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Projecting Retirement Expenses

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Last week, I reviewed my necessary expenses and finally formalized them into a spreadsheet. What I found was that our expenses, on average, were around $6600 a month. That's before entertainment and a bunch of other things. That number was quite distressing to me.

However, in an attempt to put things into perspective, I realized that sometimes we are paying more now, so that we can less in the future. For example, the mortgages on all of our properties are 15-year mortgages. I could pay less now if they were 30-year mortgages, but I choose to pay more now, and have that scary number, in order to eliminate 15 years of payments.

The same is true for our car payments. We recently bought new cars, so the number looks bad right now. However, we drive them for a long time, so if we amortize the payments over the projected life of the car, the number looks much better. (I should use this to amortizing maintenance on the house (the roof, appliances, and furniture for example), but that will have to be version 2.0. I'm going to live up to my Lazy name and include some rough kind of home maintenance budget.)

This exercise really started bearing fruit when I looked at it from a retirement perspective. I like to look into what I can do to eliminate these expenses. It turns out that some of the expenses are disappear with time. While I may always have a need for transportation, I can look into my crystal ball and envision 20 years from now when the kids are in (a mostly paid-off) college and the primary residence is paid off. Some of the expenses I have now, I won't have in the future.

Combine these expenses with the retirement income blueprint that I've been working on... and suddenly it is the foundation of a retirement plan. I want to stress that it is simply a foundation, because at age 37, I know that there will be more bumps in the road before I get to retirement (even if I struggle to define what retirement really means.)

With that in mind, let's look at my expected necessary expenses. Since these are all rough "guestimates" the numbers will be round. The numbers will also be in today's dollars because I've already adjusted my retirement income blueprint to reflect the same "today's dollars." Adding inflation to each side, income and expenses doesn't change the math.

Primary Residence - $400/mo.

In 14 years we'll have mortgage and interest paid off. So this covers the remaining taxes and insurance. Yes, I should add some maintenance for this, but I don't really know how to even estimate it.

Transportation - $968.50/mo.

(So much for the nice round numbers.) This number represents our current car payments amortized over an estimated 10 year life of our cars... plus gas, maintenance, and insurance. I break out a little of this math in the aforementioned necessary expenses article.

Day Care - $0/mo.

This happily disappears in retirement. Sorry, Little Men, but we'll be tossing out of the nest.

Groceries - $400/mo.

This is still nothing but an estimate. We are frugal. With access to a military commissary (if they still exist in retirement) we should be able to keep this pretty low.

Utilities - $400/mo.

Gas = $134.92
Electric = $90.08
Water = $27.49
Cell Phones = $90.00
Internet = $52.00
Landline = $3.00
Total Utilities = $397.49

It's hard to know what our utilities will be in 20 years. If we look back 20 years some of these expenses we just becoming more common like cell phones and internet. On the other hand, landlines were a lot more money. I imagine we'll always be paying for a data pipe into the home, gas, electricity and water. That data pipe may be wireless or combined with wireless.

I didn't include cable television as it isn't really "necessary" in the way that the other things are to run my business.

Dog Care - $133.33/mo.

I'm going to just leave this as my necessary expenses now as detailed in my previous post. Since I have the world's only immortal dog, that's reasonable, right?

Insurance - $10/mo.

My term-life insurance policy should be expiring and with our income, we can probably look to whether it makes sense to get more insurance. We'll also review whether it is worth getting life insurance for the wife after she exits the military. The $10/mo. above represents the insurance policy we have on her diamond.

Health Care - $272/mo.

We are fortunate in that we'll have the military's TriCare for Life. That covers a lot of health care. When eligible for Medicare Part B we'll have to pay those costs which is the $272/mo. represented above (which is based on being in a high income bracket). This area in particular will probably have a billion and a half changes in the next 30 years. The only thing we can count on is that it will be a crap shoot. We can also guess that we might be better off than most because of the TriCare for Life program.

Adding it all up

When I put it all together it comes to nearly $46,000 a year in necessary expenses. Going back to our conservative/best-guess retirement income blueprint, it looks like our retirement accounts now will grow to a point where it will be able to pay that off using the 4% rule. The wife's military pension would pay for it with $20,000 to spare. Social Security and rental income from our properties would combine to cover it. Social Security and my websites would combine to cover it. Our five main income streams can be mixed and matched in numerous ways to cover it.

Together, the estimated $213,000 would be enough to give us $114,000 to spend annually after taxes. This is why I don't sweat the rounding of food estimates or life insurance costs.

Last updated on March 4, 2014.

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Financial Planning, Retirement

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3 Responses to “Projecting Retirement Expenses”

  1. Kathy says:

    Before we retired we tracked all of our expenses for a couple of years. You absolutely have to know how much you spend before you can determine what you’ll need in retirement. Also, if you have a pension, have your personnel department determine what it will be so you know if you’ll have enough. Know the dates you become eligible to receive distributions from your IRAs and from Social Security if you have earned those benefits. If a person can’t make ends meet when working, they sure as heck won’t be able to afford to retire.

  2. Steve says:

    A rough rule of thumb for home maintenance expenses is 1% of the value of the house. It’s very, very rough though. Also, I don’t know if that rule of thumb assumes it’s the homeowner DIY or hiring it out. As a retired person you have more time but perhaps less ability to perform some of your own maintenance.

  3. Lazy Man says:

    That’s a good call, I’ve read that as well. I’m curious if holds up with condos were my fees go to new roofs and other things that partially work towards the maintenance. Other parts of the condo fee go to snow removal (which may not be considered traditional “maintenance”.)

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