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How much should early retirement cost

If you've read my blog before, you've perhaps already seen that I write about the questions that I battled with during my early retirement decision:


  1. What would I do, would I be bored?

  2. Might I be lonely?

  3. How much would it cost/what would we spend?

  4. How big an investment pot did we need to cover this spend?


There are certainly other questions and considerations too, but these were the ones I spent most time pondering and, to be frank, worrying and stressing about. And maybe the fact that I've kept returning to them in the years since, and again today, is proof that they were the right questions.


Well, today it's actually just one of them that I'm going to look at - how much would early retirement cost/what might we spend?


It's back in my mind because of a comment posted by Ian, referring me to an article about annual spend for different levels of retirement. Added to that, there was Fire and Wide's post What is Discretionary Spend? These two topics are very much intertwined.


I'll start with the article that Ian pointed me towards.


How much will retirement cost?

The information below is from the Retirement Living Standards report and aims to show what life in retirement can look like at three different levels, minimum, moderate and comfortable, and what a range of common goods and services would cost at each level.


The figures it arrives at are an average and, of course, as each of us are different they probably won't exactly match what our spend will be. However, it's still good information to have. For example, as I read through the three different retirement standards, my lifestyle seemed to most closely match the "comfortable" description which, for a couple, the report says typically costs £49,700 per year. Our annual cost for the four years 2017 to 2020 has averaged £54,235 which, although higher, is arguably in the same vicinity (particularly considering how much travel we did, which of course comes at a cost).



So the figures are a useful piece of data, a good starting point, or some extra information to compare with your own caclulations to see if you're in the right ballpark.


The figures are in GBP - at today's exchange rates, the equivalent figures in EUR and USD are:


Minimum

Moderate

Comfortable

Single person

GBP 10,900

GBP 20,800

GBP 33,600

USD 14,979

USD 28,584

USD 46,174

EUR 12,915

EUR 24,646

EUR 39,813

A couple

GBP 16,700

GBP 30,600

GBP 49,700

USD 22,949

USD 42,051

USD 68,299

EUR 19,788

EUR 36,258

EUR 58,890

The figures are based on a retirement in the UK (they do provide a London specific figure too, which is a bit higher). Other organisations may provide similar reports for other countries, or a cost of living country comparison index such as this one could be used to flex the costs for different countries. That wouldn't give a completely accurate result, but I still think some useful information can be gleaned, at least as a sense check to use against your own estimates. Interestingly, when I tried flexing it to the French cost of living, it came out very close to our actual spend, most of which has been in France.


A couple of things to note: the retirement costs for each of the three different retirement standards do not include a cost for mortgage or rent, so an adjustment is needed if you will still have these costs in retirement; and, the retirement costs are the amounts spent on goods and services, so the amount of gross (before tax) income would need to be higher to compensate for tax.

Discretionary spending

How much our retirement will cost each year will vary depending on our discretionary spending. As mentioned earlier, Fire and Wide got me thinking about this with her recent post, What is Discretionary Spend?


Most of us will have different answers to this. The starting point is what we need to be able to survive, but even that's not so simple a question. There will be things that one person thinks are pretty much an essential whereas the next person might view the same thing as entirely discretionary, if not a luxury.


And how we view such items will have an impact on how much our annual spend might be - if something is discretionary, it's possible to do without it, and we can influence our retirement costs accordingly.


So what about me? From 2017 to 2020, our spend (the couple that is Sally and me) spent an annual average of £54,235 (US$74,530 or €64,264 at today's exchange rates). What could this have been if we stripped out the discretionary items? To answer that, I first have to explore what I think is discretionary and what I think isn't. This is going to be more gut feel than science, but here goes. My starting point will be our summary list of costs over the past four years, starting with the biggest spend items (table below for reference).



Travel

We've spend a whopping £16,698 (US$22,946 or €19,785) per year as an average - I'm not going to try to argue that this isn't discretionary! During this time, we've had a four month trip to South East Asia and Australia, another trip of three months to California, Costa Rica and Colombia as well as various other trips too.

But I do think some travel during my retirement is important, so I'm not going to say all of it is discretionary. If we allowed a two week vacation abroad and perhaps a couple of in-country weekends away, how does £5,000 (US$6,871 or €5,924) per year sounds like for a budget? That would knock £11,698 (US$16,090 or €13,879) of our annual average cost.


Groceries

This is one of my bugbears, we seem to spend more than anyone else that publishes their costs. The Retirement Living Standards report suggests a couple following a comfortable standard of retirement would spend £4,888 (US$6,723 or €5,799) a year. Splitting the difference between this and our average of £8,203 (US$11,283 or €9,732) would give us a target of £6,545 (US$9,002 or €7,765) which seems reasonable, and a saving of £1,658 (US$2,280 or €1,968) mostly by switching to a lower cost supermarket. By the way, our prima donna cats only seem to eat the expensive cat food!


Going out / Coffee shops & casual dining

Sally has this down as an essential, and she thinks going out once a week is reasonable. Perhaps that's twice to a restaurant and twice to a bar each month. There are lots of variables, what kind or restaurant etc, but we're saying a total approaching £400 (US$550 or €475) a month which includes some visits to coffee shops and the occasional cafe lunch. So, £4,800 (US$6,602 or €5,694) a year. I imagine a lot of people would say this is discretionary, but we're saying it's an important part of living the life we want (well, Sally is saying this more than me in this case, I think half this amount would be fine). But we'll stick with Sally's plan, which actually comes out quite close to what our actual average spend has been, so I'm not going to assume any change here.


Home furnishings, maintenance, electronics

The cost of this skyrocketed in 2020 when we decided to have a second home, and we spend a chunk of money to furnish it. Discretionary spending? Yep, it's difficult to argue that two houses can count as essential! Furnishing the second home added £2,640 (US$3,631 or €3,132) to our average annual spend, so I can definitely remove this item, most definitely discretionary!

By the way, we've moved away from the two home model to some extent by converting it into an Airbnb property. The hope is that we get the best of both worlds, our own place to stay when we visit the UK as well as achieving an income from the property.


Gifts/Charity

In theory, all gifts are discretionary, but practice doesn't always work like that. If we removed charity, then birthday and Christmas gifts to family could probably be around £1,500 to £2,000 (US$2,063 - $2,751 or €1,780 - €2,372). If we pick the higher number, that would reduce our spend by £2,613 (US$3,594 or €3,100) a year.


Sports Equipment, entry fees etc

While Sally had going out as being more important than I view it, the opposite is true for sports stuff which is much more of a priority for me. The big items in here are skis and ski boots, ski lift passes, plus Sally's bike. My running shoes probably add up to a sizeable amount too as well as other bits of gear here and there. Are any of these things essential, no, but they are an important part of, particularly my, early retirement life. Would Sally feel hard done by without her bike, probably not; would some cheaper running shoes work just as well for me, maybe yes; would life without my pricey ski touring set up still be tolerable, I'm sure yes. I guess these answers mean some of this spend is discretionary for me, but how much. I'll take a stab and say half, which would move £1,422 (US$1,956 or €1,686) from our average annual cost.


The rest

There are some other cost headings that I haven't addressed: home costs such as bills and municipality/property taxes; car costs; medical; clothes and shoes; and other, which is where everything else falls.


I could probably tinker with these. Medical costs would be mostly removed if we based ourselves in the UK where we would be entitled to free healthcare, but that's not where we're living so I've left it as is. Clothes and shoes is low rather than a high cost, and "other" is a collection of various things too difficult to figure out! So, we'll leave these things as they are.


Summary

What does this tell me. I think the first thing is that it's easy to get sidetracked - I started off aiming to look at which of our costs are discretionary and which parts were more needed, but I seem to have swerved to some sort of review of what costs I feel are reasonable and what are perhaps erring towards the more luxurious side of life. When I've asked for Sally's view, I've found that her thoughts are often different from mine, she'd go out more and she has a higher base level for birthday and Christmas gifts than I have. But I guess that's partly the point, and what Fire and Wide also talked about, there isn't a right or wrong version of what's a discretionary cost and what isn't, it's a very personal thing.


Anyway, I did do something and I listed some numbers, so I feel I ought to do something with those numbers. Based on where we live in the French Alps, this is where our spending as a couple lands:

A different way of looking at our early retirement spend

As I said earlier, it may be more art than science, but it's been an interesting exercise. My "must spend" isn't just shelter, warmth and food - it's far from that. It includes going out once a week (well, that's more Sally), some coffee shop visits (maybe more me), vacations and some weekend trips (both of us), sports (me), a reasonable level of family gifting (both). I guess that means that my must spend column still has a fair amount of what others may call discretionary spending. But hey, isn't life much more interesting when we don't all think the same?

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Hi David,

A great blog. It strikes me how different peoples circumstances are and the debate about discretionary spending applies to all. Knowing what ones discretionary spending is provides a reassurance if one needs to reduce costs at any time and helps determine risk.


I would be interested in your Q4 thoughts and your journey in ETF's/Index funds.

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Hi Andrew

You're the second person to zero in on Q4, so I will have to look to do something on this.


I also think it's interesting to think how different people may view the same subject differently - even (or perhaps particularly) those on a much tighter budget may benefit from looking at their spend and knowing what is and what isn't discretionary. It's useful in retirement because, as you say, it can give a reassurance if one needs to reduce costs, but equally if is useful in the accumulation phase as it can free up additional funds to save and invest. Of course, if an individual wants to spend, then that's absolutely fine, I just think it is…


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Hi David,

Thanks for another really interesting blog (I miss them on the Fridays when you take a week off! :)) Have you done a post which tries to answer Q4? I would love to know your perspective on it. That is the one I struggle with the most, having got myself comfortable with Q1-3. (Answers being 1) - long list of things to do, and more time on my current hobbies 2) No, because of 1 and 3) About 60k p.a for the things to enable 1) and 2). On Q4 I veer between worrying about running out having built up insufficient reserves and worrting that I’m being overly conservative. In other words should I be enjoying what I…

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Hi BobtBugle😁

First, I was drawn to the last line of your comment, because it resonates with my belief that of the FIRE acronym, the FI part is the most important part because that's the bit that gives us choices. Retiring early is just one of those choices, but it isn't the only one.

Now to your question, have I done a post about my Q4, How big an investment pot did we need to cover this spend? I think I've touched on it at times, although perhaps haven't done post specifically about it. The reason is probably because I don't know the answer (although that doesn't seem to stop me on other subjects😂). However, perhaps I can look back…

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Johnston Orr
Johnston Orr
Oct 17, 2021

Hi David,

Thanks for another great informative blog, especially for those of us in the UK. I always find it helpful to have GBP reference points and a UK native’s view of healthcare costs as it takes the guesswork out of ‘translating‘ from the many excellent US-based FIRE blogs. The real-world spending and planning info that you and Michelle (Fire and Wide) have shared has been very useful in my own journey, especially for this (injured) runner and sometime-cyclist as we seem to have many similar tastes! I look forward to your posts - spreadsheets and all. (This is the first time I’ve put my head above the parapet on the subject of FIRE!)

Best wishes, and keep posting.

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Hi Johnston

I'm glad you decided to put your head above the parapet...thanks for the message. And as you say, with running, cycling and, of course, FIRE, we have some things in common. Spreadsheets, haha, I just can't to leave that part of my old work life behind, but I'm glad that they include the odd useful bit of information. Michelle's blog posts at Fire and Wide are great, I love to see the email notification telling me another one has landed.

Hope the injury recovers soon!

David


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andrewpetergrimes
andrewpetergrimes
Oct 17, 2021

Hi David, great post, interesting as always. Interested to know what tool you use to track spending? I've done it for a while with an app, but it got a bit tedious, and my wife insisted on using cash which always made it harder.

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Hi Andrew

I'm old school, I use a spreadsheet. I have thought about an app, and I have a vague recollection that I even downloaded one once, but didn't really use it. With the spreadsheet, I find that physically typing the spend is a useful reminder of what I've spent and instinctively it provides a moment to reflect on whether it feels right, as opposed to whether it feels wasteful or too expensive for the value received. I usually update it every few days, taking the spend information from our banking apps. We tend to put most things on our bank cards rather than using cash, but cash does sometimes catch me out when it seems to have disappeared but…

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You seem to have your finger on the pulse of this stuff, so I suspect you're right. One thing that I discovered (only after I retired) was that adding the word blog to my internet search queries generated a whole lot more information...believe it or not, I hardly knew what a blog was back then!

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I'm not that far in, but that message comes across loud and clear.

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