The first three steps in our Recommended Financial Planning Process involve estimating your annual recurring and non-recurring expenses in retirement and categorizing those estimated expenses as either “Essential” or “Discretionary.” In this post, we suggest that you begin this process for 2022 planning purposes by gathering your actual spending data for 2021. In a future post, we will encourage you (as we do every year around this time) to perform an actuarial valuation of your assets and spending liabilities using your estimated future recurring and non-recurring annual spending.
Because 2021 was a Pandemic year and because prices for goods and services have been increasing faster than normal recently, you may wish to compare 2021 spending with prior year spending and/or adjust 2021 spending to reflect higher inflation expectations before inputting your expected recurring expenses in the Actuarial FinancialPlanner for 2022 and future years. And, if your expectations for non-recurring expenses for 2022 or later years has changed, you will want to reflect those changes in inputted non-recurring expenses.
You may want to use something like the table below to determine and categorize your actual 2021 expenses. The breakdown of recurring expenses is shown to help you in this process. It is not terribly important, for planning purposes, that you allocate these expenses into the “proper” category, but it is relatively important that the total of your recurring expenses, however allocated, equals your total recurring expenses for 2021 and that your total expenses fairly accurately captures your total spending for 2021.
Another purpose of gathering actual spending data for 2021 is to compare that data with the spending budget you previously developed for 2021, assuming you developed a budget for 2021. If you are consistently spending more or less than your spending budget each year, you may wish to consider revising your spending habits.
2021 Expenses
Expenses | Essential | Discretionary | Total |
| - Housing | |||
| - Food & Drink | |||
| - Clothing | |||
| - Healthcare | |||
| - Entertainment | |||
| - Charity & Gifts | |||
| - Other Recurring | |||
Total Recurring Expenses | |||
Total Non-Recurring Expenses |
Summary
We are closing in on the end of another Pandemic Year. We ask you to think about beginning your financial planning for 2022 fairly soon by collecting your actual spending data for 2021. In a future post, we will encourage you to use this data in your annual actuarial valuation of your assets and your future spending liabilities.
Best wishes for the Holidays from Bobbie and Ken, and be sure to avoid the Omicron variation.
