Hi BMracek,

Utilities, house insurance and taxes would be considered an expenditure that you'd want to replace in retirement in our example (so you wouldn't subtract it).  The idea of the formula is to get a rough idea of expenditure on personal consumption  - so, rather than tally all of those expenses, we figure out what those expenses must have been by calculating how much money there actually was to spend (household income less the big ticket items: kids, taxes, and savings).  

Having said that, for personal financial planning, tracking your own expenses is the better approach for people willing to do that, since you can be much more exact about where the money is going and what needs to be replaced.  In the assessment of retirement income adequacy, there is no substitute for individual knowledge since only the individual will have the necessary information about expenditure, savings, retirement expectations, sources of retirement income, etc.