October 18, 2013

How is My 2013 Budget Doing?

With 2013 already more than 75% gone, it is a good time to look at the budget and see how well I am doing. There is always a mid-year, end of June assessment that gives me the chance to make needed adjustments. But, by now, I am getting a clearer picture of what I going to have to do in 2014 to make things work out.

The two biggest changes so far this year have been the start of regular Social Security checks in June, and a decision to reduce my yearly IRA withdrawal from 4% to 3.5% to adjust to the economic reality of today. By bringing the withdrawal rate down I am also keeping our yearly gross below the 85% tax rate on my Social Security income. Next year I will be aiming for a 3% draw down since Social Security will then be paid to me for a full year instead of just seven months this year.

I am off pretty significantly in three budget areas: repair and maintenance of our oldest car, expenses for Bailey, our cocker spaniel, and furnishings for the house and yard. Since we had planned to get rid of the 10 year old Hyundai in 2014 and it is driven less than 5,000 miles a year, I thought I'd be able to limp along with minimal repairs. Not true. Almost $900 worth of fixes have put me in a hole.

You maybe wondering why I didn't dump it before putting that kind of cash into the car. Well, as these things often happen, it was $200 here, $150 there, $300 to keep it rolling.....the slow dribble of repairs that are never enough at one time to make me want to pull the plug yet. But, Betty and I are now of one mind: except for gas and maybe windshield wipers, we are done. If something else goes we will park it and make do with one car until it is time for a new one.

I can blame the overage in the furnishings and decoration budget on our RV trip to Texas last spring. We found several things that we wanted for our backyard. Betty made good use of them in her Backyard Magic redo. But, I had not anticipated that extra $700.

Because Bailey cost $800 to buy and there are significant "start up" expenses with a puppy, I assumed this year would be much cheaper. But, a health care plan, a few infections and medical issues, $47 haircuts every six weeks, and enough dog toys to start our own kennel means I underestimated her cost. Yes, the total is less than in 2012, but the expenses didn't drop as much as I had thought they would.

Another off-budget expense (sounds like the government, doesn't it!) was the cost involved with my prison ministry volunteer work. Clothing, supplies, transportation, food, and other costs for my menteee are not deductible so I keep track of them but didn't budget for them. Silly, I know. At just about $1,000 that  definitely throws things off.

Are we doing better than expected in some areas? Yes. The newer car is holding together nicely so costs are below what I had thought they might be. Our out-of-pocket medical expenses are also lower than I had allowed for. Prescriptions, tests, and doctor visits are nicely below what they have been in years past.
  Most other categories in the budget are either slightly above or below where they should be at this time of year. I am anticipating being about 2% over budget at the end of the year. I can live with that.

So, the budgeting process for next year begins for me in early November with several tweaks between then and January 1st when the finalized version goes into the computer.

How about your budgeting? Has 2013 been better or worse than you had anticipated ?  What have you done about it?

28 comments:

  1. In 2015 my husband will collect social security at age 66. In 2018, I plan to collect spousal benefit at age 66, and then convert to my own benefit at age 70. This strategy seems to be the best one for us. However I'm curious about your statement about keeping your income below the 85% tax rate on social security. I thought that the 85% tax rate was the maximum your SS benefit can be taxed, regardless of your income.

    We meet next week with our financial advisor for our yearly financial check up. We've kept to budget overall, but there were a few surprises along the way. I'm spending more on gas than I anticipated since retiring earlier this year. I anticipated this cost to go down considerably with no more commuting, however it stayed about the same. Obviously lots of travel fun! However our dining out budget is not getting spent. I am cooking more, and our dining out usually consists of occasional, low cost favorites such as the local taqueria and Bota box wine at home. We are reluctant when it comes to paying for expensive food prepared by a restaurant, especially when the quality is often sub par.

    Clothing expenses are down! I anticipated this with retirement, but am pleasantly surprised at how little we've needed to spend. I had plenty of active/exercise clothes already, plenty of t-shirts and jeans. Just had to put the professional pants and blazers in storage :-) Don't miss them at all!

    We've had unexpected house related costs that have hit the budget hard. Our other budget adjustments have compensated for this. However the continued expense of home, landscaping and high property taxes has prompted us to rethink where we live. Downsizing is likely in our future at some point.

    We know that money cannot buy happiness, however thoughtful budgeting and careful financial planning can certainly pave the way for creating a happy retirement that is free from financial disasters.

    ReplyDelete
    Replies
    1. Carole (or anyone else) - Our financial advisor is recommending I start taking the SS spousal benefit at age 62, converting to my own SS benefit at a later point. Is there a reason you are delaying initiating the spousal benefit till age 66?

      Delete
    2. Yes, Carole, 85% is the maximum but I hope to hold it to the 50% level in 2014.

      Thanks for the look inside your situation.

      Delete
    3. Tamara,

      My understanding of the issue is that if you take the spousal benefit prior to reaching full retirement age, you are deemed (by social security) to have applied for your own benefits, and you lose the option to convert to your own higher benefit at a later age. I looked for the reference in the SS website and couldn't find it quickly, but below is a link that may be helpful.

      It really can be very confusing. We talked with the local SS office, as well as our financial planner to figure out what would be the best option for us. The other confusing thing is that year to year the rules can change! It used to be that you could file early for benefits, then at full retirement age change your mind, return all of the benefits you had received, and then refile for the full benefit at your full retirement age. They eliminated this option a couple of years ago.

      http://money.usnews.com/money/blogs/the-best-life/2012/07/23/tips-on-social-security-spousal-benefits

      "It is generally unwise, they agreed, for a person to claim spousal benefits before they've reached 66. Doing so at an earlier age is deemed by the agency as having filed for the person's own benefits, not just a spousal payment. "Generally, when a person files an application for Social Security, the application is for all benefits," said agency spokeswoman Kia Green. "A person cannot restrict the scope of their application until they reach full retirement age."

      Delete
    4. Yep, just as confusing as I've been reading! I'm wondering if the reason our advisor is making the age 62 recommendation for me is that 50% of my husband's max SS benefit taken as his spouse, would potentially be greater than my own benefit, the result of my spending some years at home raising our daughters prior to returning to work. We see our advisor in a couple of weeks, and I'll come armed with some additional questions to ask, so thank you very much Carole.

      Delete
    5. I'd enjoy hear what you learn about SS. With a seven year age difference, we were thinking I would take my spousal at 62 as well and wait for my full at 70. Scott is going year by year on taking his. He figures he will take it when we need it- which is not yet. He is 63 now and probably will wait until 66. He plans on living to 100 :)
      We have been fortunate recipients of "found money" the last few years, so our nest egg goes untouched. Unfortunately, it is not growing either. The found money funds trips and wood working tools. Otherwise the budget looks much the same as last year. Next year we are planning a new car and 2015 should see us moving. Our "savings" from pension money will help,with both of those.
      I have a question. How many use financial advisors and why do you use them? We haven't used one and I am wondering if we are missing something.

      Delete
    6. Will do, Janette, as best I can. It really is confusing from what I've read/seen so far on the spousal early benefit withdrawal issue.

      Speaking for ourselves, we initially met with a financial advisor as a final check point in determining whether we could indeed early retire. After meeting with them, we elected to split the portion of our portfolio that we directly control in half, allowing them to manage half of it, and a more traditional investment firm to manage the other half, so that we could compare results. It's been about four years so far, and the financial advisor directed investments have either equaled or exceeded the more traditional investment firm results, even with their fees added in, so we've stayed with them. And, post 2008 melt down quite honestly, we feel better not having all our eggs in any one investment firm's basket.

      Delete
    7. I am enjoying the dialogue between Tamara, Carole, and Janette It really is a confusing issue but an important one. This back and forth is very helpful to us all.

      Thank you, ladies!

      Delete
    8. Like Tamara, we too have used a financial advisor to guide us over the years. We chose a "fee only" financial planner. In other words, he is not selling anything (other than his time!). We simply pay him for his advice regarding how our money is invested, keeping a balanced portfolio between equities and bonds. We also have an option of letting him manage our funds, which means he would keep up with rebalancing our portfolio as needed. That service is charged by a (relatively small) percentage of your portfolio. We have not opted to do this at this point. Our diversification is pretty straight forward and we are able to move our money around as needed, based on the diversification formula recommended by him. Financially we've done well over the years by following his advice.

      Janette, if you haven't yet used a financial advisor, I highly recommend it. It will help guide you through this very important time in your life. There are so many financial decisions to make, including the social security decisions, and your financial advisor can help you sort out the issues. The advisor also has the responsibility for assessing your tolerance for risk, your financial goals and your retirement goals and then come up with a distribution that matches with your particular needs. In addition, your financial planner can help you determine if your money will "last", based on your projected budget, your retirement income and your expected returns from your portfolio. I recommend fee based financial planners. If you choose otherwise, be aware that s/he has a vested interest in where you direct your investments.

      Delete
    9. Bob, if you'll indulge me one more reply on this - today I received a mailing for one of those financial seminars where they buy you dinner. On my way to carrying it to the trash (where I put all such 'invites') I noticed they made reference to there being over 700 possible Social Security spousal and early spousal benefit combinations. No wonder there is so much confusion on this issue!

      And I will second Carole's recommendation that anyone considering the services of a financial advisor should look for one that is fee based, not commission based, for the same reasons she has provided.

      Delete
  2. Just like you auto expense has killed my budget. I still had two cars a 10 year old Subaru and a ten year old BMW z4 convertible. The BNW repair expenses hit $2000 with more on the horizon. So this week I traded both cars for a 2014 Toyota Camry. No sadness at all. I could have sold the vehicles for more or limped along with the Subaru alone. However I learned from the experience that I get tremendous peace of mind from reliable transportation and did not want the stress/hassle if selling myself. Yesterday my new car told me I was getting 37 mpg and it is not a hybrid. Considered a Prius but all were more than 30k even though WWW says less. Icing on the cake was a small loan at 0% interest and learning that my credit score was 811. Since retiring from my career 3 years ago and living off savings and a part time job credit worthiness has been a concern. I purposely use 2-3 credit cards and pay off each month plus get points. With no mortgage anymore maintaining good credit has been a concern and I don't read much about it in retirement. I could easily pay off the car loan but I think I will keep it to help with my future credit. Makes no sense but that is the game. Ellen in Florida. PS perhaps a post re credit worthiness in retirement us in order?

    ReplyDelete
    Replies
    1. Ellen, my understanding is that a portion of your credit score is based on how much credit you have available versus how much you are using. For example a credit card with a $10,000 limit that you have $2,000 on it is better for your score than having $9,000 on it.

      The question about paying off a home mortgage I can only answer with our situation. We bought our current house for cash 11 years ago and my credit score was not, and has not been affected.

      Like you we use 3-4 different credit cards and pay off any charges in full each month. Again, my score remains quite solid, though frankly, I am not sure how important that score is to me anymore. I won't be taking on a mortgage again or even a car loan, so the score is not terribly important to me.

      Delete
  3. Hi Bob, I am always a little in awe of people that budget as finely as you do. I have never "budgeted" in the sense of pre-allocating my money to various individual items rather we have a priority list of things we need/want to spend money on. Survival items are at the top of the list - food, housing, heat, power, etc. and after that are the various "wants" - clothes (above the basics), furniture, car, travel, savings, whatever. We run down the list until the money for the month is gone and then we stop.

    It’s been successful for us over the decades. For example, as we made these a priority we managed to pay off the house, save a substantial retirement account, and do some travel. We have avoided debt but have had a car loan from time to time in the past and the payments were added to the priority list. Now we don’t have car payments so something else on the list gets the cash. If expenses go up or income goes down then the list shortens until we balance.

    It’s not budgeting in the classic sense but we find it simple and easy to manage, plus you can change the list whenever you want (it just has to balance). It’s all about choices.

    - David

    ReplyDelete
    Replies
    1. David, if your system works for you (and it sounds like it does quite well) then keep doing what you are doing. A budget is simply a method for making sure you accomplish whatever goals you have set for yourself and family. My detailed approach comes from what my parents did so it seems quite natural for me.

      Delete
  4. Sharing on my Boomers Facebook page - so unique to read real life budgeting dialogue! I find your blog so interesting - you will find most of your blogs shared there!!!!

    ReplyDelete
    Replies
    1. So very thoughtful of you, Eileen. Thank you. I'm glad you find some value in what I post.

      Delete
  5. Financial/budget posts are very helpful. Sadly, as a working mom, I rarely ended my months in the black, never mind having a savings account, so the idea of budgeting, having money left at the end of the month, & planning for the future has waited until I retired. Since much of the family income depends upon government pensions & social security, the latest adventures in Washingtonland have been a little disconcerting (although not unexpected) to say the least.

    Having said that, it has been a pleasant surprise to find that in my satisfying retirement (19 months old as of now) I am having a good time, making better financial & life decisions as it goes along & having many more months with savings. Small steps as we go. It's been wonderful to realize how much I can control & accept what I can't -- realizing that I can make a contingency plan & then let it go. Ironically, the less worry & stress I have (about money & everything else) the less money I spend & the more I can stay within a plan.

    While I admire your detailed budget, Bob, I doubt I'll get there; my current plan is much more like David's---make a list & pay until the money runs out (but I am including savings into that plan which is new for me.) The other irony is that I was told being paid monthly rather than biweekly would be make it much more difficult to manage my money (which as you can imagine did not inspire me with confidence as a worker!) but thankfully, I find it much easier; I guess because the bills come monthly or less often.

    To answer your question (at the end of a LONG post) 2013 has actually been good; I've managed to keep pretty close to even despite quite a few financial setbacks; we are watching closely & may very well end up the year ahead. It's a lot more fun to pay attention to my money these days because I realized I have a feeling of at least modest success. That makes SUCH a difference!

    Glad you are safely home---it was so good to meet you!

    pam

    ReplyDelete
    Replies
    1. One of the reasons this blog isn't financially oriented like so many retirement blogs is because of the point you, David, and others have made: when it comes to budgets and handling money in retirement one size does not fit all. My way is certainly not the only way, or even the best way...it is just my way.

      Financial bloggers tend to be very firm on the best way to handle these issues. My experience is that singular focus can get a lot of people in trouble, or at the very least, stressed out.

      Except for another few wind episodes near Blythe, we had an uneventful trip home and are starting to get things put away and cleaned up.

      Delete
  6. My approach for budgeting is quite different. I identify my total spend for the year 4% of investment balance on Jan 1. I make a list of all of the payments that are annual or semi annual in nature such as property taxes, insurance, memberships, etc and subtract those from the total. I then divide the remaining amount by 12 generating my monthly salary. I pay that amount to myself on the 15th of each month by moving it into my checking. When one of the annual bills come in I also transfer the amount of that bill in addition to the normal monthly amount.

    Any surplus left in my checking just carries forward. No detailed budget, just managing decisions to money available in my checking account.

    Rick

    ReplyDelete
    Replies
    1. That is a very logical and effective approach, Rick. I really am doing about the same thing but keeping a detailed account of the outgo. Total yearly expenses, both fixed and discretionary, are divided by 12. If that number is larger than what I want to withdraw from my investments and my monthly Social Security, I reduce the discretionary categories until income and outgo are in balance.

      By tracking everything as it happens I can adjust as the year unfolds.

      Delete
  7. Traditionally I am another non budget person as such. I do TRACK everything through quicken so that I know how much I spent on say, electricity in December, or how much I spent in total on hotels in the past year. I include savings in that budget and have a regular fixed income.

    Having said that, since I changed some lifestyle situations so drastically in the last six months, I do have a tentative budget for the few months moving forward as I track those expenses.

    As far as a "hit", moving, living in temporary quarters, storage fees and moving fees have made a short term serious dent in the budget-one which will be fine in the long term

    ReplyDelete
    Replies
    1. Barb, it is snowing in Denver today! Are you ready for your first non-Texas winter in quite awhile?

      Moving is an expensive proposition but should have no long term effect on your situation. You describe a budget approach, just not terribly rigid or formal. But, I'll bet you do know where you are so you don't end up with more month than money.

      Delete
    2. Bob,I woke up to an inch of snow on the ground today. However, by the after noon it was a sunny mile high sixty degrees. So snow is relative. Basically its a warm fall in the afternoon and a cold overnight. I deal with that very well. As opposed to texas where when it rains and snows it tend to be cloudy, gray days a few in a row.

      Delete
  8. I was gonna make some insightful comment about budgeting, but you reminded me ... I have to pay my monthly bills and do my banking! Later ...

    ReplyDelete
  9. Such great posts on this site,Bob! The replies you generate teach me so much too.I learned a lot from Carole's and Tamara's social security info. because of what I've learned,I may delay collecting my own small benefit and wait and collect half my spousal when Ken is eligible, one year after me. Then I can collect my full much later. I think.Looks like lots to learn when it comes to social security!! Of course I may earn so much in my part time real estate career that I defer altogether! It could happen! But we are happily planning some quality Casita time for the Spring when Ken will be free from a daily work schedule for the first time in many many years!!!

    ReplyDelete
    Replies
    1. Social Security could only have been designed by a bureaucrat! Yes, there are all sorts of choices and ways to play the game. It has been instructive to read Carole, Tamara and Janette's exchanges.

      Spring time is your freedom time...you and Ken will do just fine.

      Delete
  10. Great Blog..
    My husband and I don't plan to make some major life changes for about 2 1/2 years. However, we have been tracking all income/expenses for the past 18 month so we can nail what is the "truth" about finances. It has been great, we aren't anxious, and feel better about retiring soon. I realize you can't plan for everything and want to be flexible. However, we have always been savers. We have determined our income streams and found this discussion helpful in exploring more details. thank you.

    ReplyDelete
    Replies
    1. Great! I'm glad you found all the comments helpful. One nice thing about this blog is the quality of discussion and insight generated by those who leave comments.

      Thanks for being here.

      Delete

Inappropriate comments will be deleted