November 28, 2014

A First Look At Next Year's Budget

Making budget decisions can be quite complex
The New Year is a little over a month away, so it is certainly not too early for me to review how how well my 2014 budget held up to our actual expenses and make adjustments for next year. I have lived with a budget for the last 40 some years. 2015 will be no different. 

This was a year of some significant changes: it was the first year I had Medicare coverage for about half the year and Betty purchased health insurance through the government healthcare marketplace. It was the first time we were away from Phoenix for part of the summer. We bought a new car to serve as my primary vehicle and to tow behind our RV. 

So, how did things work out? Pretty well, it appears. I am on track to be about 7% under budget for this year. A quick disclaimer: RV and vacation expenses are part of a separate budget. As I have noted in an earlier post the cost of gas during our 2 month RV adventure and a much higher than expected bill for repairs and maintenance knocked that budget for a loop (29% over). But, the main household budget did well.

What came in under budget:

1) Home Maintenance and repairs - usually there is a few things that go wrong with a 30 year old house. This year everything held together.

2) Medical lab tests - three of the tests Betty and I usually get and pay for are now covered by ACA or Medicare.

3) Pet Expenses - 2013 was not a good year for Bailey: a doggie chiropractor and several x-rays for a troublesome back problem. This year, she has been much, much better.

4) Dining out and entertainment - we found that we are spending more time with family and in-laws, which besides being more satisfying is much cheaper.

5) Betty's car's registration and gas expenses - an 11 year old car doesn't cost much to register, plus it is only driven about 5,000 miles a year. We are putting no more repair money into it but will drive it until it quits, then donate it to a charity.

6) Change in RV insurance - this one part of ownership I keep under an insurance heading in the household budget. By switching companies I was able to pay for only when I expect to be on the road next year, thereby saving $250.

And on the not so good side:

1) Real Estate taxes - even though real estate assessments lag by two years, our home's market value has rebounded strongly from the 2008-2009 disaster, making for a larger tax bill than I had planned for.

2) Yard work - while we were gone for July and August, I paid our yard service several hundred dollars above budget to do the trimming that I normally handle.

3) New set of eyeglasses: I thought I could make it until next year with my old lenses, but the change in my eyesight made a new pair important.


So, for 2015, with our income remaining unchanged, I will:

A) Trim the pet budget by 20%

B) Set aside enough to handle one or two major home fix ups, but not three.

C) Budget more for medical premiums. Betty's ACA plan will be about $37 more each month than this year, with somewhat higher copays and a much bigger deductible.

D) Trim the dining out amount a bit to reflect more family time.

E) Budget more for the real estate tax since it is bound to go up again.



All of this should allow us to stay at a 3% (or less) withdrawal rate from our retirement account and still be prepared for most of what 2015 may decide to throw at us.


How about your expenses for next year...anything lurking in the shadows?



29 comments:

  1. Bob, it looks like you've got all your ducks in a row. Being mindful of what's coming in and going out, financially, has always been important to us, too. Since my husband is nearing retirement, we're been trying to prepare by getting our home ready for the long haul (hopefully) of old age. It sure can add up, but we've opted to stay in our existing home as long as possible. It's been a hard decision because we might save money by downsizing, but having lived on our small farm for many years, we have gardens, woods, and a pond that will keep us occupied during retirement. Hope we're doing the right thing...I guess time will tell. Like you and Betty, we are in the process of letting a couple of our cars die their natural deaths--mine is 10 yrs old and hub's work car is pristine and 18 yrs old. Can't believe that old thing is still going. We'll buy something economical and new when those two die. It's amazing how long they've lasted and we attribute much of our savings to using vehicles to the max. Congrats to you and Betty for staying at 3%.

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    1. What will prompt us to move sooner than later will be two factors: wanting to be a bit closer to family. While a 40 minute drive each way isn't terrible, making it several times a week does get old, plus getting up and down the stairs to the second floor on bad knees! Either or both those things could push us into a smaller home/condo.

      My debate right now is should I put another $150 into rear brakes for the 11 year old car or just stop putting another dime into it and plan on something new in the spring.

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  2. We're in Year One of retirement and still tweaking our budgets.. we moved (downsized and moved to the woods, which has been a life long dream..we just DID IT.) So--last year certainly brought up some moving costs we won't see in the NEXT few years! We eat out MUCH less, there are very few good restaurants in our new mountain town! AND ,luckily I enjoy cooking and we like eating at home with some nice music and a candle. We no longer have commuting costs,clothing upkeep costs, pool maintenance bills. Entertainment consists mostly of pot lucks with neighbors, cookie exchanges, game nights,at home movie nights,free concerts in the park in spring and summer.And trips down to the valley, a 2 hour drive, t approx. once a month, o see friends and family. (And shop at Trader Joe!!!) Mother Nature provides the rest-- we can hike,kayak and walk , and the National Forest is out our back door. My car is 13 years old but our mechanic tells me a Toyota Highlander should get 250,000 miles! I am only at 110,000!! Our health insurance costs will go way down this year due to ACA. We are going to use more of the budget for drive trips throughout the West.,last year was too busy with getting settled after the move, to travel much. We still think about a small RV but find we enjoy driving,camping and airbnb for now. I have "banked" a couple of free airline tickets from our working days, so we can take a trip to San Antonio in Spring. Our taxes also went up! It's still a bit scary to me, having our income come from rental real estate and savings, vs. a paycheck, but we're doing better than I anticipated, and finding that our needs and desires are evolving.. it's a Journey! Hearing how you and others are doing, helps! (I did get a little nervous and actually took a part time job, but decided against keeping it-- the negatives greatly outweighed the positives.. I'm looking forward to a bright new year of relaxation and adventure with Ken, and have MUCH to be Thankful for,this Thanksgiving!!

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    1. Both Betty and I went back to work (full time for her and part time for me) within the first 3-4 years of retirement. I just couldn't believe our money situation was stable. But, we both disliked working again, and we figured we'd make whatever money we had work out for us, and it has.

      I'll be interested to learn how you and Ken do for a full winter in the mountains. After all those years in the Phoenix area, the climate change just 2 hours away is quite dramatic.

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  3. We have started to eat more organic, both for health benefits and because it tastes so much better (especially chicken!). We try to stick to organic produce, and try to avoid the non-organic "dirty dozen" (think apples, berries, potatoes). This obviously raised our food budget, but by careful meal preparation, eating out less, and buying chicken in bulk (freezing extra), we have done OK. A Costco recently opened in our area. I have been pleasantly surprised at some savings, especially with their Kirkland brand. It also works well on non-perishables. You have to know your prices though, to get the most for your money.

    Our property taxes are through the roof. We are not in a position to move at this time, but when we do move, it will be a relief to live in a state without this high of a tax burden. We are staying under budget this year, in spite of buying a new car, as well as unexpected home costs. It's all about the budget and mindful spending.

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    1. We also belong to Costco but primarily for the lower than average gas prices and prescription drug costs. Unfortunately, our ability to store the bulk quantities of most of what they sell is limited. I like the store's willingness to treat their employees well and not be open on Thanksgiving.

      Our property taxes are quite low compared to other parts of the country, like New York, Massachusetts, and California. But, the 5% rise every year is annoying.

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  4. We moved 13 miles back to town after 10 years in the "country," and our RE taxes went up $600. I knew that when we moved, but it still is a bit of a shock. Our taxes, though, are much lower than many other places. Utilities are lower in part because we are no longer total electric and the house is a little smaller. Gasoline $$ is much lower. My wife is going to retire next year, so I've been thinking of selling our 13 yr old CRV. It's to the point it has $500+ repair bills plus regular maintenance each year. I hope we'll find we don't need the second car, but I'm reluctant to get rid of it yet.
    I'm impressed you are so meticulous about your budget- you give me impetus and a little guilt! to do the same.
    I've found one of the hardest aspects of retirement- I've been retired 18 months- is fixing the right amount of food. We still prepare too much!
    Carole is right- it's all about budget and mindful spending.
    Jeff in OK

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    1. We have discussed going to one car, but at this time Betty and I have schedules that are different enough that not replacing the car would create some problems. She likes the feeling of independence it gives her to go where she wants when she wants.

      Maybe we will try living with one car after the oldest one dies and see how much of a hassle it really is. We can always change course since the 2015 budget includes money set aside for a new car.

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  5. Next year will be interesting for us. By Jan. we'll be pretty much done with home improvements, except for redoing the main bath. We decided to do it in the spring so we could use the outside shower while it was being done. The neighbors will thank us! We're spending more on gas here, because most things are a car ride instead of a walk away. I think we're going to be spending less overall, considering we have one house to maintain and pay taxes on, instead of two. Plus I can get medicare in July. YAY!

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    1. Medicare = a huge weight off your shoulders. Just be sure to get a good supplemental policy to cover the stuff that Medicare doesn't.

      BTW, the pictures of your renovations look fabulous.

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    2. Thanks! It's been a labor of love, for sure!

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  6. So just a followup question...all the adjustments to your budget...is the net result a larger budget? Perhaps up a percent or two or five? I'm asking because I do believe that inflation is a very personal thing and cannot be identified by the consumer price index. There are a lot of things in that index I don't buy. I will experience a 13% increase in my ACA monthly premiums and a 14% increase in property taxes. Other budget items will be able to be reduced without unhappiness, so I do think my budget will end up being either even or perhaps a half percent higher next year.

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    1. Yes the total outgo is going up about 5%, primarily due to increases in Betty's health insurance and setting aside money for a new car. Importantly we have adjusted the categories so the withdrawal from the retirement account will be at 3%.

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  7. I keep my budget on a post it note...hey, it works for me. I divide monthly income in half, budget for about 8 categories, deducting expenses as I go. About every 3 years I have to adjust the amounts. Probably the biggest "surprise" was several thousand dollars of dental work a few years ago. After that shock, I set aside a few thousand in emergency money.

    There are times when I "borrow" from savings and pay myself back. Last year, I realized I could save about $1000 by paying off my mortgage and have spent the last year repaying myself. I also continue to make monthly car payments to myself, so when I replace my car, most of it will already have been paid for.

    Some categories have crept up: with the house paid, I need more tax withholding and food costs are about 20% more than 5 years ago. .I'm trying to stay at 3.25% in withdrawals, recognizing that future expense increases will be coming out of a fixed income. So far, it's very livable and I believe I will feel comfortable if I need future increases.

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    1. It all sounds excellent. A withdrawal rate under 4% is important until interest rates rise.

      Like you, my budget for next year includes a monthly payment for a replacement car even though we haven't bought it yet and may not until later in the year. By setting aside the money and having it as part of the budget I don't have to worry when the time is right.

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  8. I'm fortunate this year because my state reduces property taxes the first year after you turn 65. The first 75,000 of value is not taxed. So what I would ordinarily owe in January 2015 is reduced. Also, my state does not tax retirement income of any kind, so this year I have no state taxes. Those might be things to look at for those seeking to relocate, but I heard on the news that more and more states are out and out abolishing state income taxes or desiring to.

    Also, my house will be paid off in June 2015, although unfortunately that won't liberate more income, as I have payments directly transferred from an IRA, and the IRA will be exhausted at the same time. This was a very good arrangement for me when I "off ramped." I noticed that this one IRA just about matched what I owed on the house, so I set up automatic monthly transfers. It has totally freed me from concern about the house payment for the past year.

    What totally disrupted my budget in the past 12-17 months though, since going on Medicare in August 2013, was unanticipated dental work. Three separate and unrelated incidents required an outlay of about 2200.00. Cash was required since neither of the dentists involved accept monthly payments (although one was amenable to a 50% payment, then the second payment two weeks). And this is with me being very faithful about my checkups and x-rays. I don't see a way to budget for things like that, although I'm hoping I won't see a triple whammy this coming year.

    On the positive side though, to very slightly offset the dental work, Social Security informed me that in December my check will be a few hundred dollars more, one time only, due to a recalcuation of my benefits since starting Social Security a year ago. Some of you knew to Social Security might possibly anticipate this type of small boost, after your first year.

    I've noticed a psychological resistance or down feeling about budgeting "pocket money." Before off ramping, I didn't have a habit of frittering away much money on small impulsive purchases (for example a coffee, a magazine, a small splurge in the grocery store, or a small sale item too good to pass on), but it was okay the times I did. Once I started telling myself I COULDN'T do any frittering, I could feel rebellion setting in. I thus decided recently to allow myself a small amount of "free for anything" money per month, come what may. I don't have to spend it, and won't spend it just to do so, but psychologically I think it will make me feel better about living with ongoing frugality and thriftiness.

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    1. Dental costs are the one part of health care that continue to cause major problems, but few of us talk about. When one tooth implant can cost over $5,000 when everything is considered, or a simple crown is well over $1,000, it is surprising that this aspect of health care doesn't generate more coverage. Dental costs are out of control.

      I have a miscellaneous line in the budget that is set at a few hundred dollars. It is exactly for the small nickel and dime stuff you mention that I don't want to worry about but know has an impact over time.

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  9. I always do this annual accounting as part of my New Year's Day ritual. Usually, I am just tweaking my budget, putting a little bit more in some categories and a little bit less in others. This Jan. 1 will be the first official day of my retirement, so next year's budget is much more of a question mark. Some budget categories (rent and utilities for the second home I rented near my workplace) will be gone entirely, while others (e.g., health care costs) will loom much larger. I have already created a tentative budget for retirement, but I know it will need a lot of adjustments during this first year. -Jean

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    1. Yes, Jean, use a pencil with an eraser in year one! You can make an educated guess and probably not be that far off. But, no one can anticipate the exact effect retirement will have on your budget.

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  10. Er, I don't do a budget. Well, I do a back-of-the-envelope; but it's pretty basic and soon forgotten. Actually, this year I've been okay because my part-time business has picked up with the economy. So no worries ... so far,

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    1. You are a rebel, Tom. Personally I would not be comfortable with that approach but what works for you works for you.

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  11. 2015 will be the start of our fifth year in retirement, and my expectation is that we'll come in significantly under budget as a result of volunteering to provide several months of daycare for our new granddaughter starting in February. Though I wouldn't trade this upcoming time with our precious grandbaby for anything, we've scaled back our travel plans for 2015 as a result, which will likely leave us with a travel surplus at year's end.

    Otherwise, we really haven't been surprised by anything on the financial front since retiring four years ago. We have a budget for virtually everything that makes up our lives, including an accrual fund for big ticket, but infrequent items like replacement vehicles and large scale home repairs/upgrades, and we track out spending diligently to make sure we end each year as planned.

    Our medical premiums were unchanged for 2015, though our dental insurance did go up a whopping $1 per month. Our biggest insurance increase was actually our earthquake insurance policy, easily twice what we pay for our homeowners insurance. It's the price one pays for living in California, however, so I see no sense in complaining about it. As they say, it is what it is.

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    1. A grandchild has an instant impact on one's life...and it is all good. We cut back on our plans to be gone for periods any longer than 2 months for exactly the same reason: 3 grandkids and their associated family!

      I didn't realize how expensive earthquake insurance is, but because of the potential for very serious damage/destruction it makes sense.

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  12. Budget? What is that :). This year is a mess since we are moving across country to be near the grand babies. Except for that amazing hit to the budget, while we straddle two houses 1200 miles from each other, we are even on our income from pensions and outgo for living.
    2015 will have us looking at a mortgage for the first time in 20 years. We plan on paying it off the minute we sell in Kansas. After that is done we look forward to a savings of $4200 in taxes! If we sale right away we do not plan on opening the pandora box of social security until 2016. It will be very tight since my husband will now pay for health care when entering Medicare.
    It is a juggling act for now.-Janette

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    1. Well, Janette, 2015 is shaping up to be quite a ride. I know you love your Kansas home but as Tamara's comment above notes, grand babies have the power to make a lot of changes in others' lives.

      Betty and I are giving some serious though to moving closer to the rest of our family (daughters and son-in-law, grandkids, and my dad.) It would only be about 40 minutes from where we live now but we are ready for a change and another down-sizing. We would also consider getting a place in Portland for the summers. That would make budgeting a whole new challenge.

      Best of luck on your big move from Kansas.

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  13. I feel that I must speak up for those of us who don’t ‘budget’. I have never had a budget. I have always had enough money for my needs, and then I have dealt with my wants and the unexpecteds. Retirement hasn’t changed this and I continue to trust that it won't.
    I have no mortgage, no credit card debt that isn’t paid off each month (I get a better rate of return when I buy using reward credit cards than when I save it). My property taxes are quite manageable since I’ve lived in this house for over 30 years and California passed Prop 13.
    I have chosen to have lots of cats, and accept the associated costs. They are one of my few vices (and my joy, as it has been proven they are good for my health); grandchildren, TV, Internet and a few electronic devices being the others.
    I take about 2.7% out of my retirement $$$ and reassess at the end of each year. My goal is to maintain my account balance even after taking out my funds. So far I’m meeting my goal with the current rate of return on my investments.
    I am extremely healthy so the $104 that I pay for Medicare covers my advantage plan and I don’t pay any Part D costs since I take no meds. It is cheaper for me to pay for my dental care twice a year (cleaning, x-rays) than it would be to have dental insurance, and I have a pretty healthy mouth. My dentist will accept payments for expensive issues like crowns, should that arise.
    I gave some mental energy to my income/outgo for the first 3 months after I retired. Then I realized that I was going to be just fine and I haven’t looked back. I don’t stress about spending. If I’m out with the grandkids and we want to eat, we eat. If I feel like going to the movies, I go. I don’t have a grocery budget, I eat what I want and enjoy it tremendously.
    I have a wonderful life that I live one day at a time. It’s all good.


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    1. Thanks for your input. Obviously, you have a solid handle on your finances, whether you have a written budget or not.

      I would suggest you do budget in a sense since you know your withdrawal rate and what that produces, you keep track of credit card charges, pay for your cats, and you have done the analysis that proves paying for dental work as needed is best for you. What you haven't done is write it down, broken into neat categories!

      At least in my definition someone who doesn't budget spends whatever he/she wants with no thought of the long term consequences. That person does not pay off credit card bills monthly, nor look at their retirement account's health. They probably have no idea what their withdrawal rate is. That is not you.

      Keep doing what works for you..."it's all good."

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  14. Life for me is constant change, with new house, new grandchildren and varied interests, some cheap,some expensive. We have free healthcare over here so bottom line is probably easier for us. Maybe when life becomes more routine and predictable I will budget

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    1. Good to hear from across the pond. Yes, there are a lot of us who envy you for the simpler healthcare system. Spending upwards of 20% of our income on healthcare each year is bothersome.

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