A very preliminary retirement budget

I’ve been thinking about this the past few days and finally added a worksheet to my Google Drive budget spreadsheet with a FIRE number based on a preliminary budget. The idea is to put together a reasonable annual budget, then multiply it by 25 to arrive at the amount of assets it would require based on a 4% withdrawal rate.

Here goes:

  • Groceries/Essentials $6000 (This is based on our current budget. If we FIRE after the kids are gone, this could be cut nearly in half.)
  • Housing- Insurance/Taxes $2500
  • Housing- Maintenance/Improvement $2000
  • Utility – Gas/Electric $2400 (This can be lower with efficiency improvement, but energy prices WILL go up. Hedging here.)
  • Utility – Water $1000
  • Utility – Cell Phone $900
  • Utility – Internet $720
  • Auto – Fuel $900
  • Auto – Maintenance/Improvement $1000
  • Medical/Dental $3400 (This is a very gray area. I pulled this from RootofGood’s budget. A lot of my research over the next few years is going to be nailing down this aspect of our retirement budget. It’s also really hard to forecast given how crazy American healthcare is right now.)
  • Gifts $500
  • Personal Spending Money $1200 (Clothes, games, music, electronics, bike/tools, etc)
  • Dining Out $600
  • Travel $4000 (This is generous for both domestic or international travel. It also functions as a cushion. If we have a bad year of unexpected expenses, we simply reduce travel spending.)
  • Annual Total: $27,120

The NUMBER (assuming no future income): $678,000

The NUMBER (assuming $15,000 annual part-time income): $303,000

*Note: our current net worth is -$28,948 (updated quarterly)

The first NUMBER is about what I expected. What I found interesting is how dramatically the FIRE number changes with even a modest amount of income. I pull $15,000 in easily at my current job, and that’s only 14 hours a week. If the Alchemist and I both worked, we might even leisurely hit the $25K mark and not even touch our retirement assets at all except for major emergencies. In fact, I think both of us probably will work some during retirement (don’t call the Internet Retirement Police).

What this budget doesn’t include is any college savings for the kids. This is a very controversial topic in the personal finance community. I generally come down on the side of having the kids try career paths that either don’t involve college (trades, entrepreneur, etc) or attending college while/after working so that they don’t incur any debt. It’s hard to say what will happen with the college bubble in 10 years when my oldest has to worry about it.

Rental income or dividend yields would also be a way of lowering the NUMBER but require capital to generate income. I’m tempted to dive in to either strategy but currently the guaranteed return involved in paying down our 6.5% debt is a much more enticing option.

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10 Comments on “A very preliminary retirement budget”

  1. I just wanted to point out that I had $3400 total for medical/dental spending, and that my $2000 figure was the amount I added in to account for health insurance premiums (after obamacare subsidies) and dental expenses (if we don’t have dental insurance). Of course that is with 3 kids, so you may want to adjust accordingly (or maybe you already did).

    • David says:

      Derp, that was me mis-reading your post. Updated and corrected.

      I have 3 kids as well, so I used your post as a sanity check for numbers I don’t have a good handle on yet (like non-employer healthcare). I’m years away, but I felt this burning desire to have a number to work towards.

  2. I highly recommend biggerpockets.com if you want to learn more about real estate investing. My approach is going to be to save enough money for the 20-25% down required for 20+ rental units. In Indy, that’s about a quarter of a million dollars, since everything from duplexes to apartment complexes can be found for less than $50k per unit. Cashflow of $200 per unit per month is not crazy, even with property management in place, but even half that would still be twice my monthly expenses. Granted, I’m hoping to do things like get married and have kids and stuff that will change things up, but if I could consistently live on half my investment’s cashflow returns while building equity, I’d call that a win for sure! I’ll be 28 in a week. Target is to be financially independent by 35.

    • Also, imagine in 30 years when I’m traditional retirement age. All the mortgages will be paid off, even if I don’t reinvest the cashflow into them! Figure an extra $200-300 per unit!

    • David says:

      Oh, I know about biggerpockets!

      Right now I am trying to kill off some debt (see the net worth post) but in a few years I will be ready think about real estate. Milwaukee is a pretty decent market, but Indianapolis is considered a really good investment market by a number of FI people, so you’re in a great position.

    • David says:

      Come to think of it, I’m already part of the real-estate investment market, on the service side. I’ve been enjoying managing my sister’s duplex and I will try to grow my LLC’s property management business next year.

      It’s work, and thus not passive, but so is landlording.

      • I’m looking forward to the point where I can start getting property managers involved. Right now, since I’m only managing two units that are attached to mine, the cost didn’t make sense because the effort has been pretty minimal (most of the things I’d have done because it’s my residence, whether or not other people lived here), but the day when I can have properties that are managed by other people who pay me is going to be a wonderful day indeed :o)

  3. Aaron says:

    You don’t seem to be account for large but in-frequent purchases. Things like cars, appliances, and furniture need to be replaced every so often. I know you won’t go with the frivolously expensive stuff, but quality stuff can still take a chunk out of a budget. With your built in cushions you may be okay, but these are fairly predictable expenses that should be planned for.

    • David says:

      There’s a line item for vehicle replacement (1,000 annually) and appliances/furniture would fall under the home maintenance/improvement line item.


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