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keeping the above in mind i can tell you how we figured the budget.
first off i did not look at maximum income levels we could pull from our portfolio. i backed in to that from the opposite view of finding a budget and then finding the lowest volatility asset mix that could give us at least a 90% success rate using both the fidelity rip planner and firecalc.
so first we added up all non discretionary bills like rent ,utilities , insurance's of all types ,etc.
no food ,clothes , car expenses ,trips gifts ,etc figured.
so that came to about 45k. we then doubled that for including the discretionary spending . that gave us a nice comfortable 50% range that could be cut back on if needed.
so now we have 90k. i wanted lots of extra trip money since we plan on quite a on a few trips .
so the final budget included everything we would like to do including some tax money and was up in the 120-130k area.
if we lived somewhere else that number could be way way way less but we don't nor do we want to so it is what it is..
we then subtracted out ss , pension and other income and what was left we had to generate ourselves. what was left was the amount our portfolio had to spin off .
a quick check by multiplying that amount left for you to provide by 25 gave us a ball park of what assets we would like to at least have to generate that income. if you have more , great but if you have less you may want to build some more slack in the plan.
once i knew how much we needed to generate a quick check on this chart says a 50/50 mix could easily meet goal while staying in my comfort range and above a 90% success rate..
everything will switch to real time in retirement but at least at the starting gate things seem to look good.
it is like how all the pieces of a puzzle fit together. each piece is intertwined with all the other pieces and changing one piece alters all the pieces.
you brought up a very important point . how much spending is needs and how much is wants is very key.
why ? because how you invest for your income and what you can take in income will be determind by that fact.
my opinion is if you have a budget that is all needs you have no where to cut back if markets crap out .
you can't and shouldn't have much money in equities and that effects your income amount directly.
you can do more harm then good trying to invest in equities with very little non discretionary income.
Ok, Now I'm confused. You say you shouldn't have much money in equities but most of the threads I've read of yours state you have equaties (I thought you said 40 or 50%)
I can't imagine trying to plan for my future (10-20 years out) without investing in more than CDs.
BTW, I LOVE reading your posts. You have educated me tremendously. Thank you!
I did my planning exactly the same way MJ, but I'm still 5 years away from executing it. By doing it now, i generate a "if hell went to hand basket right now" income for retirement, and plot the increase each year. RIP is excellent for the what if scenarios (like when to use or roll to a Roth, etc). When the increase per year no longer seems worth the delay to retire, then I'll pull the plug!
Ok, Now I'm confused. You say you shouldn't have much money in equities but most of the threads I've read of yours state you have equaties (I thought you said 40 or 50%)
I can't imagine trying to plan for my future (10-20 years out) without investing in more than CDs.
BTW, I LOVE reading your posts. You have educated me tremendously. Thank you!
nooo i never said that about equities. what i said is do not use equities if you have little in the way of discretionary spending in your budget. with no where to cut back spending from a down turn could leave you worse off.
but if you have some descretionary spending in your budget that could be cut back then i am a big fan of having at least 40-50% equities if you are going to draw 4% or so off that portfolio
To answer the OP: I found this board about 2 years ago and started a monthly budget immediately. It was quite liberating to know exactly how much my expenses were with both fixed and variable scenerios. It proved to be extremely helpful when my husband was laid off VERY unexpectedly last year at almost 61. We were at the stage where we were saving diligently for retirement as our children were now mostly raised and out of the house. (my youngest still lived home but was self supporting).
My husband does some consulting work which helps add to our income, as we do not have a pension and rely now on our portfolio only. We are putting off SS and instead are using low interest accounts to support ourselves. Firecalc & Fidelity both state that we should be ok.
We moved to a lower cost of living area, as most of our children moved away and there really wasn't a good reason to stay where we were. Our biggest expense is medical. Our home is paid off, have no debt.
I spent a good deal of time worrying about whether we would have enough money. I will always be concerned, but realize that I have to live and enjoy life. I have enough for today, am planning for tomorrow. We will re-evaluate at the end of each year and make changes accordingly. Hopefully my husband can keep getting occasional consulting work. I am just very grateful that we always saved.
nooo i never said that about equities. what i said is do not use equities if you have little in the way of discretionary spending in your budget. with no where to cut back spending from a down turn could leave you worse off.
but if you have some descretionary spending in your budget that could be cut back then i am a big fan of having at least 40-50% equities if you are going to draw 4% or so off that portfolio
Thank you for the clarification!! I got a little worried there!!!
To the OP: despite everyone else's opinion, I find that having some serious CASH always available is a very calming and reassuring thing. That means in a safe, not in a bank. You just never know about banks.
We both retired 2-1/2 years ago. I was 65, wife was 63. I had owned a business prior to that, so I didn't actually "retire", I just sold the business. However, I retain an interest in it, and will be a perpetual employee for lifetime, in order to keep the high-end medical and life insurance for self and spouse. Neither one of us wants Medicare. We have seen the horror stories, with family members.
We have no mortgage and no debt. But that's pretty much the way we have always lived. Both of us were always frugal, and yet...we have lived a very good life. Certainly, we can have nearly anything we want now, in retirement. We did move to Maine, a state that we both love. It has reduced our COL quite a lot. Now we have a new vacation home in TN, which looks promising.
I agree with the foregoing about budgeting, and separating "wants" from "needs". But I still advocate a large cash reserve, under your own control. You just never know what will happen. Medical bills, a totaled car, a new roof, a grown child who has fallen on hard times and needs help...all things that you can't plan for, and which could throw a monkey wrench into your best-planned budget. Having that "cushion" makes for sound sleep, indeed!
I do understand the feeling of confidence that comes from "cash." I like to have at least 6 months available. For me cash takes on different meanings. I don't think green pieces of paper are any more secure than money in an FDIC insured bank account. In fact I have pretty much given up handling paper or metallic money. $100 in paper can last me for many months. I use a credit card for even very small purchases. I get double points. I have the convenience. I have complete expense tracking without the need for any receipts. The report even does an almost 100% reliable job of sorting my expenses which helps at tax time.
If you do not trust a bank account, I do not understand why you would trust paper money.
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