Having trouble figuring out expected expenses in retirement

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TexMexIndex
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Having trouble figuring out expected expenses in retirement

Post by TexMexIndex » Thu May 17, 2018 12:31 pm

Any good worksheets or sources?

Ms situation:
It hard because pension kicks in at 62, Social Security at 67. Thinking of retiring late 50s?

Projecting what healthcare will cost 55-62, 62-65, 65 onwards is not easy. Figuring out what say 100K in todays dollars in retirement, though I don't know what to set as the bar for retirement, though we are happy with our current lifestyle. But I dont pay for some stuff I will pay more or differently later.

My families salary varies from 80k-140k depending on where we lived the past 5 years, who is working, etc. With all the saving we do and variance in taxing or what we need to pay for (mostly around housing) makes its hard to calculate expenses.
Should have a paid off house by retirement, but dont have one now. Expect I could pay off a 300k house in 10-15 years when we do buy without hurting retirement contributions too much.

Right now we make around 82k but house/utilities are paid for tax free, save about 25k pretax and an additional 5k post tax, spend about 10k on travel annually. If including health care cost that employer pays part for, maybe expenses are around 4k a month?
In about 4 years will make 90k-200k.

I know the right answer is save more than we'll need, but how can I improve my projection of expenses so its rational and I get a defensible annual expense number?

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steelerfan
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Re: Having trouble figuring out expected expenses in retirement

Post by steelerfan » Thu May 17, 2018 12:42 pm

If you don't already, I would start doing a monthly budget. Once you start doing that for a few months, I think you will see what expenses might be eliminated or reduced (i.e. Retirement Savings, Mortgage, gas) and what might increase (medical, travel, etc...) in retirement. No one can predict your future expenses exactly, so it is best to predict conservatively so you don't run out before you die.

I hope this helps.
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magicrat
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Re: Having trouble figuring out expected expenses in retirement

Post by magicrat » Thu May 17, 2018 12:48 pm

First you need to track several years of expenses at a reasonably detailed level. This will give you a baseline level of spending from which you can start to do projections (though you should keep tracking every year).

Once you have a baseline, you need to build a bridge to what you might spend in retirement. This might include adding expenses like taxes, healthcare, travel, while subtracting expense like mortgage (if planning to payoff), work/commute, etc). This will give you a projection for how much you will spend. You could also do a high, medium and low set of scenarios. Continue to refine this every year as you learn more and get closer to retirement.

Note: Do all planning in today's dollars - much easier than trying to account for inflation.

Ron Scott
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Re: Having trouble figuring out expected expenses in retirement

Post by Ron Scott » Thu May 17, 2018 12:50 pm

steelerfan wrote:
Thu May 17, 2018 12:42 pm
If you don't already, I would start doing a monthly budget. Once you start doing that for a few months, I think you will see what expenses might be eliminated or reduced (i.e. Retirement Savings, Mortgage, gas) and what might increase (medical, travel, etc...) in retirement. No one can predict your future expenses exactly, so it is best to predict conservatively so you don't run out before you die.
magicrat wrote:
Thu May 17, 2018 12:48 pm
First you need to track several years of expenses at a reasonably detailed level. This will give you a baseline level of spending from which you can start to do projections (though you should keep tracking every year).

Once you have a baseline, you need to build a bridge to what you might spend in retirement. This might include adding expenses like taxes, healthcare, travel, while subtracting expense like mortgage (if planning to payoff), work/commute, etc). This will give you a projection for how much you will spend. You could also do a high, medium and low set of scenarios. Continue to refine this every year as you learn more and get closer to retirement.

Note: Do all planning in today's dollars - much easier than trying to account for inflation.
Good advice.

Another angle is to inflate your family income to retirement age and multiply by .75. That approach reflects the fact that expenses are fungible and most people tend to spend what they've got. If you've got an income of $100k at retirement you'll be fine if you can continue into retirement spending about $75k. You obviously cannot spend $150k, but you could if you're income were $200k.

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Tyler Aspect
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Re: Having trouble figuring out expected expenses in retirement

Post by Tyler Aspect » Thu May 17, 2018 1:06 pm

My wild guess for a couple at age 55 with 3 teens would have a medical expense at 30% of total annual expense. Obviously it would depend heavily on the health insurance market situation at that time.
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TexMexIndex
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Re: Having trouble figuring out expected expenses in retirement

Post by TexMexIndex » Thu May 17, 2018 1:14 pm

steelerfan wrote:
Thu May 17, 2018 12:42 pm
If you don't already, I would start doing a monthly budget. Once you start doing that for a few months, I think you will see what expenses might be eliminated or reduced (i.e. Retirement Savings, Mortgage, gas) and what might increase (medical, travel, etc...) in retirement. No one can predict your future expenses exactly, so it is best to predict conservatively so you don't run out before you die.

I hope this helps.
Thanks. I went back and checked we have a budget of 3600 currently, would go up to 4K before healthcare costs when I start paying for utilities again. so 4k not including housing or healthcare, but assuming mortgage will be paid off.

TexMexIndex
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Re: Having trouble figuring out expected expenses in retirement

Post by TexMexIndex » Thu May 17, 2018 1:17 pm

Tyler Aspect wrote:
Thu May 17, 2018 1:06 pm
My wild guess for a couple at age 55 with 3 teens would have a medical expense at 30% of total annual expense. Obviously it would depend heavily on the health insurance market situation at that time.
Yikes that is more than I thought. I think I calculated healthcare at about 15k annual from my plan. Hard to predict the healthcare market in the future.

All your comments are helping me think this through, thank you. Any more tips from those close or retired?

KlangFool
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Re: Having trouble figuring out expected expenses in retirement

Post by KlangFool » Thu May 17, 2018 1:22 pm

TexMexIndex wrote:
Thu May 17, 2018 1:14 pm
steelerfan wrote:
Thu May 17, 2018 12:42 pm
If you don't already, I would start doing a monthly budget. Once you start doing that for a few months, I think you will see what expenses might be eliminated or reduced (i.e. Retirement Savings, Mortgage, gas) and what might increase (medical, travel, etc...) in retirement. No one can predict your future expenses exactly, so it is best to predict conservatively so you don't run out before you die.

I hope this helps.
Thanks. I went back and checked we have a budget of 3600 currently, would go up to 4K before healthcare costs when I start paying for utilities again. so 4k not including housing or healthcare, but assuming mortgage will be paid off.
TexMexIndex,

Even if the mortgage is paid off, you still need to pay property tax and maintain the house. The housing expense will not be zero.

KlangFool

delamer
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Re: Having trouble figuring out expected expenses in retirement

Post by delamer » Thu May 17, 2018 1:29 pm

TexMexIndex wrote:
Thu May 17, 2018 1:17 pm
Tyler Aspect wrote:
Thu May 17, 2018 1:06 pm
My wild guess for a couple at age 55 with 3 teens would have a medical expense at 30% of total annual expense. Obviously it would depend heavily on the health insurance market situation at that time.
Yikes that is more than I thought. I think I calculated healthcare at about 15k annual from my plan. Hard to predict the healthcare market in the future.

All your comments are helping me think this through, thank you. Any more tips from those close or retired?
I would not put any faith in either guess. Your best bet is to go to the ObamaCare marketplace for your retirement state and use an unsubsidized premium from it. Of course, you will have co-pays, deductibles, etc. too.

Even with a paid-for house, you will have — in addition to utilities — property taxes, insurance, and maintnance (regular and irregular).

How old are you now?

TexMexIndex
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Re: Having trouble figuring out expected expenses in retirement

Post by TexMexIndex » Thu May 17, 2018 2:10 pm

good thoughts on housing and healthcare costs, will do. I'm a man, I'm 40!
https://www.youtube.com/watch?v=c7gb5tThM24

I really am 40.

KlangFool
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Re: Having trouble figuring out expected expenses in retirement

Post by KlangFool » Thu May 17, 2018 2:39 pm

OP,

This may or may not be the answer that you are seeking.

In my case, I had no job security over the last 10+ years. But, I have to live for today too. And, there is no way to get an accurate projection over 10+ to 20 years. Plus, I may not be fully-employed until retirement age. After all the above, I choose a balanced approach.

I save 1 year of my current annual expense every year. And, I spend the rest. As for whether I save enough or not, I have no idea when I made that decision 10 to 20 years ago. But, this is what I was willing to settle on. I will just make do with whatever the amount that I have when I am forced to retire.

Pick your number and roll your dice.

KlangFool
Last edited by KlangFool on Thu May 17, 2018 3:36 pm, edited 1 time in total.

david_that_guy
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Re: Having trouble figuring out expected expenses in retirement

Post by david_that_guy » Thu May 17, 2018 3:33 pm

I kept track of my expenses closely for the last 5 years of my working life and used those as the basis for retirement expenses. They changed very little during that period of time. I subtracted the obvious things like commuting related expenses. As you surmised, medical and dental are the hard ones to estimate. For the first 18 months, I used COBRA. I got the cost from my employer and then assumed it would go up 4% in the next calendar year. It actually went up 5% but close enough not to matter. The COBRA (employer) policy had a fairly low out of pocket maximum so I assumed we would hit it (and we did).

I looked at the ACA market website for my state to get an idea of the monthly cost and then added in the assumption that we would spend 1/3 of the out of pocket max (my wife and I are healthy, but you never know). I also assumed 2 visits per year each for the dentist for cleaning and checkup. I assumed medical inflation at about 5% (twice regular inflation). I added that for each year before we both reached 65. After that it is easier to estimate based on medicare, plus medicare supplemental and par D. All those costs are fairly easy to find. Again, I assumed 5% inflation for medicare related costs.

FWIW, our total cost of medical insurance premiums for 1 year on ACA (2017), plus medical and dental out of pocket was $18,000 and that was with no life threatening illnesses but a few minor health problems. My estimate was $15,000. Being off by $3,000 was humbling, but I have enough room in my withdrawal rate that it was more annoying than serious. However, it is a good example of why you need a margin of error in your planning.

Our other expenses have still remained fairly constant in the 2+ years of our retirement so far, except for increased travel expenses, which I had planned for the first 10 years of retirement. We have taken an international trip in each year of retirement so far and hope to do that for 10 years. That would, obviously, be the first expense cut if our investments founder or other expenses jump up unexpectedly.
Last edited by david_that_guy on Thu May 17, 2018 3:38 pm, edited 1 time in total.

wrongfunds
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Re: Having trouble figuring out expected expenses in retirement

Post by wrongfunds » Thu May 17, 2018 3:38 pm

KlangFool wrote:
Thu May 17, 2018 2:39 pm
OP,

This may or may not be the answer that you are seeking.

In my case, I had no job security over the last 10+ years. But, I have to live for today too. And, there is no way to get an accurate projection over 10+ to 20 years. Plus, I may not be fully-employed until retirement age. After all the above, I choose a balanced approach.

I save 1 year of my current annual expense every year. And, I spend the rest. As for whether I save enough or not, I have no idea when I made that decision 10 to 20 years ago. But, this is what I was willing to settle on. I will just make do with whatever the amount that I have when I am forced to retire.

Pick your number and roll your dice.

KlangFool
+100

To be frank, even folks who are just 5 years away from retirement have no firm handle on their retirement expenses. Expecting to have that numbers 20 years earlier is just foolish.

KlangFool
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Re: Having trouble figuring out expected expenses in retirement

Post by KlangFool » Thu May 17, 2018 3:46 pm

david_that_guy wrote:
Thu May 17, 2018 3:33 pm

FWIW, our total cost of medical insurance premiums for 1 year on ACA (2017), plus medical and dental out of pocket was $18,000 and that was with no life threatening illnesses but a few minor health problems. My estimate was $15,000. Being off by $3,000 was humbling, but I have enough room in my withdrawal rate that it was more annoying than serious. However, it is a good example of why you need a margin of error in your planning.
david_that_guy,

I assumed that my current and future medical expense will be about 20K per year. Given that the median US household income is about 60K, if the actual number is a lot higher, I believe most household will not afford it. Then, some significant changes to the medical industry will occur.

KlangFool

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Re: Having trouble figuring out expected expenses in retirement

Post by The Wizard » Thu May 17, 2018 4:54 pm

wrongfunds wrote:
Thu May 17, 2018 3:38 pm

To be frank, even folks who are just 5 years away from retirement have no firm handle on their retirement expenses. Expecting to have that numbers 20 years earlier is just foolish.
Perhaps impractical rather than foolish.
As you get within five years of cutting loose, the dollar numbers become more evident.
But you can't generally save a huge amount more in those remaining few years.
So save a healthy percentage now, fine tune the details later...
Attempted new signature...

wrongfunds
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Re: Having trouble figuring out expected expenses in retirement

Post by wrongfunds » Thu May 17, 2018 5:03 pm

This is where KF's mantra comes in handy. Your annual savings targeted for incremental investing are governed by your income, by your taxes and by your expenses. All you have to do is to increase your income, decrease your taxes and minimize your expenses. Easy as pie!

No, seriously, what can you really do by being to able to estimate your expenses 20 years down the road? How would that change what you will do today?

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MP123
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Re: Having trouble figuring out expected expenses in retirement

Post by MP123 » Thu May 17, 2018 5:32 pm

KlangFool wrote:
Thu May 17, 2018 3:46 pm
david_that_guy wrote:
Thu May 17, 2018 3:33 pm

FWIW, our total cost of medical insurance premiums for 1 year on ACA (2017), plus medical and dental out of pocket was $18,000 and that was with no life threatening illnesses but a few minor health problems. My estimate was $15,000. Being off by $3,000 was humbling, but I have enough room in my withdrawal rate that it was more annoying than serious. However, it is a good example of why you need a margin of error in your planning.
david_that_guy,

I assumed that my current and future medical expense will be about 20K per year. Given that the median US household income is about 60K, if the actual number is a lot higher, I believe most household will not afford it. Then, some significant changes to the medical industry will occur.

KlangFool
But with a $60k income a household would get substantial subsidies.

The way the subsidies work is by capping the maximum amount you have to pay for health insurance at no more than 9.56% of your income. So at $60k AGI they wouldn't have to pay more than $5,736 for insurance no matter what the un-subsidized rate is. Un-subsidized could be $50k/yr but they'd never have to pay more than $5,736. So a large number of people on ACA aren't directly affected by rising health insurance rates. Which is unfortunate for those of us that are...

The moral of the story is stay under the ACA cliff if at all possible (for as long as it's around).

If you're over the cliff then I'd agree that something like $20-30k is probably about right to budget at this point. Remember it's not just the premiums but you should consider the maximum out of pocket (OOP) too.

Hillview
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Re: Having trouble figuring out expected expenses in retirement

Post by Hillview » Thu May 17, 2018 6:03 pm

I used Mint for about 6 months and then changed to YNAB budgeting and have been doing that for 5 months. While I do feel like it would be nice to have another year or 2 of expenses I can now start to think about what my actual expenses are I exported my YNAB monthlys to an xls and worked it over a little (removed 529 and retirement savings and added health care and increases vacation budgets)

delamer
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Re: Having trouble figuring out expected expenses in retirement

Post by delamer » Thu May 17, 2018 6:42 pm

wrongfunds wrote:
Thu May 17, 2018 3:38 pm
KlangFool wrote:
Thu May 17, 2018 2:39 pm
OP,

This may or may not be the answer that you are seeking.

In my case, I had no job security over the last 10+ years. But, I have to live for today too. And, there is no way to get an accurate projection over 10+ to 20 years. Plus, I may not be fully-employed until retirement age. After all the above, I choose a balanced approach.

I save 1 year of my current annual expense every year. And, I spend the rest. As for whether I save enough or not, I have no idea when I made that decision 10 to 20 years ago. But, this is what I was willing to settle on. I will just make do with whatever the amount that I have when I am forced to retire.

Pick your number and roll your dice.

KlangFool
+100

To be frank, even folks who are just 5 years away from retirement have no firm handle on their retirement expenses. Expecting to have that numbers 20 years earlier is just foolish.

The people who get in financial trouble in retirement are those who didn’t have a firm handle on their expenses at 5 years out.

KlangFool
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Re: Having trouble figuring out expected expenses in retirement

Post by KlangFool » Thu May 17, 2018 6:43 pm

MP123 wrote:
Thu May 17, 2018 5:32 pm
KlangFool wrote:
Thu May 17, 2018 3:46 pm
david_that_guy wrote:
Thu May 17, 2018 3:33 pm

FWIW, our total cost of medical insurance premiums for 1 year on ACA (2017), plus medical and dental out of pocket was $18,000 and that was with no life threatening illnesses but a few minor health problems. My estimate was $15,000. Being off by $3,000 was humbling, but I have enough room in my withdrawal rate that it was more annoying than serious. However, it is a good example of why you need a margin of error in your planning.
david_that_guy,

I assumed that my current and future medical expense will be about 20K per year. Given that the median US household income is about 60K, if the actual number is a lot higher, I believe most household will not afford it. Then, some significant changes to the medical industry will occur.

KlangFool
But with a $60k income a household would get substantial subsidies.
MP123,

1) It is not hard for me to be the 60K income household at retirement. I could generate whatever taxable income that let me get the subsidy if necessary.

2) If the subsidies no longer exist, the 20K threshold will fall.

In either case, I am covered.

KlangFool

TravelforFun
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Re: Having trouble figuring out expected expenses in retirement

Post by TravelforFun » Thu May 17, 2018 6:54 pm

I don't do a budget but I've been keeping track of my expenses for the last 30 years. I know how much we need to maintain our lifestyle which I plan to do in retirement.

TravelforFun

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Tyler Aspect
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Re: Having trouble figuring out expected expenses in retirement

Post by Tyler Aspect » Thu May 17, 2018 7:14 pm

TexMexIndex wrote:
Thu May 17, 2018 1:17 pm
Tyler Aspect wrote:
Thu May 17, 2018 1:06 pm
My wild guess for a couple at age 55 with 3 teens would have a medical expense at 30% of total annual expense. Obviously it would depend heavily on the health insurance market situation at that time.
Yikes that is more than I thought. I think I calculated healthcare at about 15k annual from my plan. Hard to predict the healthcare market in the future.

All your comments are helping me think this through, thank you. Any more tips from those close or retired?
We are seeing some college related expenses 3 years ahead of college enrollment. College consultants are quite expensive!
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

david_that_guy
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Re: Having trouble figuring out expected expenses in retirement

Post by david_that_guy » Fri May 18, 2018 6:56 am

In case it wasn't clear, my $18,000 in medical expenses with ACA included the fact that my wife and I are just over the ACA cliff. We couldn't get under the cliff because of dividends and capital gains. The capital gains are primarily due to tax inefficient investment choices I made years ago before I understood (with the help of Bogleheads) how to construct a tax efficient portfolio. By the time I get to a tax efficient portfolio we'll both be on Medicare so it won't matter for ACA.

I'd also like to emphasize something MP123 said. It's the out of pocket expenses that are the problem. 45% of that $18,000 were out of pocket expenses.

In any case, I assume that a lot of people on this forum will be over the cliff. It's certainly something you have to understand to estimate your medical expenses.

carolinaman
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Re: Having trouble figuring out expected expenses in retirement

Post by carolinaman » Fri May 18, 2018 9:02 am

Once children are out of the house and on their own, it should be straightforward to estimate a reasonable retirement budget based upon current expenses adjusted for the obvious retirement spending differences. Taxes will change (no more FICA), you may no longer be saving for retirement, work/commute expenses go away, health insurance will change and may be the big variable. Conversely, you may add some expenses as you will have more leisure time and may wish to travel more, indulge yourself in hobbies and other activities, and so forth.

Your baseline should be your current budget/expenses including taxes and health insurance/expenses. Once you have a handle on that, then begin the deliberate process of thinking through how all of these expenses will be affected by retirement.

There are rules of thumb saying you will need from 70% to 80% of current income. These may be sufficient for someone who is 20+ years from retirement, but as you get closer, certainly in the 5 to 10 year timeframe, rules of thumb are a poor proxy for what you will need, and you should go through the exercise of trying to estimate your retirement expenses.

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Re: Having trouble figuring out expected expenses in retirement

Post by KlangFool » Fri May 18, 2018 9:09 am

david_that_guy wrote:
Fri May 18, 2018 6:56 am
In case it wasn't clear, my $18,000 in medical expenses with ACA included the fact that my wife and I are just over the ACA cliff. We couldn't get under the cliff because of dividends and capital gains. The capital gains are primarily due to tax inefficient investment choices I made years ago before I understood (with the help of Bogleheads) how to construct a tax efficient portfolio. By the time I get to a tax efficient portfolio we'll both be on Medicare so it won't matter for ACA.

I'd also like to emphasize something MP123 said. It's the out of pocket expenses that are the problem. 45% of that $18,000 were out of pocket expenses.

In any case, I assume that a lot of people on this forum will be over the cliff. It's certainly something you have to understand to estimate your medical expenses.
david_that_guy,

I was unemployed for more than 1 year. I was under the cliff. So, I am confident that if I early retire, I will be under the cliff.

KlangFool

Nate79
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Re: Having trouble figuring out expected expenses in retirement

Post by Nate79 » Fri May 18, 2018 10:20 am

Save as much as you can. Invest. Resist lifestyle creep. Run a budget.

You can not project this level of detail more than a few years out. Who knows what the structure of healthcare will be even a few years out. Any discussion about what ACA healthcare cost, subsidies, etc will be more than a few years from now is ridiculous.

wrongfunds
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Re: Having trouble figuring out expected expenses in retirement

Post by wrongfunds » Fri May 18, 2018 10:43 am

carolinaman wrote:
Fri May 18, 2018 9:02 am
Once children are out of the house and on their own, it should be straightforward to estimate a reasonable retirement budget based upon current expenses adjusted for the obvious retirement spending differences. Taxes will change (no more FICA), you may no longer be saving for retirement, work/commute expenses go away, health insurance will change and may be the big variable. Conversely, you may add some expenses as you will have more leisure time and may wish to travel more, indulge yourself in hobbies and other activities, and so forth.

Your baseline should be your current budget/expenses including taxes and health insurance/expenses. Once you have a handle on that, then begin the deliberate process of thinking through how all of these expenses will be affected by retirement.

There are rules of thumb saying you will need from 70% to 80% of current income. These may be sufficient for someone who is 20+ years from retirement, but as you get closer, certainly in the 5 to 10 year timeframe, rules of thumb are a poor proxy for what you will need, and you should go through the exercise of trying to estimate your retirement expenses.
This makes too much sense.

the only fly in the ointment is that previously your travel budget was limited by the amount of vacation you had. So if you were on vacation 4 weeks of the year during your working years, your vacation budget now needs to be 12x of the previous vacation budget as there are 48 more weeks in the year for taking more vacations.

This is where some people want to have 150% of their working income in the retirement. And when they say that, they are NOT kidding at all.
I wish we would have that luxury but we do know that post retirement, that will be significant budget item.

mptfan
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Re: Having trouble figuring out expected expenses in retirement

Post by mptfan » Fri May 18, 2018 10:50 am

steelerfan wrote:
Thu May 17, 2018 12:42 pm
If you don't already, I would start doing a monthly budget. Once you start doing that for a few months, I think you will see what expenses might be eliminated or reduced (i.e. Retirement Savings, Mortgage, gas) and what might increase (medical, travel, etc...) in retirement.
Even better than doing a budget is to track your expenses on a monthly basis. Forget about budgeting...there is no substitute for actually tracking your expenses and actually seeing how much you are spending and where the money is going. Do that over time, and then get an annual number, the longer you do that the better. Ideally you would have several years of actual spending data and then you will know how much you spend, and then you can adjust to see where you may spend more or less in retirement and come up with a reasonable estimate.

RetireBy55
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Re: Having trouble figuring out expected expenses in retirement

Post by RetireBy55 » Sat May 19, 2018 11:39 am

MP123 wrote:
Thu May 17, 2018 5:32 pm

The way the subsidies work is by capping the maximum amount you have to pay for health insurance at no more than 9.56% of your income. So at $60k AGI they wouldn't have to pay more than $5,736 for insurance no matter what the un-subsidized rate is. Un-subsidized could be $50k/yr but they'd never have to pay more than $5,736. So a large number of people on ACA aren't directly affected by rising health insurance rates. Which is unfortunate for those of us that are...
There are scenarios where you may have to pay more than 9.56% of income for HC under the ACA.

As I've always understood it, the subsidy you receive is based off the delta between the second lowest Silver plan for your area and the 9.56% income number. So, if the second lowest Silver plan is $12K and 9.56% of your income winds up being $5,700, you get a $6,300 subsidy.

What you choose to do with that subsidy is entirely up to you. You can buy the cheapest Silver plan, the second cheapest Silver plan (at which point your premium would be 9.56% of MAGI), a higher cost Silver plan, or even a Bronze or Gold plan.

In our area, the second cheapest Silver plan is always an HMO. We strongly prefer a PPO, so would need to buy something more costly - in which case our ACA cost will definitely be more than 9.56% of income..

Good advice about staying under the cliff. One penny over and you pay the full premium amount.

The other not so good thing about the ACA is the deductibles. Be sure to plan for those. Every PPO plan we can afford has per person deductibles of $6,500 per person, per year. Not good. That means we'd basically never get anything paid for unless we had some catastrophic event, yet need to shovel out a boatload of cash every year just for the premiums - even when we manage MAGI to stay under the cliff and get the subsidies..that makes corporate sponsored healthcare THE reason we have not retired yet, even though we "could".

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siamond
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Re: Having trouble figuring out expected expenses in retirement

Post by siamond » Sat May 19, 2018 12:48 pm

TexMexIndex wrote:
Thu May 17, 2018 1:17 pm
All your comments are helping me think this through, thank you. Any more tips from those close or retired?
Many people already gave *THE* primary advice. Get in a habit of carefully tracking your expenses every month. Keep doing it until (and after) you retire. It's like brushing your teeth, it's a bit of a chore, but it is CRUCIAL to your (financial) health. Personally, I use Mint for historical reasons, but many people told me that Personal Capital is significantly better. This is actually surprisingly easy because those tools automatically import and categorize transactions from your credit cards and banking accounts (and Paypal too), and if you avoid checks (which have to be manually categorized), you really have little to do, it takes me an hour every month, and it's mostly because I carefully review transactions to make sure nobody hacked one account.

People pointing out that things change over time and that it is quite the wild guess to plan ahead (notably knowing that you're 40) are certainly correct, but this is missing the main point. The main point is to develop this tracking discipline. This will help you eliminate spurious expenses, this will make you think about your lifestyle, and this will make you monitor security/hacking issues. Furthermore, this will create over time a large database of knowledge about yourself, including the infrequent large expenses (new appliance, really big vacation, etc) that only occur every few years, and significantly impact your budget. Knowledge is power. And then, a few years from retirement, when life will probably get on a fairly stable track, you can project in the near future with much more confidence. I am an early retiree, I went through all of that.

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bertilak
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Re: Having trouble figuring out expected expenses in retirement

Post by bertilak » Sat May 19, 2018 12:52 pm

KlangFool wrote:
Thu May 17, 2018 1:22 pm
Even if the mortgage is paid off, you still need to pay property tax and maintain the house. The housing expense will not be zero.
I am retired with mortgage paid off.

Fairly recent non-recurring home maintenance expenses:
  • $25K Septic system replacement
  • $13K HVAC replacement
  • $9K Exterior (paint, door refinish, gutters)
  • $7K Foundation repair
$47K total

The house is 10 years old so perhaps it was about time for things like the above to start happening. Most of the above was fixing inadequacies of the original construction (under-designed septic, crummy builder grade HVAC, under-designed foundation, no gutters). I'm hoping the worst of it is over for quite some time. Perhaps it will be more like $1K/year for a while.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

marcopolo
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Re: Having trouble figuring out expected expenses in retirement

Post by marcopolo » Sat May 19, 2018 1:13 pm

As many have suggested, tracking actual expenses the years leading up to retirement is a good place to start.
But, i think one needs to also consider what one will be doing in retirement. I think this is particularly important to those retiring early. You will have a lot more free time, what will you do with that time? Some those things (traveling, hobbies, etc.) might cost more than what you will,save from no longer working (commuting. lunches, etc.).

As an example:
We did not budget, but did closely track our spending. Backing out college expense, the spending has been relatively flat for a number of years leading up to retirement. For planning purposes, we assumed our retirement spending to be 133% of pre-retirement spending. We also budgeted $30k/yr for heath care on top of that. That is assuming ACA subsidies go away at some point. We will manage our income to stay below the cliff to get subsidies while we can. That may reduce the HC spending to something more like $15k/yr. Which would leave some additional room for discretionary spending in retirement. YMMV.
Once in a while you get shown the light, in the strangest of places if you look at it right.

jebmke
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Re: Having trouble figuring out expected expenses in retirement

Post by jebmke » Sat May 19, 2018 1:22 pm

bertilak wrote:
Sat May 19, 2018 12:52 pm
KlangFool wrote:
Thu May 17, 2018 1:22 pm
Even if the mortgage is paid off, you still need to pay property tax and maintain the house. The housing expense will not be zero.
I am retired with mortgage paid off.

Fairly recent non-recurring home maintenance expenses:
  • $25K Septic system replacement
  • $13K HVAC replacement
  • $9K Exterior (paint, door refinish, gutters)
  • $7K Foundation repair
$47K total

The house is 10 years old so perhaps it was about time for things like the above to start happening. Most of the above was fixing inadequacies of the original construction (under-designed septic, crummy builder grade HVAC, under-designed foundation, no gutters). I'm hoping the worst of it is over for quite some time. Perhaps it will be more like $1K/year for a while.
Normally I would expect a properly installed and properly used septic system to last much longer than 10 years.

I think we are at 35+ years on our system (not the original owners).
When you discover that you are riding a dead horse, the best strategy is to dismount.

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bertilak
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Re: Having trouble figuring out expected expenses in retirement

Post by bertilak » Sat May 19, 2018 3:01 pm

jebmke wrote:
Sat May 19, 2018 1:22 pm
Normally I would expect a properly installed and properly used septic system to last much longer than 10 years.
As I said, it was under-designed. It was designed as if it were in "sandy loam" but the soil was actually "massive clay" (official designation). It required the complete replacement of a conventional in-ground leach field system with a two-tank, pressurized, drip-line system with 8 inches of added sandy-loam topsoil.

But it is common for less drastic corrections to be needed.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

jebmke
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Re: Having trouble figuring out expected expenses in retirement

Post by jebmke » Sat May 19, 2018 3:07 pm

bertilak wrote:
Sat May 19, 2018 3:01 pm
jebmke wrote:
Sat May 19, 2018 1:22 pm
Normally I would expect a properly installed and properly used septic system to last much longer than 10 years.
As I said, it was under-designed. It was designed as if it were in "sandy loam" but the soil was actually "massive clay" (official designation). It required the complete replacement of a conventional in-ground leach field system with a two-tank, pressurized, drip-line system with 8 inches of added sandy-loam topsoil.

But it is common for less drastic corrections to be needed.
We also live in a clay-soil area. Many properties are grandfathered that wouldn't pass the perc test today. That might even be true for ours. We are within the Chesapeake Bay critical area which makes it even tougher. I keep my fingers crossed that our system holds together long enough for us to extract ourselves from this area.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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bertilak
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Re: Having trouble figuring out expected expenses in retirement

Post by bertilak » Sat May 19, 2018 4:08 pm

jebmke wrote:
Sat May 19, 2018 3:07 pm
We also live in a clay-soil area. Many properties are grandfathered that wouldn't pass the perc test today. That might even be true for ours. We are within the Chesapeake Bay critical area which makes it even tougher. I keep my fingers crossed that our system holds together long enough for us to extract ourselves from this area.
One of the people involved in putting in my new system said with a pump you know things are going somewhere beside back into the house. "A straight flush beats a full house every time!"
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

heyyou
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Re: Having trouble figuring out expected expenses in retirement

Post by heyyou » Sat May 19, 2018 5:18 pm

With no kids at home, our pre-retirement annual expenses were simple to see--we subtracted our annual savings contributions (shown on each account's end of year report) from our annual income, knowing the rest was spent. Taxes are just another expense to us, their only significance is the withholding needs to somewhat match when the income was obtained.

Some good news is if you are saving diligently for retirement, that expense also goes away on retirement day. There you are, already used to living on noticeably less than your employed income.

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MP123
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Re: Having trouble figuring out expected expenses in retirement

Post by MP123 » Sun May 20, 2018 11:27 am

bertilak wrote:
Sat May 19, 2018 4:08 pm
"A straight flush beats a full house every time!"
:D Nothing like a little septic tank humor...

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