What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

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JacobTeach
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What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by JacobTeach »

It seems the FIRE community projects $40k a year (today’s dollars) as a very comfortable retirement. Using a 4% SWR, this implies a retirement portfolio worth $1M. If you retire early and use 3%, you would need $1.33M. Do you agree with these numbers?

I believe the math checks out, as a backtesting a 3% withdrawal rate never fails for any retirement length. This isn’t a guarantee, but it’s as close as we can get. The big risk here is whether $40k is an accurate estimate for annual expenses.

In several posts on this forum, $40k is deemed too low, with healthcare costs being the biggest objection. Assuming no debt and no other source of income, what’s a reasonable estimate for annual expenses in a HCOL area [Edit: Southern California] for one person in early retirement?

Here’s my projection for the average month’s expenses:

Fixed costs total $2878
Rent: $1500
Health insurance: $478 for a 40 year old (https://www.valuepenguin.com/how-age-af ... ance-costs)
Utilities, cell phone, Netflix, internet: $200
Groceries: $300
Car insurance/gas/maintenance: $300
Misc: $100

Variable costs total $500
Eating out: $150
Entertainment: $150
Travel: $200

Now of course the above budget can be lowered by living more frugally, but I believe it should provide a very comfortable lifestyle for a single person. As it is now, it’s at $40,536 in annual expenses before taxes, which are a bit tricky as it would depend on cost basis. However, if I’m understanding tax laws correctly, it’s possible to avoid capital gains taxes if you have an income below $40k.

A fair criticism of the above is that health insurance is $478 for a 40 year old, but this cost will likely grow at rates faster than inflation. Case in point, it’s $1173 a month for those 64 and older. I think the cost of health insurance is unpredictable, and it’s possible that it can come down depending on politics. Nevertheless, it’s better to be conservative and assume higher insurance costs. The annual delta between $478 versus $1173 a month is $8340. This amount is easily covered as you transition from a 3% to 4% SWR. (3% of $1.33M is $40k, 4% of $1.33M is $53k).





1. Do you think $40k a year is enough for one person in early retirement living in a HCOL area [Edit: Southern California]? If not, can you please provide a breakdown of your estimated annual expenses?

2. What is a reasonable estimate for the cost of health insurance for a 40 year old with average health?

3. Is there anything else that should be factored in when considering early retirement?
Last edited by JacobTeach on Wed Jan 22, 2020 12:10 am, edited 1 time in total.
bloom2708
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by bloom2708 »

Rent seems low. Efficiency? 1 Bed? 2 Bed?

You would probably have to define a more specific area. Is HCOL California or NY? Or just a major urban area?

How are lumpy expenses included? Car repairs, car upgrade, vacations, things like that?
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HomeStretch
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by HomeStretch »

1. It’s not possible to say whether $40k per year spending in a HCOL area is adequate or not for you. Spending varies widely from person to person. Actual spending is a good place to start in estimating annual retirement spending. Any retirement income (like SS or a pension) needs to be taken into account too.

2. Annual healthcare costs for a healthy 40 year old will depend on the source and geographical location. Medicaid, subsidized ACA healthcare exchange policies, employer plan or retiree healthcare benefit are likely the lowest cost sources. Spouse and I were quoted $30k/year for an unsubsidized silver level plan through the ACA exchange. With the lowest subsidy at 400% FPL income, the cost is reduced roughly by half.
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Watty
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by Watty »

JacobTeach wrote: Fri Jan 17, 2020 1:32 am It seems the FIRE community projects $40k a year (today’s dollars) as a very comfortable retirement.
I have not looked at them in a while but the non Boglehead FIRE community websites are often very obsessive about cutting cost to the bone so their definition of "comfortable retirement" would not be what most people generally would think of.

I am pretty middle class compared to a lot of posters here and I live in a medium to low cost of living area and for a couple we are using a target of about $60K a year including having a paid off house. That seems to be working out about right since we do not have rent or a mortage payment but we do have things like maintenance and property taxes.

People do live on $40K in high cost of living areas but that would be a tough life. One thing to consider is that you might choose to live on that but other people in your neighborhood would be living on that because that is all they can earn. That might not be a very desirable or safe neighborhood in a high cost of living area.
JacobTeach wrote: Fri Jan 17, 2020 1:32 am Using a 4% SWR, this implies a retirement portfolio worth $1M. If you retire early and use 3%, you would need $1.33M. Do you agree with these numbers?
That is oversimplified, for example you left out Social Security.

One other thing you may be ignoring is that in a high cost of living area many things are also a lot more expensive because of the high overhead.
Last edited by Watty on Fri Jan 17, 2020 11:23 am, edited 1 time in total.
ohai
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by ohai »

"3. Is there anything else that should be factored in when considering early retirement?"

Yes. Working doesn't suck for most people. Most people would rather work a bit longer to pay for the ability to live on more than $40k a year, and also to mitigate risk of their money not being enough.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by jharkin »

JacobTeach wrote: Fri Jan 17, 2020 1:32 am 1. Do you think $40k a year is enough for one person in early retirement living in a HCOL area? If not, can you please provide a breakdown of your estimated annual expenses?
I think a lot of these FIRE formulas assume that by retirement you own a paid off house - but remember even then you still have property tax, insurance and maintenance cost. 40k for a single person in a HCOL area is doable if the house is paid of and your travel/entertainment spend is minimal.

Which begs the question... If you dont go to work, you dont eat out, and you dont travel and you dont have money for hobbies - what do you do all day? Ride a bicycle to the library and read books?


Ive run the math and for my wife and I if the house is paid we could probably scrape by on 50-60k post tax spending in todays dollars. But that leaves almost nothing for discretionary expenses. And when we are retired and we have 200 days more free time to fill every year you can bet discretionary spending is going to go UP or we will be bored out of our minds. So Im targeting more like 80-90 as a realistic minimum spend.

I have other comments about your "proposed budget":
#1 - your health estimate includes only insurance premiums. What about deductibles and copays? And yes the premiums go up exponentially with age.
#2 - Entertainment/travel spending of only 500/mo. If that is based on what you spend in your weekends while working consider how that will change once your weekend is 7 days long.
#3 I have no idea how your utilities + phone internet and TV is only $200. We pay more than that just for phone/internet/tv. electric adds another 100-200, heat can be 300-500 a month in the winter. Water, sewer and trash adds another thousand a year or so. This is for a family but a single person wont cut that in half.
#4 You put down car gas and maintenance. Where is savings to replace the car from time to time? You dont have to buy new, but you are not going to get 60 years out of the car you own today either...
#5 Where is budget for clothing? For occasional replacements of household goods (like new furniture or a new TV)? for gifts/holidays/etc?
quantAndHold
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by quantAndHold »

This would be too low for me. My main question for most categories is whether this is based on past spending, or wishful thinking.

Healthcare is low. I assume $478 is for a bronze ACA plan. If you ever go to the doc, it’s going to be $200+, and if you get sick, you’re going to spend the entire out of pocket max for the year. In our planning, we assume premiums, plus out of pocket max, and if we are healthy, then the money is available for other stuff. We’re very healthy athletes, but every year we spend something on healthcare besides premiums. Also, you have to plan for healthcare inflation, and for premiums to go up as you age. I think in 2019, my healthcare was $8400, with insurance premiums that are lower than yours.

You need to plan to replace your stuff as it wears out. Cars, electronics, shoes, etc. Something needs to be in the budget for that.

In most HCOL areas, rent increases outpace inflation.

Your discretionary spending (travel, entertainment, etc) is quite low for someone who isn’t working. What do you plan to do all day, and what is that going to cost? $2400 for travel will not go far, unless you’re couch surfing, and even then, it isn’t very much.
Yes, I’m really that pedantic.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by sailaway »

If you are living in that area now, what does your budget look like?

We can live on $40k in HCOL as a couple and have done so. However, we currently are not doing that for a number of reasons that make us realize we also might not want to do that when we are 60.
3feetpete
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by 3feetpete »

I don't see income taxes covered. Everything you take from a 401k or a regular IRA is taxed as regular income. 40K seems awfully light for a HCOL area.
KATNYC
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by KATNYC »

Family of 2 in NYC and expenses average $5,300 per month which includes at least 1 international vacation per year. This does not include mortgage which would be paid off prior to retirement.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by sergeant »

60k minimum, 90k to be comfortable, 120k to do most everything I would want to do.
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TheTimeLord
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by TheTimeLord »

JacobTeach wrote: Fri Jan 17, 2020 1:32 am It seems the FIRE community projects $40k a year (today’s dollars) as a very comfortable retirement.
I wonder if the FIRE community you are talking about would even exist if not for a 10 year Bull Market. For a 40 year old the plan is too risky for my taste.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Keenobserver
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by Keenobserver »

If you want to retire at age 40, you will have to accept certain levels of uncertainty. You will.never be in a place where you feel 100% sure and comfortable. Question is, are you willing to take a level of uncertainty for the sake of early retirement/ freedom? Depends how badly you want it. I would certainly give it a shot. 40k is doable and if things get tight you can freelance. This forum is quite conservative, however, one can't expect to retire at 40 and not have a certain level of uncertainty or " adventure" along the way. Enjoy the ride. Life is short. Go for it. Im NYC and people are raising families for less than 40k. Some people are suggesting 100k minimum to be comfortable.really for a single man? Based on that, one would need at least a $ 1 million to raise a family, and yet I see many doing just fine with a lot less. What if I need minimum $10 million a year to feel comfortable, when can I retire?
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by geerhardusvos »

Not including San Francisco and NYC or other very high cost of living areas, I believe a single person can live a very comfortable life on $60-70K per year in most urban markets. Extremely comfortable with $80-100k. This can be slightly higher or lower, but I think for most high cost of living areas $40K might be cutting it a bit much, but of course $40k is well doable in many markets just not high Areas unless you really are down to the bare basics imho
Last edited by geerhardusvos on Fri Jan 17, 2020 5:47 pm, edited 2 times in total.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by surfstar »

Go for it.

A good strategy is to live more frugally during the first few years - travel to some cheap countries and spend a lot of time there perhaps. Live in a van and travel around the US cheaply. Work-travel part time. Etc.
Decreases your sequence of returns risk, lets your nest egg grow while its at the largest size too.

If you listen to some posters here, you'll be stuck in "one more year" forever and accumulate more than you need and you'll never get those years back no matter how much money you have.
Last edited by surfstar on Fri Jan 17, 2020 5:47 pm, edited 1 time in total.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by gr7070 »

I anticipate $40k in HCOL would be way too for me. I'm planning for double that and I'm (we, 2 of us) not in HCOL.
JacobTeach wrote: Fri Jan 17, 2020 1:32 am I believe the math checks out, as a backtesting a 3% withdrawal rate never fails for any retirement length.
As I understand it 3% is likely lower than one need to go, even in longer retirement time.

Additionally, "never fails for any retirement length" is well above what I would consider a reasonable bar.
Last edited by gr7070 on Fri Jan 17, 2020 5:49 pm, edited 1 time in total.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by KyleAAA »

By my definition of "very comfortable," $40k is not reasonable. But your definition may be different from mine.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by Keenobserver »

surfstar wrote: Fri Jan 17, 2020 5:46 pm Go for it.

A good strategy is to live more frugally during the first few years - travel to some cheap countries and spend a lot of time there perhaps. Live in a van and travel around the US cheaply. Work-travel part time. Etc.
Decreases your sequence of returns risk, lets your nest egg grow while its at the largest size too.

If you listen to some posters here, you'll be stuck in "one more year" forever and accumulate more than you need and you'll never get those years back no matter how much money you have.
+1 remember you are giving up money for freedom and time.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by beehivehave »

Maybe OK for LCOL-MCOL, I think the estimates are too low by about 50% for HCOL "very comfortable". I define "very comfortable" as not worrying much about money or watching every penny.
What about taxes, recurring purchases (e.g., cars, clothes, appliances, meds, insurance deductibles, hobbies, etc.) and emergency expenditures?
Last edited by beehivehave on Fri Jan 17, 2020 6:09 pm, edited 1 time in total.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by GAAP »

JacobTeach wrote: Fri Jan 17, 2020 1:32 am
1. Do you think $40k a year is enough for one person in early retirement living in a HCOL area? If not, can you please provide a breakdown of your estimated annual expenses?

2. What is a reasonable estimate for the cost of health insurance for a 40 year old with average health?

3. Is there anything else that should be factored in when considering early retirement?
1. Your budget includes health insurance, but no medical expenses. It doesn't include either dental insurance or dental expenses. Rent and utilities depend a lot on where you want to live and local conditions, so your estimate may or may not be reasonable.

2. The Washington Apple Health (ACA) site lists prices from $241/month to $475/month for the Olympia area (for a 40-year old male non-smoker). You should be able to find similar information for areas that you might be interested in.

3. In your 40's, you would probably need most of your savings to be in taxable accounts to avoid penalties -- make sure you plan for those taxes.

Also, once you leave the job force, it's a lot more difficult to get back in, or to get paid at the same level as when you left.

There's an implied assumption here that all inflation is equal for all parts of your budget -- I wouldn't count on that, and would explicitly budget a 10% contingency factor.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by sailaway »

GAAP wrote: Fri Jan 17, 2020 6:08 pm
3. In your 40's, you would probably need most of your savings to be in taxable accounts to avoid penalties -- make sure you plan for those taxes.
This should read: anyone retiring before 59.5 should take the time to understand the ins and outs of taxable, tax deferred (traditional) and post tax (Roth) accounts.
Also, once you leave the job force, it's a lot more difficult to get back in, or to get paid at the same level as when you left.
I think we swing between not considering this and weighting it too heavily. It is definitely true and it is most true when your investments are performing poorly. On the other hand, as long as your estimates were close and/ or your future new desires are modest, you don't need an upper middle class job to make the ends meet. I still question anyone whose plan is to take a 'less stressful' job in retail.
There's an implied assumption here that all inflation is equal for all parts of your budget -- I wouldn't count on that, and would explicitly budget a 10% contingency factor.
The OP hasn't left much room in the budget to replace the car or other lumpy expenses, so this 10% contingency is probably a great idea.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by randomguy »

KyleAAA wrote: Fri Jan 17, 2020 5:47 pm By my definition of "very comfortable," $40k is not reasonable. But your definition may be different from mine.
Everyones definition varies a lot. You need to look at your expenses and think about retirement changes (paying for health care, less commuting, more travel?,....) and make an estimate. As it is you will end up with the full range (go read the thread about people who think 230k is struggling middle class income . or the ones where people are spending 400/year on food) of outcomes.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by KlangFool »

OP,

I believe you are asking the wrong question.

It is very simple.

If you want to live in an HCOL area and only spend 40K per year, you can make it work. If you don't, it won't happen. This has absolutely nothing to do with anyone else.

The US median household income is only around 60K. After factoring taxes and so on, the median household expense is probably only 40K. And, the median household has around 2 persons.

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JacobTeach
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by JacobTeach »

bloom2708 wrote: Fri Jan 17, 2020 10:43 am Rent seems low. Efficiency? 1 Bed? 2 Bed?

You would probably have to define a more specific area. Is HCOL California or NY? Or just a major urban area?

How are lumpy expenses included? Car repairs, car upgrade, vacations, things like that?
1bed or studio is fine.

Southern California.

Lumpy expenses - good point. What do you think is reasonable?

Car repairs/vacations are accounted for.
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JacobTeach
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by JacobTeach »

jharkin wrote: Fri Jan 17, 2020 11:28 am
JacobTeach wrote: Fri Jan 17, 2020 1:32 am 1. Do you think $40k a year is enough for one person in early retirement living in a HCOL area? If not, can you please provide a breakdown of your estimated annual expenses?
I think a lot of these FIRE formulas assume that by retirement you own a paid off house - but remember even then you still have property tax, insurance and maintenance cost. 40k for a single person in a HCOL area is doable if the house is paid of and your travel/entertainment spend is minimal.

Which begs the question... If you dont go to work, you dont eat out, and you dont travel and you dont have money for hobbies - what do you do all day? Ride a bicycle to the library and read books?


Ive run the math and for my wife and I if the house is paid we could probably scrape by on 50-60k post tax spending in todays dollars. But that leaves almost nothing for discretionary expenses. And when we are retired and we have 200 days more free time to fill every year you can bet discretionary spending is going to go UP or we will be bored out of our minds. So Im targeting more like 80-90 as a realistic minimum spend.

I have other comments about your "proposed budget":
#1 - your health estimate includes only insurance premiums. What about deductibles and copays? And yes the premiums go up exponentially with age.
#2 - Entertainment/travel spending of only 500/mo. If that is based on what you spend in your weekends while working consider how that will change once your weekend is 7 days long.
#3 I have no idea how your utilities + phone internet and TV is only $200. We pay more than that just for phone/internet/tv. electric adds another 100-200, heat can be 300-500 a month in the winter. Water, sewer and trash adds another thousand a year or so. This is for a family but a single person wont cut that in half.
#4 You put down car gas and maintenance. Where is savings to replace the car from time to time? You dont have to buy new, but you are not going to get 60 years out of the car you own today either...
#5 Where is budget for clothing? For occasional replacements of household goods (like new furniture or a new TV)? for gifts/holidays/etc?
Good points.

1 - $1k a year more sound right?
3 - $30 phone, $40 internet, rest utilities/misc. seems about right for Southern California weather
4 - It’s in there. $50 a month to buy a new car and every 10 years buy a used car.
5 - the misc $100 a month. I don’t anticipate the need to buy new things often.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by JacobTeach »

Watty wrote: Fri Jan 17, 2020 11:15 am
JacobTeach wrote: Fri Jan 17, 2020 1:32 am It seems the FIRE community projects $40k a year (today’s dollars) as a very comfortable retirement.
I have not looked at them in a while but the non Boglehead FIRE community websites are often very obsessive about cutting cost to the bone so their definition of "comfortable retirement" would not be what most people generally would think of.

I am pretty middle class compared to a lot of posters here and I live in a medium to low cost of living area and for a couple we are using a target of about $60K a year including having a paid off house. That seems to be working out about right since we do not have rent or a mortage payment but we do have things like maintenance and property taxes.

People do live on $40K in high cost of living areas but that would be a tough life. One thing to consider is that you might choose to live on that but other people in your neighborhood would be living on that because that is all they can earn. That might not be a very desirable or safe neighborhood in a high cost of living area.
JacobTeach wrote: Fri Jan 17, 2020 1:32 am Using a 4% SWR, this implies a retirement portfolio worth $1M. If you retire early and use 3%, you would need $1.33M. Do you agree with these numbers?
That is oversimplified, for example you left out Social Security.

One other thing you may be ignoring is that in a high cost of living area many things are also a lot more expensive because of the high overhead.
Would you mind sharing your biggest non tax costs on that $60k?

Also, not factoring in SS just means I have extra buffer?
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JacobTeach
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by JacobTeach »

sailaway wrote: Fri Jan 17, 2020 12:19 pm If you are living in that area now, what does your budget look like?

We can live on $40k in HCOL as a couple and have done so. However, we currently are not doing that for a number of reasons that make us realize we also might not want to do that when we are 60.
My current spend is actually a bit less at ~$30k. However, this doesn’t include health insurance and the fact that I very well could have an inclination to spend more if I stop working.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by JacobTeach »

3feetpete wrote: Fri Jan 17, 2020 4:52 pm I don't see income taxes covered. Everything you take from a 401k or a regular IRA is taxed as regular income. 40K seems awfully light for a HCOL area.
https://www.nerdwallet.com/blog/taxes/c ... tax-rates/

I think if I do it correctly, I won’t have much taxes based on the above link.
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by JacobTeach »

GAAP wrote: Fri Jan 17, 2020 6:08 pm
JacobTeach wrote: Fri Jan 17, 2020 1:32 am
1. Do you think $40k a year is enough for one person in early retirement living in a HCOL area? If not, can you please provide a breakdown of your estimated annual expenses?

2. What is a reasonable estimate for the cost of health insurance for a 40 year old with average health?

3. Is there anything else that should be factored in when considering early retirement?
1. Your budget includes health insurance, but no medical expenses. It doesn't include either dental insurance or dental expenses. Rent and utilities depend a lot on where you want to live and local conditions, so your estimate may or may not be reasonable.

2. The Washington Apple Health (ACA) site lists prices from $241/month to $475/month for the Olympia area (for a 40-year old male non-smoker). You should be able to find similar information for areas that you might be interested in.

3. In your 40's, you would probably need most of your savings to be in taxable accounts to avoid penalties -- make sure you plan for those taxes.

Also, once you leave the job force, it's a lot more difficult to get back in, or to get paid at the same level as when you left.

There's an implied assumption here that all inflation is equal for all parts of your budget -- I wouldn't count on that, and would explicitly budget a 10% contingency factor.
Great points. Do you think $1k a year for health related costs that aren’t insurance is a reasonable estimate!
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Watty
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by Watty »

JacobTeach wrote: Wed Jan 22, 2020 12:01 am Would you mind sharing your biggest non tax costs on that $60k?
You can do it cheaper but even with Medicare starts you have the medicare premium, supplements, some drug costs that are running us maybe $500 a month per person and that is without any major medical problems. It will vary but dental costs(!!!) and eyeglasses typically run a couple of thousand a year too.
JacobTeach wrote: Wed Jan 22, 2020 12:01 am Also, not factoring in SS just means I have extra buffer?
That is the wrong way to build in a fudge factor since you likely also added in several fudge factors for expenses, investing returns, stc. When you do all the math then in the end result you have no idea just how big a fudge factor you really have.

The way that I always learned to do that was to use the best estimates you have then add a fudge factor as the very last calculation so that you could know that you have a 20%(or whatever) fudge factor in the end result.

(It is a long time since I had engineering math but they have a formal way of calculating the cumulative margin of errors but that is a lot different.)
fujiters
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by fujiters »

JacobTeach wrote: Wed Jan 22, 2020 12:07 am
GAAP wrote: Fri Jan 17, 2020 6:08 pm
JacobTeach wrote: Fri Jan 17, 2020 1:32 am
1. Do you think $40k a year is enough for one person in early retirement living in a HCOL area? If not, can you please provide a breakdown of your estimated annual expenses?

2. What is a reasonable estimate for the cost of health insurance for a 40 year old with average health?

3. Is there anything else that should be factored in when considering early retirement?
1. Your budget includes health insurance, but no medical expenses. It doesn't include either dental insurance or dental expenses. Rent and utilities depend a lot on where you want to live and local conditions, so your estimate may or may not be reasonable.

2. The Washington Apple Health (ACA) site lists prices from $241/month to $475/month for the Olympia area (for a 40-year old male non-smoker). You should be able to find similar information for areas that you might be interested in.

3. In your 40's, you would probably need most of your savings to be in taxable accounts to avoid penalties -- make sure you plan for those taxes.

Also, once you leave the job force, it's a lot more difficult to get back in, or to get paid at the same level as when you left.

There's an implied assumption here that all inflation is equal for all parts of your budget -- I wouldn't count on that, and would explicitly budget a 10% contingency factor.
Great points. Do you think $1k a year for health related costs that aren’t insurance is a reasonable estimate!
It depends on your plan. If you have a very low deductible and low copays, your insurance cost will be most of your medical expenses. As a rule of thumb, I'd estimate whatever your deductible is for additional health expenses.

While your federal taxes will likely be low/near 0, many states have near flat tax rates. You should add state taxes to your expenses, unless your HCOL area is in a state without income taxes and your expenses are already inclusive of the higher sales tax.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham
Topic Author
JacobTeach
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by JacobTeach »

Watty wrote: Wed Jan 22, 2020 12:36 am
JacobTeach wrote: Wed Jan 22, 2020 12:01 am Would you mind sharing your biggest non tax costs on that $60k?
You can do it cheaper but even with Medicare starts you have the medicare premium, supplements, some drug costs that are running us maybe $500 a month per person and that is without any major medical problems. It will vary but dental costs(!!!) and eyeglasses typically run a couple of thousand a year too.
JacobTeach wrote: Wed Jan 22, 2020 12:01 am Also, not factoring in SS just means I have extra buffer?
That is the wrong way to build in a fudge factor since you likely also added in several fudge factors for expenses, investing returns, stc. When you do all the math then in the end result you have no idea just how big a fudge factor you really have.

The way that I always learned to do that was to use the best estimates you have then add a fudge factor as the very last calculation so that you could know that you have a 20%(or whatever) fudge factor in the end result.

(It is a long time since I had engineering math but they have a formal way of calculating the cumulative margin of errors but that is a lot different.)
Fair enough. I actually did include some fudge factor in my initial post, but let’s say I need more. 10% more or $4k would mean an additional $100k or $133k needed in the nest egg. If I was 20% off, double the previous numbers.

Admittedly, I don’t think annual expenditures will be a smooth graph. Some years I would withdraw 3% or less, while others I could withdraw up to 4%, which is another built in safety.
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JacobTeach
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by JacobTeach »

fujiters wrote: Wed Jan 22, 2020 12:36 am
JacobTeach wrote: Wed Jan 22, 2020 12:07 am
GAAP wrote: Fri Jan 17, 2020 6:08 pm
JacobTeach wrote: Fri Jan 17, 2020 1:32 am
1. Do you think $40k a year is enough for one person in early retirement living in a HCOL area? If not, can you please provide a breakdown of your estimated annual expenses?

2. What is a reasonable estimate for the cost of health insurance for a 40 year old with average health?

3. Is there anything else that should be factored in when considering early retirement?
1. Your budget includes health insurance, but no medical expenses. It doesn't include either dental insurance or dental expenses. Rent and utilities depend a lot on where you want to live and local conditions, so your estimate may or may not be reasonable.

2. The Washington Apple Health (ACA) site lists prices from $241/month to $475/month for the Olympia area (for a 40-year old male non-smoker). You should be able to find similar information for areas that you might be interested in.

3. In your 40's, you would probably need most of your savings to be in taxable accounts to avoid penalties -- make sure you plan for those taxes.

Also, once you leave the job force, it's a lot more difficult to get back in, or to get paid at the same level as when you left.

There's an implied assumption here that all inflation is equal for all parts of your budget -- I wouldn't count on that, and would explicitly budget a 10% contingency factor.
Great points. Do you think $1k a year for health related costs that aren’t insurance is a reasonable estimate!
It depends on your plan. If you have a very low deductible and low copays, your insurance cost will be most of your medical expenses. As a rule of thumb, I'd estimate whatever your deductible is for additional health expenses.

While your federal taxes will likely be low/near 0, many states have near flat tax rates. You should add state taxes to your expenses, unless your HCOL area is in a state without income taxes and your expenses are already inclusive of the higher sales tax.
Do you have to pay state taxes on capital gains?

Edit:
I didn’t see any mention of it here: https://www.bankrate.com/investing/long ... gains-tax/
Last edited by JacobTeach on Wed Jan 22, 2020 1:22 am, edited 1 time in total.
quantAndHold
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by quantAndHold »

California state tax rates are very progressive. Given OP’s projected income and budget, they’re probably ignorable. Yes, you pay state tax on cap gains at your regular income rate, but I think your income is low enough that it won’t matter.

The suggestion to use your deductible as a proxy for what your health expenses will be is actually a really good one. I wish I’d thought of that.

Not sure what part of Southern California you’re talking about, but unless you already have an apartment, I’d confirm the rent cost. $1500 would be very low in the part of San Diego I live in, but would be fine in most of the inland areas.
Yes, I’m really that pedantic.
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JacobTeach
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by JacobTeach »

quantAndHold wrote: Wed Jan 22, 2020 1:21 am California state tax rates are very progressive. Given OP’s projected income and budget, they’re probably ignorable. Yes, you pay state tax on cap gains at your regular income rate, but I think your income is low enough that it won’t matter.

The suggestion to use your deductible as a proxy for what your health expenses will be is actually a really good one. I wish I’d thought of that.

Not sure what part of Southern California you’re talking about, but unless you already have an apartment, I’d confirm the rent cost. $1500 would be very low in the part of San Diego I live in, but would be fine in most of the inland areas.
I see options available for $1500 in many parts of Southern California, but you’re right it can vary depending on the location.

Say I have $39k in capital gains and no other income, what’s my tax liability to California? I didn’t see an example calculation in the link below.

https://www.bankrate.com/investing/long ... gains-tax/
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snackdog
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by snackdog »

Per capita income in LA in 2018 was about $32k so I would imagine $40k is plenty.
3feetpete
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by 3feetpete »

JacobTeach wrote: Wed Jan 22, 2020 12:05 am
3feetpete wrote: Fri Jan 17, 2020 4:52 pm I don't see income taxes covered. Everything you take from a 401k or a regular IRA is taxed as regular income. 40K seems awfully light for a HCOL area.
https://www.nerdwallet.com/blog/taxes/c ... tax-rates/

I think if I do it correctly, I won’t have much taxes based on the above link.
Capital gains doesn't enter into withdrawals from IRAs and 401ks. Withdrawals from them are income. If you have excess capital losses in a non IRA portfolio they can only offset $3,000 of income.
halfnine
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by halfnine »

JacobTeach wrote: Fri Jan 17, 2020 1:32 am It seems the FIRE community projects $40k a year (today’s dollars) as a very comfortable retirement. Using a 4% SWR, this implies a retirement portfolio worth $1M. If you retire early and use 3%, you would need $1.33M. Do you agree with these numbers?
I don't think it is unrealistic if you don't have expensive hobbies. Those would be my minimum numbers considering about 20K/yr (todays dollars) in eventual SS. You will need a plan B for health insurance and medical costs, though, if the risk shows up. Once you don't have the boat anchors of a home ownership and a job it's plenty simple to have loads of adventures for less cost. For instance, I've spent an entire year traveling for less than 40K.
michaeljc70
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by michaeljc70 »

Why not use your actual current expenses (removing work related items and adding new retirement related expenses)?

The rent seems low for HCOL. $200 a month for travel =$2400 a year. Not much in my opinion.

Capital gains may not be taxed federally on low incomes but I don't know about CA taxes. Capital gains are taxed in my state at the full rate.

Frankly, I think I live moderately frugally but $40k in HCOL is too low for me.

One good thing is CA has better health insurance subsidies. I don't see anything planned for healthcare costs except maybe $100 for misc if you need to use the insurance.

$100 misc is pretty low. I breakdown my expenses into maybe 60 categories in Quicken and still have a decent amount of "misc". Do you buy toilet paper and have your teeth cleaned? Ever give gifts?

What about when your car is beyond its useful life? What about if you need a new cell, computer, clothes, furniture, etc?
GAAP
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by GAAP »

JacobTeach wrote: Wed Jan 22, 2020 12:07 am Great points. Do you think $1k a year for health related costs that aren’t insurance is a reasonable estimate!
Your insurance will (theoretically) determine the potential limits via maximums for co-pays, co-insurance, out-of-pocket, and deductibles -- both in and out of network. Your actual expenses could be quite low if you're healthy -- but could change tomorrow if you fall down the stairs.

I actually reserve a portion of my portfolio equal to the totals of those maximum potential costs. That amount is not used for withdrawal calculations and is therefore available if needed. I budget annual expenses based upon the run rate over the past few years. This gives me a "safe" way to budget for reasonable expectations, deal with an ugly surprise if it happens --- without negatively impacting the overall plan or budget.

I do something similar with "lumpy" expenditures, budgeting them in the cash-flow for specific months and withdrawing those additional amounts just-in-time. These amounts come out of the calculated annual withdrawal amount, and effectively level the monthly withdrawals overall.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
retire57
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by retire57 »

TheTimeLord wrote: Fri Jan 17, 2020 5:37 pm
JacobTeach wrote: Fri Jan 17, 2020 1:32 am It seems the FIRE community projects $40k a year (today’s dollars) as a very comfortable retirement.
I wonder if the FIRE community you are talking about would even exist if not for a 10 year Bull Market. For a 40 year old the plan is too risky for my taste.
Completely agree about tunnel vision with this bull market. I wouldn't consider early retirement with 40k or 60k annual income anywhere unless I had paid-for shelter (house, condo etc ...) and no other debt, of course. Otherwise it's just too risky.
sailaway
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by sailaway »

retire57 wrote: Wed Jan 22, 2020 1:36 pm
TheTimeLord wrote: Fri Jan 17, 2020 5:37 pm
JacobTeach wrote: Fri Jan 17, 2020 1:32 am It seems the FIRE community projects $40k a year (today’s dollars) as a very comfortable retirement.
I wonder if the FIRE community you are talking about would even exist if not for a 10 year Bull Market. For a 40 year old the plan is too risky for my taste.
Completely agree about tunnel vision with this bull market. I wouldn't consider early retirement with 40k or 60k annual income anywhere unless I had paid-for shelter (house, condo etc ...) and no other debt, of course. Otherwise it's just too risky.
Even if you were currently spending $30k, you wouldn't retire with an allowance for twice that?
remomnyc
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by remomnyc »

sergeant wrote: Fri Jan 17, 2020 5:26 pm 60k minimum, 90k to be comfortable, 120k to do most everything I would want to do.
+1
retire57
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by retire57 »

sailaway wrote: Wed Jan 22, 2020 1:41 pm
retire57 wrote: Wed Jan 22, 2020 1:36 pm
TheTimeLord wrote: Fri Jan 17, 2020 5:37 pm
JacobTeach wrote: Fri Jan 17, 2020 1:32 am It seems the FIRE community projects $40k a year (today’s dollars) as a very comfortable retirement.
I wonder if the FIRE community you are talking about would even exist if not for a 10 year Bull Market. For a 40 year old the plan is too risky for my taste.
Completely agree about tunnel vision with this bull market. I wouldn't consider early retirement with 40k or 60k annual income anywhere unless I had paid-for shelter (house, condo etc ...) and no other debt, of course. Otherwise it's just too risky.
Even if you were currently spending $30k, you wouldn't retire with an allowance for twice that?
Certainly not if faced with paying rent for the rest of my life.
michaeljc70
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by michaeljc70 »

retire57 wrote: Wed Jan 22, 2020 1:36 pm
TheTimeLord wrote: Fri Jan 17, 2020 5:37 pm
JacobTeach wrote: Fri Jan 17, 2020 1:32 am It seems the FIRE community projects $40k a year (today’s dollars) as a very comfortable retirement.
I wonder if the FIRE community you are talking about would even exist if not for a 10 year Bull Market. For a 40 year old the plan is too risky for my taste.
Completely agree about tunnel vision with this bull market. I wouldn't consider early retirement with 40k or 60k annual income anywhere unless I had paid-for shelter (house, condo etc ...) and no other debt, of course. Otherwise it's just too risky.
Though I agree with you in baking in a good cushion, the Kitces study (4% "rule") accounts for retiring in any year (historically). I picked an expense number in the middle and if times (market) are tough I have room to tighten my belt and if they are good I can take an extra vacation or spend more on something else. I wouldn't be trying to pick a bare minimum number and retire after a big bull market.
retire57
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by retire57 »

michaeljc70 wrote: Wed Jan 22, 2020 2:00 pm
retire57 wrote: Wed Jan 22, 2020 1:36 pm
TheTimeLord wrote: Fri Jan 17, 2020 5:37 pm
JacobTeach wrote: Fri Jan 17, 2020 1:32 am It seems the FIRE community projects $40k a year (today’s dollars) as a very comfortable retirement.
I wonder if the FIRE community you are talking about would even exist if not for a 10 year Bull Market. For a 40 year old the plan is too risky for my taste.
Completely agree about tunnel vision with this bull market. I wouldn't consider early retirement with 40k or 60k annual income anywhere unless I had paid-for shelter (house, condo etc ...) and no other debt, of course. Otherwise it's just too risky.
Though I agree with you in baking in a good cushion, the Kitces study (4% "rule") accounts for retiring in any year (historically). I picked an expense number in the middle and if times (market) are tough I have room to tighten my belt and if they are good I can take an extra vacation or spend more on something else. I wouldn't be trying to pick a bare minimum number and retire after a big bull market.
But ... 45% of your income going toward housing? Yikes.
michaeljc70
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by michaeljc70 »

retire57 wrote: Wed Jan 22, 2020 2:36 pm
michaeljc70 wrote: Wed Jan 22, 2020 2:00 pm
retire57 wrote: Wed Jan 22, 2020 1:36 pm
TheTimeLord wrote: Fri Jan 17, 2020 5:37 pm
JacobTeach wrote: Fri Jan 17, 2020 1:32 am It seems the FIRE community projects $40k a year (today’s dollars) as a very comfortable retirement.
I wonder if the FIRE community you are talking about would even exist if not for a 10 year Bull Market. For a 40 year old the plan is too risky for my taste.
Completely agree about tunnel vision with this bull market. I wouldn't consider early retirement with 40k or 60k annual income anywhere unless I had paid-for shelter (house, condo etc ...) and no other debt, of course. Otherwise it's just too risky.
Though I agree with you in baking in a good cushion, the Kitces study (4% "rule") accounts for retiring in any year (historically). I picked an expense number in the middle and if times (market) are tough I have room to tighten my belt and if they are good I can take an extra vacation or spend more on something else. I wouldn't be trying to pick a bare minimum number and retire after a big bull market.
But ... 45% of your income going toward housing? Yikes.
As I said, I'd have a cushion. I was even going to post separately that two of most people's biggest expenses (especially renters) are housing and healthcare and those tend to go up faster than inflation (esp. in S. CA).
rossington
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by rossington »

GAAP wrote: Wed Jan 22, 2020 12:26 pm
JacobTeach wrote: Wed Jan 22, 2020 12:07 am Great points. Do you think $1k a year for health related costs that aren’t insurance is a reasonable estimate!
Your insurance will (theoretically) determine the potential limits via maximums for co-pays, co-insurance, out-of-pocket, and deductibles -- both in and out of network. Your actual expenses could be quite low if you're healthy -- but could change tomorrow if you fall down the stairs.
^^^
What is your health insurance dedutible? Is it more than $1k? Then $1k is not enough. What if you wind up with using an out of network provider?
If your teeth are in good shape you can keep those costs down but.... Xray's, fillings, crowns etc. add up to more than $1k quickly.
What is your auto deductible?
How much is your fuel cost in SoCal?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
quantAndHold
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by quantAndHold »

JacobTeach wrote: Wed Jan 22, 2020 1:24 am
quantAndHold wrote: Wed Jan 22, 2020 1:21 am California state tax rates are very progressive. Given OP’s projected income and budget, they’re probably ignorable. Yes, you pay state tax on cap gains at your regular income rate, but I think your income is low enough that it won’t matter.

The suggestion to use your deductible as a proxy for what your health expenses will be is actually a really good one. I wish I’d thought of that.

Not sure what part of Southern California you’re talking about, but unless you already have an apartment, I’d confirm the rent cost. $1500 would be very low in the part of San Diego I live in, but would be fine in most of the inland areas.
I see options available for $1500 in many parts of Southern California, but you’re right it can vary depending on the location.

Say I have $39k in capital gains and no other income, what’s my tax liability to California? I didn’t see an example calculation in the link below.

https://www.bankrate.com/investing/long ... gains-tax/
From this I get $1175, which seems pretty accurate when I look at the tax tables.
Yes, I’m really that pedantic.
michaeljc70
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Re: What is a reasonable estimate for annual expenses in early retirement in a HCOL area for one person?

Post by michaeljc70 »

As I indicated above and others implied the expenses listed above seem to have a lot of holes. I would track actual expenses for a year (or if possible do it retroactively).

Out of pocket on the insurance plan would cover the worst case scenario (vs deductible) if using in network. However, I've never hit my deductible and I am 49 years old. I have little doubt that between now and Medicare (age 65) I will some years. Hopefully not all. Healthcare costs are really hard to estimate. The only thing I'll say is if your income is low enough in the sweet spot where you can get a big subsidy or free plan and CSRs (lowered co-pays/deductibles) you shouldn't have a lot of expenses at all. That is assuming the law doesn't change :D.
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