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I am nearing an age needing to do this. I wonder how detailed i need to do this.
I can be very meticulous and itemize the food and gas i will buy in one month, but I wonder if that's overkill.
Is it enough to Just make a general estimate?
It probably is but I am a bit obsessive about such things and accumulated a year's worth of detailed expenditures and used that to budget our retirement.
But, what I have since discovered for us at least, is that there are two kinds of expenses in retirement: (1) steady predictable costs and (2) unpredictable costs like a new roof, a major car repair, medical cost, etc. Our annual spending can vary by a huge amount because of #2 but by its very nature it is hard to nail down before you retire.
So basically my carefully constructed budget went out the window and we pretty much just wing it. One thing about the budget though is you can see what your absolute bottom line is so if you ever have to really belt-tighten, you know what that will be.
For my case, it started as idling wondering if I could retire from a job that was getting to be a grind.
About 4 years before actually retiring I started a spreadsheet to capture expenditures vs what I had saved.
I had a general idea of what my monthly & yearly expenses were, but not by category. So, my spreadsheet was a good thing as it captured expenditures by categories. Kinda an eye opener. But it gave detail to spending that I could then make better estimates for retirement planning by establishing a 'baseline' budget for our lifestyle that we wanted to keep in retirement.
Now that I'm 5 years into retirement, I still track expenditures against our budget and it has worked very well for us.
Maybe you could start with detailed tracking, then scale back (and eventually abandon?) to fit your comfort level.
Well I did some pretty detailed budgeting, but that doesn't mean I saved every receipt. I looked at average monthly routine expenditures using our bank statements, such as utilities, mortgage, groceries, etc for the most recent year. Then I figured our typical dining out, for us about 2 times a week for either lunch or dinner (don't include going out to lunch when you were at work), and came up with what we spend on average for that and added it in. I also threw in an average amount for entertainment, based upon our usual habits...go to the movies about once a month, got out to a concert or broadway show that require expensive tickets a few times a year, added a few 5 day vacations to nearby states. Having done all those, you get a feel for what you're going to spend on that each time, and of course everybody's going to have different needs and expectations here. Then I added annual expenditures like car insurance, car registration fees, property taxes, routine veterinarian visits, etc. Here again, your bank statements will help you remember these. Then I added a healthy buffer amount for the oddball things you can't really predict, like a veterinary emergency every couple years, or a big auto repair expenditure. I add all that together and divide by 12 for a monthly amount.
It's not going to be perfect. And it's always important to have an emergency fund to back up those big things that can happen unexpectedly too, you don't want to end up putting those on a credit card with ridiculous interest rates!
If you are staying in your present locale, it's easier, because it's going to be the same as your current budget, minus work related expenses, and plus new expenses related to your new free time (gym membership, hobby expenses, bigger travel budget), and plus medical insurance and deductibles/copays if you don't have that covered by Medicare or your former employer. Even with Medicare, you will have supplemental and part D premiums, or advantage plan premiums. If you're relocating, it takes a bit more work to dig up the new costs for things like utility rates, property taxes, different types of insurance coverage you might need in your new state, etc.
In the end, we knew what we were living on while working, and we knew the amount we would be receiving in retirement, and we just had to decide if we were going to be able to live on that. We realized that a lower COL state was the answer to our equation. We also know how to reduce expenses if we need to, so no worries.
When I started planning my early retirement, I got all my accounts hooked into Personal Capital to track investments, spending, cash flow etc. Mint is also good for this. I rarely use cash anymore, so everything I charge gets sucked into PC and is automatically categorized. A lot of it gets categorized incorrectly, so I have to go in periodically and correct things.
Having all this data in one place is great. While spending in any month can vary quite a bit (a big medical bill here, property tax due there), our spending has been remarkably consistent over a longer timeframe. When I first started, it was eye opening how much we spent on convenience things (such as takeout food). We scaled some things back and it really helped set us up well for retirement.
This is pretty much my approach.....make everything trackable and let the data scientist in me have at it. In a weird kind of way, tracking, analyzing and optimizing my personal financial life has filled the need for numbers that retirement created.
I must admit though, I never did it prior to retiring in 2004. It started in 2008 when the **** was hitting the fan and I decided to take a hard look at the numbers. I’ve been doing it ever since, and enjoy the feeling of minimizing unnecessary expenses, even though it will probably only ever matter to my heirs.
This is pretty much my approach.....make everything trackable and let the data scientist in me have at it. In a weird kind of way, tracking, analyzing and optimizing my personal financial life has filled the need for numbers that retirement created.
I must admit though, I never did it prior to retiring in 2004. It started in 2008 when the **** was hitting the fan and I decided to take a hard look at the numbers. I’ve been doing it ever since, and enjoy the feeling of minimizing unnecessary expenses, even though it will probably only ever matter to my heirs.
Yes- I'm a numbers person, too, so I enjoy it! I like to use graphs and pivot tables. My travel expenditures were kind of crazy this year but when I broke them down by "travel year" I realized that the expenses for travel DURING each year were pretty consistent- it was just that some were funded ahead of tim. In 2019 I funded a trip to Hawaii coming up in a couple of months PLUS most of a trip to the Galapagos in March. 2018 was light by comparison because much of the travel I took in 2018 had been funded in 2017.
I’m a simple person,I used the last two years before retirement of actual numbers from my bank account and they gave me an idea of my expense. Plus I have a separate bucket for travel.
I created a detailed and frequently updated spreadsheet that indicated a comfortable retirement.
Then my spouse blew it all to hell by making unilateral decisions like refusing to rent out our second house — after we’d agreed we would. And withdrawals from the IRAs are a no-no, “because we’d have to pay taxes!”
And starting payments from an annuity, “more taxes!” I don’t know where he thinks the money will come from. Maybe the tax-free money fairy.
He has no Medicare or any kind of health insurance. Could not be bothered to enroll.
My husband and I are still 5-7 years from retirement. I don't see a reason we need to keep any detailed spending as we already know how much we are spending each month. I'm an accountant and I keep very good track of the inflows and outflows to our accounts.
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