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July 16, 2010

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deegee

When I was creating my retirement budget prior to retiring in late 2008 at age 45, I did much of what you wrote, Syd. I used my current expenses and adjusted them for a lifestyle without working. The taxes went down. The commutation costs went to zero (YAY!). The health insurance went up (I was on COBRA already so they did not rise a whole lot). My everyday cash expenses were pretty much unchanged because my lunches at work disappeared but my hobbies increased by about the same amount.

The idea (as you implied, Syd) is to build in a cushion, a surplus, so that you can still do what you want (at least the small-ticket items) and not have to worry about exceeding your budgeted amounts. The cushion will also cover any unexpected (not big-ticket items) expenses.

Retired Syd

@deegee: That's a very important point you mention and one I should have mentioned, a cushion, or as we accountants are prone to saying, rounding up.

RDL

Syd and others -- would like your input on health insurance for a 50 year old not yet retired couple ... when we do retire it appears our only option will be individual coverage, as we are not aware of group options (post COBRA) through any professional or other groups to which we might belong ... our health history is good now ... but the concern is if we have a significant experience while on individual coverage will we get priced out of coverage by significantly increased premiums with no options for switching (don't worry about that now because we are part of a group). Are there specific companies you can recommend, or other thoughts on this? We are value oriented and will get a high deductible plan, so we are looking for good solid long term coverage at a reasonable cost (not necessarily the cheapest).

Retired Syd

@RDL: I wrote a post about this way back when I was shopping for coverage, here are some more details:

http://retiredsyd.typepad.com/retirement_a_fulltime_job/2008/05/what-will-i-wor.html

The upshot is that I would take COBRA right away when you leave work, just for the guarantees. It's usually more expensive than what you can get on your own, but it will buy you some time (up to 18 months). But at least you won't be left without coverage, at the end of your COBRA period, you are guaranteed coverage as long as you didn't let your coverage under HIPAA lapse (although that, too, can be expensive.)

We got an individual plan, a high deductible plan that is HSA compatible. The amount we saved on premiums over a lower deductible plan funds our tax-deductible health savings account (HSA) each year. As a consequence, we pay for most of our medical costs throughout the year. But the way I view insurance is that I can afford the day-to-day expenses, I maintain coverage in case of something huge that could bankrupt me.

When the new health-care exchanges are set up under the insurance reform, I will go shopping and see if I can't bring down our premium a bit.

(Once you are underwritten under an individual plan, your premiums can only go up as much as the group you were originally rated in. The insurer cannot drop you because of a health problem, nor can they change your rating group unless you change carriers or move to a different state or plan with that carrier. You should check your individual state's rules, but all plans must adhere to federal HIPAA rules and soon the reformed rules.)

Steve

Excellent post. I think too many people get caught up in "just not spending" that they forget that life is to be lived. The early retirement community certainly can crunch the numbers well enough to understand amounts that can be safely spent given all sources of income throughtout one's remaining life. Once you have those numbers, don't hesitate to do what makes you happy within that safe spending limit. Some things may even have such a great pleasure return that it's worth spending our most precious commodity (time) earning the money required.

jacqjolie

If there's one thing I can't stand, it's other people making value judgments on other people's spending. If they can afford it, who the hell cares? To be honest, if I didn't have a younger child, I'd probably be eating out about 10 times as much as I do now - with no remorse.

I know my RV is a moneypit and I haven't really used it enough (yet) to justify having it, but I can afford it, it's paid for, and I love it. And if I couldn't afford it on my retirement income, I'd go back to work for a bit to pay for the upkeep because it means that much to me to be able to take off and camp in the boonies whenever I want.

Having said that, it does bug me a bit to hear people say that they're in debt and can't cut back anywhere or worse, to tell me how lucky (or as some of my friends tease me - that I'm lazy - lol) I am to be able to retire early and yet most areas of their spending are much, much higher than mine (indexed for family size). Maybe if they started drinking the coffee at work and bringing their lunch, they could be "lucky" too.

Early Retirement Extreme

Yeah ... if it wasn't fear previous substantial empirical evidence indicating the existence of plenty of eat-out-a-holics that would be like if someone told me they were a dentist-a-holic :-D

Early Retirement Extreme

Incidentally, right after rent, rec sports is my second biggest expense. Wasn't always like that, but I can afford it now.

Retired Syd

@ERE: I think you've just proved that we can draw some conclusions about people based on their 2nd largest line item in their budget. Yours means you are really fit, and mine means something is standing in the way of me being really fit! Being a sports-aholic is much healthier . . .

Cara Larose

If you'd ask me, I'd rather put some for my future. I mean let's face it, we're aging and when we get so weak, we would definitely end up in a retirement community. And as early as now, I am looking for one in my hometown in Pittsburgh. Even though we're at this age already we still have to be wise so we won't end up homeless.

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