Essential/Nominal/Actual Spending

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heerekj1
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Essential/Nominal/Actual Spending

Post by heerekj1 » Sat Jul 21, 2018 3:01 pm

I have been reading the posts about how to manage investment allocation to cover expenses and I am confused as to how to separate and how to account for expenses.

Situation: retired for about 2 years(current age 67.5). Wife has a CSRS pension and I plan on taking SS at 70. We have been spending money out of taxable investments to support life style with smallish Roth conversions. I will need to start spending money from retirement accounts starting next year. We have very different spending habits and needs. We "seem"to have plenty of money so I don't want to be miserly. I am sure my wife would be able to cut back if there was ever a need.

So what counts as essential expenses? I calculate what I see as essential expenses to be about 60% of our pension+ss. My definition of essential might be very differed from wife. We currently spend about 110% of that amount. Other expenses include 30K/yr for vacations, 4K/yr on plants/gardening, new car if needed, etc.

We currently have about 3.3M in retirement invested at 70/30.

My thoughts are that we "probably" have enough out of pensions and ss to cover most definitions of essential spending so I should just not worry about it.

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FiveK
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Re: Essential/Nominal/Actual Spending

Post by FiveK » Sat Jul 21, 2018 4:39 pm

heerekj1 wrote:
Sat Jul 21, 2018 3:01 pm
We have very different spending habits and needs.
...
My thoughts are that we "probably" have enough out of pensions and ss to cover most definitions of essential spending so I should just not worry about it.
Seems you have a choice between
a) long heart to heart talks with your spouse about your combined plans for the future, or
b) deciding it ain't broke so there is nothing to fix. ;)

Without knowing you or your spouse, I hesitate to suggest.... :)

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Tyler Aspect
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Re: Essential/Nominal/Actual Spending

Post by Tyler Aspect » Sat Jul 21, 2018 9:17 pm

Budgeting requires the buy-in of your partners. Alternatively you could arrange to talk over all big expense items in the future.

It helps by having situational awareness - start tracking expenses by category using a personal financial application.
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.

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willthrill81
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Re: Essential/Nominal/Actual Spending

Post by willthrill81 » Sat Jul 21, 2018 10:35 pm

heerekj1 wrote:
Sat Jul 21, 2018 3:01 pm
So what counts as essential expenses? I calculate what I see as essential expenses to be about 60% of our pension+ss. My definition of essential might be very differed from wife. We currently spend about 110% of that amount. Other expenses include 30K/yr for vacations, 4K/yr on plants/gardening, new car if needed, etc.
What is "essential" is what you define it to be. Some people would not want to go on living if they didn't have their morning latte (only half joking).

For us, essential spending would be what is necessary for us to maintain what we consider to be a very frugal lifestyle in our current home. This includes things mainly medical costs; property taxes; auto and home insurance; home maintenance and HOA dues; auto maintenance, taxes, fuel, and replacement; groceries (we could reduce this by more than half of current if we really needed to); utilities; phones; clothing (again, less than half of current is essential); and Internet access. All other categories would be discretionary, with the big ones being travel, dining out, entertainment, gifts.

If we really needed to go really frugal, we could sell our home and go "cheap RV living." Or we could become ex-pats.
heerekj1 wrote:
Sat Jul 21, 2018 3:01 pm
My thoughts are that we "probably" have enough out of pensions and ss to cover most definitions of essential spending so I should just not worry about it.
My view is that if your essential spending represents half or less of 'reasonable' portfolio withdrawals, you're probably in really good shape because you could dramatically rein in your total spending (say if the stocks in your portfolio fell by 50%, likely resulting in a portfolio and possibly spending drop of around 35%), even if only for a relatively brief period, but still 'keep the lights on'. If Social Security and a pension are covering over half of your essential spending, and you have a $3.3M portfolio, then you're a-okay. :beer
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

heerekj1
Posts: 89
Joined: Sat Jun 28, 2014 8:42 am

Re: Essential/Nominal/Actual Spending

Post by heerekj1 » Mon Jul 23, 2018 7:54 am

Thanks for your replies. I think I am fine. Our pension+ss covers our essential spending as listed: insurance, utilities, food, cloths, transportation, medical. If we continue to stay in our lane and not think too much about the portfolio, we will be fine.

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