Steps to Early Retirement – Determine Your Retired Living Expenses

Steps with catsIn a previous article we looked at creating a budget for your pre-retirement life, as it’s the first crucial step in going down the early-retirement path. At this point we’re going to skip ahead a few years. I say a few optimistically, because it sounds emphatically better than saying, Let’s skip ahead 26 years to when you may finally be able to retire early at age 59, you peon.

OK, so let’s play a little game. Go ahead and imagine that you just retired at the ripe old age of 35, 40, 45, or whenever it is that you’re finally able to stop working for The Man. Congratulations! Feels great, doesn’t it? For the sake of this game, let’s also imagine that the mortgage is paid off as well, as I consider the lack of monthly mortgage / rent payments an integral component of our early retirement plan.

Now that you’re retired, how little do you actually need to spend each month? At a bare minimum, we modern humans require:

  • Shelter of some type (a modest house)
  • Necessary utilities (power, water, etc.)
  • Food (which we can cook – and even partly grow – ourselves)

And not much else. Sure, you’ll probably want property insurance on that house, and I suppose you’ll want clothing, too (though life would be simultaneously more stimulating and potentially horrifying if everyone collectively dropped the notion of wearing clothes). As a side note, I tend to buy all my clothes using gift cards I earn from the various credit card cashback programs.

Otherwise, most remaining expenses fall into the category of nice-to-haves. These are the items and services that provide comfort and convenience to our lives. I’ll go so far as to call some of these important, and I plan to include them in my own retirement expenses. After all, we could all retire earlier if we lived under a bridge, or ate only pinto beans for every meal, so I won’t shame you for striving for a comfortable early retirement.  Items in this category include such things as:

  • Cell phones
  • Internet (though it pains me not to include this as an utter life requirement)
  • A vehicle (and its associated expenses – gasoline, insurance, registration, etc.)
  • Web hosting and domains (for nerds like me)

And then there are those expenses that I classify as luxury. If early retirement expenses were displayed like an old-school food pyramid, luxury expenses would be at the pointy top. As the pyramid used to warn about oils and sweets, use sparingly. Luxuries are numerous and varied, so I’ll spare you a list of possibilities, but you should know a luxury when you see one. Ahem, if you were planning to play daily rounds of golf at the country club, or get weekly spa treatments, or sip martinis while driving your Humvee to Wal-Mart to pick up another surge protector for your home theatre, then you weren’t exactly serious about early retirement, were you?

At present, my wife and I are planning to move back to the house we own in the Midwest when we retire, as the property taxes are significantly lower than south-TX, and we also like having four seasons instead of brutal heat and other. Additionally, that house is in a hip college town where we can walk and bike literally everywhere. This feature alone would greatly save on our expenses, with the added benefit of boosting our health.

With all that in mind, I pulled out my trusty spreadsheet and plugged in the numbers for the expenses that I know we will need to cover, breaking up yearly expenses (like taxes and insurance) into monthly chunks for the sake of simplicity. Here they are:

Expense Amount (Monthly)
Property Tax $150
Property Insurance $67
Health Insurance $300
Life Insurance (term) $63
Auto Insurance (one car) $21
Electric / Gas Bill (average) $140
Water / Trash Bill $80
Internet $25
Cell Phones (2) $90
Grocery $160
General Merchandise $100
Gasoline (one tank) $45
Vehicle Registration $19
Web Hosting / Domains $15
Other $100
Total $1,375

A few quick notes here: These estimates are based on our current expenses, though I went ahead and inflated some of them by 10-20% to provide a cushion. A slight inflation in prices seems reasonable enough, especially since I’d like to retire in 5-10 years, not 30. But there may be skyrocketing taxes, you might say, or hyperinflation, making a loaf of bread cost $100! True, true, but not likely, and I’m resolving beforehand not to worry about things that are out of my control.

Health insurance is a concern, especially since I’m currently covered through my work, but we would certainly opt for a high-deductible plan with a Health Savings Account (HSA). I ran a quote for my zip code through, and the resulting plans for a projected couple in their upper-30s with a young child started just under $200 monthly. Therefore, I feel my estimate of $300 is reasonable, at least for now. We’ll have to see what happens to health insurance premiums in the next few years.

My estimated expenses also include only one car (paid off, naturally). Auto insurance would be cheap because that car would be for recreational use only, not travelling more than 5,000 or so miles in a year.

I also splurged and threw in $100 monthly for Other. This is reserved for items that just don’t fit elsewhere, and also for luxuries – like the occasional latte, or manicure, or surge protector for my home theatre system.

In reality, our expenses may well be lower than those projected here. We may not need both cell phones, or health insurance may cost less than expected (ha, right), or we may grow more of our own food and not spend as much at the grocery store. We may even bail completely on the idea of owning a car one day, which would drastically reduce how much money we need in retirement.


Assuming things stay as they are, then based on the calculations above, we absolutely need $16,500 yearly to cover our expenses. Provided we can earn that much plus a little buffer on the income side, then we’re free to “retire” and pursue our own endeavors. I’d like for us to earn $20,000 or more yearly in “retirement” so that we can continue building our investments, but we’ll talk more about the income equation in a future article.

If you’re also planning an early retirement, or especially if you have already retired, what are your expenses like? Are they higher or lower than you originally estimated, and how do they compare to my estimates here?

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