I know we have questions like this a lot, but those are usually along the lines of how much should I be saving for retirement. What I’d like to do, is describe the lifestyle I would like to maintain and then ask the teeming millions to help me figure out how much I need every month. Obviously, more money is better than less money, but I don’t want to work and save until I drop dead at my desk. I’d rather this discussion focus on what we’ll need and not on what we’ve saved.
Our plan for retirement: we will leave Washington DC to retire around Bristol, TN. We are both avid fly fishers and the Bristol area has two great rivers with wild trout (the Watauga and the South Holston) as well as several smaller mountain streams. It also has much more temperate weather than other fly-fishing destinations like Montana. We don’t anticipate doing a lot of travel (although some) because we will be retiring to the place that we travel to most often now for vacation.
Housing: we will either sell or rent out our DC house. We bought it over 15 years ago and it has appreciated nicely. We will also sell a small mountain cabin we have in VA. As a result, we will be able to pay cash for a small house that meets our needs and won’t have a mortgage (or have a very small one that our rent in DC would cover).
Lifestyle: go out to eat a couple of times a month, but mostly read, fish, cook at home, and bitch about the government. We have no dependents. About 6 times a year, we would hire a guide we know and do an all-day fishing trip in his boat. These cost about $600, so figure $3,600 per year. The rest of the time, it’ll just be us wade fishing with gear we already own (we both own enough gear to open a fly shop).
Health insurance: assuming we wait until we qualify for Medicare, then we would still need some supplemental insurance. To be honest, if it wasn’t for health insurance costs, I would semi-retire now and work as a consultant, but alas.
Given that my life ambitions are so unambitious, what would do you reckon our monthly living expenses would be?
They used to say you will need about 75% of your pre retirement income but I have hear you will need 100% because most of your expenses dont go down and some even go up such as medical costs or more time and desire to travel.
Thanks for the input UR. The problem with basing your monthly needs on a percentage of your income is that 75% of the income of a couple making $60k a year is very different than 60% of a couple making $300k a year, for example.
I’m hoping to create a realistic monthly budget based on how we want to live after retirement rather than on our current salary. I imagine there are all kinds of things I haven’t thought to budget for in retirement.
That’s not true. For one thing, pre-retirement I was putting around 20% of my gross income into savings for retirement and another 6.2% into social security. After retirement those expenses went away.
What I did was fairly easy for me because I do virtually all of my spending on my credit card and then pay the monthly balance all at once. This gave me an excellent summary of all of my spending. I assumed that I would need to keep spending the same amount, added in my federal and state taxes, and added a little margin. You’re probably oing to spend what you’ve been spending, but your income can go down quite a bit and still maintain your standard of living.
That’s true about the money that USED to go into say a 401k or another retirement savings account, wont be going there anymore.
About social security. I didnt know they stopped taking out SS taxes on income. So if you get money from a pension or annuity or another account, no ss taxes?
Thanks for the input. I’m still learning about this and I’ve got 10 more years until retirement.
Social security deductions are only on earned income. Income from pensions, social security benefits, interest, dividends, capital gains, annuities and other unearned income is not subject to FICA contributions.
As can be seen by the posts so far, this is a hard one. Coming up with actual suggestions on what one’s future expenses are is tough. I have been retired for 5 years and am still working on it.
So far I have concluded (YMMV) two things: actual current expenses are driven by medical expenses and future expenses and income are entirely driven by inflation. So, answers to the OP are best focused on those 2 issues.
Housing (outside the coasts-if you need 750K for a starter home then either you have it or you move to the other 99% of the country), vacations, food, entertainment, etc are NOT important. They aren't important because they are controllable in the short term. You find a house you can afford and move in. Done. If you have the to go out to dinner, not a problem, if you don’t then don’t go, so not a problem. etc Lump all those into 3-4K/mnth living expenses and you will have what you need.
Now health care. The OP has the advantage of knowing where they will be living. So start now to investigate medical care options. Are there HMOs in the area? Since you are moving there, you don’t have favorite doctors so HMOs would be good. They are usually cheaper. Find good healthcare before anything else. If you need to change your planned residence, then you can if you plan early enough. As you age, you will need healthcare. If you have current medical conditions it is even more important. Healthcare is available everywhere for a price. Find a low price.
I know a couple of relatives who live on the east coast who are dealing with very high (to me) healthcare costs. One retiree may have to go back to work just to pay for health insurance. Other than that expense they are happily retired.
The other issue is mostly out of our control. Inflation dominates the financial future for retirees. Once you retire, your income and income growth is fixed-or at least predictable. What determines your wealth is the cost of living. Assuming you aren’t already underwater, your future is determined by inflation. The best you can do is try to choose your situation to insulate yourself as best you can from high inflation. You won’t fully succeed, but you can help yourself now for this major factor.
So, while it would be nice to have a detailed budget of all your expenses, I have found it doesn’t help much. Nice to have, but it doesn’t influence my decisions. Focus on the 2 big things in retiree life. And be glad you have a hobby. Money is important, but having a reason to get out of bed in the morning is even more important.
Oh, and one more thing. As a retiree you may find it annoyingly hard to get a good mortgage. If you can, qualify for a mortgage while you are still employed. The lender doesn’t seem to care how much longer you will be employed, but entering an actual salary into their formula seems to make a big difference. It is a lot to handle while you are getting ready for retirement, but a little extra planning may save a lot of annoyance. At least talk to lenders before you retire to see what the effect will be.
Don’t forget to add in the cost of your SDMB membership
Do you have an idea of what your typical monthly costs are now without housing costs? It sounds like your housing would essentially be $0. Look at the other typical expense you have on a regular basis and think about how they’ll change in retirement.
There’s also insurance and property taxes and utilities. No one of these is going to make a huge difference but added together the change could make a difference of hundreds of dollars a month depending on the location and size and age of the house.
I’m in the same boat. I can look at my average credit card bill and figure out what I’m actually spending. It also helps that once I’ve completely maxed out my retirement savings, my bank account is neutral, so I know I’m spending all my take home pay, but the credit card is an additional double check. I can then estimate the change in cost of living and go from there.
The big question mark for me is medical bills, though. Without universal health care and too young for Medicare, I just have no idea what to estimate for it.
Property taxes at least will be a hell of a lot cheaper in Bristol than in the DC area, because houses are way cheaper. At least they were 21 years ago when we moved from Bristol to the DC exurbs, and if anything, the differential has widened.
It’s hard for anyone else to tell you how much you will need- because it’s really going to depend on what kind of retirement you want and how you spend your money now. I could retire tomorrow if I wanted to move to Bristol TN - I could apparently buy a larger house/condo for about 30% of what I will net selling my current house and my pension alone will be more than the median household income there. But since I want to stay where I am, that doesn’t make a difference to me. Similarly, rbroome doesn’t care about vacations and going out to dinner - if you don’t have the money, you don’t go. But that won’t work for me- I haven’t been able to travel as much as I would have liked to (because of my husband’s limited vacation time, not money) so I plan to do more of that once I’m retired and need to make sure I can afford it. I don’t need to worry about health insurance because I will still have coverage through my employer - but most people aren’t in that situation.
80% of pre-retirement income might be a good rule of thumb, but you will almost certainly be better off trying to figure out your specific circumstances to the extent possible - for example, my husband and I will need only one car after we retire, so the expenses of the second car will disappear. If it was up to me, I’d get rid of cable, but my husband likes sports so our retirement budget will have to account for cable service. If you’re moving from DC to Bristol, I imagine a lot of your expenses will change - everything from property taxes, income taxes, car and homeowner’s insurance prices. And some of those might change in unexpected ways - NYC is generally expensive, but our property tax rate is extremely low.*
Property tax on a $500K house is under $5K- cross the county line into Nassau or Westchester and it will probably double. It’s mostly because NYC has a local income tax.
Don’t forget that all this stuff can and will go up over the years. There can be levies to raise property taxes, utility costs will go up, cable and phone costs will go up. Trash collection nights be free when you move in but become a pay service at some point. Stuff like that. It won’t go up hundreds of dollars per year but collectively it could be a big jump, unexpectedly.
It drives me nuts when we’re trying to pass a levy here for much needed services, that might cost a couple hundred per year or something, and people start bitching that they can’t possibly afford another penny on property tax. If you’ve planned such a razor thin margin on your retirement spending you’re doing it wrong. Or you just need to visit Outback a few less times per year.
With so little information that’s probably the best kind of benchmark. Median income people in the US hinterlands* as a general rule get along OK financially. OP doesn’t really provide enough info to say if their household’s expectations are far from median.
*in places with really high housing costs like where I live right near NY, median income is not as good an indicator. Here median household income IIRC is ~$136k but there are seniors living OK in public senior housing probably some of them just on Social Security. It really depends if the budget has to buy/rent a living place at market rather than subsidized. Also if the person is going to live the NY (area) type ‘fast lane’ lifestyle, which is what generates statements like ‘you have to make $500k to be middle class in Manhattan’ (<1 mile away, Manhattan’s median is ~half that here), which are ridiculous statements but a little less if you assume a certain life style…that few people actually live. In small towns there are also rich people and poor people, but not that same skew in expectations of what ‘normal life’ consists of.
As I said, I’m sure that we would be able to pay cash for a house in Bristol area or have a very small mortgage. Our house in DC has about tripled in value over the years and complete tear downs in our neighborhood go for a couple hundred thousand more than we paid for our house. We’re both professionals making good money, if it wasn’t for the expense of health insurance (and the unpredictable nature if it’s future in the US) we could retire tomorrow.
By describing the lifestyle I hope to maintain and the location, I was trying to take the specifics of how much money we have out of the discussion.It’s not about how much we have, but about how much we’ll need.
I found it helpful to keep a simple monthly spreadsheet of about fifteen line items to track fixed vs other expenses. I started just before retirement and have kept it going for ten years, it shows me how things change. I do not track to the penny. Just fairly broad categories; Utilities, Home Maintenance, Insurance & Real Estate taxes, Medical, Food, Auto expenses, Entertainment & Travel. We each assume we have an ‘allowance’ for spending money. If things were to get tight, we will cut back on the last three categories.
Housing and Medical costs have been a real eye opener. Seattle housing is booming here along with taxes and Medicare (plus MediGap & PartD) has increased faster than my Social Security. A surprise about Medicare was that there is no out of pocket max unless you get additional coverage. I did so to give me an upper limit.
Not just hard to get a mortgage, renewing a line of credit took a lot of effort. We use it just to smooth out big expenses without extra withdrawals & tax hit from retirement accounts.
As an answer to the original question, our spending is a bit more than the median income in our (high tech and high cost of living) area - while not living an extravagant lifestyle, we don’t feel pinched. Housing costs will be the big difference between here & Bristol.
Can you expand on the details of your lifestyle? When you go out to eat a couple times a month, is that having some simple entrees and soda at a diner or having steaks and wine at a fine restaurant? When you get ingredients for cooking at home, are you more of a penny-pinching grocery shopper or are you a foodie who buys the best and freshest ingredients from boutique grocers? Are you the type who drives a car until the wheels fall off or do you prefer driving late-model cars? All those kinds of details will make a big difference how much it will cost to maintain your preferred lifestyle.
