Tracking spending before retirement useful for estimating retirement expenses?

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marcopolo
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Tracking spending before retirement useful for estimating retirement expenses?

Post by marcopolo » Sat Jun 16, 2018 1:37 pm

In a couple recent thread:
Long time retirees: how much do you really need? (viewtopic.php?f=2&t=251838)
How much money do you want to retire? (viewtopic.php?f=2&t=224799)

A number of people suggested tracking expenses a few years before retirement as a way to estimate expenses in retirement. Which got me thinking, and rather than hijack that thread, i figured i would start a new one.

I can see the attraction to this approach, as it is relatively easy to do with all the tools available now. But, in my situation, it is almost irrelevant. Other than the fact that my wife and I have always lived well below our means and will likely continue to do so in retirement, our expenses in the years leading up to retirement (which we tracked pretty closely), will have almost no resemblance to what we anticipate spending in retirement (recently retired). If it did, I feel like we would be doing it all wrong, at least for us.

For people who have already made the transition, does your expenses in retirement resemble that during the years leading up to retirement? If so, is that a coincidence, or is it because you are essentially doing the same things as before?

For those still in the planning stages, are you planning to have similar expenses in retirement? If so, do you plan to live in the same area? What will you do with all the free time that retirement frees up?
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: Tracking spending before retirement useful for estimating retirement expenses?

Post by jebmke » Sat Jun 16, 2018 1:43 pm

I have been retired for 10+ years. Since I did not live in the US immediately prior to retirement I have no expectation that my expenses now are similar. I did prepare a ground up budget prior to retirement, including a contingency amount for things I might have forgotten. My expenses on average have tracked pretty close in aggregate. I did track categories of spending for a couple of years after retirement to get a sense of where the money was actually going. I no longer do this. I only track the aggregate in three simple categories (1) Capital (2) income taxes and (3) everything else.
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The Wizard
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by The Wizard » Sat Jun 16, 2018 1:56 pm

marcopolo wrote:
Sat Jun 16, 2018 1:37 pm

...For people who have already made the transition, does your expenses in retirement resemble that during the years leading up to retirement? If so, is that a coincidence, or is it because you are essentially doing the same things as before?

For those still in the planning stages, are you planning to have similar expenses in retirement? If so, do you plan to live in the same area? What will you do with all the free time that retirement frees up?
It can be a useful exercise tracking all your expenses in a spreadsheet, but as you are finding, it doesn't answer the important question: what is my Desired Income in retirement a few years from now.

Best to compute a Top Down dollar amount for current expenses and then augment that with additional funds for recreational pursuits. That's close to what I did...
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delamer
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by delamer » Sat Jun 16, 2018 1:58 pm

I think of our pre-retirement expenses as a baseline for our retirement expenses (now semi-retired).

Once you have the baseline, then you make adjustments based on how your life will change once you are retired.

So far, our expenses are similar or have changed in ways that were predictable.

I am having trouble envisioning how your life is going to change so radically in retirement that your pre-retirement expenses are irrelevant. Your major categories of expenses will continue, even if the amounts change.

Yes, there can be big changes in housing costs if you pay off your mortgage or downsize. Your medical expenses may increase if you have to pay more for insurance. You may travel more or spend more on your hobbies. Those things are fairly easy to quantify.

But people don’t go from shopping at Whole Foods to eating all their meals at McDonald’s. And they don’t go from buying their clothes at Target to buying everything at Nordstrom. Nor do they go from leasing a Mercedes SUV to buying used Honda Civics.

If you have some vision of how and where you are going to spend your retirement, then figuring out your expenses shouldn’t be difficult. And pre-retirement expenses are a start.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by neilpilot » Sat Jun 16, 2018 2:05 pm

Tracking expenses a year or two prior to retirement is absolutely useful. Your post retirement projection needs to include simple but mostly obvious adjustments. Do you commute 25 ow daily to work; your auto operating expenses might drop. Retirement may mean more travel or golf. It’s likely that many expenses like utilities, mortgage and property taxes will be steady.

I’ve also applied a 5% annual inflation adjustment.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by neilpilot » Sat Jun 16, 2018 2:05 pm

Duplicate
Last edited by neilpilot on Sat Jun 16, 2018 2:12 pm, edited 1 time in total.

straws46
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by straws46 » Sat Jun 16, 2018 2:08 pm

Retired 5 years. Our expenses went up considerably after retirement. Our home costs (taxes, fees, utilities and insurance) stayed the same or increased a little, and then we did some remodeling. Our food costs went up because we try to eat healthier and grass fed beef costs a lot more than the grain and antibiotic fed meat you get everywhere else. Now I have time to play golf a couple times a week and we travel like crazy. We use lots of miles and points but still spend about $30,000 a year seeing the world. Our health insurance costs have skyrocketed since DW is still 5 years away from medicare and medicare plus supplement plus income adjustment is more than company-paid insurance was. Cell phone is no longer a company perk. We are spending about 2.5 times what we spent the last few years before retirement, but we were only spending about a third of our net income before retirement (a lot of forced savings due to 401K, deferred bonuses, and stock appreciation rights).

I think the charts the tell you how much you need in retirement based on pre-retirement income are misguided. The key is not how much you made, but how much you spent, and how much that spending will change when you enjoy more leisure time.

dbr
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by dbr » Sat Jun 16, 2018 2:12 pm

It was absolutely useful. It was not sufficient because some things changed. It is certainly most helpful information as long as you are paying attention to what you are looking at. It will tell you what some items are going to be and it won't tell you what some other items are going to be.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by Dolphin1 » Sat Jun 16, 2018 2:16 pm

I've been retired for about 3 years, and I found tracking my expenses pre-retirement for about 2 years very helpful to estimate my post-retirement needs. I tracked, then I used that to estimate changes post-retirement for things I knew would change such as a decrease in car expenses and an increase in health insurance cost. My post-retirement spending has been fairly close to what I had estimated (of course much of it is within my control.) There haven't been any huge spending or saving surprises.

marcopolo
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by marcopolo » Sat Jun 16, 2018 2:21 pm

delamer wrote:
Sat Jun 16, 2018 1:58 pm
I think of our pre-retirement expenses as a baseline for our retirement expenses (now semi-retired).

Once you have the baseline, then you make adjustments based on how your life will change once you are retired.

So far, our expenses are similar or have changed in ways that were predictable.

I am having trouble envisioning how your life is going to change so radically in retirement that your pre-retirement expenses are irrelevant. Your major categories of expenses will continue, even if the amounts change.

Yes, there can be big changes in housing costs if you pay off your mortgage or downsize. Your medical expenses may increase if you have to pay more for insurance. You may travel more or spend more on your hobbies. Those things are fairly easy to quantify.

But people don’t go from shopping at Whole Foods to eating all their meals at McDonald’s. And they don’t go from buying their clothes at Target to buying everything at Nordstrom. Nor do they go from leasing a Mercedes SUV to buying used Honda Civics.

If you have some vision of how and where you are going to spend your retirement, then figuring out your expenses shouldn’t be difficult. And pre-retirement expenses are a start.
Thanks for the thoughtful response. We are not likely to go from shopping at Target to Nordstroms.

But, here are the many ways our lives will be very different:

In our working, kid raising, years, we chose where to live based on availability of jobs, quality of school districts, etc.; other considerations were secondary. Now our priorities are mild year-round climate and access to outdoor recreational activities. The area we chose will more than double our housing costs. The other aspects contributing to cost of living are also quite a bit higher.

We spent the last 20 years focusing a lot of our time and money on kids activities, travel sports, camps, family vacations, etc. The youngest goes off to college next year, the spending profile will change dramatically when that happens.

We will have a lot more free time to do various activities, including travel, some of which will cost money.

We have 13 years to medicare age, who really can predict what health insurance will cost us between now an then. My prior employer plan cost me about $1800/yr in premiums with a $2600 deductible. Just this item in the new budget consumes almost 40% of the pre-retirement budget.

We pretty much had to do a bottoms up estimate for our retirement budget. It is a little scary, as we had to make a lot of assumptions (thus my question). It forced us to be conservative in our planning. I do have to admit that tracking spending categories in Quicken did help identify areas we had to make sure were covered, and in some cases gave us a baseline from which to either reduce or increase, sometimes dramatically.

The end result does not resemble the starting point at all.
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: Tracking spending before retirement useful for estimating retirement expenses?

Post by marcopolo » Sat Jun 16, 2018 2:23 pm

straws46 wrote:
Sat Jun 16, 2018 2:08 pm
Retired 5 years. Our expenses went up considerably after retirement. Our home costs (taxes, fees, utilities and insurance) stayed the same or increased a little, and then we did some remodeling. Our food costs went up because we try to eat healthier and grass fed beef costs a lot more than the grain and antibiotic fed meat you get everywhere else. Now I have time to play golf a couple times a week and we travel like crazy. We use lots of miles and points but still spend about $30,000 a year seeing the world. Our health insurance costs have skyrocketed since DW is still 5 years away from medicare and medicare plus supplement plus income adjustment is more than company-paid insurance was. Cell phone is no longer a company perk. We are spending about 2.5 times what we spent the last few years before retirement, but we were only spending about a third of our net income before retirement (a lot of forced savings due to 401K, deferred bonuses, and stock appreciation rights).

I think the charts the tell you how much you need in retirement based on pre-retirement income are misguided. The key is not how much you made, but how much you spent, and how much that spending will change when you enjoy more leisure time.
This is my thinking as well. Now add on top of that, moving to a different part of the country that has a vastly different cost of living than where you are currently. How does that change the baseline comparison.

Unless you plan to stay in the same area, living the same lifestyle, it seems like the spending profile will change dramatically.
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: Tracking spending before retirement useful for estimating retirement expenses?

Post by marcopolo » Sat Jun 16, 2018 2:26 pm

neilpilot wrote:
Sat Jun 16, 2018 2:05 pm
Tracking expenses a year or two prior to retirement is absolutely useful. Your post retirement projection needs to include simple but mostly obvious adjustments. Do you commute 25 ow daily to work; your auto operating expenses might drop. Retirement may mean more travel or golf. It’s likely that many expenses like utilities, mortgage and property taxes will be steady.

I’ve also applied a 5% annual inflation adjustment.
The changes you are thinking about are in the noise. I am talking about significant lifestyle changes, moving to a different area (lower or higher COL), doing completely different things with your time, some which are bound to have different costs.
Once in a while you get shown the light, in the strangest of places if you look at it right.

delamer
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by delamer » Sat Jun 16, 2018 2:47 pm

marcopolo wrote:
Sat Jun 16, 2018 2:21 pm
delamer wrote:
Sat Jun 16, 2018 1:58 pm
I think of our pre-retirement expenses as a baseline for our retirement expenses (now semi-retired).

Once you have the baseline, then you make adjustments based on how your life will change once you are retired.

So far, our expenses are similar or have changed in ways that were predictable.

I am having trouble envisioning how your life is going to change so radically in retirement that your pre-retirement expenses are irrelevant. Your major categories of expenses will continue, even if the amounts change.

Yes, there can be big changes in housing costs if you pay off your mortgage or downsize. Your medical expenses may increase if you have to pay more for insurance. You may travel more or spend more on your hobbies. Those things are fairly easy to quantify.

But people don’t go from shopping at Whole Foods to eating all their meals at McDonald’s. And they don’t go from buying their clothes at Target to buying everything at Nordstrom. Nor do they go from leasing a Mercedes SUV to buying used Honda Civics.

If you have some vision of how and where you are going to spend your retirement, then figuring out your expenses shouldn’t be difficult. And pre-retirement expenses are a start.
Thanks for the thoughtful response. We are not likely to go from shopping at Target to Nordstroms.

But, here are the many ways our lives will be very different:

In our working, kid raising, years, we chose where to live based on availability of jobs, quality of school districts, etc.; other considerations were secondary. Now our priorities are mild year-round climate and access to outdoor recreational activities. The area we chose will more than double our housing costs. The other aspects contributing to cost of living are also quite a bit higher.

We spent the last 20 years focusing a lot of our time and money on kids activities, travel sports, camps, family vacations, etc. The youngest goes off to college next year, the spending profile will change dramatically when that happens.

We will have a lot more free time to do various activities, including travel, some of which will cost money.

We have 13 years to medicare age, who really can predict what health insurance will cost us between now an then. My prior employer plan cost me about $1800/yr in premiums with a $2600 deductible. Just this item in the new budget consumes almost 40% of the pre-retirement budget.

We pretty much had to do a bottoms up estimate for our retirement budget. It is a little scary, as we had to make a lot of assumptions (thus my question). It forced us to be conservative in our planning. I do have to admit that tracking spending categories in Quicken did help identify areas we had to make sure were covered, and in some cases gave us a baseline from which to either reduce or increase, sometimes dramatically.

The end result does not resemble the starting point at all.
You do have a lot of changes going on, particularly with plans to move to a higher cost area.

So I can see that pre-retirement expenses will be less relevant for you than in my (our) situation.

It sounds like your approach is a good one. You used the pre-retirement expenses where relevant as a baseline, and tossed them when they weren’t.

The issue for too many people is that they no have idea how much they are really spending on major categories now and so can’t intelligently adjust/prioritize their spending in retirement.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by neilpilot » Sat Jun 16, 2018 3:54 pm

marcopolo wrote:
Sat Jun 16, 2018 2:26 pm
neilpilot wrote:
Sat Jun 16, 2018 2:05 pm
Tracking expenses a year or two prior to retirement is absolutely useful. Your post retirement projection needs to include simple but mostly obvious adjustments. Do you commute 25 ow daily to work; your auto operating expenses might drop. Retirement may mean more travel or golf. It’s likely that many expenses like utilities, mortgage and property taxes will be steady.

I’ve also applied a 5% annual inflation adjustment.
The changes you are thinking about are in the noise. I am talking about significant lifestyle changes, moving to a different area (lower or higher COL), doing completely different things with your time, some which are bound to have different costs.
Well if you expect your retirement will entail that significant a lifestyle change, then Tracking spending would be meaningless, as you indicate in your response. Why did you even start the thread?

marcopolo
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by marcopolo » Sat Jun 16, 2018 4:28 pm

neilpilot wrote:
Sat Jun 16, 2018 3:54 pm
marcopolo wrote:
Sat Jun 16, 2018 2:26 pm
neilpilot wrote:
Sat Jun 16, 2018 2:05 pm
Tracking expenses a year or two prior to retirement is absolutely useful. Your post retirement projection needs to include simple but mostly obvious adjustments. Do you commute 25 ow daily to work; your auto operating expenses might drop. Retirement may mean more travel or golf. It’s likely that many expenses like utilities, mortgage and property taxes will be steady.

I’ve also applied a 5% annual inflation adjustment.
The changes you are thinking about are in the noise. I am talking about significant lifestyle changes, moving to a different area (lower or higher COL), doing completely different things with your time, some which are bound to have different costs.
Well if you expect your retirement will entail that significant a lifestyle change, then Tracking spending would be meaningless, as you indicate in your response. Why did you even start the thread?
I admit my changes in lifestlye are more extreme than most. But, i would think most people's lifestyle, especially the many early retirees around here, would also have very different post retirement. I was trying to get a sense how different, and what they do about forecasting expenses other than (in addition to) use of pre-retirement numbers.

If I were going to continue to live the same way, I probably would have simply continued to work. I enjoyed my career. The whole point of early retirement for me is to do a lot of things I could not easily do while working. I suspect that is true for a lot of early retirees.
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by VictoriaF » Sat Jun 16, 2018 4:42 pm

"Plans are useless, but planning is indispensable" (Dwight Eisenhower)

Tracking pre-retirement expenses provides you with a basis from which you can make projections into the retirement. You may find some current expenses that will clearly not carry into the future. You can add a large amount of money for travel. You may decide to carry extra medical insurance to avoid unexpected large bills.

After retiring, I found that I spend on travel less than I thought I would. My food expenses are also down after I started intermittent fasting. On the other hand, I am taking expensive classes in DC and trying interesting expensive treatments such as cryotherapy and float spa -- none of which I had any idea about before retiring. I continue tracking my expenses aiming to stay under my maximum annual budget. But my budget is very generous and staying under is easy.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by Dandy » Sat Jun 16, 2018 4:54 pm

For most tracking monthly expenses while working is a good start to estimating retirement expenses.

A big surprise can be health/dental expenses. While my company health insurance pretty much was the same --the loss of dental insurance was an expense surprise. I have a good dental history but the cost of a few crowns and even the normal cleaning/xrays used to be covered now it's on me. ouch! My wife has an expensive dental history so that will be a bigger surprise when/if she needs a lot of dental work. Get any dental work that you can done while you have coverage.

Our house is paid for and for the first time, despite some decent medical/dental expenses I couldn't itemize. I wonder what large RMDs first taken this year will do to taxes.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by Church Lady » Sat Jun 16, 2018 5:18 pm

Retired one year. It would be presumptuous to say I understand all my retirement expenses after just one year. :D But I can say it is not very like my working years spending. I moved when I retired, though. Perhaps if you retire to the same house you spent your working years in, the tracking would be more useful.

I found it more valuable to project my maximum after tax spending using tools like Firecalc, cFireSim, and i-orp. I pick the lesser of that and the PWR withdrawal. This gives me an annual 'income' which I can budget around, same as I had to do when I was working. I decided to retire based on whether it was feasible to live on that 'income'.

YMMV. Good luck.
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by 2015 » Sat Jun 16, 2018 7:23 pm

Tracking expenses since a teenager. I agree with the above that tracking spending/budgeting makes the transition to retirement easier.

OTOH, one my most unexpected deflated costs in my VHCOL area was health care and taxes, as juggling taxes/roth conversions/taxable withdrawals resulted in a nice combination of ACA PTCA's/subsidies. Fed/State taxes also collapsed as well due to tax bracket management. I intend for my expenses to rise rather substantially for a couple years due to some temporary major luxury travelling in the coming years.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by flyingaway » Sat Jun 16, 2018 7:33 pm

You can make a list of what you plan to spend in retirement, and track what you are currently spending. They are different, but tracking expenses can give you an idea how accurate your estimate might be.
For example, our travel expenses are about $10,000 to $15,000 per year for about three overseas trips. Our original travel budget of $10,000 in retirement is not realistic. Health insurance is almost negligible now, but will be the largest item in my early retirement budget.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by beachlover » Sat Jun 16, 2018 10:56 pm

Four years into retirement here.

We began tracking expenses against estimated retirement income in earnest about five years before retiring - along the lines of what's recommended in Your Money or Your Life, but at much coarser grain and with investment assumptions tailored to our portfolio. We didn't know we were five years from retirement when we started, but the tracking and projections focused our minds and helped to inform that decision.

For the first year or so, we itemized *all* expenses - lots of categories in lots of detail. It was a PITA, with very few or very minor surprises, from which we learned almost nothing actionable. We are careful spenders who optimize at the individual purchase level anyway. So after those first couple of years, we just tracked gross expenses, using the statements for the one account through which all our expenses move. We still knew the cost for major items - insurances, taxes, utilities, significant travel, etc. - but for tracking purposes, everything was lumped together under "expenses", and that number reflected the total cost of our current lifestyle.

For income projection, we used 4% of current cash and investment accounts, plus pension income we would receive if I had quit working at any point along the way. We did not include social security, treating that as a margin of safety for later years.

We planned to stay in the same house (at least for a while), with same medical plan (at least until medicare), and with no expectation of a big drop in work related expenses (casual office attire, no commute, etc.), and no big increase in travel (we were already traveling). We also had none of the other major life expense changes that may factor into other situations - kids were grown and done with school, no significant elder care issues, etc. So we didn't foresee much adjustment would be needed to maintain our current lifestyle, with which we were happy.

Since we also would stop retirement saving when work stopped, we figured that if we could replace gross work income with projected retirement income, we should have more than enough to cover our pre-retirement lifestyle, with a reasonable cushion for unexpected incidentals from those funds that formerly went to further savings. Social security would provide the belt to our suspenders.

Four years in it seems to be working out fine. We continue to track gross annual expenses, projected safe retirement income and future net worth. We budget around the safe retirement income projection, which remains comfortable. Since we retired several years early, we've deliberately taken a conservative approach (taking only about 2% from portfolio) while we settle in to the new routine. We will likely start loosening up now that we're getting the hang of things. If things go badly, we have room to adjust.

Everyone's situation is different. Our case fortunately was pretty straightforward, both by situation and by design. We've been able to take a gross expenses approach that so far has worked out well. But in general, I find it difficult to imagine a situation in which expense tracking would not be a useful exercise, that at least would provide a framework and baseline for fine tuning - or for major surgery - as both realized and anticipated changes may warrant.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by HIinvestor » Sat Jun 16, 2018 11:27 pm

H retired 5.5 years ago and I’m semi-retired. It works well for us. I did track our expenses roughly in the few years prior to retirement, as well as what would change.

We no longer have a mortgage.
Paid off all kids’ ed expenses.
Can no longer contribute toward H’s retirement.
Travel much more.
Have pension instead of income.
Have Required Minimum Distributions.
Continue to provide full support for loved one with chronic health issues.

We lived below our means before and still do. We save whatever we don’t spend or invest it in index funds.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by Tyler Aspect » Sat Jun 16, 2018 11:47 pm

Yes. Expense tracking is useful. Medical costs can vary quite a bit after retirement.
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by GerryL » Sun Jun 17, 2018 12:29 am

Tracking expenses prior to retirement was essential for knowing that I really did have enough to stop getting a paycheck. Of course, the pre-retirement expenses only served as a baseline that I could work with to create a plan for actual retirement.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by AlohaJoe » Sun Jun 17, 2018 12:37 am

marcopolo wrote:
Sat Jun 16, 2018 1:37 pm
For people who have already made the transition, does your expenses in retirement resemble that during the years leading up to retirement? If so, is that a coincidence, or is it because you are essentially doing the same things as before?
Yes, it resembled it. No, it wasn't exactly the same. But it is a lot easier to make extrapolations from a known baseline than to make up numbers from whole cloth.

House maintenance this year will be the same as last year. Auto insurance will be the same this year as last year. Electricity will be the same this year as last year. Travel will go up but I know what "up" is relative to. Do I spend $500 per vacation or $5,000 per vacation? Does 4 more vacations a year mean an extra $2,000 or an extra $20,000?

For me, the biggest thing in tracking expenses for a few years is to track all of the irregular expenses and get a handle on them. It isn't so much "what's my monthly electricity bill". People generally have an idea what they're spending on that. It is things like "wow, I didn't realise that every 2 years I'm getting invited to some niece/nephew wedding and dropping an unexpected $3,000 on that" or "I thought I was only spending $1,000 a year on home maintenance but now that I've tracked it for a few years I've realised my intuition was wrong and it is actually $3,000 a year" or "now that I'm actually tracking things, I've realised my trips to Vegas are quite a bit more expensive than I thought because I was keeping 'gambling' in a separate mental bucket" or "geez, I didn't realise that I spend over $1,000 a year on Christmas/birthday/anniversary presents for my extended family!"

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by TravelforFun » Sun Jun 17, 2018 12:38 am

I don't do a budget but I track my expenses closely so I have a very good idea how much we will need in retirement. If you don't track your expenses, how would you know what your FI number is (whether it's 25 or 33 x your annual expenses)?

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by TravelGeek » Sun Jun 17, 2018 1:09 am

I am currently thinking about ER. I have not really tracked expenses in great detail, but know roughly how much we spend today and know that our investments can support this going forward.

A few years ago we moved to a lower cost area. We also reduced our reliance on restaurants and eat more at home as I now work from home and have more time to shop and cook. Saves money and is more healthy, too.

I expect that we will be able to travel more, but I also expect that with increased flexibility we will be able to take advantage of travel deals that previously were not available to us due to job / vacation time constraints.

Other than travel, our hobbies and interests are not very expensive.

Health insurance will be the big new budget item.

I don’t know that it would be particularly helpful to me to add up every grocery bill, every restaurant bill, every gas station receipt, etc. for several years to come up with a more accurate base line. It is pretty easy to come up with a pretty reasonable overall estimate since large fixed cost items such as insurances, property tax, establishing reserve funds for home maintenance and vehicle replacements make up a significant and non-negotiable portion of the future budget anyway. Reasonable estimates for other items seem sufficient to me.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by UpperNwGuy » Sun Jun 17, 2018 5:43 am

About a year before I retired, I created a spreadsheet with two columns: (1) actual pre-retirement monthly income and expenses and (2) estimated post-retirement monthly income and expenses. After retiring, I learned that some of my assumptions about retirement were a bit off, so my monthly budget continued to evolve as I began retirement. I learned that the first year or two of retirement are atypical because there are transitional costs (and income) that go away once you reach a new steady state.
Last edited by UpperNwGuy on Sun Jun 17, 2018 9:48 am, edited 1 time in total.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by oldcomputerguy » Sun Jun 17, 2018 6:19 am

delamer wrote:
Sat Jun 16, 2018 1:58 pm
I think of our pre-retirement expenses as a baseline for our retirement expenses (now semi-retired).

Once you have the baseline, then you make adjustments based on how your life will change once you are retired.
Exactly what I did. I built a spreadsheet with a tab for "current budget", then one tab for each year of projected retirement. This let me be pretty granular with adding items in the appropriate years (like Social Security and Medicare). Anything past about four or five years out is admittedly a guess at this point, but we all know Bogleheads Rule # 1, right? :wink:
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by The Wizard » Sun Jun 17, 2018 7:44 am

AlohaJoe wrote:
Sun Jun 17, 2018 12:37 am
marcopolo wrote:
Sat Jun 16, 2018 1:37 pm
For people who have already made the transition, does your expenses in retirement resemble that during the years leading up to retirement? If so, is that a coincidence, or is it because you are essentially doing the same things as before?
Yes, it resembled it. No, it wasn't exactly the same. But it is a lot easier to make extrapolations from a known baseline than to make up numbers from whole cloth.

House maintenance this year will be the same as last year. Auto insurance will be the same this year as last year. Electricity will be the same this year as last year. Travel will go up but I know what "up" is relative to. Do I spend $500 per vacation or $5,000 per vacation? Does 4 more vacations a year mean an extra $2,000 or an extra $20,000?

For me, the biggest thing in tracking expenses for a few years is to track all of the irregular expenses and get a handle on them. It isn't so much "what's my monthly electricity bill". People generally have an idea what they're spending on that. It is things like "wow, I didn't realise that every 2 years I'm getting invited to some niece/nephew wedding and dropping an unexpected $3,000 on that" or "I thought I was only spending $1,000 a year on home maintenance but now that I've tracked it for a few years I've realised my intuition was wrong and it is actually $3,000 a year" or "now that I'm actually tracking things, I've realised my trips to Vegas are quite a bit more expensive than I thought because I was keeping 'gambling' in a separate mental bucket" or "geez, I didn't realise that I spend over $1,000 a year on Christmas/birthday/anniversary presents for my extended family!"
This is why Top Down computation of expenses is better, and will give you a higher more robust number.
Example: W-2 employee with salary of $100k with FICA + 401(k) + Roth IRA contributions totalling $30k. Therefore "expenses" are $70k per year.
Now if you're also putting $1000 per month in your taxable account for the long run (not vacation or new car) then that drops your expenses to $58k per year.

No need to itemize every category or worry about all those one of a kind purchases. They're in there.
This works best if you plan to maintain similar lifestyle in retirement.
If you plan to sell your HCOL house and move to a LCOL area, then this might be too high an expense level.

Conversely, if you plan increased travel and recreation in retirement, you'll need an additional $10k+ per year in retirement...
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by marcopolo » Sun Jun 17, 2018 8:06 am

The Wizard wrote:
Sun Jun 17, 2018 7:44 am
AlohaJoe wrote:
Sun Jun 17, 2018 12:37 am
marcopolo wrote:
Sat Jun 16, 2018 1:37 pm
For people who have already made the transition, does your expenses in retirement resemble that during the years leading up to retirement? If so, is that a coincidence, or is it because you are essentially doing the same things as before?
Yes, it resembled it. No, it wasn't exactly the same. But it is a lot easier to make extrapolations from a known baseline than to make up numbers from whole cloth.

House maintenance this year will be the same as last year. Auto insurance will be the same this year as last year. Electricity will be the same this year as last year. Travel will go up but I know what "up" is relative to. Do I spend $500 per vacation or $5,000 per vacation? Does 4 more vacations a year mean an extra $2,000 or an extra $20,000?

For me, the biggest thing in tracking expenses for a few years is to track all of the irregular expenses and get a handle on them. It isn't so much "what's my monthly electricity bill". People generally have an idea what they're spending on that. It is things like "wow, I didn't realise that every 2 years I'm getting invited to some niece/nephew wedding and dropping an unexpected $3,000 on that" or "I thought I was only spending $1,000 a year on home maintenance but now that I've tracked it for a few years I've realised my intuition was wrong and it is actually $3,000 a year" or "now that I'm actually tracking things, I've realised my trips to Vegas are quite a bit more expensive than I thought because I was keeping 'gambling' in a separate mental bucket" or "geez, I didn't realise that I spend over $1,000 a year on Christmas/birthday/anniversary presents for my extended family!"
This is why Top Down computation of expenses is better, and will give you a higher more robust number.
Example: W-2 employee with salary of $100k with FICA + 401(k) + Roth IRA contributions totalling $30k. Therefore "expenses" are $70k per year.
Now if you're also putting $1000 per month in your taxable account for the long run (not vacation or new car) then that drops your expenses to $58k per year.

No need to itemize every category or worry about all those one of a kind purchases. They're in there.
This works best if you plan to maintain similar lifestyle in retirement.
If you plan to sell your HCOL house and move to a LCOL area, then this might be too high an expense level.

Conversely, if you plan increased travel and recreation in retirement, you'll need an additional $10k+ per year in retirement...
I have tracked categorized spending for some time. As AlohaJoe pointed out, this is very helpful in identifying expense you might not normally think about, or realize the extent of such spending. So, i guess tracking expenses has been helpful in that sense. Where it has not been as useful, and top down does not work for me either is (as you point out) a lot factors (move to different COL area, kids leave the nest, increased HC, etc.) change during the transition. A bottom up approach seems necessary.
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by The Wizard » Sun Jun 17, 2018 8:26 am

marcopolo wrote:
Sun Jun 17, 2018 8:06 am
I have tracked categorized spending for some time. As AlohaJoe pointed out, this is very helpful in identifying expense you might not normally think about, or realize the extent of such spending. So, i guess tracking expenses has been helpful in that sense. Where it has not been as useful, and top down does not work for me either is (as you point out) a lot factors (move to different COL area, kids leave the nest, increased HC, etc.) change during the transition. A bottom up approach seems necessary.
Nothing wrong with doing it both ways; I did.
But I excluded recreational travel from my Bottom Up itemized expenses since it's discretionary, variable, and expected to increase significantly in retirement.

Anyway, the goal here is to understand your various expenses, basic and otherwise, and come up with your Desired Income for retirement...
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by MikeG62 » Sun Jun 17, 2018 8:43 am

marcopolo wrote:
Sat Jun 16, 2018 2:21 pm

...here are the many ways our lives will be very different:

In our working, kid raising, years, we chose where to live based on availability of jobs, quality of school districts, etc.; other considerations were secondary. Now our priorities are mild year-round climate and access to outdoor recreational activities. The area we chose will more than double our housing costs. The other aspects contributing to cost of living are also quite a bit higher.

We spent the last 20 years focusing a lot of our time and money on kids activities, travel sports, camps, family vacations, etc. The youngest goes off to college next year, the spending profile will change dramatically when that happens.

We will have a lot more free time to do various activities, including travel, some of which will cost money.

We have 13 years to medicare age, who really can predict what health insurance will cost us between now an then. My prior employer plan cost me about $1800/yr in premiums with a $2600 deductible. Just this item in the new budget consumes almost 40% of the pre-retirement budget.

We pretty much had to do a bottoms up estimate for our retirement budget. It is a little scary, as we had to make a lot of assumptions (thus my question). It forced us to be conservative in our planning. I do have to admit that tracking spending categories in Quicken did help identify areas we had to make sure were covered, and in some cases gave us a baseline from which to either reduce or increase, sometimes dramatically.

The end result does not resemble the starting point at all.
What element of your "monthly/ongoing" housing costs are you talking about when you say these costs will be more than double what you spend now? I am assuming that you will be mortgage free so it should just be the monthly running costs you are talking about here. Thinking about specific line items related to housing:

Real Estate Taxes and Homeowners Insurance - I can see those potentially being considerably higher
Water/Sewer Taxes - Don't know, but doubt it's large enough to wiggle the needle even if quite different (use 2 or 3X what you pay now as a placeholder)
Utilities (heating/cooling) - these should be lower in a mild-climate location
Cable/Satellite TV and Internet - this should not change materially
Outside property maintenance (lawn cutting, trimming landscaping, etc...) - does not feel like this one should double

If I recall correctly, I think you are building a new home. If that is right, then annual maintenance (fixing stuff that breaks) should be a lot lower than what you have been accustomed to spending.

Then when I think about other ongoing monthly costs (from living your life), it seems these should not change exponentially either:

Cell Phone
Auto Insurance
Umbrella Insurance
Auto Loan/Lease Payments
Gas for Auto's (even if cost is a lot more per gallon, it would not seem that it could be so much more as to result in the historical spend rate being useless as a guide)
Groceries - since your kids won't be at home any longer this one is likely to go down
Going out to eat while at home - same as groceries
Pocket spending money
Misc credit card spending (the stuff you buy every month while living your life that is not captured in any other category) - why should this be so much higher?
Christmas/Hanukkah/Birthday Presents

Aside from the few housing expenses I flagged above for potentially large increases, I'd add these items to list of expenses where your historical spend may not be a good guide:

Travel & Entertainment - this will be a BIG one
Health Insurance Premiums (including medical OOP expenses) - another BIG one
Income Taxes (this one is likely going down a lot)

When I sum it all up, I do not get the feeling that using your historical spend rate as a starting point, with adjustments made where appropriate, is not at all helpful in building out a retirement spending budget.

DW and I are in our third year of retirement. We live in the same house as we did pre-retirement. Aside from travel and entertainment and medical, I'd say our prior spend rate provided a very good guide to what we now spend in retirement.
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by marcopolo » Sun Jun 17, 2018 9:21 am

MikeG62 wrote:
Sun Jun 17, 2018 8:43 am

What element of your "monthly/ongoing" housing costs are you talking about when you say these costs will be more than double what you spend now? I am assuming that you will be mortgage free so it should just be the monthly running costs you are talking about here. Thinking about specific line items related to housing:

Real Estate Taxes and Homeowners Insurance - I can see those potentially being considerably higher
Water/Sewer Taxes - Don't know, but doubt it's large enough to wiggle the needle even if quite different (use 2 or 3X what you pay now as a placeholder)
Utilities (heating/cooling) - these should be lower in a mild-climate location
Cable/Satellite TV and Internet - this should not change materially
Outside property maintenance (lawn cutting, trimming landscaping, etc...) - does not feel like this one should double

If I recall correctly, I think you are building a new home. If that is right, then annual maintenance (fixing stuff that breaks) should be a lot lower than what you have been accustomed to spending.

Then when I think about other ongoing monthly costs (from living your life), it seems these should not change exponentially either:

Cell Phone
Auto Insurance
Umbrella Insurance
Auto Loan/Lease Payments
Gas for Auto's (even if cost is a lot more per gallon, it would not seem that it could be so much more as to result in the historical spend rate being useless as a guide)
Groceries - since your kids won't be at home any longer this one is likely to go down
Going out to eat while at home - same as groceries
Pocket spending money
Misc credit card spending (the stuff you buy every month while living your life that is not captured in any other category) - why should this be so much higher?
Christmas/Hanukkah/Birthday Presents

Aside from the few housing expenses I flagged above for potentially large increases, I'd add these items to list of expenses where your historical spend may not be a good guide:

Travel & Entertainment - this will be a BIG one
Health Insurance Premiums (including medical OOP expenses) - another BIG one
Income Taxes (this one is likely going down a lot)

When I sum it all up, I do not get the feeling that using your historical spend rate as a starting point, with adjustments made where appropriate, is not at all helpful in building out a retirement spending budget.

DW and I are in our third year of retirement. We live in the same house as we did pre-retirement. Aside from travel and entertainment and medical, I'd say our prior spend rate provided a very good guide to what we now spend in retirement.
Leaving aside T&E and Health Insurance (never included taxes in expenses), you are right that the overall spending estimate does not change tremendously, but my point was that i only discovered that AFTER doing a bottom up analysis. I think it would have been risky to have just assumed current expenses were a good approximation. Maybe in reality things always balance out to make that true, but that does not seem intuitively obvious to me.

Some specific examples:

We are moving from the east coast (MCOL) area to Hawaii (HCOL). The more modest home we are building will be around 3x the cost of our current home. Our current property taxes are around $6k/yr. Using current spending as a base, you might simply triple that and budget $18k/yr for property taxes. Turns out Hawaii has really low property taxes, and will actually be around $5k/yr. But, we will have an HOA fee of $3k/yr. That is not even a line item in current expenses.

Everything is a bit more expensive there, but it is not consistent. Perishable items (think healthy foods) are way more expensive. Dry packaged goods are only slightly more expensive. So, we will have less mouths to feed, but per capita costs are higher.

Gas is about $1 more per gallon, but we will probably drive a lot less (can only go so far!).

Electricity is about 3x the cost, but you don't need heating/cooling where we are going to be.

The list goes on. It turned out that the net (estimated, as we have not moved yet) is pretty close to what we are spending now (plus BIG increases for travel and health insurance), but i just don't see how i could have come to that conclusion without doing a bottom up analysis. To me it seems like a just happy coincidence that the net spend came out similar, but maybe there is some cosmic karma that says things even out in the end...
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by DetroitRick » Sun Jun 17, 2018 9:56 am

For me absolutely, I found it extremely useful. Like delamer mentions above, it gives you a baseline from which you can think through adjustments and changes. So I'm glad I did it, now about 13 years into early retirement. Although I found it useful irrespective of the retirement aspect too. For example, I still leverage it heavily in tax planning. By tailoring the process to our needs (the breadth of tracking categories), I find it takes little time anyway (thank you modern software!).

Spending is such a personal thing that I always found general discussions on the matter to be totally useless. I"d rather have my own history, reflect on my own changing goals and needs, and go forward from there. Most changes for us were pretty predictable (no suits, more khakis, etc.). But this is probably largely because we're living in the same house and maintaining a similar lifestyle. I suppose the one case where it was no help was in predicting medical costs (out of pocket + premiums). Other than that, I'm glad we did it. My wife was not an avid budgeter back then, but she too has embraced the process.

I hear from a lot of people that tracking spending is too confining or restricting. Actually I only have one friend that even does it. But I have not found that to be true for us because of the way we use the info and the way we implement the process itself.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by CyclingDuo » Sun Jun 17, 2018 10:36 am

marcopolo wrote:
Sat Jun 16, 2018 1:37 pm
For those still in the planning stages, are you planning to have similar expenses in retirement? If so, do you plan to live in the same area? What will you do with all the free time that retirement frees up?
Those are good questions.

First question regarding planning on having similar expenses in retirement would be yes with a few tweaks.

Second question in terms of living in the same area would be possibly yes, leaving it open for opportunity and discussion.

Third question with regard to free time, that's easy. Ride our bikes. Garden. Hike. Read. Cook. Sleep. Walk the dogs. Travel. Volunteer. Become more involved in charitable organizations. Read. Stay connected to family and friends.

We have been tracking our expenses with a lot more vision over the past three years as we lead up into the pre-retirement and retirement phase. Some of those years were also irrelevant due to the nest not being empty yet, and still cash flowing some college related expenses, keeping an extra car around and a pet for the child who is in a major city in graduate school for one more year. However, each year - the honing of the budget presents a clearer picture to us of what the household cash flow is and helps us prepare for the transition days and into retirement.

We just use a simple 50/20/30 rule budget template (needs, wants, variables):

50/30/20 Budget Rule (based on after tax income)

50% should go to fixed expenses
30% should go to variable expenses
20% should go to savings

Current Annual Gross Income/Dividends/RMD’s

Salary 1: $XX,XXX replaced with pension/SS/RMD's: $XX,XXX
Salary 2: $XX,XXX replaced with SS/RMD's: $XX,XXX
Dividends: $XX,XXX
Required RMD’s from 2 inherited stretch IRA’s: $XXXX
Annual Total Income $XXX,XXX

Current Monthly Expenses

Needs - $XXXX.XX

Mortgage (PITI) - $XXXX ($XXX of this is TI)
Health Insurance - $XXX.XX
Dental Insurance - $XX.XX
Utilities - $XXX (Electric/Water/Gas/Sewer)
Garbage: $XX
Insurance (Auto/Umbrella/Flood/Jewelry): $XXX

Wants - $XXX.XX

Pets: $XXX
Hair Styling: $XX
Family Cell Phone Plan/phones + iWatch - $XXX
Religious Tithing - $XXX
Insect Control: $XX
Netflix: $XX
Cable/Internet: $XXX
Charitable Organization Monthly Donation: $XXX
XM Radio – $XX.XX
Cycling License - $X.XX
Exercise Coaching Plan: $X

Total $XXXX.XX

Variable Monthly Expenses

Groceries/Food/Restaurants – $XXXX
Entertainment – $XX
Travel – $XXX

Clothing – $XXX
Auto Maintenance/Gas/Repairs – $XXX
Home Maintenance – $XXX
Total $XXXX

Current Monthly Savings (403b/457b/401a are all pre-tax and way over the 20% threshold as we utilize the empty nest scenario and take advantage of the catch ups allowed under IRS laws)

Monthly Vacation Fund Savings: $XXX
403b Contributions for Couple (2 plans): $XXXX
457b Contributions (1 plan): $XXXX
401a Mandatory Pension Contribution (1 plan): $XXX


Monthly Total $XXXX

Current Employer Match to Savings

Employee 1 - $XXX
Employee 2 - $XXX.XX


Monthly Total $XXX.XX

**Monthly Optional Roth IRA Contributions for 2: $XXXX

Obviously, the items in red will change in actual retirement (decrease), as will those in green (increase). Using i-ORP, FIREcalc and some other tools, we certainly have an idea of the range we could spend each year in a variety of scenarios whether our expenses increase, stay the same, or decrease. I even have the same budget above set up for only one income, as well as one full-time income and one part-time income so we are aware of what each scenario presents for us as we transition from a dual income, two career household to the pre-retirement and eventual retirement years. The actual end results may even alter your first and second questions. We may find we want to try out being a snowbird or destination rental from either on occasion every now and then to every year. Plenty of opportunities are available and we have been discussing it all.

We find "not knowing" where exactly all of the household cash flow is going creates too many problems or "leaks" as we call them. Currently, we are working with our children on this to help them develop good cash flow habits in their early 20's that they can utilize throughout their working careers.
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by ubermax » Mon Jun 18, 2018 10:01 am

marcopolo wrote:
Sat Jun 16, 2018 1:37 pm
For people who have already made the transition, does your expenses in retirement resemble that during the years leading up to retirement? If so, is that a coincidence, or is it because you are essentially doing the same things as before?

For us it was a starting point of a budget and it gets tweaked to reflect actual experience and/or changes to the desired budget .

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by SQRT » Mon Jun 18, 2018 10:09 am

DetroitRick wrote:
Sun Jun 17, 2018 9:56 am
For me absolutely, I found it extremely useful. Like delamer mentions above, it gives you a baseline from which you can think through adjustments and changes. So I'm glad I did it, now about 13 years into early retirement. Although I found it useful irrespective of the retirement aspect too. For example, I still leverage it heavily in tax planning. By tailoring the process to our needs (the breadth of tracking categories), I find it takes little time anyway (thank you modern software!).

Spending is such a personal thing that I always found general discussions on the matter to be totally useless. I"d rather have my own history, reflect on my own changing goals and needs, and go forward from there. Most changes for us were pretty predictable (no suits, more khakis, etc.). But this is probably largely because we're living in the same house and maintaining a similar lifestyle. I suppose the one case where it was no help was in predicting medical costs (out of pocket + premiums). Other than that, I'm glad we did it. My wife was not an avid budgeter back then, but she too has embraced the process.

I hear from a lot of people that tracking spending is too confining or restricting. Actually I only have one friend that even does it. But I have not found that to be true for us because of the way we use the info and the way we implement the process itself.
Similar thoughts here. Been retired 12 years and expense tracking prior to retirement gave us the baseline needed to fine tune spending plans in retirement. However, it doesn’t really matter how you come up with your retirement plan, as long as you come up with a reasonable plan.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by HomerJ » Mon Jun 18, 2018 10:30 am

marcopolo wrote:
Sat Jun 16, 2018 1:37 pm
In a couple recent thread:
Long time retirees: how much do you really need? (viewtopic.php?f=2&t=251838)
How much money do you want to retire? (viewtopic.php?f=2&t=224799)

A number of people suggested tracking expenses a few years before retirement as a way to estimate expenses in retirement. Which got me thinking, and rather than hijack that thread, i figured i would start a new one.

I can see the attraction to this approach, as it is relatively easy to do with all the tools available now. But, in my situation, it is almost irrelevant. Other than the fact that my wife and I have always lived well below our means and will likely continue to do so in retirement, our expenses in the years leading up to retirement (which we tracked pretty closely), will have almost no resemblance to what we anticipate spending in retirement (recently retired). If it did, I feel like we would be doing it all wrong, at least for us.

For people who have already made the transition, does your expenses in retirement resemble that during the years leading up to retirement? If so, is that a coincidence, or is it because you are essentially doing the same things as before?

For those still in the planning stages, are you planning to have similar expenses in retirement? If so, do you plan to live in the same area? What will you do with all the free time that retirement frees up?
Like others have said, knowing how much you spend for food, housing, utilities, property taxes, insurance, etc. seems pretty relevant. Is this drastically going to change for you?

We plan to move in retirement to an active retirement community, but we're planning on spending the same on housing, and we've researched taxes, and they are about the same.

We threw in $1000/month extra for fun on top of our current budget. We already have a hefty vacation budget.

How are YOU planning your expenses in retirement? You have to plan SOMETHING, or you don't know if you have enough to retire yet.

Edit: Ah, I see you are moving to Hawaii, and spending triple on a house, Okay, your current expenses aren't as relevant, so you had to do the math separately. Makes sense.
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by HomerJ » Mon Jun 18, 2018 10:41 am

I guess many of us aren't wildly changing our financial lives. If I had the money to triple my housing expenditure in retirement, I would have retired 5 years earlier instead.

Sounds like you just decided to work until your kids were done with school, and discovered you had a ton more money than you needed, so now you can spend a lot more.
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by marcopolo » Mon Jun 18, 2018 10:55 am

HomerJ wrote:
Mon Jun 18, 2018 10:30 am
marcopolo wrote:
Sat Jun 16, 2018 1:37 pm
In a couple recent thread:
Long time retirees: how much do you really need? (viewtopic.php?f=2&t=251838)
How much money do you want to retire? (viewtopic.php?f=2&t=224799)

A number of people suggested tracking expenses a few years before retirement as a way to estimate expenses in retirement. Which got me thinking, and rather than hijack that thread, i figured i would start a new one.

I can see the attraction to this approach, as it is relatively easy to do with all the tools available now. But, in my situation, it is almost irrelevant. Other than the fact that my wife and I have always lived well below our means and will likely continue to do so in retirement, our expenses in the years leading up to retirement (which we tracked pretty closely), will have almost no resemblance to what we anticipate spending in retirement (recently retired). If it did, I feel like we would be doing it all wrong, at least for us.

For people who have already made the transition, does your expenses in retirement resemble that during the years leading up to retirement? If so, is that a coincidence, or is it because you are essentially doing the same things as before?

For those still in the planning stages, are you planning to have similar expenses in retirement? If so, do you plan to live in the same area? What will you do with all the free time that retirement frees up?
Like others have said, knowing how much you spend for food, housing, utilities, property taxes, insurance, etc. seems pretty relevant. Is this drastically going to change for you?

We plan to move in retirement to an active retirement community, but we're planning on spending the same on housing, and we've researched taxes, and they are about the same.

We threw in $1000/month extra for fun on top of our current budget. We already have a hefty vacation budget.

How are YOU planning your expenses in retirement? You have to plan SOMETHING, or you don't know if you have enough to retire yet.
The highlighted text really gets to the heart of my question. You researched the new anticipated taxes. They happened to be about the same. That is just a lucky coincidence. What if they had been drastically different? Relying on what you were spending on that line item in pre-retirement would have been useless number. The answer is, well you just adjust that aspect of it. OK, I get that. But, if you are moving to a new area with drastically different cost of living, and/or plan to live a different lifestyle than you did while working , then the number of line items which you need to research and make such adjustments gets quite large, almost to the point where the original numbers are somewhat meaningless.

A lot of the responses here have pointed out that tracking expenses has value in understanding your spending. I completely agree. We have been tracking categorized spending for over 20 years (Quicken makes it pretty easy to do), We did not explicitly budget, but reviewed it at year end to understand where our money was being spent. It also helped us identify things we spent money on that might not have been on our radar otherwise.

That was all very helpful in setting up a framework for how to come up with a retirement budget as it allowed us to come up with a pretty comprehensive list of line items we had to consider when developing an estimate of our expenses going forward. But, i felt we really had to look at almost every line items as a new expense we had to research and estimate what it was going to be in the future, as the current amount for that item had little relation to future anticipated cost for the same line item.

For someone staying in the same house, the number of line items that would drastically change would be less, and if you are going to continue doing the same activities you did before retirement, than maybe those are also re-usable.

But, I would think for a lot of early retirees that are "retiring to something" rather than to simply stop working, the activities and living situation might change, sometimes drastically. It certainly is for us. We view this as completely new phase of life. If we weren't doing that, I might have continued to work longer, as i did enjoy my career.
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HomerJ
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by HomerJ » Mon Jun 18, 2018 11:55 am

marcopolo wrote:
Mon Jun 18, 2018 10:55 am
But, I would think for a lot of early retirees that are "retiring to something" rather than to simply stop working, the activities and living situation might change, sometimes drastically. It certainly is for us. We view this as completely new phase of life. If we weren't doing that, I might have continued to work longer, as i did enjoy my career.
In many cases, new hobbies and new activities don't have to cost a lot of money. Many of them require TIME, not cash.

Again, most of us are trying to get enough to maintain our current standard of living without having to go to work 40-50 hours a week anymore. It wasn't just luck that the house we want to buy in a different state is the same price as our current house, and the taxes are similar. Those were requirements when we were searching.

Working longer in order to greatly expand one's standard of living in retirement is a rare luxury. Congrats.
The J stands for Jay

marcopolo
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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by marcopolo » Mon Jun 18, 2018 12:19 pm

HomerJ wrote:
Mon Jun 18, 2018 11:55 am
In many cases, new hobbies and new activities don't have to cost a lot of money. Many of them require TIME, not cash.
Agreed. Almost all of our hobbies cost close to zero, mostly outdoor activities like cycling, hiking, running, and time at the beach.
The big change is moving to HCOL from MCOL. But, we have been planning and preparing for it for a while.
HomerJ wrote:
Mon Jun 18, 2018 11:55 am
Working longer in order to greatly expand one's standard of living in retirement is a rare luxury. Congrats.
Thanks. As you mentioned above, it was not like we intentionally worked longer to enable the move. We always just saved a lot, a few years ago we realized we probably had "enough", and could retire whenever it made sense time wise. We decide to wait until kids were out of HS.
We have a relatively modest lifestyle, other than the big one time hit of building our house, we don't anticipate that changing. It is tough to change a lifetime of habits. We very much recognize that we were extremely fortunate.

Best of luck to you.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by WageSlave » Mon Jun 18, 2018 12:55 pm

DetroitRick wrote:
Sun Jun 17, 2018 9:56 am
For me absolutely, I found it extremely useful. Like delamer mentions above, it gives you a baseline from which you can think through adjustments and changes. So I'm glad I did it, now about 13 years into early retirement. Although I found it useful irrespective of the retirement aspect too. For example, I still leverage it heavily in tax planning. By tailoring the process to our needs (the breadth of tracking categories), I find it takes little time anyway (thank you modern software!).

Spending is such a personal thing that I always found general discussions on the matter to be totally useless. I"d rather have my own history, reflect on my own changing goals and needs, and go forward from there. Most changes for us were pretty predictable (no suits, more khakis, etc.). But this is probably largely because we're living in the same house and maintaining a similar lifestyle. I suppose the one case where it was no help was in predicting medical costs (out of pocket + premiums). Other than that, I'm glad we did it. My wife was not an avid budgeter back then, but she too has embraced the process.

I hear from a lot of people that tracking spending is too confining or restricting. Actually I only have one friend that even does it. But I have not found that to be true for us because of the way we use the info and the way we implement the process itself.
+1 to all that. Retirement is still several years in the future for me. But I've been tracking all my finances in GnuCash for about seven years now, and I can't imagine not doing it. As others have said, if you simply stop working but otherwise maintain effectively the same lifestyle, then your expenses are unlikely to change too much. But as you introduce more and more changes into your post-retirement lifestyle, the historical data becomes less predictive. However, if you've done a good job of meaningfully categorizing expenses, then they become a good basis for the "bottom up" analysis of retirement expense planning. For example, pre-retirement I spent $X/year on XYZ; what will that be after retirement? Repeat for every XYZ in your accounting system.

I started tracking expenses after reading Your Money or Your Life several years ago. One of the key ideas is to track expenses versus passive income (rents, dividends, etc) every month. On a line graph, when your passive income line is above your expense line, you are FI and can retire. But this thread underscores the idea that your post-retirement expenses might look a lot different than before retirement.

As I implied above, even when I retire I intend to continue to track my expenses down to the penny, as I do now. I've been doing it so long that I would have a tremendous amount of anxiety if I couldn't see quickly exactly what my financial situation is.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by delamer » Mon Jun 18, 2018 2:32 pm

It seems that the OP’s real question is “How do we estimate retirement expenses when we are moving to a much more expensive area?”

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by FactualFran » Mon Jun 18, 2018 2:44 pm

My average annual living expenses in retirement, for the about 10 years so far, has been slightly less than the amount leading up to retirement. Leading up to retirement, I used the annual spending as an estimate of what my spending would be in retirement. That estimate has turned out to be sufficiently accurate for my purposes.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by marcopolo » Mon Jun 18, 2018 2:54 pm

delamer wrote:
Mon Jun 18, 2018 2:32 pm
It seems that the OP’s real question is “How do we estimate retirement expenses when we are moving to a much more expensive area?”
Well, only as an example. We actually have done a pretty thorough estimate using very detailed categories and a lot of research in the new area. While I will not know for sure how accurate any of it is until we have lived it for a few years, I think i am reasonably comfortable that we are in the right ball park.

As I mentioned in my original post, I really started this thread (rather that hijacking other ones) in response to a number of responses that suggested one could get a good estimate of post-retirement needs by tracking expenses for a few years pre-retirement. I was questioning that premise using my situation as an example. I think (thought?) that type of scenario would be more prevalent. Based on the responses to this thread, I may have been somewhat mistaken. It sounds like status quo in expense is more common than I expected.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by Pigeon » Tue Jun 19, 2018 7:38 am

I'm wrestling with this right now also. I'm a couple years away from retirement. This year, I'll have two kids in college. We are at an all time high for spending (while much of the college costs will come from savings specifically for this, some will be cash flowed). Two young drivers on my car insurance, and we pick up the tab for one cheap used car for them to share, although next summer I think a second car for them will also be involved. So insurance for 4 cars total. We are still paying for most things for them, although they do work summers and a little bit during the year.

By the time I retire, I anticipate one year left in college for the youngest. The oldest will hopefully be fledged, although she has some mental health issues that make me fear this won't be 100%. I am lucky in that I can continue to get health insurance very inexpensively for the family in retirement.

We will travel more in retirement, so there's that. Other expenses won't be greatly changed.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by cherijoh » Tue Jun 19, 2018 8:03 am

delamer wrote:
Sat Jun 16, 2018 1:58 pm
I think of our pre-retirement expenses as a baseline for our retirement expenses (now semi-retired).

Once you have the baseline, then you make adjustments based on how your life will change once you are retired.

So far, our expenses are similar or have changed in ways that were predictable.
neilpilot wrote:
Sat Jun 16, 2018 2:05 pm
Tracking expenses a year or two prior to retirement is absolutely useful. Your post retirement projection needs to include simple but mostly obvious adjustments. Do you commute 25 ow daily to work; your auto operating expenses might drop. Retirement may mean more travel or golf. It’s likely that many expenses like utilities, mortgage and property taxes will be steady.

I’ve also applied a 5% annual inflation adjustment.
Looking at pre-retirement expenses and then applying some standard fudge factor (e.g., 80% of pre-retirement budget) across the board is not likely to be helpful. But breaking it out into categories and then adjusting individual categories as suggested above is your best way to estimate retirement expenses in advance. It's much easier to say "I think expenses will be lower on commuting expenses (parking, gas, public transportation) and higher for travel" than it is to make a SWAG without knowing your baseline expenses. Of course this is not the say that you won't need to refine some estimates, but it's always better to start out with the best info known at the time.

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Re: Tracking spending before retirement useful for estimating retirement expenses?

Post by TheTimeLord » Tue Jun 19, 2018 8:03 am

I am starting my glide path to retirement. In the past I have tracked my expenses and the categories and feel I have a good handle on them. Now I am going to verify those assumptions using a simple big picture method. I am going to set my balance in my checking account to $X at the beginning go each month for the next several months and measure the delta at the end of each month. It should capture all my expenses, albeit not categorized, to help me confirm the numbers I have developed over the years. Not looking for my minimum basic expenses, just what we actually spend each month.
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