A very preliminary retirement budgetPosted: February 12, 2014
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.
- 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.