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Early Retirement Budget Estimate

July 5, 2021

I’ve been playing around with a somewhat realistic budget for early retirement, assuming that we keep the lifestyle we have here, and remain in a high cost of living area.

Housing, $30k: This is after the mortgage is paid off. It includes property taxes, earthquake insurance, house insurance, utilities and maintenance. I lumped this all together to obscure details a bit. There is no getting around the fact that our house is a huge expense, even once it is paid off. This does include earthquake insurance, which is optional, and expensive – most people in California do not carry it. I’m just not comfortable cutting it at this point. It includes a maintenance budget that is generous if you think of standard yearly maintenance, but seems about right when I consider big projects/repairs that are done quite infrequently. It certainly makes renting look a bit more attractive…

Food, $15k: There is a lot of room to economize on this… but we are currently spending something around this on restaurants + groceries. I expect that to go back down as we resume pre-pandemic shopping habits. We’ve used a lot more conveniences this year, including frequent meal delivery service and grocery delivery… I’ll be watching this in the next several months.

Travel, $10k: This is more than we have spent most years, but we have another seat to buy, and presumably wouldn’t be able to just tack trips on to conferences to save money. This isn’t much more than a single “big” vacation and then travel for Christmas.

Health Care, $12k: This is based on ACA plans available in California (premiums are much lower than I would have guessed, even for the higher their plan). It wouldn’t be enough to cover yearly major health events, so is a bit stingy. Probably too stingy, but in the ballpark for the type of calculation I’m doing.

Auto, $5.2k: Fuel, maintenance and insurance for one car, plus a modest allocation each year towards a replacement car.

Other, $11k: This is gifts, internet/phone/subscription, clothes, kid stuff (clothes, toys, diapers), and home stuff.

All of this is roughly $85k of net income to cover our lifestyle as-is, except without daycare or employer provided health insurance. Our commutes are pretty short and we don’t spend much on work lunches or work clothes, so I don’t think I can take credit for money our jobs cost us.

Taxes: A significant majority of our savings is in pre-tax retirement accounts (similar tax treatment as a 401k/IRA). A smaller portion is in Roth-like accounts, and I’m (finally) prioritizing building those up. None of it would be treated as long term capital gains – we don’t have a taxable brokerage. So, I can assume it is all treated as regular income tax (worst-case), and we’d pay approximately $8,150 in federal taxes and $3550 in state taxes (calculator used), requiring $96.5k in gross yearly income to get to our net spending budget.

This is rapidly approaching a need for $2.5M in invested assets (excluding a paid off home!), even for a 4% withdrawal rate. This seems a little crazy. I’m sure I’d be mocked by any serious FIRE person. But living in a high cost of living area without a job to hold you there is certainly mockable, if early retirement is your main goal (which it isn’t for us). There are plenty of places with favorable conditions (political climate, climate) that would be less expensive than here.

The good news is that we aren’t currently in a hurry to quit and early retire, and we are both enjoying our jobs, have short commutes, good work life balance, and good autonomy. We are basically happy to continue as-is, and aren’t feeling pressed or stressed by our lifestyle. It would be nice to literally do whatever we want every single day, but our jobs also add a lot of intellectual value to our lives.

The other good news is that picture gets a lot nicer if just one of us (ahem, me!) retired early, leaving the other to work a bit longer. We could coast to an early-ish retirement, even if we dropped one salary. This isn’t really a serious plan, as I’d prefer to keep working longer to open up more options for both of us, but it is a comforting thing to have on the back burner.

6 Comments leave one →
  1. July 5, 2021 9:01 pm

    Those are really good numbers for staying put, considering! Are you anywhere near mortgage payoff? I keep estimating a much higher spend in retirement because I’d actually have time for fun. And my fun will cost some kind of money whether it’s reading or gardening or some other hobby I haven’t had time to delve into. We won’t save anything by not working because we have very little in the way of work expenses, we don’t buy nice clothes, and the commute cost is minimal. We travel less now because of the work schedule constraint so I can just imagine that cost going way up if we want to both keep our home (which I do, I love having my hobbithole home base) and travel a good deal.

    • July 6, 2021 8:29 am

      No, not really anywhere near mortgage payoff. We refinanced last year into a new 30-year, and are not planning prepayments any time soon. But, my brain can only think about plans/goals on a timeline my brain can imagine, and including the mortgage would push this out too far… So, we’ll see how the next several years play out before thinking too hard about the housing part. This is why I kept a totally unrealistic minimal budget for so long, I can’t stand the reality of being too far away from my goals!

      Yes, I’d actually probably want a much larger travel budget in reality too.

      • July 10, 2021 4:23 pm

        We’re in the same boat! Also refied last year, I am almost sure that was inspired by yours actually, and I haven’t been focused on paying it down. I’m working on investing more first. Then I need to figure out at some point, and what point that is I do not know, how much I want to focus on paying it down so I can reduce our monthly income needs. Far too many variables right now.

  2. July 6, 2021 12:45 am

    Looks like you covered all of the bases. Funny how housing cost never seem to go down. Even after paying a house off there is always still taxes, insurance and maintenance. LOL

  3. July 10, 2021 1:35 pm

    I have a two-layer budget estimate for a theoretical early retirement. One is a frugal budget (and we are basically there, minus healthcare and mortgage). The other is basically a “no compromises” budget, though potentially still too stingy for travel and kid stuff (I know people spend $$$$ on those). It works out to about a million dollars more.

    Given that a mortgage and my estimate for healthcare are another million dollars on top of what we currently have saved, we will probably not take the plunge anytime soon. I still feel like there are things I want to accomplish, work-wise, so I don’t feel too trapped.


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