Inspecting & Whittling Down the "Nut"...A Ramble

Since we are slated to retire in less than 3 years I am obsessed with figuring out what our "nut" or household/living expenses need to be compared to what we are spending now, pre-retirement.
I am trying to reduce our "nut" every year to try to get it as low as I can post retirement. 
I figure if we commence retirement with our expenses lowered  as much as possible and find we can in fact afford to spend more, it will be easier to expand our spending, rather than to head into retirement and find we are still spending more than our savings can handle.
Sounds like a plan, right? 8-)

Using my monthly spending/expense sheets from 2014, I have concluded that we spent $53,278.52 of our regular income that year. (This doesn't count the money I paid to buy my car in 2014 which came out of the Bonus money.)
That comes out to $4,439.87 spent per month on our "nut".

So far in 2015 we've spent $23,924.09 of our regular income to "live". (Again this doesn't count the money we paid to buy Hubs car in 2015 which also came out of the 2015 Bonus money.)
This averages out to $3,417.72 spent per month for the last 7 months. 

If we stay on this track we will have approximately a $41,012.72 nut for 2015. 
(Granted this isn't all the income we have spent as there was money taken out of the check before we got it for healthcare premiums, life insurance and long term care insurance.  These items will still need to be funded in retirement and will need to be accounted for in our "nut" spending.)

So far in 2015 we have spent about $1000 a month less than we did in 2014.
July has been out lowest month of living costs so far in 2015.  Our "nut" for July was $2200 out of our regular income.  February's spending was $2500+ change.
$2,200 in July.
Gosh I wish our monthly "nut" was this low every month......

Looking at the spending for 2014 compared to 2015 so far, here are a few of the categories where we have reduced the spending......

*  A lot less money spent on car repairs.  Buying a new car in 2014 meant no car repairs on 1 of the 2-3 cars we owned.  Buying another almost new car in 2015 meant even fewer car repairs compared to what we are use to spending on vehicles. We spent $2786.72 on car repairs in 2014.  So far in 2015 car repairs have run a mere $441.61. (Sssh, don't say that too loudly lest we offend the car gods.....)

*  Ditching cable tv.  Since getting rid of cable we are saving $70.80 per month or $849.60 per year.

*  Since putting in the mini-split heating/ac system Fall of 2013 we are shaving a bit off of the heating bill each month we use it.  It's more efficient than the system the house came with.  Yes, it cost a chunk of cash to install it/buy it but we are reaping the benefit of lower utility bills in winter and it will be an added asset when we go to sell this house.  We should recoup some of the expense of having this system put in with a higher selling price. 
It's difficult to quantify an exact figure for the savings in our heating bill since weather conditions vary from one year to the next plus the cost of electricity goes up every year here but we are trending toward lower heating bills.

*  We are no longer paying for private music lessons for College Boy out of our regular income.  He take lessons at college and that cost is included in the tuition/fees we pay for his education and that money comes from a college fund set aside years ago for that purpose.  We are saving approximately $1600 a year on this item.

*  We seem to be spending less on alcohol, clothing and "stuff" in 2015.   There has been little spending on replacing clothing, shoes, household goods and "wants" so far this year.  We just haven't felt the need to buy much "stuff" this year.
I'll have to wait until the year is over to run the numbers on adult beverage spending for 2015 but with how much we spent in 2014 on liquor I am SURE that number will be down. 8-)

*  We have no pet related expenses in 2015 since our last doggy died near the end of 2014.   We paid $450ish in vet bills and kennel fees for our dog in 2014.  There were more costs such as meds and food but I don't have a figure for this portion of pet expenses.  Let's just call that another $400 a year, so a savings in 2015 of $900+/-?

So with just these categories we are "saving" at least $6000 a year in 2015 over 2014's spending.(This is without taking into account any less spending on "stuff" and "wants" this year.)  $6K a year comes out to a $500 per month reduction in spending in 2015 over 2014.

Looking over our spending categories now there really isn't much more we can cut out of our fixed bill costs.  We have basic phone service(no fancy cell plans), basic internet/cable, have cut utility expenses, gas to get to work can't get cut, taxes are what they are, keeping medical co-pays low as possible by exercising/eating well/taking maintenance drugs/etc., and not performing "retail therapy".

Once College Boy is out on his own(hopefully in 3 years! Yes I am an optimist...lolz)there will be even less spending.  No paying for his food/drink, water and electricity use, clothing, no more paying for his glasses and healthcare, incidental monies, no fetching in back and forth to/from school and no third car to maintain and insure. 
Add in downsizing to a smaller house(less space to heat/cool and lower taxes)in a cheaper area once we move and there will be some more reductions in spending.

The only way to save more would be to cut out vacation trips and the costs associate with those.  This year we have/had taken a 2 week trip to Southern Virginia to see my brother in January, a 2 week road trip to Louisiana in May, a 2 day apartment hunting trip in July, a 3 day trip to move Eldest in July, a 3 day family reunion trip in September and a 4-5 day trip to Ocean City Maryland in October.
For a year of traveling that seems financially reasonable to me.  I would hate to have to cut out what little traveling we do per year.  Traveling, sightseeing and visiting family and the associated costs are my one "wants" spending vice other than a nice meal out now and again and buying adult beverages.  I don't spent much money on house "prettifying" or crafts or buying more fashionable clothes to cram into my closet or upgrading tvs, phones or doing entertainment or recreational things that cost lots of money.
Everybody needs to spend a little of their income on leisure and this is mine. ;-)

Even if you are trying to cut your living expenses what are the things you are reticent to give up?
What things do you spend on that are justified by helping you maintain your sanity?

To conclude this long ramble.......we seem to be bringing our expenses down slowly every year over the next.  I hope to get the "nut" down a little more over the next 3 years before we launch into that unknown territory called "retired".

Sluggy
 

How Ready Are You For Retirement? Part 2

                    photo by Joe Belanger
Ok, so having a financial cushion is only one part of being ready for retirement.....albeit, a MASSIVE Part of it!

If you go into your retirement years without money(or for a rare few these days, a company funded pension)your Golden Years won't be so golden.
After all, it takes money to sustain even the most modest of lifestyles.
And let's face it, living on ONLY your Social Security check just won't cut it.

That Social Security check, once you hit the major age(depending on what year you were born in)is a help but unless you had a very high paying job for many years while working that check probably won't cover all your costs of living ANY sort of life.  A married couple has a better change of eeking out a modest lifestyle on only Social Security but really, if you don't have to, don't plan on SS being your own source of funds.
Again, there are exceptions, but for most people, you need other assets to draw upon in retirement.

And then, if you retire early there are those years of not working you need to bridge with cash until you can access your own directed retirement funds, your pension(if you get one)and/or your Social Security check.

And if you are in the US and retire early there is also that small worry about paying for your healthcare(unless your ex-employer funds something for you to draw to pay for these expenses)until you hit the golden Medicare years.

There are two other big components, besides how much cash you bring into retirement, that will have a large affect on you and what kind of retirement you have......

One--Your financial position at retirement in regard to debt.
Two--How much it will cost you to maintain any lifestyle.

So it pretty much goes without saying that you need to be DEBT-FREE once you decide to retire.
Retiring with personal or mortgage debt is not a good thing and not the optimal state to be in when you retire.
As commenter SAK noted in my last post on retirement, "The reality is that the biggest driver of what you need in retirement is driven by where you start your retirement. No debt, own home, savings, good health AND good health insurance.....".

The best position to begin retirement in is to carry no debt.
Period.
Get your house paid off(if you own one).
While it's possible to retire with a mortgage, if at all possible, it's not something you want going in.  A mortgage is just another bill(usually one of your larger ones)that will have to be paid until you get that sucker paid off.
Now it IS possible to retire with a small mortgage(that is going away soon once you retire)but most people and financial experts will tell you it's not an optimal state to be in.

And depending on the owning versus renting options, in your chosen area it may be cheaper to rent.
The real estate markets as you all know have been crazy since the early 2000's.  Some parts of the country it just makes no sense to buy a house.  The prices are just so high it would tie up all your assets and leave you with little to live off of.(Of course, when you die and your heirs sell the house they will be rolling in dough.)

 Many people go into the retirement years without a paid for house.  Just remember that the real estate market can change at any time, even if renting is cheaper now.  Rents will most certainly increase as the years go on so if you don't plan on retiring in a paid for house, adjust your living expense sheet to cover rental increases.....or be prepared to move(which will incur it's own set of new expenses and may not be something you are physically up to doing as you age).
Have a housing plan if you rent, but it's pretty smart to also have a back-up plan if markets and prices change drastically.

Again, as you look to your retirement years don't do anything stupid with debt.
Pay off your house, your car(s), any unsecured debt(credit cards), loans on lifestyle toys like boats, trailers, ATVs, etc.

And if you still have student loans going into retirement?....wow!  You need to get those paid off asap.
If you cosigned on any loans for your kids or others you need to make sure those are paid off as well......and on second thought, you really shouldn't have co-signed in the first place, especially if you are too close to retirement to get them paid off. ;-)

We all want to help our kids and family but really, is it a wise choice to put yourself into more debt for them?  The government will give your kids loans to go to school, but they are not going to loan you money to fund your retirement.
If you only have so much money and it's a choice better funding their college education and your retirement, pick your retirement.  After all, if you don't have enough to live on in retirement that means your kids may be obliged to support you when you can no longer work.  Don't plan on being a burden to your kids.  Between paying off student loans, their own mortgage, car payments and paying the expenses their own kids will cost to raise them, your adult children have their own hands full!

Besides, your kids will have a long working life to pay back their student loans while you may only have 10 years or so left to fund your retirement. 

Not that I am suggesting your kids wait for 30 years to get student loans paid back.....they should be doing whatever they can to pay those back asap!  Deferment interest really adds up on non-subsidized student loans.  Even though my husband had both undergrad and graduate school federal loans, bringing both into our marriage, that was a top priority early on in our marriage-to pay those loans off!  The sooner you pay off student loans the less interest you will pay and the sooner you get to decide what to spend your money on next.

Don't fund your kids' lifestyles by carrying debts for them into retirement.  If you feel compelled to loan money to your adult children then at least make sure it doesn't impact you too much financially and for gosh sakes, get something in writing that can be enforced spelling out the terms of the loan, in case they decide on down the road to just not pay that money back.

The other component that can have a big impact on your retirement is how much you will need to cover your lifestyle once you stop working.
You need to take a good hard look at  your expenses, both the every month regular ones as well as the irregular expenses that only come up so often in your year/life.

Hopefully you will not be supporting kids(grandkids too) or parents when you retire.  Optimally it will just be yourself(and your spouse if you are married).

Do you know approximately what it will cost you each month to live the life you want to?
If you are on the downslide into retirement(over 50 usually)but not retired yet, it's never too early to sit down and go over the numbers.

Find a good calculator online to project how much money you can/will draw each month from your savings(and how much your Social Security will be once that kicks in).
Then write down all the expenses you will have in your golden years and see if your savings/retirement funds/SS projections are enough to cover your projected living costs.
I know it won't be totally accurate but just having some idea of where you stand with your savings rate NOW can let you know if you are on target or need to beef up what you put away/invest.

Since your expenses will change as you age(you will spend more on lifestyle during the early part of retirement, while the later years will see that spending shift to being more heavily involved with medical expenses, even after you hit Medicare age)it might be wise to figure what you need when you are "young" retired(in your 50's, 60's and some folks into their 70's)as opposed to your last years(70's-90's and beyond).
You will most probably travel a lot more as a newly retired(if you are given to travel as a way to fill your time).
You may also want to volunteer your time in causes you believe in or work part time as you ease into retirement.  While a part time job will give you a little cash injection it won't fund your lifestyle and both non-paid work as well as paid work will mean more expenses incurred on your retirement budget.

A good thing to try when figuring out your retirement expenses is to see how little you can live on BEFORE you retire.
Try it for a month or two to see what level of lifestyle you are comfortable living.
Of course there will be things you can't do while working(like not using your car or public transport).
but you could go without eating out, or cable or cell phone plans, electronic toys, traveling.
All I saying is to find your basic living NUT.
The bare minimum you will need to spend in retirement to sustain you(and your spouse if applicable).
How much you need to spend each month for the bare necessities you are comfortable living with(or without).
If you can cover your NUT each month with your retirement fund withdrawals/pensions/social security you are doing aok.

Of course, if you will have more money than that amount each month, good for you, and you won't have to live a monk's life if you don't want to in retirement.
You can always add in more expenses to cover the extras in your budget as your money holds out.
Hopefully you will have enough to cover the needs of your life and can easily add back in some of your wants.

Now don't just sit there........get cracking on a Plan for your Retirement!
It's never too early. ;-)

Sluggy