Those of you reading this blog’s articles every week may have been startled a few times whenever I mentioned how I am aiming for $15,300 (in 2021 dollars) in annual retirement expenses. One loyal reader even told me once that he was afraid I’d run out of money before the end of the year.
Also, you have access to my monthly reviews and you’ve probably noticed that I am far from the mark.
I have therefore decided that it’d be relevant to write an article about my current annual expenses. I will also break down how I plan to optimize everything, in order to make $15,300 in annual expenses realistic once I retire.
My Current Expenses
As already detailed in my article about lowering expenses, here is an estimate of my current expenses.
| Expenses | Amount | Annualized |
|---|---|---|
| Housing | ||
| - Rent - Hydro-Québec - Home Insurance | $497.50/month $29.50/month $14.48/month | $5,970.00 $354.00 $173.76 |
| Car | ||
| - Payment - Auto Insurance - Gas - Registration - Oil Change - License | $403.85/2 weeks $48.12/month $10.00/week $230.43/year $100.00/6 months $86.34/year | $10,500.10 $577.44 $520.00 $230.43 $200.00 $86.34 |
| Food | ||
| - Groceries | $50.00/week | $2,600.00 |
| Subscriptions | ||
| - Mobile Phone - Home Internet - Spotify - Netflix | $31.57/month $28.75/month $7.15/month $7.00/month | $378.84 $345.00 $85.80 $84.00 |
| Donation | ||
| - CanadaHelps | $10.00/month | $120.00 |
| Cats | ||
| - Food - Litter | $30.00/month $10.00/month | $360.00 $120.00 |
| Total: | $22,705.71 |
You’ve probably noticed that some expenses are not what one might really consider fixed. However, since I track my expenses every month, I can easily estimate a fairly representative average.
Optimizing Budget Items
You’ve probably noticed that I am currently almost $7,500 overbudget. I am well aware of this. Let’s see how I could optimize my expenses to live on $15,300 per year. 🙂
Housing
For this budget idem, I’ve already talked about what my plan is shaping up in my article about my 2021 goals.
Currently, I am renting a 2-bedroom apartment with my sister. I live about ten kilometres from my workplace. Once I retire, I’ll no longer need to live near the workplace. Although my retirement plans involve quite a bit of travel, I’d still like to have a place to go back to in Quebec.
Thus, the most logical choice for me would be to buy my mother’s house in my small hometown. Since she lives far from civilization, the house is definitely a cheap deal. With the interest rates as they are now, a mortgage on the house would cost me about… $250 per month.
I very freely estimate insurance, taxes and electricity at about $1,000 each per year.
The ideal scenario would be for my mother to continue living there. That way, there would always be someone in the house, even when I’m out exploring the world. My sister is aiming for FIRE as well and could opt for the same kind of arrangement. I could then take care of paying the mortgage, while my mother and sister take care of paying the other house-related expenses, or any other arrangement that would involve sharing expenses.
Car
This particular budget item, as you already know, will be automatically optimized in November 2021 at the latest, when my car loan is fully repaid. This means $10,500 less in annual expenses. 🙂
While I still have a loan on the car, the bank requires I have full insurance. Once the loan is repaid, I may consider changing my insurance shortly thereafter and drop collision and comprehensive coverages. I called my insurer to find out how much my premium would be and I learned it would go down from $577 to $336 per year.
As far as licence and registration are concerned, it won’t change. Obviously, it’s more likely to increase slowly but surely.
Gas could very well increase at times (both the price and my consumption), just as it could remain very stable at other times. I’ll estimate double what I’m paying right now, just to be on the safe side.
Finally, for all maintenance, including oil changes and repairs, I’ll have to plan for a larger amount. My car is starting to age and when I reach FIRE, it may start to need some love! I think it would be reasonable to budget for about $750 a year.
Food
On that front, apart from the normal food cost increase, there should not be a big difference. Fluctuations will mostly happen according to where I’ll be in the world. Food is ridiculously cheap in Southeast Asia, for example. However, feeding myself in Europe could be a whole other story. While I am in Quebec, it will be more or less the same price I am paying now, plus inflation.
I am already careful to buy groceries on sale, in large quantities (economy of scale), I avoid restaurants, I meal prep and I make sure I don’t waste anything. These are all good habits that I intend to maintain. Furthermore, I have been eating keto for three years and I don’t plan to change my diet.
Tentatively, I’ll keep the same amount that I am currently paying.
Subscriptions
I don’t see much change happen here.
For my mobile phone plan, I don’t see any major changes. I currently have a $27 (plus taxes) plan with Fizz that suits me perfectly. Abroad, there is always WhatsApp that will allow me to call or send text messages at no charge, as long as I have access to a wifi.
As for home internet, little change is expected. I find that I am already paying a fair price. Actually, it could even get lower if we ever share the bill with my mother.
For Spotify and Netflix, I don’t think I’m going to unsubscribe, since I use these services extensively and it’ll be useful to me no matter where I am in the world. 🙂
Donations
For this expense, I already donate very little. I certainly don’t think I’ll decrease the amount. At the moment, I also give through deductions at source at work, to the tune of $10 per two weeks. There is therefore a better chance that I will increase my donations to reach an equivalent total of donations.
Cats
For your information, my two cats are immortal. Therefore, this expense item will never change.
Hypothetical Retirement Expenses
So, after all these changes, here is a hypothetical retirement budget:
| Expenses | Amount | Annualized |
|---|---|---|
| Housing | ||
| - Mortgage - Home Insurance - Taxes - Hydro-Québec | $250.00/month $1,000.00/year $1,000.00/year $1,000.00/year | $3,000.00 $1,000.00 $1,000.00 $1,000.00 |
| Car | ||
| - Gas - Maintenance - Auto Insurance - Registration - License | $20.00/week $750.00/year $28.00/month $230.43/year $86.34/year | $1,040.00 $750.00 $336.00 $230.43 $86.34 |
| Food | ||
| - Groceries | $50.00/week | $2,600.00 |
| Subscriptions | ||
| - Mobile Phone - Home Internet - Spotify - Netflix | $31.57/month $28.75/month $7.15/month $7.00/month | $378.84 $345.00 $85.80 $84.00 |
| Donation | ||
| - CanadaHelps | $30.00/month | $360.00 |
| Cats | ||
| - Food - Lititer | $30.00/month $10.00/month | $360.00 $120.00 |
| Total: | $12,776.41 |
This is actually a very conservative assumption, as I include all the house-related costs, as if I am not going to split anything with anyone (which I highly doubt). In all honesty, if I am to pay for everything on my own, I would probably choose to rent instead, in the same small village.
Thus, if I were renting, or, as mentioned above, if my mother and sister were paying for the house-related costs, it would be about $3,000 less per year for me.
Accordingly, here is a more optimistic (or realistic) scenario:
| Expenses | Amount | Annualized |
|---|---|---|
| Housing | ||
| - Mortgage or rent | $250.00/month | $3,000.00 |
| Car | ||
| - Essence - Entretien - Assurance auto - Immatriculation - Permis | $20.00/week $750.00/year $28.00/month $230.43/year $86.34/year | $1,040.00 $750.00 $336.00 $230.43 $86.34 |
| Food | ||
| - Groceries | $50.00/week | $2,600.00 |
| Subscriptions | ||
| - Mobile Phone - Home Internet - Spotify - Netflix | $31.57/month $28.75/month $7.15/month $7.00/month | $378.84 $345.00 $85.80 $84.00 |
| Donation | ||
| - CanadaHelps | $30.00/month | $360.00 |
| Cats | ||
| - Food - Lititer | $30.00/month $10.00/month | $360.00 $120.00 |
| Total: | $9,276.41 |
Now, do you understand why I think it’s realistic that I can keep my annual expenses under $15,300? 😉
My current expenses are already quite low. As I write this article, I notice how housing and car-related expenses change everything. Once these two big expense items are optimized, I’ll be able to reach a realistic level of spending to achieve my goal. 🙂
Lean FIRE
Also, let’s take a closer look to my hypothetical retirement budget. Whether you take the conservative assumption ($12,776) or the more optimistic assumption ($9,276), it is still a pretty tight budget for many people.
It reminds me a bit of Lean FIRE. Financial 180 explains the concept as follows:
Lean FI is what my wife and I call the point where you can passively cover all your essential expenses, perpetually. Think food, shelter, and bills. This leaves off all the discretionary frills such as travel, eating out at restaurants, Netflix, etc. It wouldn’t be a super fun lifestyle, but you technically could quit work right now and survive forever. I like to think of Lean FI as an emergency fund that can cover infinitely many months of essential expenses.
For those who are intrigued, there is a full Subreddit about Lean FIRE.
In my case, Lean Fire could actually be reached at around $200,000 (or $8,000 in annual expenses), when I leave out Netflix, Spotify, mobile phone plan, etc. It could even be less, if I were to forget about the car and the associated costs, for example. You get the picture.
Not very glamorous, but with some extra income, it’s starting to look like freedom!
Buffer
Of course, I would like to actually do something with my time once I’m retired. Lean FIRE is not my goal. So, I think a buffer is of the utmost importance. By aiming for $15,300 a year, I am therefore planning for a buffer somewhere between $2,500 (according to the conservative assumption) to $6,000 (according to the optimistic assumption). Let’s meet somewhere in the middle with a $4,000 buffer.
In my opinion, this would allow me to do enough activities to keep me busy, in addition to my favourite hobbies that are already inexpensive. That’s the equivalent of $333 a month or $76 a week for activities, restaurants, or others. Considering my current lifestyle, this would be fine with me.
This amount could also absorb other needs, such as clothing, for example. Considering that I already buy most of my clothes used, I don’t foresee big expenses on this front. The buffer could therefore absorb it.
In terms of major expenses that I plan on having during retirement, such as travelling, Travel Hacking will be my friend. My points and miles will allow me to travel at low costs. 🙂
Geographic arbitrage will also be a powerful ally. The beauty of early retirement is that I will have the freedom to go where I want, when I want. It’s getting a little too expensive in France? Perfect, let’s go visit Eastern Europe. I’m starting to bust my budget in Japan? Next destination: Thailand! It’s all about balance. 😉
Never Forget About Inflation
Of course, this $15,300 is in 2021 dollars. I have already mentioned this in other articles, but we must never neglect inflation while doing projections. For example, by applying 2% inflation until 2026, which is the year I expect to reach FIRE, I get :
- 2021: $15,300
- 2022: $15,606
- 2023: $15,918
- 2024: $16,236
- 2025: $16,561
- 2026: $16,892
I can’t wait to see how accurate those projections will be. Many bloggers have actually noticed that their expenses changed very little from one year to the next, either before or after FIRE. So, I may even be too cautious in my projections. Can’t wait to find out! 😉
Killing Two Birds With One Stone
The main advantage of having a low level of annual expense is that I won’t need millions of dollars to cover it. With the 4% rule, that means I would only need a nest egg of about $382,500 in 2021 dollars.
Whereas if I were to start splurging and have to estimate my expenses at $40,000 a year, for example, then I would need literally over $1 million. In fact, to cover $40,000 in annual expenses, I would actually need $50,000 in gross income. And still using the 4% rule, to withdraw $50,000 per year, you need… 1 250 000 $.
Let’s just say that would move up my FIRE date by several years. Personally, I prefer to lower my expenses.
Of course, that’s a worst-case scenario where all income comes from an RRSP and is taxed accordingly. There would be a way to lighten the tax bill by making withdrawals from a TFSA (which I don’t recommend at first) or from a non-registered account. Still, we must always take taxes into consideration.
Which brings me to the second advantage of having low annual expenses. By aiming for $15,300 in annual expenses, I make sure that I pay as little taxes as possible. This amount is actually quite close to the basic personal amounts ($13,808 at the federal level and $15,728 in Quebec in 2021). The tax payable would therefore be really minimal. In fact, it would be $187, according to this calculator. Of course, that’s if I were to withdraw it all from my RRSP. If I do a happy mix of withdrawal from an RRSP and a non-registered account, then there’d be zero dollars in taxes to pay. 🙂
Long Live Frugality!
So that’s how I plan to live on $15,300 once I retire. Personally, I think it’s realistic according to my personal needs. I spend very little and I don’t think that will change once I retire. The small nest egg needed to cover this amount and the tax advantages encourage me even more to maintain my frugality.
Also, if I ever run out of money in October, like my faithful reader fears, I’ll improvise. I consider myself resourceful and creative enough to find a solution!
I am very curious about how much you expect to spend in retirement. 🙂
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