Friday, July 09, 2010

Distribution of Expenses by Category - Retirement vs. Working

Since we've been working our retirement budget, I was interested the spending distribution by major spending category. I also decided to compare the data to values in our pre-retirement budget. The results are show in the table below:

Percent of Annual Expense





















For reference, the Discretionary category includes food, clothing, household, personal and entertainment, i.e. anything not included in taxes, insurance, utilities and mortgage. Taxes include property, federal income and state income. Insurance covers health, home, auto and long term care. Utilities are electric, gas, water and phone.

The biggest change was the eliminate of our mortgage and savings contributions in retirement. The actual amounts spend in the Insurance and Utilities categories were constant, which resulted in a percentage increase for retirement. Even though the Taxes category percentage was constant, our total taxes are about 1/2 what we paid when working, with Federal and State income taxes decreasing by 2/3. Finally, even though the Discretionary category increased in percentage, the actual amount spent has declined by 26%.

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This is not financial or retirement advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC


Monty said...

Can you please explain what you mean by having "achieved financial freedom" (from your bio). In recent blog posts you mention that you have to work 40+ hours/week now to cover expenses. Are you still financially free?

Super Saver said...


As I wrote in Achieving Financial Freedom - I've Retired In My Forties, financial freedom means having sufficient savings to fund retirement. Our original calculation showed a 92% confidence of providing 100% of our after tax income needs. Recently, we redid the calculation at a lower income requirement since we have paid off our mortgage. Our confidence level is now 86% since our savings is down due to the stock market decline. So the statistics indicate we can probably just live off our savings.

However, there is a 14% chance of insufficient funds versus an 8% chance earlier at a higher income target. Also, our portfolio has only had negative annual returns since I've retired. So I don't feel as financially free or secure nowadays, especially with the current stock market volatility.

To increase our margin of safety, I applied to some interesting seasonal part time jobs to reduce the savings withdrawal rate. I admit 40+ hours per week was overdoing it, but I wanted to try every job offer since my applications were mostly rejected in 2007-2009. The one that had the most hours was a temporary job and was only supposed the last 3-6 weeks, but has lasted nine weeks. Fortunately, that job will end permanently in a couple weeks.