Prior to entering into retirement, it’s a good idea to get a handle on your monthly costs. That way you can understand if the budget you are proposing to live on will be adequate.
While I’ve been tracking my costs, unfortunately we’ve been living overseas most of this time, so our Australian costs might be a bit different.
To find out what our costs have been, I worked out our costs for December 2017 through to June 2018 inclusive.
Excluding discretionary costs, our costs less rental income have been about $2,850 per month. If I also exclude discretionary, petrol and work expenses, it’s about $2700 per month (or about $32.4K per year). If I look at costs without the rental income, they are about $3,500 per month or about $42K per year.
The discretionary costs are meant to capture costs which we wouldn’t normally pay during the course of a year. This year they have been quite high (mainly because of our return to Oz) and have included a new Solar system, new furniture, a new alarm system, cost of returning furniture from storage, new fridges and various others.
In the latest year end review, in one of the options we are proposing to stay in the PPOR with a budget of about $80K per year. This means roughly we should have about $42K for regular expenses, and about $38K for any other additional expenses (e.g. unexpected house maintenance or medical expenses, holidays etc).
How do our costs stack up against other people in retirement? This report helps with a response to his question.
They find that the actual costs in retirement are quite low, tend not to vary by income, tend not to vary by age, and tend to vary by location (with Sydney and Melbourne being much higher than elsewhere).
The average spend per year in 2014 across Australia was about $31K (about $33.5K in 2018 dollars). In Sydney it was about $44K (about $47.6K in 2018 dollars).
Conclusions
On the basis of our costs to date, the option of retiring at the end of the year and staying in the PPOR is looking good from a financial point of view. Our non-discretionary costs are modest and well within budget.
Retiring early for Australians 