Your spending in retirement likely will equal, or exceed, what you’re spending while working.
Illustration: Paul Blow
Regarding “rules” for budgeting in retirement, I set aside $100,000 in what I call my “Stuff Happens” account. It’s designed to get me through five years of unexpected and one-time expenses. My buddies have adopted the same approach.
Clearly your friends know a good idea when they hear one.
Those comments, from
a retiree in Houston, were among many we received in response to my recent column about what I call my “$400 rule,” a household budgeting approach that I have adopted in retirement. The rule says that on average a retired couple will spend $400 a month more than they expect. This has proved correct in my case. In my column, I invited readers—retired or about to be—to share with me any rules, recommendations or strategies they have developed or embraced to fine-tune their own spending and saving habits.
My thanks to all who took the time to write. What follows are some of the most helpful ideas we received—starting with a warning.
Plan to be surprised
Interestingly, almost every reader asked me to warn people approaching retirement: Your spending in retirement likely will equal, or exceed, what you’re spending while working. Put another way: Take the conventional wisdom about needing 70% to 80% of your preretirement income to maintain your standard of living in later life and junk it.
“My wife and I spend 50% more in retirement than we did when working,” says
77, a retired advertising executive in Evanston, Ill. “There are two causes. First, we have time for travel, especially international travel. Second, we have volunteered in our community and discovered many needs; as such, our charitable giving has substantially expanded.”
68, a retired pharmaceutical executive in Santa Rosa, Calif.: “I couldn’t see how I could spend less in retirement, given that I’d have more free time. So I targeted 90%. As I got closer to retiring, I moved it to 100%. My reality turned out to be closer to 110%.”
The single exception to this thinking among the comments we received: a couple who retired to a small town in Alabama. Their strategy:
“We expected the cost of living here to be lower than that in a third-tier city. However, we didn’t expect it to be substantially lower. We live better than we did in the city, in a nicer home, engage in far more activities, and spend less. We would advise anyone planning retirement to consider moving to a small town for both quality of life and financial reasons.”
If you develop a household budget for retirement—great. But a number of readers told us: This isn’t, or shouldn’t be, a one-time exercise. It’s critical, they said, to refine your budget annually.
“My wife and I consciously research ways to ‘cost reduce’ each year,” writes
76, a retired chief executive officer in Melbourne, Fla. Among their steps, small and large: reviewing and, as necessary, changing (or simply canceling) streaming services and magazine/newspaper subscriptions; booking travel a year in advance; fixing more meals at home; making better use of programmable thermostats; researching purchases and then waiting for sales and coupons.
Mr. Singer says: “We have found that by constantly looking for ways to lower expenses and buying smart we can do a better job of making our retirement savings and pension go further.”
Leave wiggle room in the budget
In my earlier column, I set out my personal retirement rule: Calculate a household budget for the year—and then add $5,000 (roughly, $400 a month) for out-of-the-blue bills. That total will be closer to the income you’ll actually need. Several readers told me my math wouldn’t work for all parts of the country (read: high-cost areas) and offered a better solution: simply add 10% to whatever budget you first produce.
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“It seems almost every month there is an ‘extraordinary’ expense that blows the budget,” writes
69, in Cypress, Texas. “My wife and I have encountered this our whole lives. Our rule is add 10% to your budget—always.”
76, a retired energy-stock analyst in St. Louis, made a similar point. His rule: “During December each year, I work up an estimated family budget for the coming year. On the total expected spending, I add 5% for inflation and 10% for unknown events. I then adjust my income ‘bucket’—primarily quality dividend stocks—to generate the required annual cash.”
Start a rainy-day account
Another way to handle the unexpected: rainy-day money. Mr. Bretting, at the top of this column, is one of several retirees who say they squirreled away a chunk of money expressly to cover unanticipated bills early in retirement, when nest eggs are at their most vulnerable. His “Stuff Happens” account, he writes, has been a “mental lifesaver.”
“In the 2½ years that I have been retired, I have paid $8,500 for frozen-pipe damage; $3,500 for my spouse’s dental issues (no dental insurance); $25,000 for my youngest needing an extra semester of college to graduate; $1,500 for two accidental drownings of cellphones; and $5,000 in flood damage to our sprinkler system and landscape.”
He concludes: “I do sleep better at night knowing there’s still some money available for the next ‘Stuff Happens’ event.”
Fluffy and Fido? Maybe not
a retiree in Seneca, S.C., has more than a dozen financial strategies for retirement, but one rule jumps out:
“If you have pets, don’t replace them,” he says. “My wife and I travel a lot more in retirement, and the bills for kennel care were over $1,000 a year. Get out the pictures of them and enjoy hair-free furniture. You won’t miss the constant picking up and cleaning up after them.”
Mr. Ruffenach is a former reporter and editor for The Wall Street Journal. Ask Encore examines financial issues for those thinking about, planning and living their retirement. Send questions and comments to email@example.com.