Budgeting in Retirement – 2016 Edition

canoe-lake-mountains

It’s a new year so it’s time for a new budget.  For the past two years I used this budget of about $32,000 per year.  We spent $34,352 in 2014 and $23,802 in 2015, for an average of $29,077 over the last two years.  We ended up an average of $3,000 under budget in spite of undertaking a major home renovation including new siding, new windows, and a roof repair in 2014, and a seven week trip to Mexico in 2015.

The $32,000 per year budget was my first attempt at developing an early retirement budget.  I tracked our expenses for a few years before I retired in 2013 and figured out that we spent about $24,000 per year on core expenses that would continue into early retirement.  To that $24,000 figure, I added extra expenses to account for increased costs in early retirement like health care and traveling the globe.

It’s time for another budget update based on two more years of living expense data now that we are mostly retired (Mrs. RoG is still working a few days per week with plans to quit soon in 2016).

 

What Can We Spend?

We realize that we can budget more than we have been spending given our portfolio size and the successful income stream generated by this blog and other ventures that popped up because of the blog.  The question we will answer in 2016 is whether we will actually spend more money if we explicitly budget for a higher amount than past years.

We are using a “variable withdrawal rate” of four percent of our portfolio value each year.  Yale University’s incredibly well run endowment fund spends between 4.5% to 6% of it’s endowment value each year (see page 17 of Yale Endowment’s 2014 Annual Report (pdf)), so I figure spending 4% of our portfolio value is more than prudent.

After setting aside some funds for the kids’ college expenses and other future specific liabilities, we had around $1.25 million in our investment portfolio at the start of the year.  The market fell apart in the first few weeks of 2016 and we are currently at $1.15 million (after setting aside funds for specific future liabilities), a $100,000 drop from January 1, 2016.

Applying our magical four percent variable withdrawal rate to the $1,150,000 current value gives us an annual withdrawal of $46,000.  Add to that an estimate of $20,000 in Root of Good, freelancing, and consulting income for 2016 (about two thirds of the 2015 income), and we could spend up to $66,000 in 2016.

 

What Will We Actually Spend?

I don’t think we will spend $66,000 during the year.  That’s almost triple the amount we spent in 2015.  $66,000 in spending would represent a huge change in our day to day habits that we’re pretty happy with already.

We are still at a very early point in our early retirement journey, so we still have plenty of life left to spend more money if we find valuable and enriching ways to do so.  In the meantime, we put some thought into specific categories of spending that would bring us more value and hope to spend more money in those areas.  We came up with a $40,000 annual budget for 2016 that represents a 25% increase from our previous $32,000 per year budget.  We know we could spend up to $66,000 without pulling more than 4% from our investment portfolio, and will certainly spend more than $40,000 if we want to or need to.

The two main categories receiving increases in the 2016 budget are “entertainment/toys/fun” and “vacations”.  Both of those are purely discretionary spending.

The good thing about discretionary spending is it’s easy to reduce if the stock market crashes and we suffer a 30% loss in portfolio value.  If that happens, we’ll be back to our $32,000 per year budget (plus whatever side income I earn from Root of Good).  Which will be totally okay since we were happy with that level of spending in 2014 and 2015.

 

 

Housing

Housing costs are our single largest expense even though we don’t have a mortgage.  We still have to maintain, repair, heat, cool, insure, pay property taxes, and furnish our house.

By tracking expenses, I know that we routinely spend about $1,000 per year on maintenance items.  To that figure I added $1,500 per year to cover things that eventually need replacing, upgrading, or may require major fixes:

  • roof
  • HVAC system
  • siding
  • appliances
  • hot water heater
  • plumbing or electrical,
  • doors and windows
  • carpet or other flooring
  • interior and exterior paint

For each system or item on the list, I took the rough cost to replace or upgrade the system and divided by the years the system typically lasts to get an annual cost.  For example, I expect to get around 10 years of service out of the HVAC before needing major service or total replacement.  I figure $4,500 should cover the replacement.  That amounts to $450 per year.  I repeat this exercise for the roof ($4,000 to replace every 20 years), appliances (~$350 to replace various units at 8 to 20 years), and all the other items on the list.

We just replaced the siding (for about $6,000) and ten out of thirteen windows (for $2,500) during 2014.  The roof, HVAC, and hot water heater will likely require replacement at some point in the next five to ten years.  These won’t be “unexpected expenses” since we explicitly budget for them.  We won’t spend the extra $1,500 every year, but then again we’ll have years like 2014 where we spent almost $9,000 on these major items.

Our home insurance has increased over the last decade, though by shopping the policy we lowered the cost to around $600 last year.  Property taxes also increased in the last few years to $1,600 for 2015, however with a recent drop in assessed property value we may owe less in 2016.

Now that one or both of us have been at home during the day, we have better estimates for electricity, natural gas, and water consumption.  Surprisingly, we aren’t consuming a lot more of those services in spite of being home more.  Electricity and natural gas are about $1,100 and $700 per year, respectively.  Water consumption has increased as the kids grow older and as we’ve added new members to the family.  The water bill, which includes sewer and trash service, runs about $100 per month or $1,200 per year.  For all utilities, we pay around $3,000 per year.

I have $500 in the home furnishings/furniture line item.  That might be a new piece of furniture or replacing some interior decor.  Or a treadmill (our most recent large purchase in this budget category).

 

Phone and Internet

Home phone service is free through Google Voice.  Our home phones are hooked into a Obihai VOIP adapter that costs $30-50 at Amazon.  Excellent call quality and with the Google Voice integration, we have one number so that anyone who calls our home phone gets automatically forwarded to my cell phone.  Did I mention it’s all free?

I’m using Freedompop service for my smartphone and I’m loving it.  It’s free, the service is reasonably good, and I can do what I want without paying a cell phone bill.  I have a Samsung Galaxy S3 and it still works well in spite of being a few years old.  Definitely worth a look if you aren’t a heavy cell phone user and aren’t overly reliant on voice calls for critical business (their VOIP call quality can be spotty if the signal isn’t strong).

We also have a grandfathered T-Mobile dumbphone plan that’s $10 per year (though I budgeted $20 in case the plan goes up or we change providers).  It also works all over the world which is handy for very infrequent calls while we’re traveling abroad.  It saved our butts a number of times in Canada and Mexico.

I’m still trying to figure out a way to get free high speed internet, but so far I haven’t found a way.  We pay around $35-40 per month to Time Warner Cable for high speed internet.  It’s usually $65, but we bought our own cable modem for $25 (saving the $4+ monthly lease fee) and I call every year to get a lower promotional rate applied to my account.  We use the internet a lot.  Mrs. RoG logs in remotely for work.  I use it for Skype for my Early Retirement Lifestyle Consulting biz.  At any given time, someone in the house seems to be streaming Netflix or Youtube videos.  Our home phone is VOIP-based.

Altogether, we don’t pay more than $500 per year for all telecommunications needs.  That’s amazing considering we have multiple mobile cell and data devices, high speed internet, and unlimited local, long distance, and some free international service.  If I had a time machine, how could I explain this overabundance of cheap, reliable telecoms to someone from the 1970’s or 1980’s that paid more than $500 per year for a simple land line with basic long distance service?

 

Cars

Our car expenses have dropped a lot since Mrs. Root of Good began working from home in September 2015.  Even before that, we did a great job of keeping auto expenses low.

We are thinking about cutting back to one car now that Mrs. Root of Good isn’t commuting to work, which will save on insurance, maintenance, registration, and taxes for the second car.  I don’t really drive more than two or three times per week now that I’m retired, and it is mostly with the rest of the family.  Cutting back to one car should be fairly easy given our access to transit and walkable destinations around the neighborhood.

However, our oldest daughter starts middle school in the fall.  Depending on which school she attends, we may need to drive her to and from school.  A second car might not be absolutely required but it could be handy.

2016 might be the year we finally upgrade to a minivan.  I’m looking at used minivans that are 6-8 years old and sell for around $10,000.  After selling Mrs. RoG’s car for a few thousand dollars, we will end up spending a net of $7,000 to $8,000 on our new (to us) car purchase.  If we do this every seven or eight years, we’ll have a $1,000 per year car replacement expense.

Our insurance runs about $500 per year for the two of us without comprehensive or collision coverage.  Maintenance expenses have been about $500 per year (mostly routine maintenance like oil changes, new tires, and replacing the timing belt).  Since we don’t drive that much, maintenance costs remain fairly low.

I’m estimating our gas at $400 for 2016.  This represents 4,000 miles at 30 miles per gallon with gas at $3 per gallon (a huge overestimate if gas remains around $1.75-$2.00).  If we undertake a crazy road trip adventure this summer, I will count the gas we buy as a vacation expense.

 

Medical and Dental

2016 will bring a lot of changes in our medical and dental spending.  Once Mrs. RoG quits her job, the adults in the household will be on a private health insurance plan with Affordable Care Act subsidies.  Though the full price of the plan is $600 per month, we will qualify for subsidies bringing the cost down to $130 per month for a plan with $0 deductibles and a $1,000 maximum out of pocket expense.  That’s based on an AGI of $42,000 per year.

In addition to the $130 per month (or $1,560 per year) for health insurance premiums, we might spend another $440 out of pocket for doctor’s visits and getting a few things checked out that we postponed while on a high deductible plan for the past several years.

Since our AGI will be rather low, the kids won’t qualify for an exchange healthcare policy with subsidies, but instead will receive the NC Healthchoice insurance for free.  Our family doctor is in network, as are most (all?) of the local hospitals.  Since we don’t consume a lot of medical services right now, the NC Healthchoice plan seems more than adequate for our kids’ needs.  We can always switch to a paid health insurance plan if we need better coverage in the future.

Right now we have dental coverage through Mrs. RoG’s employer.  Once she quits, we’ll be self insured.  Our dentist offers a $99 special for a cleaning, x-rays, and exam.  Between the two of us, we visit the dentist five times per year for routine care.  I figure we’ll have another $500 per year (on average) of non-routine dental work (cavities, root canals, or other major procedures).  The kids get free dental care as part of the NC Healthchoice insurance and our current dentist participates in that plan.

Overall, we’ve budgeted $3,000 per year for medical and dental expenses which seems ridiculously low for a family of five until you consider the extent of the subsidies we expect to receive.  As a policy matter, we don’t necessarily think we should qualify for all of these subsidies, but we’ll certainly accept whatever subsidies are tossed our way.  “Git while the gittin’s good” as they say down here in the South.

 

Clothing

We don’t spend much on clothes.  The thrift shop has some great stuff, and other stores are inexpensive.  The kids are all growing so I’m sure we’ll be buying plenty of new (or lightly used) stuff in 2016.  And Daddy needs a new pair of shoes.  All that should be $800.

Mrs. RoG and I don’t need to worry about a professional wardrobe any more.  T-shirts and shorts or jeans are perfectly acceptable attire in early retirement.

Marathon thrift shopping

This is what $100 buys at the thrift shop.  Can you find all the Banana Republic clothes?

 

Food

Food is our second largest major expense.  Between the $7,000 budgeted for groceries and the $1,000 for dining out, we expect to spend around $8,000 in 2016.

$8,000 represents an increase over the amounts we have spent over the last several years.  Maybe we’ll buy even fancier ingredients and go out to eat more?  We already spend a considerable sum on imported spices and seasonings for the Asian and Hispanic dishes we create.  Our wine, champagne, and fancy cheese expenditures are a little embarrassing for someone who pretends to be frugal (thanks, Trader Joe’s!).

valentines-chocolates

If you’re curious why our grocery expenses are so low (or so high!), check out this example of all the groceries we bought in one month.  Here’s how we keep grocery spending to a minimum without using coupons.

Celebratory homemade sushi for lunch

Homemade sushi for the price of a McD’s burger

 

Entertainment/Toys/Fun

In the past we’ve budgeted $1,000 per year for the fun stuff.  I’m upping the amount to $2,500 per year with the goal of having even more fun.  In 2016, this might mean I get a kayak, canoe, or bike.  We’ll also take more trips to the swimming pool and indoor water park for fitness and recreation (a smoking good deal at $11 per visit for the whole family).

So much recreation is free or very cheap that $2,500 will go a long way.

I have $1,000 budgeted for electronics in a separate category, and in the past several years I have purchased a Playstation 3 with a bunch of games for $125, a few flat screen TVs for under $500 each, a new gaming computer for $400, a few laptops for $200-300 each, and a stack of tablets for $60-70 each.  It’ll be a stretch to spend all $1,000 this year unless I buy an ultrabook laptop (which would be a business expense, right?).

 

Vacations

In the past two years, we have taken two international vacations per year.  In 2014, we set out on a five week road trip to Canada that ended up getting cut short because we were exhausted (our two year old and the really dirty Airbnb rental didn’t help any!).  We also went on a week long cruise to Mexico, Honduras, and Belize.

Saint Joseph's Oratory of Mont Royal, Montreal

Saint Joseph’s Oratory of Mont Royal, Montreal

In 2015, we started the year with a cruise to the Caribbean.  In the summer, we spent seven and a half weeks traveling around Mexico.

pyramid-of-teotihuacan

Teotihuacan pyramids, near Mexico City, Mexico.

Each of our cruises usually costs under $2,000.  The total cost of the Canada trip was $1,316 for 2.5 weeks.  Our seven and a half weeks in Mexico was $4,450.  One thing we learned was that we only spend half or three quarters of what we actually budget for travel.  Once we are on our trip, it’s easy to economize in small ways to save money.

I’m also a big fan of “travel hacking”.  I get a lot of free airline miles and hotel points from credit card bonus offers and using the right cards to maximize rewards and cash back.  Travel hacking makes our vacations incredibly affordable.  Or viewed a different way, we can stretch a $10,000 vacation budget pretty far when we can get free or cheap flights and hotels.

For example, we saved $3,000 on five plane tickets to Mexico by using miles.  Then we saved another $1,000 on a week’s worth of hotels by using Starwood hotel points.  Without travel hacking, our Mexico trip would have doubled in cost!

The Canadian dollar, the Euro, and the Mexican peso are all very cheap right now, so now is a better time to travel than in the recent past.  With $10,000 we could do a really epic road trip and still have money left over for a cruise or two during the colder months.  We also want to visit Europe and could spend $8,000 to $10,000 on six weeks traveling across the continent.

Or we might take a vacation from vacationing and spend the summer at home for once.  The kids really enjoy going to summer camp, playing, swimming, and relaxing at home.  After a few summers on the road, I think the kids might be on to something.  If we do end up buying a minivan in 2016 (mostly to use for road trips, by the way), then that would consume any unspent vacation budget for the year.

There are a lot of possibilities for us when it comes to travel, and it’s great to not be limited by money.

 

Gifts and Charity

We don’t have a lot dedicated to these two categories at $1,000 for gifts and $100 for charities.

The $100 for charities might seem very Scroogish of us, but I’d rather give to charity when it makes more sense financially.  Right now we would get almost zero tax benefit from charitable contributions.  If our portfolio continues it’s march upwards over the next several decades, contributions to a donor advised fund at somewhere like Vanguard will save a ton in taxes which translates to even bigger gifts to charity.

Update: After taking some heat in the comments on my almost non-existent charitable contribution budget, I wanted to mention that I do contribute my time much more than I did when working. I serve on a board, help out at the kids’ deep in poverty Worst School in the District, and do a lot of small things for friends, family and neighbors. I guess I could go provide menial minimum wage type labor at a variety of charitable non-profits, but I don’t think that’s a particularly good use of my time or skills. Nor is it fun; I’d rather go back to work. I’m also busy taking care of my own kids (and sometimes others’ kids too!) so it’s not like I’m doing zero to better the future.

Even this blog (in spite of it being monetized, so more like a market-based exchange than pure volunteering) is a way to help others by sharing knowledge. I’ve received many comments to the effect that I’ve radically changed people’s lives for the better. At least some of those people will go on to help other people even sooner since they will be better off financially.

 

Taxes

I’m planning on spending $1,750 for 2016’s tax liability.  I’m targeting an AGI of $42,000 per year which will come from a combination of self employment income (income from this blog mainly), Roth IRA conversions, long term capital gains, dividends, and interest.

Federal taxes should be around $500, which is self employment tax on the self employment income (minus a $3,000 child tax credit).

State taxes of 5.75% in North Carolina will end up being about $1,250 after the standard deduction and a small child tax credit.  Once again we’ll be paying a lot more in state income tax than federal income tax.

While working, we were pretty good at managing our tax liability by paying $150 in tax on $150,000 in income.  In retirement, our overall tax picture remains the same – we’ll owe very little in taxes.  The biggest change is self employment income which comes with an extra 15.3% self employment tax.

 

So that’s the plan!

Whether we actually spend $40,000 in 2016 is anyone’s guess.  It really depends on what we decide for summer travel and whether we end up purchasing a new(er) car in 2016.  Overall, I’m feeling very fortunate that we have the financial flexibility to program in plenty of fun in the budget.

My long term goal is to enjoy our money by spending what we can.  Since we’re only spending three to four percent of the portfolio each year, I expect the portfolio to increase in value in real terms over the years and decades.  As it does, we’ll do our best to spend money in areas that bring us the most value.

I also wanted to publish our budget to answer the question I read a lot after releasing my “Zero to Millionaire in Ten Years” post.  When Business Insider republished that post, some of the comments suggested that it is impossible to live on $40,000 per year, especially if you have three kids.  This budget allows us to live where we want, eat what we want, and travel where we want.

 

Want to develop your own budget?

While we were saving for retirement and still working, we didn’t budget.  But I did track expenses very closely.  I started out using an excel spreadsheet.  It was somewhat complicated and took about an hour per month to update.  This is a good method as long as you are diligent in keeping the spreadsheet up to date.

A few years ago I switched to Personal Capital to track all of our expenses (review).  Personal Capital also tracks all our income (including dividends and interest), and summarizes a couple dozen investment accounts into one screen.  It is completely free to use Personal Capital whether you have $1,000 or $1,000,000 or more.  If you don’t already track expenses, try Personal Capital, since it only takes 10 minutes to sign up and link all your accounts.

Knowing what you spend is the best way to identify wasteful spending and make positive changes to allow more savings and investing.

 

 

What do you think?  Have you changed your budget given the recent market downturn?  Does your budget look like ours?  Are we spendthrifts or misers? 

 

 

130 comments

  • Justin, I’m fascinated by your well laid out budget and of course your discipline in years past. I’m sure it will be nice having the larger $40k budget in 2016, although I’m guessing you probably won’t use all of it. 😉

    Enjoy the extra vacation allocation!

    • I’m not sure we’ll spend the whole $40k either, but we will do our best! 😉

    • Justin, I don’t think you are misers at all. I think in the context of a spendy and affluent society such as America, you may appear to be misers. I am impressed that your expenses are lower than ours, in spite of having one less dependent.

      I freely admit we over spent on our house, but that was also party a compromise on my part. I suppose I could have been stubborn and ended up with an unhappy wife, but that’s not a good marital strategy either.

      I am glad that you enjoy life, like it should be enjoyed, on a very generous budget by world standards. The face you live in the wealthiest country in the world only makes you look thrifty. We are even worse examples than you are, spending even more on an insanely and overly generous spending budget.

      • Oh yes, by world standards we’re living like rich fat cat kings and queens! More than enough food to eat, well seasoned, and varied. HUGE house with rooms we don’t even use. A car sitting in the driveway mostly idle. Heck, a driveway period (which can easily fit 20-30 cars). 1-3 months of international travel every year. We’re crushing it by global standards but I’ve seen some US-based folks mocking us for living like we’re poor. If this is what it feels like to be poor, then give me more penury!

  • income that is too high to qualify for Medicaid but too low to afford rising health insurance premiums. You don’t feel you’re taking advantage of a program for low income families? People who qualify for this should not have 1.15 million in their accounts.
    We were on medicaid when our first child was born and it was a feeling of success to get her on our insurance plan.
    Are you going to try for food stamps or the free lunch plan at school?

    • If the government didn’t want people like him to do it, they would have kept asset testing on Medicaid or added it to ACA.

    • Hmmmm….I have no problem with Justin and his family benefitting from coverage. Let’s not forget….”he’s coloring within the lines”….as there is no “means test” and he’s filling in the blanks provided. If this is a problem the government could always change the rules…..BUT this is a “slippery slope”…deciding what AGI actually is, and how much in reserves is “sufficient”. In this neck of the woods there is a BIG push to get ACA applicants onto Medicaid as the Fed will cover it for 3 years….

      • It would be incredibly simple to implement a means test in the ACA subsidy rules. Copy/paste the Earned Income Credit (the current main form of “welfare” in the US) eligibility test. Make more than ~$3,000 in investment income? No welfare for you. No new bureaucracies to implement the means test, no need to examine assets a la the horribly complex old medicaid eligibility rules (still in effect in a minority of states). But that’s not the way the law was designed (for better or worse).

        I actually have no problem paying full freight for our HI needs for us and the kids. But I won’t ignore the current subsidy (in the form of a tax credit) currently baked into the way we provide health insurance here.

        • It’s a little late for this comment, but part of the reason that we have these subsidies in place pretty high up the income ladder is to encourage healthy people who otherwise might opt to just take the tax penalty to buy health insurance so that we don’t end up with a super-expensive death spiral. Those subsidies are helping to keep premium prices down for everybody. It’s not just a give-away for well-off people (not that there aren’t plenty of those in the tax code!)

    • It’s hard to call the Affordable Care Act “a program for low income families” since a family of 5 like ours can make $112,000 per year and still get subsidies. It’s more like a program for lower and middle income, sometimes upper middle income, households. Our AGI (the # used for ACA subsidy calcs) never exceeded $112k while working in spite of our solidly middle class occupations (financial analyst at investment bank and director of engineering at a government agency).

      Like I said, I don’t necessarily agree that families like ours (or even families earning $100k+) should be receiving the current levels of subsidies, and I actively vote for those who are more likely to reform the current system in favor of something hopefully more equitable and simpler but not the complete lack of a health care safety net and with pre-existing exclusions like we had pre-ACA.

      As far as “taking advantage of” – I’m not worried about it. Pretty much everyone out there takes silly unnecessary subsidies that I disagree with. Mortgage interest deduction, student loan interest deduction, pre-tax treatment of employer provided HI benefits, cash for clunkers, first time home buyers credit, etc etc ad nauseam. I can vote to limit subsidies of this nature, but I’d be foolish not to accept those given to me, since I’m going to be asked to pay for them depending on my future income level.

      • I agree 100%, Justin. You pay for/paid for government policies, and you live in a system in which they exist whether or not you chose them or support them. For the time this subsidy is being doled out, you may as well collect the portion of it you are entitled to under the rules set against your will! Why would you want to pay more for the same thing?

        • That’s been my thinking all along. But then the detractors come along and blame me for the system! Like I had much of a say in it! And probably voted for people that would have done things differently!

    • Health care in the U.S. is highly subsidized for almost everyone in the U.S. – including nearly every rich person. Should rich seniors forgo medicare? Should people with health care through their jobs start paying tax on subsidized health insurance? All ACA does is give people who were previously being screwed similar breaks on health care that everyone else already gets.

      The U.S. healthcare system is a complete mess and should probably just be replaced with the most efficient: tax credit for everyone regardless of income or wealth combined with guaranteed issue (or some kind of public private hybrid). Means testing just introduces a whole new set of inefficiencies along the same lines as high marginal tax rates (see Justin’s Social Security and ACA hacking posts for why).

      • Perfect response, Sam! I couldn’t have said it better myself. Our current healthcare in the US is so intimately entangled with the government between regulation and subsidies of the various moving parts. I really wonder if anyone would suggest wealthy 65+ year olds decline Medicare coverage and go it alone (that age group is the wealthiest age group, on average). I doubt it.

        There are so many ways to fix our broken, complex system but I’m skeptical that we’ll see meaningful reform any time soon.

  • This is one of those areas that makes me a little nervous. I’ll do my due diligence in planning our budget, but I’m going to guess there will be areas that I forget to take into account that first year around. Obviously, it’s a moving target, but I’m hoping to be conservative enough that I can get relatively close to our budgeted numbers.

    Looks like you guys do a great job in balancing your boring expenses with having some fun as well. I’m still a handful of years away from leaving my job, but I would bet our budget would be fairly similar to yours.

    Cheers!

    — Jim

    • The main thing is to budget for all those “unexpected” expenses like car repair and replacement, new roof (if you own), and cavities/root canals. Everything is in a constant state of decay so you might as well planned for the eventual. Without neglecting the fun of course! 🙂

  • You guys have a great plan and I have enjoyed the updates for the last couple years.

    However…The fact that millionaires are being subsidized for their health insurance by the working class is unjust and embarrassing.

    I’m sure it’s hard to turn down “free money” when the system is set up to give you a break. Also… I am truly not sure how I would handle this in your situation. Perhaps (deductions be damned) some generosity toward positive medical efforts such as Doctors Without Borders? Just a thought.

    • I agree that our current health care system is kind of a cluster and embarrassing (though better than it was five years ago, millionaire subsidies notwithstanding). Though the tax subsidies for health care for the wealthy are nothing new. Even while working and earning over $100k gross, we received $10-15k in tax free health insurance every year from Mrs. RoG’s employer. That saved us at least a few thousand $ every year. Kind of silly when you think about it.

      My philosophy on charity is that I’d rather give once I’m certain I won’t need the money. I’ve still got 3 young kids at home and a lot can happen in the 18 years before they finish college. I would feel pretty stupid if I gave away significant sums of money today and then had to beg for charity myself. I also want to be in a position to provide for our family in the event all these subsidies disappear (which I would be totally okay with!).

      And eventually when we have more money than we can ever spend (and our own personal liabilities regarding children have declined), we’ll be able to give even more in a tax efficient manner (the tax savings will go to charity, too). I’d rather give $3000 in 10 years than $1000 today (or $30,000 in 10 years instead of $10,000 today).

      • I appreciate your grace in handling comments that contain some combination of criticism / advice. Comments on the internet can be ruthless.

        That said, I hope you see some of our feedback as an attempt to help YOU, and not just as bitterness. I’m too busy to type bitterness on my little smartphone here. 🙂 As you said below, your blog is a way of sharing knowledge and helping people’s lives, and I was just seeking to “pay that forward” back toward you!

        What I’d like to emphasize is that people don’t need to have all their ducks in a row in order to sacrifice financially for others. In fact giving is less meaningful when all your possible needs are financially bulletproof. It’s not about waiting till you hit 25M so you can get your name on the library. It’s about your kids…teaching them to have a giving spirit starts with you, now. Let them see you give $200 to something you care about. Let them see you order waters at the restaurant but tip as though you bought drinks and dessert.

        I’m not pretending to know you and your family beyond the snippets you share online. Obviously you aren’t here to share everything kind that im sure you currently do, or else the blog would be a bragblog. Just realize that the numbers you’ve shared make it seem like you have a blind spot and it’s worth pointing out…

        • It’s not a blind spot at all; quite the opposite. It’s an intentional strategy to maximize lifetime giving in the most efficient manner possible. I have no issue explaining to my kids how we, and the charities we give to, would be better off if we donate something meaningful later rather than a pittance today. Although we do give today (see comments regarding school support) in smaller amounts.

          I think it’s important to be able to rely on yourself first and never put yourself in a position to need charity or government handouts. Then start giving where you can. That’s the message I’m conveying to my children.

          As far as the name on the library, I’d rather give anonymously. Otherwise every other charity would see my generosity and hit me up for money. 🙂

  • I bet you don’t even come close to $40k 🙂 Maybe once Mrs. ROG quits her job, more will be spent on travel to eat some of the budget up. Have a great 2016!

    • I’m guessing we don’t spend all the $40k either.

      We still have kids in school, so traveling is somewhat limited to breaks or pulling the kids out of school (like we’re doing in 2 days when we cruise to the Caribbean!!). We might have to leave the kids in the care of Grandma and hop on a cruise for 2! 🙂

  • I’m looking forward where you are heading to for vacations in 2016. Always a pleasure to see some hacking and funs from your children.

    • I’m afraid it might be a relatively boring year for travel because I still have no clue what we’re going to be up to this summer. But I’ll keep posting whatever adventures we do get up to! 🙂

      Would hikes in local state parks still be interesting?

  • Thanks for sharing your budget, especially healthcare expenses, I “shopped” a bit on the Affordable Care Site and actually met with a “navigator”… twice…. Be cautious…I studied these plans and based on being a self employed landlord it was an awkward interview….both times. It appears I would be eligible for subsidies….maybe…kinda…sort of….Not a fan of the lack of confidence from the navigator. And the plans are just crazy….one had a deductible of $13K and the premium was still over $900 without subsidy. I chose to stay with my “grandfathered BCBS plan” for the time being because if I would opt out to a new plan I could not return if it didn’t work out. I’m gonna look again next year because eventually my plan will be discontinued. Thanks again for your insight…..

    • I find the healthcare.gov process cumbersome and clunky too. And yes, it’s confusing putting in all the info they require. I had to help my mother in law get the best plan so I was already familiar with the options available here in our zip code and they are decent at our income levels (we get heavy cost sharing subsidies so our deductible and out of pocket max is very low).

      You are right though. Some of those plans have ridiculously high deductibles and out of pocket maxes. Not all plans are equal!

  • It’s very interesting to see your budget for a year of early retirement with kids since my husband and I hope to be in a similar situation in several years. Travel/entertainment and kid expenses are my biggest concerns for early retirement since it’s hard to anticipate what are wants/needs will be in those areas when the time comes. Looking forward to seeing how your budget plays out this year!

    • It’s an evolving process for sure. I don’t really know what our budget will look like in 3 years or 5 years simply because a lot changes as kids get older. The best you can do is plan intelligently and adjust as you go along! And as for kid expenses, the good news is they go away eventually (if you do it right lol).

  • I can’t read this blog anymore. The fact that a millionaire is getting better health benefits than me, with money that I (representative of the struggling middle class) pay, bothers me so much. I believe that people become rich by being frugal, but frugal and cheap are not the same. There’s a morality dilemma in what you are doing, and I simply have different beliefs than you. Specially when you are taking hundreds of dollars a month in “charity” to cover your family’s health benefits, and you can’t even give more than $100 a YEAR in charity because it’s not “in your best financial interest”. Wow. Just wow. Remember that charity is the voluntary giving of help, it’s not a tit for tat.

    I know it’s difficult to post your life online and be open to judgement. There’s have been plenty of choices you’ve made that would not be the same choices I would make, but it’s always been your life and it’s never been my concern. This is just too much. I know one less reader won’t hurt you financially. At the end of the day, that’s all that matters, right?

    • Can’t say I have a huge problem with taking the tax benefit, but the 100 dollar charitable contribution is pretty questionable to me. I guess I can sort of understand RoGs’s reasoning, which is that he’s going to give it away later and since he’ll be able to get a tax break he’ll be able to give away more. But still, when your own analysis has indicated that your income is about twice as much money as you are spending (and this doesn’t even appear to include his wife’s income which is substantial) I can’t say I agree with this decision. It does in fact come across as scrooge-ish to me. I would at least be donating copious amounts of time at this point. I mean, you’ve made it right? Money is no longer even remotely an issue…start thinking about how else you can improve the world…

      • That’s a good point, and I do contribute my time much more than I did when working. I serve on a board, help out at the kids’ deep in poverty Worst School in the District, and do a lot of small things for friends, family and neighbors. I guess I could go provide menial minimum wage type labor at a variety of charitable non-profits, but I don’t think that’s a particularly good use of my time or skills. Nor is it fun; I’d rather go back to work. I’m also busy taking care of my own kids (and sometimes others’ kids too!) so it’s not like I’m doing zero to better the future. 🙂

        Even this blog (in spite of it being monetized, so more like a market-based exchange than pure volunteering) is a way to help others by sharing knowledge. I’ve received many comments to the effect that I’ve radically changed people’s lives for the better. At least some of those people will go on to help other people even sooner since they will be better off financially.

        • Justin,

          Do not get bullied by others to do something because they are pressuring you to do something. You should only do what you are comfortable with, not what some anonymous person on the internet does.

          You have outlined everything about your finances online. You should give what you think you can afford to give back. Most often, the people who judge are people who themselves do not have the guts to be as open and transparent as you are.

          Your site has certainly touched the lives of many people, myself included. It is refreshing to see someone like you walk the walk, and provide actual examples that show to those like myself that maybe I will be ok if I do the ER/FI thing.

          So yes, in my view, you have made positive change in the lives of many people. I will keep that opinion, even if you never donate a single dollar to charity.

          • Me get bullied into doing something I don’t want to do? Unlikely. 🙂

            I do appreciate comments here though. I often learn a lot and incorporate that learning to optimize my life even more! And I always appreciate the diversity of opinions, even if I don’t agree with someone.

    • Jo, I wish you the best in the future. If you are unhappy with your current situation, I would encourage you (as I would all readers) to make positive changes in your situation to get into a better position. I hope to continue sharing those steps I have taken in the past and continue to take in the future to improve my own situation so that others can also do the same for themselves.

      • toretireornotretire

        Wow. I am grateful to be able to read your life story and am surprised by the judginess. I think that your financial prudence and acumen are inspirational. You have made some courageous decisions and have chosen a life that most do not have the discipline and fortitude to make happen. Although you have challenged foundational rules that the majority follow of working until your senior years, you are coloring between the lines on ACA. In your shoes I would do the same. Keep it up and keep sharing. I think you are making all of the right choices. No matter how much investment you have it takes courage to completely pull the plug. I know. We have a higher investment base than you. I stopped working for a few years and I am back at work debating whether I have enough to “retire” indefinitely (we have young kids). Kudos to you. So I will continue looking at our finances every night to gain assurance whether I can free myself from employment and spend my days doing exactly what I want. It is part-time work, but it is consuming most of the time I have while the kids are at school (K and 2nd grade). I would rather be volunteering than working for pay (but it is hard to adjust to the though of not living off of our cash flow and depleting the stash).

        • Thanks for the kind words. I don’t take much stock in criticism. There will always be bitter people that disagree with others’ choices.

          And I know what you mean about having “enough”. I’m mathematically confident we do, but I can’t quite convince myself emotionally that we have so much that we should be giving a significant portion of our annual living expenses away today to various charities. I doubt they would reimburse me in 10 years if I suddenly needed the money.

          • Your post hit it. In our case the math supports I don’t need to work. $1.5M saved and annual spending of $60K. Plus, hubby is working and likes to work (and that is good as he also likes to spend). Right now his salary before bonus falls a little short of our annual expenditures. But emotionally it is so hard to start the spend-down of assets when we still have a six year old. And I feel guilt we do not give more to charity, but similar to you future college expense and healthcare are big unknowns. If compounding continues to work its magic there should be plenty of money for charity in the future.

            • There you go – similar situations and a reasonable approach to finances now and in the future. I know I’ll feel differently if I was 65 and had the income/assets we do (and no lingering kid liabilities). As it is now, I don’t know if we’ll continue to get ACA subsidies for the next 30 years, whether medicare will remain largely intact, or whether SS will still pay what we are “promised”.

    • We have donated in the past (money and time) but we haven’t donate to a specific charity entity lately. However, we donate a lot of office supplies to our kids’ school along with hours and hours of volunteer time to help with school such as PTA and School Board Advisory Committee and not expecting anything back tax wise. Maybe this is not your version of charity but it to us.

      • No one should be making you feel guilty for not donating more. You’ve worked, saved, invested, and are now financially independent. That is honorable. You may not be giving a lot to charity but you are not asking for charity either. If everyone took more responsibility for their own financial well being maybe they would feel less inclined to judge you on what you are not donating.

      • I so agree — this is real charity — not that you guys need to defend yourselves! Busy parents with careful budgets and young children to put through school — you are working toward the future of three fine citizens.. When my daughter was little I was at home with her and of course, I watched everyone else’s kids quite a bit. I never thought of it as charity but it did enable some working moms and dads to breathe a little easier. And that volunteer time? Now that I am a teacher full time, I see exactly how much the volunteers do — we are incredibly thankful to all the talented people who give so much time and effort. And dang it all, charity DOES begin at home, moving out in concentric circles. Family first, schools, local efforts and so on. It is NOT just how much money you give away — a determination that will differ for each of us. And finally, I do appreciate this blog — it is helping so many people. Not that I am going to retire early (a bit late for that 🙂 but that you and Mr. RoG encourage people to think about their financial lives and offer real examples that anyone could follow if they chose. That is a lot of Good!

    • “I can’t read this blog anymore.”
      So don’t.

      “The fact that a millionaire is getting better health benefits than me, with money that I (representative of the struggling middle class) pay, bothers me so much.”
      Then minimize your taxes and vote…but not reading an awesome blog with tons of tactical advice that can help you in your life seems like an odd way to exact revenge.

      “I believe that people become rich by being frugal, but frugal and cheap are not the same. There’s a morality dilemma in what you are doing, and I simply have different beliefs than you.”
      Excellent. Different beliefs are what makes humanity awesome!

      “Specially when you are taking hundreds of dollars a month in “charity” to cover your family’s health benefits, and you can’t even give more than $100 a YEAR in charity because it’s not “in your best financial interest”. ”
      ACA is not charity. It is federal law with very specific guidelines. I would say the information freely provided on this blog multiplied by the number of readers is worth many thousands of dollars. Worth to society or moral fiber is not how much you donate to qualified charities each year.

      “Wow. Just wow. Remember that charity is the voluntary giving of help, it’s not a tit for tat.”
      I don’t know how you got this from the blog post, but…whatever.

      “I know it’s difficult to post your life online and be open to judgement. There’s have been plenty of choices you’ve made that would not be the same choices I would make, but it’s always been your life and it’s never been my concern. This is just too much. I know one less reader won’t hurt you financially. At the end of the day, that’s all that matters, right?”
      Less judgement. More gratitude. I may not know much but I know these two things lead to happiness.

      Awesome post Justin. Thank you for sharing your life with us. I have deep respect and gratitude to you for you doing this, even when your decisions are different from what I would have done. Please keep writing. If you are not offending a few people you are probably doing something wrong.

      Love,
      TheHappyPhilosopher

      • Live happy and prosper. 🙂

      • You’re using a 4% variable withdrawal rate. If you considered being even MORE conservative, you could say that you could withdraw 3.3% and have a 0% risk of running out of money. 3.3% of your stash is about $38k. Plus, add the $20k in income, and you have an income level of $58k. Even increasing your budget well beyond what made you extremely happy in 2015, you’d still have $18k left for taxes, charity, and additional expenses. I’m not saying you owe the world $18k, but certainly, more than $100 could be spared, right?

        I served on a board for a local private high school. They depended on donors to provide education to more than a quarter of the student population that lives BELOW the poverty line. These are families in LA County that make less than $20k with kids in high school, and they can get a private education that consistently leads to a 100% rate of college attendance. What a great opportunity! It is common to get a donation from an 80-something woman in the amount of $15. Those donations really get to you. Here is a person that might have been worried about having enough money to eat living off of a meager social security check, and they still pinch their pennies to find SOMETHING to donate for a cause they care about. The administration certainly spent a lot of time writing those well-deserved thank you notes.

        When I see the millionaire that now has too much in assets to spend that listed off a budget where more than a third of it goes towards fun stuff and you list off multiple “vacations of a lifetime” in your one year of travel plans…I wonder how sheltered and good this person’s life must be to have $100 worth of financial empathy towards others. Just something to think about considering you are still spending WELL below an amount that leads to any real kind of risk in things getting screwed up. You admit fully that you don’t expect to spend the $40k, anyway. Maybe any difference could be charitable? If you can’t afford to be charitable, how can any of us? You have a great opportunity to lead by example, which you do, in a way that will help make the world a better place, not just our individual nest eggs and tax bills.

        • So what’s the correct amount I am obligated to donate according to your analysis? $1,000 still seems tiny but $18,000 seems too much.

          And how do you know that grandma with the $15 donation isn’t really a multi-millionaire?

          As for your private school example, I’d rather support our public schools with my own dollars, my time, and my efforts to improve them through better policies and better financial assistance from the local, state, and federal governments. Why not make good education available to all?

          • If $1,000 feels tiny to you, then how does $100 feel? I don’t know what the right amount is. I feel ugly for having this conversation because even though this is a public blog, you are still a private man with his own family, and I can appreciate and understand that. My concern is with the 1,000’s of people that are going to read your blog and be “inspired” to donate nothing to charitable causes. Again, if you can’t afford to donate, how can any of us?

            • $100 feels tiny too.

              “Again, if you can’t afford to donate, how can any of us?”
              I think everyone should donate what they want to. It’s not a race.

            • “I don’t know what the right amount is.”

              That is because there is no right amount. You don’t know, I don’t know and neither does Justin. This is a question of personal morality and individual decision.

              “My concern is with the 1,000’s of people that are going to read your blog and be “inspired” to donate nothing to charitable causes. Again, if you can’t afford to donate, how can any of us?”

              Using this argument one could argue we are all immoral. We have the ridiculous luxury of arguing about what percentage of our income we should donate to charity when there are billions of people who live off of virtually nothing in near slavery. How can any of us justify keeping anything but the smallest fraction of our wealth?

              I challenge the assumption that anyone should give anything to charity. It is one of those statements that everyone assumes to be true, but rarely questions it.

              Perhaps Justin feels his money could be put to better use by investing in himself, his family or a business. Maybe he invests it wisely and gives away a big pile at the end of his life. Maybe he uses it to erect a giant Leninesque statue of himself in the front yard (I hope not).

              People criticizing Justin for how much money he gives to charity are using guilt and shame to subversively force their own morality upon him and others.

              How much one gives to charity is a poor metric for the value they give or take from society.

              –end of random thought stream–

            • I’m more of a Stalinesque statue kind of guy. The only thing stopping me from putting one in my front yard is the fact that the birds would shit all over the statue of me.

        • Darrell – you are going down a slippery slope when you start to tell others that based upon their success, others somehow “deserve” some of that success. Others deserve nothing, quite frankly. And while I personally give to our local food bank, Habitat for Humanity, and Good Samaritans here in small-town TN, I would never presume to tell others what they should or should not do. Maybe you could talk to those well-meaning people whose donations were flushed down the proverbial toilet called outrageous executive salaries and pensions at some of the better known “charities” around the country.

          And you used the example of schools. When we lived in NY we were constantly told our ever-increasing school taxes were for the chilluns, when 85-90% of every $ was going to teacher and administrative expenses. Here in TN the Governor just put forward a budget showing an additional $250M for the school chilluns, while admitting that over 50% of it goes to teacher salaries.

          Too many charitable $ are used for anything but charity. Before telling others to do more, maybe people would be better served pulling back and reassessing how and where their money is being used.

    • Sorry, I don’t see any morality issue here at all. Government rules, and especially in areas of taxation, are black and white. Every person, at every income level, and every corporation of every size and shape can and does (if they are smart) learn about these rules and operates within them to their own advantage. Anyone who thinks there is a morality problem needs to look at the real world and see how big corporates make billions in profit and pay almost no taxes through complex structuring. And it is ALL 100% legal. Likewise for how the wealthiest families use structuring to pay no estate taxes and pass on wealth their descendants. Also 100% legal.

      If it bothers the original poster – as others have said – get out there and vote for officials that will change the laws. Don’t blame any individual (or company, for that matter) for learning the rules and operating intelligently within them.

      Also completely agree on the responses by ROG and others to the charitable contribution criticism. ROG has to deal with the uncertainties of making a stash last 50-70 years, with a number of children. Why on earth would a guy in his 30’s start giving it away now? And, the stash might sound like a lot.. but it has to support his family indefinitely, with all the uncertainties of life. Hopefully, down the road, there is a lot more to give away when the time comes.

      Thanks ROG for sharing your thoughts and experience with all of us.

      -Following in your footsteps

      • Legality does not equal morality. I plan on doing the same thing the RoGs are doing with the ACA subsidies if they still exist when i need them, but I can’t say it doesn’t make me a little uneasy. For me, the problem arises when I try and think about the intent of the subsidy and obamacare in general. Its to help people get good health insurance who would be unable to afford it. If you can afford it, and are taking the subsidy (or since theres a huge scale of subsidies, more than your fair share of subsidy), then i think thats a little bit sticky, you are in some small sense harming the system, having others pay more for you when you don’t need it. Maybe its your duty to harm the system, so that it gets changed? I don’t know, its not black and white, the entire tax code and the ACA in particular is super complicated, which to me sort of encourages stuff like this.

        The other case, that for some reason early retiree’s seem to fall on the other side (they tend to frown on taking) is gaming the system to get aid for college, specifically Pell Grants. As in, its possible to rig your income such that your kid can get the Pell Grant, even though you have a huge stache and don’t need it. I have not really worked through my opinion on this one since its not relevant to me in the near future, but I’m not sure whats so different about this situation that causes people to feel differently about it.

        For me, it makes it easier to do these things, knowing I have a plan to give away large amounts of money at some point. Its kind of like a robin hood situation, take money from the gov’t that you maybe shouldn’t get, and then give it back somewhere else that you think it is needed. Its important for me to think hard about these issues though, so I can sleep well at night.

        • I don’t know if we’ll qualify for Pell grants or heavy subsidies in college, but preliminary calculators indicate we might qualify for more than you would expect a millionaire to qualify for. I also wouldn’t hesitate to accept whatever grants/loans/stipends that the financial aid office offers us. They are better at figuring out who needs the money the most, not me! I’ll be filling out the FAFSA just like everyone else. If we unfairly receive $ that others don’t, then it’s a problem with the system not with us. Our higher ed system is already heavily subsidized (student loans, state college tuition mostly covered by the states, etc).

          I won’t call myself a robinhood, but I’d certainly rather keep money in my pocket versus handing it to the government. I’m pretty sure I can pick a better place to spend/donate money than our politicians. There’s a zero % chance I’ll be spending on pork projects or wasteful crap sold to me by lobbyists.

          • I appreciate the dialog, you’re stance is totally reasonable. And at this point, I’m sorry if its totally off topic and you’re over it, you can just stop responding, lol.

            I think its maybe impossible to design these systems so that everyone is handled correctly. I think thats where the morality comes in to play. Given that its impossible, how much responsibility is your own to be fair and not take advantage?

            My understanding with the Pell grant situation, is you specifically have to go out of your way to engineer it so that they can’t see your assets (something about getting it so you can file a very simple tax return). So, they’ve designed a system that wants know about all your assets and income, but even still really crafty individuals can get around it. Ok, or not?…I don’t know.

            As a philosophical exercise, what if an imaginary judge with perfect knowledge of everyone’s finances and the limits of the aid program looked over every college aid grant case (or health care subsidy case) in detail and came to his decision. Would he grant you the aid or not? Probably not if you’re a multimillionaire. This kind of thought exercise is what makes me uneasy, because although the imaginary judge doesn’t exist, I can still be my own judge of my own situation, and I know the aid is not meant for me.

            • Sign me up for that judge! Can I vote for him? 🙂

              I guess you know more about the financial aid/grant process than I do, because I just thought it was a matter of filling out the FAFSA and getting what you get (subject to crafting optimal income streams and placing financial assets in the right place). Didn’t know about the simplified tax forms you can fill out to get preferential treatment!

              I would trust the omniscient, omnipotent judge if it were a fair system, knowing I would be treated fairly. Absent that fairness judge, we are all stuck with rules. I’m operating on the assumption that everyone else is a rational economic actor and so I’ll continue to be (with the hope that the system becomes more fair).

              Interesting thought experiment. If this omniscient, omnipotent judge were only looking at finances (and not how hard you work(ed) or how hard you tried) and doling out money to those most in need, I suppose I would have stopped working much earlier and found a beach with a nice hammock somewhere to slack off. After all, I’d look poor to the omniscient, omnipotent judge and I would be set to get all kinds of government goodies. Until I got bored and decided to do something in life. 🙂

            • http://ifap.ed.gov/efcformulaguide/attachments/091913EFCFormulaGuide1415.pdf and then look for the simplified EFC section.

              It looks like the best case is if you can keep income under 24K and also be able to file a 1040A, you will have a $0 EFC. Actually seems like with your current situation you could pull this off if you wanted, although maybe the blog income would do you in. Just have to have to sell enough assets to cover the years of college before submitting, coast through the college years, then resume.

              I’m guessing if you could pull this off and you determined it would give you a financial benefit you’d go for it. I’m still a question mark on this one, i’ve got like 15 years to figure it out though I guess.

            • Hmmm… give up 4-5 years of $42k+ income during college and essentially zero tax just to get marginally more student loan help, AND have to jump through hoops possibly? It might work to my advantage slightly but also might not be worth the trouble. I would “game the system” if it was (a) feasible (b) not excessively difficult and (c) worked out as the optimal choice long term considering taxes and losses of subsidies before and after the college years (which we’ll have 9 years total for our 3 kids).

              My guess is that the system works and I won’t be able to or won’t want to have $24k/yr in income. Any self employment income would disqualify me (though I could perhaps set up an LLC and pay myself a salary to avoid this issue). And I see from looking at the form 1040A that there’s no place to put capital gains/losses if I sell something and tax loss harvest.

              In other words, I would really have to rearrange my entire financial life just to get a crack at a few thousand (??) per year in grants. It might be easier to get my CPA and make money the old fashioned way. 🙂

    • I wonder what makes people think that 1 or 2 million is a lot of money? But be okey, letting the government pay for 8 kids in the guetto which those 8 kids will have 100 more born even poorer in the next 30 years.
      Personally i would stop any gov. Help for those from now on that have 2 or more kids. If you cant protect, save and feed two kids please do good and stop having them! Please! I am paying about 30k in taxes this year and i have an employee that will get 12k back from the gov… but, they spend money on mariguana, clothes, and non sense expenses.

      Then we have people complain that you save a few thousands in health care… heck we should make it a goal if you reach it you pay 50% less.
      I really feel sorry for those who cant make a living that have arms and legs and can work.
      Gov assistance should be for people who cant protect themselves.

      • On a theoretical level I can see where you’re coming from. There are some perverse incentives built into the current welfare system.

        On the other hand, you have to keep people alive. If you can come up with a system that both disincentivizes “welfare babies” while still keeping kids fed and clothed, please let me know. It’s a tough tough question and I’ve done some economic work on it myself.

        Finally, your statement of feeling sorry for people who can’t make a living but are able to work…I wish I didn’t have my idealism already shattered. For about a year, I worked in a factory which used a lot of temp labor, and I saw people, able-bodied and not mentally disabled, who were just [sorry in advance] not meant to work. Between laziness, tardiness, and a complete unwillingness to take coaching, they were a danger to everyone around them, and caused quite a few production stoppages which cost the company money. I don’t want them in my workforce, since they’d be “rowing the boat backwards.” On the other hand, one of the best workers there was a man who was mildly disabled both physically and mentally.

      • The large level of subsidies we give to people bugs me too. I don’t know what the solution is but there doesn’t seem to be much that encourages personal responsibility at a policy level.

    • My advice is to get off of your high horse. First of all, there’s a huge difference between a net worth over $1 million and liquid assets of over $1 million. Second of all, the idea that richer people ($1 million isn’t really rich anymore) don’t deserve any sort of support – when they literally have to live the rest of their lives with what they have now – is what turns stable finances into unstable finances. Third of all, healthcare is the most serious financial concern that people should have; until there’s actual healthcare reform it’s only going to get more expensive. Finally, and I can’t stress this enough, I would love to see your high morality in action if you were eligible for money – turn down any government assistance you’re eligible for and I’ll apologize. Tax credits? You shouldn’t take them. Insurance subsidies? Nope. Sign your Social Security over to the needy, refuse Medicare (and take the penalty).

      I abhor your type of mentality. It’s a lowest-common-denominator mentality that says “if I’m not doing so well, nobody should be doing so well.” That quickly turns into a race to the bottom.

      • “I would love to see your high morality in action if you were eligible for money – turn down any government assistance you’re eligible for and I’ll apologize. Tax credits? You shouldn’t take them. Insurance subsidies? Nope. Sign your Social Security over to the needy, refuse Medicare (and take the penalty).”

        Expertly said. Thanks!

    • I absolutely agree with the above comment. I just found this website today and was really interested until I read about the government charity he is accepting. Our healthcare insurance takes up such a huge chunk of our budget and I was most interested in seeing how they budgeted that, but I will never take a handout.

      • “I will never take a handout”

        If you’re still working: So you save thousands in taxes by having it deducted from your paycheck pre-tax? Or if self employed you deduct it on your thereby saving thousands?

        If retired and paying cash for health insurance – you qualify for subsidies but refuse to take them or you make too much to even qualify?

        I’m genuinely curious if you are eligible for subsidies but refuse to take them because you’ll be the first person I’ve ever heard of who refuses free money when offered. 🙂

  • “Right now we would get almost zero tax benefit from charitable contributions.”
    Charitable contributions are to help people not for tax benefits. A little selfish for someone who has done very well financially.

    • It’s a simple question of optimization. We can give more to charity when there are better tax benefits to doing so (because the charity can have our contribution AND the tax savings).

  • With the frugal skills you’ve built up over the past decade-plus, I bet you would have a tough time spending $66k unless you were forced to. That’s a pretty awesome position to be in, and it will probably result in some big growth in that retirement stash over the coming years!

    • Old frugal habits die hard, that’s for sure! I expect we will see real growth in our portfolio long term if we keep our spending at the current levels.

      • What you are doing is what those whinners should be doing spending less than 30k on a salary of 50k, but then again we know they try to spend 55k instead… i mean after all they het gov help if they need to.

  • That’s a great breakdown. I think you’ll do fine with 4%, but I’m pretty sure you won’t spend $40,000. 🙂 Being frugal is a tough habit to break.
    I like that you separate out your core expense. $24,000 is very reasonable. I need to do that for our budget too. I feel like most of our expenses are in the core category. The only luxury expense we have is travel.
    Enjoy 2016!

  • Hi Justin,

    I like the new budget, but I seriously doubt you will spend that $40k!

    Love that you increased your travel budget. Wow, 25% of your budget for travel. That’s huge! I think many people still believe early retirees just sit around all day! Best to prove them wrong 😉

    • I like to travel but also like to sit around too, so it’s a real conflict. 🙂 What do I do?

      A. Read a book,
      B. kill bad guys in my favorite video game
      C. watch epic stories on the tube
      D. relax and stare at the lake in the hammock
      E. write stuff on this blog
      F. travel around the globe

      Fortunately we can choose G. All of the Above. 🙂

  • Thanks for the detailed budget. Our household will have a lot more to pay for the foreseeable future as we don’t have a house. So we’ll either have to pay rent for a long time, or buy a place (+ mortgage). Either way that’s a huge difference in the budget

  • Does Mrs. ROG still have access to both the 401K and 403b? I only ask because at her salary and your blog income, I would expect that you actually might fall off the subsidy cliff if you aren’t careful. I know that if I leave my job when I intend to, we’re best off spending $472/month to jump on my husbands plan which is a low deductible/low OOP max plan instead of applying through the exchange even though we would qualify.

    • Right now Mrs. RoG still has access to the 401k and maxes it out. And we have employer provided HI through her company for <$100/mo. But when that changes, we'll be going to the exchange for better coverage for a little more ($130/month). We would have to hit an AGI of $112k+ to fall off the subsidy cliff which we won't even come close to in 2015 even with her salary for a full year.

      • Your remark about maxing her 401k reminds me of something. If she’s going to quit this year she should up her 401k contribution so she maxes out early. (But I guess as a financial analyst she already figured that out.)

        • She’s already putting 25% in, which is the max they allow each pay period. By year end she barely hits the $18,000 and I really doubt she’ll be working all year this year! 🙂

          I wish we could put 100% of her paycheck in there right now but we can’t unfortunately.

      • I just realized I ran my scenarios as a family of 3 not 4. Depending on prices, we might be better off in the exchange after all. I find predicting income to be the hardest part of this whole exercise. Because I’m not actually retiring, I certainly prefer to not feel that I’m being punished for working, but I also don’t want to waste money.

  • Damn, that sushi sure made me hungry! Our budget looks different from yours since we don’t have kids yet but travel is around 15% of it. We’re also doing some travel hacking this year so this will definitely bring the figures down. Let us know when you figure out free high speed internet!

  • Hey Justin, thanks for having the courage to lay this all out despite the few unfriendly comments you might have expected you’d receive. It’s very helpful to see how you break down large expenses that you have no way of predicting when they might occur. I’m curious, in what way do you use this budget? Do you do an annual check up, or do you consult your plan whenever you consider making a bigger purchase? Do you actually change your spending based on what you planned out here?

    • I track spending against the budget each month. $40,000 per year equals $3,333 per month. If we’re spending less than that each month, then we are within the budget. If we go over, it’s a red flag but doesn’t necessarily mean we have to slash spending to the bone for the rest of the year. If we are running way under budget, we also know we could be more frivolous with spending if a fun opportunity pops up.

      It’s also a planning tool. I know I’ll need around $40k per year so I can plan my withdrawals and tax strategy around it. If we end up spending $33k or $35k or $43k, we’re “close enough”. Having the budget also helps us make decisions on trade offs. We could spend $4000 on vacations in 2016 and buy a new vehicle for a net of $7,000 (after selling the old car). We could essentially “transfer” $6000 from the vacations budget to the auto budget (plus the $1,000 vehicle replacement already in the auto line item) and still stay on track per our original budget.

      To summarize, the budget is both a planning tool and an operational check on spending that we look at each month.

  • Interesting replies from your readers. I understand both sides and agree with certain points made by both. And while I may have a different approach than your own when it comes to topics like charitable contributions, I am sure I can find numerous areas where your critics are receiving the benefits of our current tax code and other tax-advantaged opportunities (e.g. are they contributing to a 401k? Congratulations; others are picking up the tab for that lost tax revenue.)

    Enjoy what you have, although I also agree with others that it will be a struggle to increase your spending.

    • I could write a whole article explaining how all of us receive all different kinds of tax benefits, subsidies, credits, deductions, etc. And all kinds of free government assistance (public education anyone?). I’m assuming most readers here aren’t starving, destitute, and homeless, and therefore could afford to not accept all this government largesse yet they continue to do so.

  • Your budget increase still puts you way below my family of 4 budget! We spend a lot more on food than you do. I haven’t convinced my wife how to economize fully, but yesterday top round steaks were buy one get one free and I told her we should get several to take advantage of the 50% off deal.

    I think you paid taxes for quite a long time and will continue to pay property, sales, and other taxes even if your income taxes are close to zero. That being said, I agree the ACA isn’t just for those at the poverty level. In fact the exchange is for people over 138% of the poverty level (at least that is California, can’t remember if that is the national number). I would use that and not call it “taking advantage” of anything. It is just another program available to all americans should they meet the qualifications.

    • Getting a few of those top round steaks for the freezer is certainly a way to start! Great, usually inexpensive cut for all kinds of meaterrific dishes.

      True that on the ACA – by definition the ACA subsidies don’t start till you are above the poverty line (100% in non-medicaid extension states like NC, 138% in Cali and other medicaid extension states). Excluding the poorest from the ACA subsidies certainly sounds like a program targeting the middle class to me!

      And you are right on the taxes, too. We’ve paid them in some form or another (though not much straight up federal income tax) for a while, and we will keep paying all kinds of taxes into the future. If things go as I expect, we’ll have some considerable RMD taxes in 35 years.

  • “We came up with a $40,000 annual budget for 2016 that represents a 20% increase from our previous $32,000 per year budget.”

    You’re clearly more of a math person than I, but isn’t $32K to $40K an increase of 25%, not 20%?

  • Sounds like a good plan!

    I’ve got a budget of about $8,000 a month after tax, but I don’t actually spend that much most of the time. $8,000 is less than half of my estimated ideal income of $250,000 gross a year for maximum deduction abilities. Therefore, that’s a good way to continue saving ~50% of after tax income.

    But I’m planning to take my family to the Galapagos Islands this year for 10-14 days. That’s gonna cost $10,000 alone!

    • We don’t usually spend our full budgeted amount each month either. I program in enough capital expenses that occur very infrequently that we will under-run the budget most months and then have a big lumpy month of 2-4x expenses every once in a while. Like when we drop $10k to take the family to the Galapagos. 🙂

  • I don’t know what your asset allocation is, but let’s say all $1.15m was invested so that you got a 3% dividend yield that isn’t DRIP’d.

    So then you have a choice: either draw down 1% of your portfolio each year (essentially ensuring that you’ll never deplete your assets, since investments will average more than 1% over…hopefully forever), or add the 4% and 3% together to get $80,500 + 20k of income = $100,500/year. I wouldn’t do that THIS year, but yeah, you seem to be living within your means.

    Congrats on an exceptionally well-thought-out budget. It’s easy to forget things like roof repair, but you’ve got it nailed.

    • That’s kind of the plan. Our dividend yield is around 2.5%, so we could spend the dividends and withdraw another 1.5% each year and spend 4% of current value forever. There are very strong odds that we’ll see real growth over time, since our investments would grow more than 1.5% each year (in real terms) if history is any indicator.

  • Midwestern Landlord

    Justin,

    I have been following your blog on and off for a while now and find it very informative. It is obvious that you have really studied and analyzed tax planning, etc. As they say, “if you think knowledge is expensive, try ignorance”.

    It is fascinating to me all of the early retirement blogs out there today and the multitude of strategies that people employ. I feel in some ways the strategy of retiring early via 401K / stocks etc is the hard way to achieve early FI because of the relatively low rate of return one has to count on for the long haul (4% rule, etc.). In your case, you crossed that bridge due to maximizing multiple 401K accounts and continued frugality. And the bull market for several years helped as well. I have seen very few people achieve early FI by doing it this way. Congrats!

    My way was through investment real estate which I think has a lot of benefits for early FI. Granted, I have tenants to deal with. But for me it is a small price to pay for early FI. There are a lot of days I have very little or nothing to do (which is the way I like it). I like the idea of rents going up with inflation, getting paid in lots of ways (cash flow, principal reductions, appreciation, etc), and having something tangible that I can improve and control to some degree. I can’t really do much of that with a stock.

    • I’ve dabbled in real estate and decided I didn’t like it enough to pursue that route to FI. But to each their own of course! I would tell people that want to have a shot at multi-millions in their 30’s to aggressively pursue real estate since you can leverage your investments very well that way. Even saving as much as we did, we wouldn’t have had more than $2-2.5 million by the time we hit 40 if we invested in index funds like we did.

      That said, we do have a significant portion of our net worth in real estate (11% of our investment portfolio plus another 10% of our NW in a paid off house). Those REITs are nice – diverse real estate holdings across the world and they are truly passive.

      • Midwestern Landlord

        For me, I just wanted to create an income stream that would replace my job income so I didn’t have to work for the man anymore. I did not have the discipline or frugality factor to move the needle quick enough to do it with paper assets. Your example is probably one of the best that I have seen.

        The beauty of early FI is there is more than one path. Everyone has to decide for themselves what they are comfortable with. And certainly the geographic location that one lives in, background, and personal interests play a roll as well.

  • We were planning a post on how we’re shaping our retirement budget around the ACA to maximize our subsidy, but based on your comments here, I’m rethinking that. Not that we can’t take some criticism, but I just don’t want to invite that kind of energy. And as for the folks painting you as a big mooch, can we be clear about something?

    YOU are not getting the subsidy. The corporate insurance giants are getting it. If people feel the need to get outraged about something, get outraged about that. Or about Congress not creating a single payer option when they shaped the ACA. Or even about the individual mandate, though I happen to think that’s a big positive.

    In any case, I am impressed by your handling of the comments. 🙂 Thanks for sharing your budgeting approach with all of us — super helpful to see!

    • I’d be down for a single payer option. I’m just not that interested in being a health insurance and billing expert and a pro navigator of the Healthcare.gov exchange. Yes, I would still get subsidies I don’t need but it would probably be more equitable for everyone.

  • If you are going to donate money, please dont.
    Just go around and take that same donation and help somone out, or many people whatever amount we are talking about. The joy would be inmense.
    If you give a donation to a charity, bet money that 85% is wasted!

    • Good point! But there are some charities that are 90% vested in actual charity — go figure! You can look them up on one of those charity rating sites –sorry, can’t remember the names. Also, I figure going local is best. Yeah, not one freakin’ cent to United Way or Red Cross to help fund their CEO’s golden handshakes. They have enough corporate support (and every company I ever worked for would gently badger employees into donating to United Way — you were supposed to walk around sporting the little pin).

      I know much good is done by these big, well, corporations. I just figure my puny amount will be better appreciated by local groups. Here in LA we have so many food banks and local charities that have proven to be responsible with donations. T

      hank you, andy, for reminding me to quit thinking “kindly” and actually do it. Cheers!

    • I use Charity Navigator to help determine the best charities to give to when we do make financial charitable contributions. They have rankings of how much of a dollar actually goes toward the charitable purpose vs. admin/overhead expenses.

  • I love your blog and thank you so much for sharing your financial journey. I learned a lot. My opinion on the ACA subsidy is that you should use it if you qualify. Companies use tax loopholes such as offshoring and end up paying $0 in taxes. Super rich use tax loopholes all the time to save millions of dollars. Taking advantage of legal loopholes when possible is smart in my book.

  • You’ve mentioned before that you include longer term repair items in your budget, such as roofs or HVAC units. This means you’re allocating money in a given year that you might not spend for several years in the future.

    My wife and I do this by putting a little bit of each paycheck into specific savings accounts for home repair, new car, etc.

    You’re spending down a portfolio, so my question is: do you dutifully pull that long-term repair money out of your investment account and save it somewhere until you spend it? Or do you leave it invested until you need it?

    • Oh, yes. I had the same question.

    • “You’re spending down a portfolio, so my question is: do you dutifully pull that long-term repair money out of your investment account and save it somewhere until you spend it? Or do you leave it invested until you need it?”

      I don’t really have a fixed way of dealing with those lumpy expenses. I don’t have separate accounts segregated to cover home repair, new car, and other large capital purchases. I figure it averages out over a few years. 2014 we spent almost $9,000 on major home improvement. 2015 = $0. In 2016, we’re likely to spend $5-7k on a new(er) car and nothing on major home repairs. 2017 will probably be zero for the major purchases. 2018 or 2019 we’ll need to replace the roof probably, so $4-6000. That’s a little over $3,000 per year over the six year period 2014-2019.

      I guess I would say we leave the $ invested until we need it. I don’t pull out $1500 for home repairs and $1000 for car replacement every year. This year if we buy the new minivan, I’ll probably sell some investments to replace the funds spent on the minivan.

  • Hey that seems like a great budget plan, and you can always adjust as you go along. Going down to a 1 car seems like a good way to save dollars, so you can increase the travel if you need to. Good luck, and looking forward to the next travel post.

    • That’s my thinking, too (as I outlined in the Go to 1 Car? post). We could have a nicer, newer car for the same money as our 2 older cars. It also frees up cash for travel or other fun stuff as you say. I’m constantly looking at our almost unused cars in the driveway and thinking what a waste they are. We have to intentionally make sure we drive both of them so they don’t sit too long without running.

  • Wow, that’s pretty impressive! For two people we spend a heck of a lot more than that. Granted, we have a *lot* more health care costs than other people (both have chronic conditions). So that (and the associated convenience taxes) is where a lot of the money is going.

    Congrats on keeping expenses so low!

    • Yep, I just checked and between health costs (very rough, probably a little low) and taxes, we spend $30,000. Still means our average spending is a tad high, but we’re working on it.

      • But still an excellent total! I would be proud!

      • Ouch. Yeah, that doesn’t sound like fun at all. 🙁 I assume you’ve shopped the exchanges and looked for plans that would cover as much of your medical costs as possible (assuming the higher premiums don’t offset the savings)?

    • Healthcare costs could easily jump if we encounter a chronic condition but so far so good. That would certainly take care of our budget surpluses in a very unfortunate way! Healthcare costs are also one of our least predictable costs because future health is hard to predict (to put it morbidly, we’re all one car accident or one cancer diagnosis away from major medical costs!).

  • Great post! I don’t mean to disrespect our elders, but I bet you could give these folks some fabulous advice!

    http://graphics.latimes.com/retirement-nomads/#nt=outfit

  • ‘My long term goal is to enjoy our money by spending what we can.’ Just so awesome! Go you guys! What a great attitude and effort. It’s not just the saving — it’s the fun of life, too, as you mention. Thanks for sharing this!

    • It’s really a different mindset than when we were saving and investing to reach FI. Since Mrs. RoG continued to work for 2.5 years past when we reached FI, we have even more money than we planned on. Nice problem to have I guess!

  • As far as I’m concerned, healthcare is just a part of doing business in this country, and there is absolutely nothing wrong with getting the very best price that you can under the law. Rich or poor, high income or low income, red, yellow, black or white – if a subsidy is available to assist in paying for a government-required expense, then why would anyone NOT take advantage of that?

    The backlash in the comment section of this post is confusing.

    Are rich people not allowed to buy products when they go on sale “because they can afford not to”? If we choose to save our money instead of spend it, should we get rewarded by undergoing a series of complicated and bureaucratic “means testing” to ensure that we don’t get access to the same things as others?

    The government wants as many people happily participating in this system as humanly possible. I know they bill the subsidy (and the ACA thing in general) as something to “help the poor”, but we all know that’s a bunch of hooey. The more people that pay in and participate, the more likely the program will succeed and pad the resumes of those who were integral in its establishment. They want people to take advantage of subsidies because it reduces the risk of a backlash.

    After all, it’s not like many of us actually have a choice. We are required under the ACA to carry health insurance. Plans are subsidized based on current level of income. If you have no income, you qualify – period.

    It’s okay to oppose the subsidy requirements, but attacking those people who take the perfectly-legal subsidy while claiming moral high ground is nonsensical on its face.

    …in my most humble of opinion… 🙂

    • Pretty much my take on the issue. I’m just stating my income when I apply for coverage on the exchange and filing my taxes. I get a subsidy now, I may not in the future.

  • I’m someone who followed you from another forum . I recall you had student loans and talked about deferring payments or keeping your income so low that the debt would be forgiven.

    I don’t see an item in your budget for student loans payments, in the interest of full disclosure would you care to talk about your handling of this item?

    • It’s not shown in the budget because the monthly payments are zero or near zero. I just recertified my income for 2016 under the IBR and if they accept my income statement, we’ll pay zero per month in 2016 (we don’t make over 150% of the Federal Poverty Level).

      I mentally set aside $20,000 from my portfolio to cover the present value of future student loan payments plus the income tax we’ll owe if the loans are forgiven in another ~20 years. Any loan payments would come from this $20k lump sum.

      I’m hoping to publish a few articles on student loans, the Income Based Repayment program and ways that the system can be used and abused. If this post generated controversy, then I imagine my student loan/IBR posts will blow up!

  • When charitable donations become a requirement of a certain $ amount, they cease to be donations and become taxes. I pay plenty of taxes already, as i’m sure you have.

    Until I discovered MMM I was donating $500 per year, now it’s $0. I’ll donate again once I reach freedom, but it’ll be more time than money, and it won’t be to big organisations like Red Cross who waste most of it on telemarketers and advertising.

    Anyone trying to tell someone else how to donate can go to hell.

  • Jumped down here before finishing the post because I find it so entertaining that the “Entertainment” category in your 2016 is 2.5x larger than usual an “includes liquor.” Hmm, you must be missing work, right?

  • Phew! That was a rough comments section to get through. I too am impressed with your grace in responding to criticism, not sure I could stomach it. After tallying our expenses this year I realized our charitable giving was accidentally next to nothing, we normally give a couple hundred a year despite getting no deductions for it for many years now. Sadly (?) we make too much to take advantage of most tax shelters including the loss of contributing to Roth IRAs…why is it our government penalizes high earners by disallowing retirement savings programs even on money that is already taxed at the marginal rate? So yeah, if the ACA still exists in some form in 5 years or so, you better believe we’ll be crafting our income to squeeze out some of that sweet subsidy nectar.
    Two things I really wanted to mention though: 1) by vacating a job, all early retirees are improving the job market despite what the stats say (technically ERs are counted as part of the “employable” crowd), and 2) In relation to Mrs. RoG not needing to buy more work clothes- I realized a couple months ago that I’m hopefully done buying clothes strictly for work and it made me incredibly happy! I’ve seen the spoilers about her situation, but it’s a great feeling I’m sure!

    • It’s the internet; people have license to be assholes instead of decent human beings. 🙂 Once you start discussing facts and policy a lot of people come around to the conclusion that they are guilty in some way as well, and therefore can’t rightfully cast many stones at others.

      And you’re right – our early retirement created two jobs! And we’re spending more money now than while working (mostly travel budget). Win win win for the economy.

  • I quit working 2 yrs. To bad back. So no unemployment because i quit. Im filing for ss disability now with a lawyer. Its been 2 yrs. Since i filed. I had 2 surgerys last yr. Appendix and gallbladder(WITHIN 14 MONTHS). Our part with insurance (thru my husbands) was 17, 000.00. We paid it because we are honest johns. We only have 30k in our savings. So what can i do, or what loop hole can i take where, when a medical emergency doesnt wipe us out. My brothers live in girlfriend and kid get free NYS INSUR. BECAUSE THEY R NOT MARRIED(WE R IN NC) SHOULD MY HUBBY OF 33 YRS. SEPERATE SO I GET FREE HEALTH INSUR???!!!

    • Tough question. It might make sense to separate so you could qualify for ACA coverage that would be free/cheap (assuming you are currently ineligible due to insurance being available through your husband’s employer). Not dying due to lack of medical care is more important than a piece of paper that says you are married (and I imagine your husband would agree!). But I would give it a couple of months to see if the ACA or some replacement plan will be there for you.

      This is a gaping hole in the ACA coverage by the way. Families that have insurance provided through someone’s employer is “affordable” for one person but becomes too expensive for spouse/family coverage (and often comes with high deductibles).

      Best hopes you get access to health care of some sort that’s affordable!

Leave a Reply

Your email address will not be published. Required fields are marked *