Most people don’t realize that underestimating their retirement expenses by even $1,000 a month can meaningfully shift the long-term success of their retirement plan. Unfortunately, many people rely on rough estimates or generic formulas to predict spending, but those approaches can overlook important details and create unnecessary stress later on.
Here’s why traditional methods often fall short, and how one couple used a smarter, more personalized approach to understand their true retirement spending needs.
Karen and Tom’s Retirement Snapshot
Karen (64) and Tom (62) are preparing to retire soon. Their goals are straightforward: maintain their lifestyle, keep taxes manageable, and preserve options for their family.
Here’s their financial picture:
- Total assets: $1.5 million (TSP + brokerage)
- Savings: $30,000
- Home: $500,000 value with $100,000 mortgage (paid off in 3 years)
- Income: $180,000 combined
- Charitable giving: $8,000/year
- Debt: $600/month car loan
- Pension: $4,500/month (Karen’s federal pension)
- Initial retirement expense estimate: $6,000/month after-tax
- Portfolio allocation: 75% stocks, 25% bonds/cash
At first glance, their plan appears comfortable.
But one key question remained:
Were they estimating their spending accurately enough to build a dependable retirement plan?
Even small miscalculations can create ripple effects over time.
Why Traditional Budgeting Methods Fall Short
1. The “Back-of-the-Napkin” Budget
This is the list many people jot down based on memory: groceries, utilities, gas, travel, and so on.
But this approach may leave out:
- Home repairs
- Vehicle maintenance
- Gifts and holidays
- Insurance increases
- Medical expenses
- Inflation-sensitive costs
Individually, these seem small, but collectively they can shift spending patterns substantially.
2. The “80% Rule”
This rule suggests you’ll need about 80% of your current income in retirement.
The problem? Real life rarely fits into a broad formula.
The “80% rule” doesn’t consider:
- Your specific lifestyle
- Travel goals
- Debt payoff timing
- Charitable giving
- Differences between work-related expenses and retirement life
Generic rules don’t reflect the realities federal employees face.
The Real Impact of a Small Miscalculation
Karen and Tom initially assumed they needed $6,000/month. Running that number through a long-term projection showed a strong chance of success through age 93.
But what if that estimate was off?
If their real spending was closer to $8,000/month, the probability of their plan lasting dropped to around 28%.
That’s a meaningful shift, showing just how important it is to start with accurate numbers.
A Smarter Method: Live, Give, Owe, Grow
Instead of relying on guesses, Karen and Tom used a straightforward system built on their actual income and spending patterns.
Live
This category includes all regular life expenses, including taxes (federal, state, and property taxes) along with utilities, groceries, insurance, healthcare, home costs, and everyday living expenses.
Give
Charitable giving and donations (for them, $8,000/year).
Owe
Debt obligations, such as their $600/month car loan.
Grow
Savings and investment contributions (TSP, IRAs, or other deposits).
How the Method Worked in Real Life
Starting with their $180,000 income, we subtracted:
- Their total tax burden
- TSP contributions
- Charitable giving
- Car loan payments
What remained was their actual lifestyle spending:
-> $6,800/month: not the $6,000 they initially guessed.
That seemingly small difference of $800/month makes a meaningful difference over decades.
What This Revealed
Using their real number gave Karen and Tom:
- A more accurate view of spending
- A clearer understanding of how their savings might respond
- A better sense of where adjustments could help (for example, increased contributions or improved withdrawal strategies)
Their retirement plan still worked—but with a success probability closer to 65%, signaling that small refinements could strengthen their long-term outlook.
Why This Method Works
“Live, Give, Owe, Grow” creates clarity by:
- Reflecting actual spending
- Capturing variable costs that traditional budgets miss
- Adjusting naturally when payroll taxes or retirement contributions disappear
- Helping retirees align their spending with their goals
- Supporting better tax planning for withdrawals
Most importantly, it adapts easily as life changes.
The Big Takeaway
Accurately estimating retirement expenses is one of the most important steps in building a confident retirement plan. Even small errors can compound over time.
Using a personalized method based on your real numbers—not guesses—helps create a clearer, more reliable retirement roadmap.
If you’re a federal employee preparing for retirement, our team here at Christy Capital Management can help you understand your actual spending and build a plan that supports your goals.
Click the “Talk with an Advisor” button above. We’ll reach out to find a time to connect and see how we can help.
Compliance Disclaimer
The information provided is not intended as tax or legal advice. Figures shown are for illustrative purposes only. Furthermore, the information or illustrations provided may not be used to avoid any tax penalties. This content represents the general views of Christy Capital Management, Inc., a Registered Investment Advisor, and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.
