July 14, 2015 by Jean
One of the big unknowns for most people facing retirement is how much it will cost to live from month to month. Of course, how much it will cost to live depends a lot on lifestyle and how you want to live; there is no one-size-fits-all retirement budget.
I was in a better position than most to estimate my retirement living expenses; I am a life-long budgeter and have been tracking my monthly spending my entire adult life. To estimate my retirement living costs, I began with my pre-retirement monthly budget, subtracted some expenses that I would no longer have (e.g., rent and utilities for my Gettysburg townhouse), reduced some items that I thought I would spend less on in retirement (e.g., clothing), and increased some items that I thought I would spend more on in retirement (e.g., property and excise taxes). I ended up with a monthly budget of $2600 ($31,200 per year), which includes regular expenses like food, clothing, utilities, household items and entertainment; periodic expenses like insurance payments and property taxes; and occasional expenses like travel and house repairs.
June 30 marked six months since I received my last paycheck and began living on my retirement savings. (I have made the decision to delay taking Social Security as long as possible in favor of the higher monthly payment.) This seems a good time to stop and assess how I am doing.
Of the 19 expense categories in my budget, only three were overspent at the six-month mark, and none of these seems like a cause for concern. My grocery budget is in the red as a result of my up-front expenditure for CSA shares in May; this should even out as I redeem my investment with farm-fresh food through the summer and fall. Snow removal is also in the red because my big plowing bill for last winter came due in April; this line item will be back in the black by the end of the calendar year. Health insurance costs had also been more than expected, but I think this is just an artifact of a big up-front Medicare quarterly payment in January. I see no reason to increase any of these lines in my budget.
Happily, many lines in my budget have been underspent as of July 1. Some of these are essentially savings lines that I expect to accumulate and then get used up in big chunks for major expenditures. These expense categories include house maintenance and repairs, travel savings, and gifts (which mostly gets used for Christmas gifts). There are a few other categories where I have been spending less than expected in the first half of the year, but will probably spend more in the months to come. One of these categories is clothing; I need new clothes, but I am waiting to set up my new sewing room and then will spend money on fabric and patterns. I have also underspent my budget for gardening, but that money will get spent in the late summer and fall as I buy plants for my new front garden. Charitable contributions is a category that I tend to spend funds from periodically; the fact that I have several hundred dollars accumulated here means that it is time to sit down and write some checks to charities I support.
Some other underspent line items indicate expenses that I overestimated. One of these is house insurance. I just switched my insurance to a different company which is providing better coverage at a much lower cost; I can reduce my budget for this line by $35 per month. Automobile expenses are a similar story. I have only spent half the amount budgeted because I have a new car that has few expenses and because gas prices have been lower than expected; I can also reduce my budget in this category. A third underspent category, taxes, can be reduced temporarily because I will have little taxable income for 2015 and 2016. (I am living primarily on after-tax savings while I let my retirement investments grow.)
What will I do with the money that I don’t need for these line items? I could reduce my entire monthly budget, say from $2600 to $2500. But I’m comfortable that I can afford to spend $2600 per month and there are two line items where, although I have not overspent my budget in the first 6 months, I am feeling constrained. The first is the category of electricity and wood. (It may seem odd to put these together, but an electric heat pump and a wood stove are my primary sources of heat). My electric bills this year have been higher than expected. (Some of this may be because my electric hot water heater is running inefficiently and needs to be replaced – an expense to come out of that house repairs line.) As a result, I will not have enough money accumulated here to pay for September’s big delivery of firewood for the winter. I should probably increase this line item by about $40 per month. I would also like to increase my budget amount for entertainment. I am pretty close to even on this, but I have found myself turning down some invitations for events that seem too expensive. It would be good to feel freer about these expenses.
All in all, this review of my budget has left me feeling good about my spending. So far, it is costing me about what I expected to live in retirement.