I see people getting lightly roasted all the time posting their numbers and saying “Am I actually ready?”
I get it. It’s hard to make such a huge decision and people want reassurance. You’ll get some good tidbits to consider/things you may have forgotten about here and there, but I mostly see (angry? offended?) people commenting that of course the numbers work.
So here was my strategy long ago:
- Make a bank account and put the desired budget into that account every month
- All expenses go out from there. Pay CC, mortgage, send gifts, bills, whatever through this account.
- Do this for however long you believe you need to. I did it for 12 months to capture all of life’s events (insurance renewing and increasing, property taxes renewing and increasing, holidays, birthdays, surprise bills that pop up, impulse buys I wanted to have the freedom to make).
If, at the end of it all, your budget covered it AND, because we are in the FI community, you feel you still have a comfortable enough cushion of money saved up in your other accounts and/or left over from the annual budget you’ve made, this may be the reassurance you need.
We don’t make the plunge into retirement hastily. Doing this for 12 months shouldn’t be a big ask as we usually have an idea of when our exit will be.
This is my advice to you. It is risk free considering it’s a trial. All the reassurance from internet strangers and number crunching in the world couldn’t give me 100% confidence, but this really helped. It worked for me because I actually saw it in practice. Did I stay retired? No, but I spent a few years enjoying the break before being very picky about my next endeavors.
Best of luck out there!
If you aren’t sure, make a dummy bank account, deposit your monthly “allowance” and see where it gets you in 6-12 months.
byu/sruzz infinancialindependence
Posted by sruzz
3 Comments
I think you can do a similar exercise by just accurately tracking your expenses for a year or two. I use exactly one credit card for almost all expenses, and my checking account (checks/debit) for the rest. I tracked every expense for ~2 years to make sure my budget was right and while it was, it wasn’t in the way I expected. I found I spent more in some areas than I expected and less in others. But as you observed, it gave me the confidence I needed that I was in the ballpark on a good number.
Expenses aren’t the same in retirement compared to when you’re working though.
If I was retired, I might drive more or less. I’d certainly spend more time, but also likely more money, on my hobbies. Healthcare expenses may be higher, depending on a variety of circumstances. I probably would be less likely to buy a quick lunch, but maybe more likely to travel for a nicer one.
It goes on. You simply cannot extrapolate your current budget to retirement, you need to think about your expenses and how they might change, then give yourself a buffer to cover errors and emergencies.
This is a great idea. Obviously you could also do this with spreadsheets and budgets and not actually use a separate bank account, but this somehow makes it more “real”.