FREE NEWSLETTER
Go to main Forum page »
I cannot think of a better cure for my occasional insomnia than to stare at my electronic 2024 checkbook and analyze our spending for the prior year.
I’m looking for how much money came in, and how much came out to pay bills and buy stuff, and how much went back into savings and investments.
Social Security and two dinky pensions are what I refer to as our spending benchmark. In an ideal world our spending will never exceed the benchmark. The last couple years have been benchmark busters, with 2023 being so bad that I didn’t bother doing the math. I described 2023 in a prior article, Our Spending Spree. That year we built a house and bought lots of new doodads to go into it.
2024 was better but we still missed the mark due to things like landscaping and some really cool additions to my man cave/garage.
Here’s our income stats, expressed as percentages.
Our total spending for the year equaled 107% of benchmark income, requiring us to use about half of our IRA distribution to make the ends meet. The unused portion of the IRA distribution went back into a non-qualified money market and brokerage account.
If I were a teacher assigning a grade to last year’s spending, I think I’d give it an A-. We may have missed our benchmark, but the extra spending only equaled 1.5% of our IRAs. I anticipate this year’s spending will come in at less than 100% of the benchmark. At age 73 I am very comfortable with that.
This is as close as I will come to using what Webster’s Dictionary and HumbleDollar’s own grumpy old man would call a budget. As long as our spending requires such a modest IRA withdrawal I don’t see any reason to rock the spreadsheet by preparing a real budget.
I think of budgeting/spreadsheets in a similar way as tracking calories I consume. If I’m maintaining or losing weight, I’m doing fine and have no need to track every bite. But if I start putting on a few pounds, it’s time to pay attention again. Or if we’ve got a big trip planned and I either want to look good in my outfits or have some margin for error when I eat more than usual, maybe I manage and track calories more meticulously for a couple of months before the trip.
Similarly, if our income is covering our bills and other priorities (saving and giving), we don’t need to track every penny of it. But if we started dipping into savings more often than I’m comfortable with or have a big expense coming up—or, worse, actually run a balance on a credit card—then I’d better get a reality check and tighten things up.
My situation is very similar since I started collecting SS at 70 a short time ago, except I already owned a nice paid-for ranch-style home in a million-dollar setting in a LCOL region.
This man-who-has-everything he wants actually should spend more, because for what other reason did I build that nice nest egg? Travel? I did a ton of it over the decades, and now regard air travel as the place people go for eternity if they’ve been bad. 🙁
The young ‘uns will be happy some day (already are on Christmas. 🙂 )
This man-who-has-everything he wants actually should spend more, because for what other reason did I build that nice nest egg?
I think this is a question that many HDers struggle with.
Great idea. I budgeted all my life, for 50 years, then in retirement, I flipped the situation and went to NO budget. Fortunately, our SS and our RMD together cover all expenses. So for the last 7years, all has been working out and the fruits of our labor have paid off. I use Quicken so I can get a snapshot of anything at anytime. Everyone should use the method that works for them.
We never had a budget but always paid ourselves first which resulted in living well within our means until retirement. Since retiring early per Social Security’s benefits standards (although at 62 which data shows is actually most common age) I have turned on the money spigot even though we have been living off a medium sized (I guess) inheritance, thus allowing our retirement accounts to continue untouched.
The only “budgeting” I do is to calculate our net worth quarterly to make sure we are not burning through too much cash. Our balance has been staying about even over the past five years even with buying two high level Toyotas and significant travel both foreign and domestic. When we claim Social Security benefits at 70 in a few years those payments and my small pension will more than meet our expenses so spending will be most likely become turbocharged.
I’m simple and and a tech simpleton. No Quicken or spreadsheets in our household.
Our two SS and three pensions cover all of our expenses. Every source of income goes directly into our online checking account.
From there they are automatically transferred into three MM accounts labeled Car,Vacation, and Rainy Day. The first two are self explanatory and the Rainy Day account is in case of a future unexpected expense. We also have an Emergency fund. We charge almost everything we purchase which that and our non-discretionary bills are paid from the checking account. Even our tithe to our church and monthly financial donations to other ministries are automatically paid from.
Other than that we have a local bank account we keep a little money, just in case we’d need cash immediately for something.
I have done that a couple of times in retirement to get an idea of our spending. I have not had the time or perhaps more correctly taken the time to do it in recent years. We rely on my pension and our SS income for living expenses and usually save some of that as well.
It is a good exercise to know how much you spend in various categories and may identify opportunities to cut expenses.
Your process sounds very emotionally satisfying to me. I can’t imagine why you’d stop doing it.
The budget is real, you’ve just found the level of detail you need, that balances utility with specificity.
I’ll echo the same spending ‘budget’, i.e., our SS and pension generally cover our monthly expenses. The SS is automatically deposited in checking for the routine monthly expenses and the pension is deposited in a separate savings account earmarked for the semi-annual property taxes and home insurance. This process helps smooth out the bills and keep it simple.
I like using a set distribution as a budget for spending. Almost like an envelope with cash. When it is empty – spending should stop.
Thanks, James! Now I have a term for our anti-budget. Set distribution. It makes sense. Like using cash envelope for groceries. When the cash is gone, you are done spending. Chris
Dan, since Spouse retired last year, we have been doing the spreadsheet thing like you mentioned. So far I am unsure what to do with the information? We have the similar benchmarks to you and your wife of SS and small pension for basic expenses (deposited to checking acct), and modest IRA withdrawals (deposited to MM). I was always like Jonathan and didn’t really keep a detailed budget. We bring $$ over from the MM if needed, things like the hotel rooms for our family when we were recently at Spouse’s brother’s funeral. I see this as guardrails, and wonder if we really need to keep the spreadsheets? Chris
I also do something similar with a spreadsheet. In it I have an aggregate amount for big non-routine expenses such as a major home repair or a trip. As another commentor noted, I also feel an emotional satisfaction from feeling that I’ve got a good handle on our budget, plus it gives me 2 other things: first, a history of what we’ve done (including trips) at a glance, which I do use occasionally. Second, I project forward and plug in future trips with an estimated cost. I find that “look ahead” useful for planning and use it a lot. In fact, my wife and I really enjoy our periodic planning sessions when we use it to look ahead and figure out what additional trips we can squeeze into our budget, or replan our future trips. So the “future cash balance” function works well for us. In fact, a recent review resulted in a “spur of the moment” overnight trip to a state park since our projected cash balance for the next few months could easily accommodate it. No big deal, but it works for us.
Chris, we sound similar. Once I know that IRA distributions necessary to meet our spending are within a sustainable range, I don’t think the spreadsheets are necessary. The percentages in my post were literally calculated on the back of an envelope, with a little help from the calculator on my phone.
We are not to RMD yet and this is the first year we are taking SS and IRA distributions. So far the MM is growing so that means we are not spending all the distributions, right? We will see how the year goes, I was thinking we might continue the spreadsheets for the rest of the year and see where we are at the end of the year. I am thinking we may be able to drop them. They are so much work, and for what? Chris
Well, I talked to Spouse about all this on our nightly walk and they want to continue doing the spreadsheets. They have not been involved in our family finances at all through the years, until retirement last year. I had to do it all. It helps them to know where the money is going and feel comfortable. So we will keep doing them for now. Chris
Nicely done.
Quicken’s “Projected Balances” tool indicates that like you, I’ll likely not touch the net after taxes of my RMD or the savings account.
I look at our retirement account distribution a bit differently. I have subtotals for Social security and pensions, Roth IRAs, Traditional IRAs, Banks, Treasury Direct. There is a further segregation between my accounts and my spouses. She is not yet required to take RMDs.
Each year I arrive at a Total for all these accounts as of December 31. As required by the IRS I calculate my RMD liability and taxes. I express that as several percentages: percent withdrawn from the source accounts, percent of all of my retirement accounts, percent of both of our retirement accounts and percent of everything including banks.
2025 withdrawal as percentages look like this:
Percent of everything: 1.86%
Percent of our combined retirement accounts: 2.07%
Percent of my retirement accounts: 3.50%
My withdrawal as a percent of annual safe maximums by Monte Carlo Simulator: 60%.
I do have several projects that I could expand the scope of, that would change the 2025 percentages.
I run spreadsheets for certain details, such as medical expenses and related mileage. Other than that there is a RMD spreadsheet. Substantially reduced quantity of sheets now that I’m fully retired; at one time I built custom sheets for my budget. We were maintaining four abodes including a condo, two stationary RVs at different campgrounds/resorts and a smaller RV for travel. I wanted to allocate expenses per site and my speadsheets were the easiest way to agglomerate the data exported from Quicken.
However, I do plug everything into Quicken. A lot of that is automated which means the actual time spent paying bills and data entry is only a few hours a [month].
I’ve been using Quicken or another money manager since about 1995 so I’ve got a lot of data at my finger tips. Our main checking account has been used since 2000 and Quicken has stored every entry. That comes in handy when I want to run comparative reports. For example, I can quickly run a report that shows annual Net Worth as of December 31, 1995 to the present.
Dan, I like the concept of benchmark income. Once we start receiving SS (probably about a year from now), I’ll consider those payments plus my pension to be our baseline or benchmark income. I use the term “virtual pension” in my spreadsheets to delineate our baseline income, currently consisting of my part-time earned income plus the pension.
Ken, based on your First Quarter post, I’d say your transition to total retirement is going very well. That post actually got me going on this subject.