Avoiding living expenses estimates in financial planning

[banders]

I was going to reply to my post just below, where living expenses were mentioned, but thought I’d start a new thread for some opinions.

Whenever I read about estimating living expenses, I groan inwardly. If you live in a flat and only have to buy food and pay utility bills, they can be calculated with some accuracy. In my case, though, my situation makes it nigh on impossible for me to come up with a meaningful figure.

So I approach it from the opposite direction: I calculate how much income from working (not passive) I need in order to maintain the financial level from the time when I decided on this plan (Year 0).

I decided in Year 0, with all the various business/home/education loans and other expenses, we can live comfortably earning the ¥x I was then earning. I then drew up a spreadsheet with a column for each future year showing:

① Possible passive income (pensions/drawdowns)

② Payments each year (loans/investments/pensions/health insurance)

③ Net passive income ①-② [useful info but not necessary for calculations]

④ The equivalent income to the ¥x in Year 0, calculated by subtracting each year’s payments ② from the payments in Year 0, then subtracting that figure from ¥x.

⑤ Amount I need to be earning (not passive income) to maintain my financial position at Year 0, calculated by subtracting passive income ① from ④.

Ideally I want ⑤ to be zero, but it doesn’t need to be since I will probably spend less as an old git. Anyway, as I update investment numbers I can at least watch it approach zero. I plan to retire in about 8 years.

Like any method, there are many unknowns, but this method doesn’t require trying to think up a cost-of-living number. It takes a known position and shows how to maintain that.

Anything I'm missing?

[RetireJapan]

Seems incredibly complicated compared to just trying to figure out what your living expenses are likely to be.

(neither version will likely be accurate, but you can get an idea at least and start planning)

[banders]

Seems incredibly complicated compared to just trying to figure out what your living expenses are likely to be.

Not at all. The calculations are basic arithmetic. Trying to conjure up a meaningful living expenses figure, on the other hand, would be pointless (in my case).

[Tkydon]

There are several old threads on F.I.R.E.

https://www.retirejapan.com/forum/viewtopic.php?t=679

https://www.retirejapan.com/forum/viewtopic.php?p=9828

https://www.retirejapan.com/forum/viewtopic.php?t=1599

See what I wrote here:
https://www.retirejapan.com/forum/viewt ... 9&start=10

There are also some good videos I recently found by this guy:

https://www.youtube.com/watch?v=XwXMsvnPYf0

If you own your property it is a very different story than if you have to pay rent for the rest of your life.

Your living expenses probably won't change very much in retirement from what you are spending today, unless you decide to spend the first years of retirement doing the things you always wanted to do, but didn't have the time...

[banders]

Thanks for the links, but they involve calculating living expenses. I avoid that by assuming they will stay the same and estimate how much I need to maintain relative income. For example, say I earn ¥5m a year and have a decent standard of living that I'm happy with. Then if, when I retire, my fixed costs will have decreased by ¥1m and my expected passive income is ¥4m pa, then I'm pretty sure my savings plan is OK because I will be able to continue the same SOL. Living expenses are accounted for in that. No need to calculate them.