: $400
Utilities: $150 (includes electric, gas, trash, sewer, Internet, and phone) (but we'll have to add ~$20 for a cell phone for my wife one of these days)
Car maintenance: $160 (two cars, both very old. Most months are zero maintenance, but infrequent large fixes.)
Car insurance: $40 (two cars; two drivers).
Groceries: ~$170
Snacks: ~$35
Health care: $200
Personal care and toiletries: $60
Gifts: $40 (the cost of Christmas and birthdays divided by twelve)
Clothes: $30
Hobbies: $40
Miscellaneous: $30

Total: ~$958

That being said, in retirement, we won't be renting but owning a home. The home we're currently under contract to buy comes with annual insurance of $390 ($32.50 per month) and annual property tax of $906 ($75.50 per month).

Add those to the total above and you get $1,066. But I imagine utilities would be higher in a house. And then there is house maintenance. So that $1,066 is on the low side, but I hope we're still left with plenty to spend on "leisure."

The Wizard
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Re: Living Expenses - what's "reasonable"?

Post by The Wizard » Thu Aug 24, 2017 12:15 pm

Pajamas wrote:
Thu Aug 24, 2017 9:57 am
I consider taxes to be an expense rather than exclude them from income.
I think it may be better to exclude income taxes and FICA from expenses.
The reason, perversely enough, is that those items correlate to income, not after-tax expenses.
Two people each have $50,000 annual after tax expenses.
One has AGI of $80k, the other $120k, so their income taxes are quite different.

And more importantly, as they near retirement, they may have the same $50,000 of after tax expenses, but significantly lower income taxes and zero FICA in retirement...
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2015
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Re: Living Expenses - what's "reasonable"?

Post by 2015 » Thu Aug 24, 2017 12:34 pm

jharkin wrote:
Thu Aug 24, 2017 10:40 am
mptfan wrote:
Thu Aug 24, 2017 10:21 am
The Wizard wrote:
Thu Aug 24, 2017 7:38 am
OP is asking for RETIREMENT expenditures in which living quarters typically are paid for, or close to it...
Do you have a source for this conclusion? According to the article cited below, approximately 32% of housing units are rented. I don't know if older retired people are more or less likely to rent, so I am going to conclude that the 32% figure also applies to retired people, that leaves 68% who own their own residence. The article goes on to estimate that 32% of homeowners have paid off their mortgage, although it does show that for those over 65, there is a greater number of people without mortgages than with mortgages, it appears to be almost 2-1 in favor of no mortgage. So let's assume that 66% of retired homeowners have a paid off mortgage of the 68% who own their own homes.

So that means about 45% of retired people own their own home and do not have a mortage, and about 23% own their own home with a mortgage, and about 32% rent. If those numbers are correct, then it is fair to say that a majority of retired people (55%) continue to pay for housing.

https://fivethirtyeight.com/datalab/how ... mortgages/

The calim is typical boglehead bubble thinking. We all need to realize that us members are NOT average, or anywhere close to it.

A google search turns up a CFPB statistic that as far back as 2011 a third of households over 65 had a mortgage... That was up from only 20% a decade prior.

So we can guess the number is closer to 40% now, and if you add in households that are lifelong renters, seniors in assisted living and living with relatives, I wouldn't not be surprised if less than half of retired people actually have a paid off home.
You're close. See this: http://demomemo.blogspot.com/
Mortgages are the biggest reason for rising debt among older Americans. The percentage of 56-to-61-year-olds with mortgage debt grew from 41 percent in the HRS cohort to 49 percent among Early Boomers, the researchers report. Mortgage debt is growing because each succeeding cohort has purchased more expensive homes with smaller down payments.

delamer
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Re: Living Expenses - what's "reasonable"?

Post by delamer » Thu Aug 24, 2017 2:20 pm

LiterallyIronic wrote:
Thu Aug 24, 2017 12:07 pm
RetiredMule wrote:
Wed Aug 23, 2017 11:33 pm
Assuming no dependent children, no other debts, no mortgage to pay and not including property taxes and health care expenses (wide variability based on regional demographics, and very personal health status) from the question here, how much do people budget for their "essentials' (needed to live) and "leisure" (hobbies etc.)budgets?
This is our monthly expenses, striking out those you don't want included:
Taxes: $976
401k: $100
Roth IRAs: $916
Rent: $400
Utilities: $150 (includes electric, gas, trash, sewer, Internet, and phone) (but we'll have to add ~$20 for a cell phone for my wife one of these days)
Car maintenance: $160 (two cars, both very old. Most months are zero maintenance, but infrequent large fixes.)
Car insurance: $40 (two cars; two drivers).
Groceries: ~$170
Snacks: ~$35
Health care: $200
Personal care and toiletries: $60
Gifts: $40 (the cost of Christmas and birthdays divided by twelve)
Clothes: $30
Hobbies: $40
Miscellaneous: $30

Total: ~$958

That being said, in retirement, we won't be renting but owning a home. The home we're currently under contract to buy comes with annual insurance of $390 ($32.50 per month) and annual property tax of $906 ($75.50 per month).

Add those to the total above and you get $1,066. But I imagine utilities would be higher in a house. And then there is house maintenance. So that $1,066 is on the low side, but I hope we're still left with plenty to spend on "leisure."
You spend $205/month to feed two people? That's pretty amazing to me -- it is less than $7 per day.

The Wizard
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Re: Living Expenses - what's "reasonable"?

Post by The Wizard » Thu Aug 24, 2017 2:32 pm

mptfan wrote:
Thu Aug 24, 2017 9:30 am
Nope, when I said expenditure, I actually did mean expenditure. The link below shows that according to the BLS consumer expenditure survey in 2015 the average household in the U.S. spent $55,978. The average household income, before taxes, was $69,629.

https://www.bls.gov/news.release/cesan.nr0.htm
The definition of Consumer Unit in that report is amusing.
It includes single people, couples, and families of all sizes.
No attempt is made to normalize results to "per adult".
This mushing together of data greatly reduces any utility...
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The Wizard
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Location: Reading, MA

Re: Living Expenses - what's "reasonable"?

Post by The Wizard » Thu Aug 24, 2017 2:38 pm

delamer wrote:
Thu Aug 24, 2017 2:20 pm
LiterallyIronic wrote:
Thu Aug 24, 2017 12:07 pm
RetiredMule wrote:
Wed Aug 23, 2017 11:33 pm
Assuming no dependent children, no other debts, no mortgage to pay and not including property taxes and health care expenses (wide variability based on regional demographics, and very personal health status) from the question here, how much do people budget for their "essentials' (needed to live) and "leisure" (hobbies etc.)budgets?
This is our monthly expenses, striking out those you don't want included:
Taxes: $976
401k: $100
Roth IRAs: $916
Rent: $400
Utilities: $150 (includes electric, gas, trash, sewer, Internet, and phone) (but we'll have to add ~$20 for a cell phone for my wife one of these days)
Car maintenance: $160 (two cars, both very old. Most months are zero maintenance, but infrequent large fixes.)
Car insurance: $40 (two cars; two drivers).
Groceries: ~$170
Snacks: ~$35
Health care: $200
Personal care and toiletries: $60
Gifts: $40 (the cost of Christmas and birthdays divided by twelve)
Clothes: $30
Hobbies: $40
Miscellaneous: $30

Total: ~$958

That being said, in retirement, we won't be renting but owning a home. The home we're currently under contract to buy comes with annual insurance of $390 ($32.50 per month) and annual property tax of $906 ($75.50 per month).

Add those to the total above and you get $1,066. But I imagine utilities would be higher in a house. And then there is house maintenance. So that $1,066 is on the low side, but I hope we're still left with plenty to spend on "leisure."
You spend $205/month to feed two people? That's pretty amazing to me -- it is less than $7 per day.
Amazing is right. Apparently no eating out of significance is involved.
And there's no attempt to budget for vehicle replacement...
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Elsebet
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Re: Living Expenses - what's "reasonable"?

Post by Elsebet » Thu Aug 24, 2017 3:01 pm

From our budget spreadsheet, minus car & mortgage (but including property tax of $500/month in a HCOL area) we have $1765 in fixed expenses per month. I wager we add a variable figure anywhere from $0-$1000 or more per month on other stuff. We plan on retiring to a LCOL/MCOL area without a mortgage payment so I'd say our bare bones expenses could realistically be between $3-4k/month in retirement including health insurance between 59.5 and 65.

David Scubadiver
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Re: Living Expenses - what's "reasonable"?

Post by David Scubadiver » Thu Aug 24, 2017 3:02 pm

Expect to spend as much or more than you spend now.

LiterallyIronic
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Re: Living Expenses - what's "reasonable"?

Post by LiterallyIronic » Thu Aug 24, 2017 3:45 pm

The Wizard wrote:
Thu Aug 24, 2017 2:38 pm
delamer wrote:
Thu Aug 24, 2017 2:20 pm

You spend $205/month to feed two people? That's pretty amazing to me -- it is less than $7 per day.
Amazing is right. Apparently no eating out of significance is involved.
And there's no attempt to budget for vehicle replacement...
Correct. The goal is $1/meal/person. No eating out, except once per year at a place that does a buy-one-get-one-free on your birthday month. No alcohol/coffee/soda/juice - water or milk only. Dessert is rare and always homemade cookies. Off-brand foods only.

We also don't budget for car replacement. That'll just come out of our emergency fund. Don't really need to budget for ten-year-old clunkers with 100,000+ miles already one them - they only cost $1,000 or less. Current car doesn't have air conditioning, for example.

Someone posted in a different thread that (age * income / 10) = net worth. I'm at about half that. If you have low income, you need low expenses. Not much I can do about that.

Jags4186
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Re: Living Expenses - what's "reasonable"?

Post by Jags4186 » Thu Aug 24, 2017 3:55 pm

jharkin wrote:
Thu Aug 24, 2017 10:34 am
mptfan wrote:
Thu Aug 24, 2017 9:30 am

Nope, when I said expenditure, I actually did mean expenditure. The link below shows that according to the BLS consumer expenditure survey in 2015 the average household in the U.S. spent $55,978. The average household income, before taxes, was $69,629.

https://www.bls.gov/news.release/cesan.nr0.htm
Oh, I see... I confused average and median.

The median HI figure was calculated at 56k in 2015 from Fed reserve or census bureau data (forget which).
With so many people in this country and so many different groups of people, these median and average numbrers are really worthless IMO.
You should compare yourself to your peer group.

For example median household income for couples filing married joint with children under 18 is $95,000/yr and the average is $118,000. Why should someone in that situation compare themselves with averages which have millions of retirees with only Social Security income and 22/23 year olds single folks just getting started?

Ron
Posts: 6161
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Re: Living Expenses - what's "reasonable"?

Post by Ron » Thu Aug 24, 2017 4:02 pm

The Wizard wrote:
Thu Aug 24, 2017 12:15 pm
Pajamas wrote:
Thu Aug 24, 2017 9:57 am
I consider taxes to be an expense rather than exclude them from income.
I think it may be better to exclude income taxes and FICA from expenses.
The reason, perversely enough, is that those items correlate to income, not after-tax expenses.
Two people each have $50,000 annual after tax expenses.
One has AGI of $80k, the other $120k, so their income taxes are quite different.

And more importantly, as they near retirement, they may have the same $50,000 of after tax expenses, but significantly lower income taxes and zero FICA in retirement...
I, for one look at taxes (more specifically, taxes paid on pre-tax withdrawals - FIT and maybe state) as an expense.

As an example, we purchased a washer/dryer last month. The pair listed at $1750, but I had to withdraw an additional (around) $250 to pay for the taxes on the withdrawal from tax-deferred investments. To me, the purchase actually cost $2K.

While working, I didn't think of what an item actually cost since it was payed with out of my net pay. However, while retired, I've gotten into the habit of looking at any major purchase of how much I actually have to pay for an item, including the taxes paid on withdrawals.

When I purchased a new car in 2015, I had to write a check to the dealer for $40k (included transfer taxes and fees, minus the value of my trade-in). However, I had to pay FIT on the withdrawal (effective rate of 15%) so the car actually cost me $46k, since that's the total amount I had to withdraw from my TIRA to pay for it.

At least for me, I'll look at the total cost to obtain an item since the taxes involved on a withdrawal can be substantial.

- Ron

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