Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 09-16-2015, 11:27 AM   #61
Thinks s/he gets paid by the post
 
Join Date: Sep 2012
Location: Seattle
Posts: 2,906
I agree with you Beowulf except I do not think it is required to spend a ton of money on trips around the world when you probably have not seen quite a few amazing things within 1000 miles of your home (which sits unused for 50% of the year and is thus a pretty big wasted expense).

Is renting a small 1 bd apartment and using that as a base for trips like hiking the West Coast trail on the outside of Vancouver Island for a week with a total cost of less than $500 really that much less of a life experience than getting groped at the airport, catching a cold on the flight, then crowding in an elevator to go up the Eiffel tower, for a total cost of $5,000?

But both things may require you to be young enough to be physically capable of the journey.
__________________

__________________
Fermion is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-16-2015, 12:10 PM   #62
Full time employment: Posting here.
 
Join Date: Nov 2010
Posts: 588
As I ran numbers for us, 70% in retirement with lower taxes is equivalent to 100% with wages.
__________________

__________________
devans0 is offline   Reply With Quote
Old 09-16-2015, 12:16 PM   #63
Recycles dryer sheets
beowulf's Avatar
 
Join Date: Oct 2007
Posts: 466
Fermion - we traveled on a tight budget for shorter trips for many years when we had young kids and before we retired and had limited annual leave. We did get to see most of the US that way, but overseas trips were rare. We could travel much more economically than we do now - but why? At our age there is no cheap way to see the wonders of Patagonia or sail off the northern coast of New Zealand or visit vastly separated Pacific islands. Actually, going to Paris is a lot cheaper than $5K if you are willing to travel in the low season. 175 sq foot ship cabins are still fun if you're young, but, as you age, a bit more room for a 30 day cruise is nice. We are finding great prices in Europe due to the strength of the dollar against the Euro. When we were there a few years ago, it was $1.40 and more per Euro. In April of this year, we were paying $1.08 per Euro .

We have and will rent apartments for trips that are at least two weeks when we can a base camp. But our house is paid for, so that makes it cheaper than a huge storage unit . And we have lots of friends where we live - and they keep asking us if we've moved .
__________________
Mission accomplished - not necessarily ER, but certainly R.
beowulf is offline   Reply With Quote
Old 09-16-2015, 12:30 PM   #64
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by beowulf View Post
I'm confused by all the comments about "we spend XXX.....not including taxes, health costs, housing, and whatever." To me, the only true measure of expenses is what you spend - and that includes housing, health, taxes and anything else that passes from your hands to someone else. If all your outgo comes to $100K a year, you don't get to subtract items that you don't think are expenses. If it goes out the door, then it's an expense and part of your budget. Savings by any means are not part of expenses.
Depending on your after-tax savings rate, it may be fair not to include taxes in the expenditures. For example, your take-home is $60K but you save $20K and only spend $40K. For single living in CA, that's a withdrawal of $77K ($12K+5K tax) versus just $47K ($5K+2K tax). More so if you plan on relocating to a lower COL area with no state income tax upon retirement.

There's also cases like Fermion's where income taxes are much higher than actual expenditures due to having very high income. I reckon it's safe to assume he won't be withdrawing $400+K a year in retirement ergo, taxes should be much lower than the $60K he's paying now.

Housing, you still pay property taxes, maintenance, etc but the mortgage might be paid off already so that's possibly one less thing on the retirement budget.

As for health, that may just be because someone is covered by employer health insurance and doesn't know how much individual insurance would cost particularly if playing the ACA subsidies game.
__________________
hnzw_rui is offline   Reply With Quote
Old 09-16-2015, 02:02 PM   #65
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,869
I split taxes into 2 parts. One part are the minimum amount of taxes I expect to owe. Some of those taxes such as property taxes do not vary by income so they are a truer annual expenses than some of the income taxes. With income taxes, I have a basic amount I expect to pay assuming a certain amount of reasonable and reliable investment income such as monthly and quarterly dividends. However, cap gain distributions are highly variable, ranging from zero to a large spike. With cap gain distributions, if they spike in one year then my income taxes may also rise, as they did in 2010 when one of my bond funds had a huge short-term cap gain distribution. However, the only reason my tax bill rose was because I had that added income so it was a certainty I would be able to pay the added income taxes. I don't budget for those income spikes, nor do I budget for the income tax spikes.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is online now   Reply With Quote
Old 09-16-2015, 02:26 PM   #66
Thinks s/he gets paid by the post
frayne's Avatar
 
Join Date: Oct 2002
Location: 19th Hole
Posts: 2,532
Quote:
Originally Posted by unno2002 View Post
opinion: The key to what matters is pre-retirement spending, not income. Our retirement income is more like 30% of our pre-retirement income, but is in line with our pre-retirement spending. While working, the rest we invested.
bingo
__________________
A totally unblemished life is only for saints.
frayne is offline   Reply With Quote
Old 09-16-2015, 02:31 PM   #67
Recycles dryer sheets
beowulf's Avatar
 
Join Date: Oct 2007
Posts: 466
Sorry, hnzw rui, I don't buy that logic. Either you pay taxes, medical and home related expenses or you don't. If your home is paid off, then you don't include the mortgage. If you pay property tax, maintenance. etc., then you include those. We are talking pre and post retirement here, not a "what might be" picture.

I am retired. I know what I spent before I was retired and what I took in. Now that I am retired, I know the same information. It's just in different categories, and, as I said in my post, unless I am running up credit card or other debt, what I get in retirement, plus what I withdraw from other resources, equal what I spend. The fact that my investments might increase or decrease so that my actual assets at the end of the year are more or less than I started with has nothing to do with how much I spend or bring in. If you relocate to a lower cost area after retirement, great, and that would lower your costs. But, in the end, you still spend what you spend and take in what you take in (or withdraw).

You can project all you want, but you really don't know your actual numbers until the end of the year and you have to include everything to be honest about the comparison between before and after retirement.
__________________
Mission accomplished - not necessarily ER, but certainly R.
beowulf is offline   Reply With Quote
Old 09-16-2015, 03:20 PM   #68
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,018
Quote:
Originally Posted by beowulf View Post
You can project all you want, but you really don't know your actual numbers until the end of the year and you have to include everything to be honest about the comparison between before and after retirement.
I agree. Taxes have to be paid and if one does not have a pension, one must withdraw from one's portfolio to pay them. The exception that I make is asset reallocation. For example, I recently withdrew $$ from my taxable portfolio to invest in an income property. That was a reallocation from equities to real estate (fortunately just before the recent correction).
__________________
Meadbh is offline   Reply With Quote
Old 09-16-2015, 04:25 PM   #69
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by beowulf View Post
Sorry, hnzw rui, I don't buy that logic. Either you pay taxes, medical and home related expenses or you don't. If your home is paid off, then you don't include the mortgage. If you pay property tax, maintenance. etc., then you include those. We are talking pre and post retirement here, not a "what might be" picture.

You can project all you want, but you really don't know your actual numbers until the end of the year and you have to include everything to be honest about the comparison between before and after retirement.
For someone not yet retired, a projection really is all you can do. However, there are things you can more or less predict (e.g. paying off mortgage before retirement), expenses you can eliminate (FICA taxes, work-related expenditures, retirement savings, etc) and additional expenses (travel, medical, etc) to more or less figure how much you'll need to budget and save for retirement.

As for taxes, until you're 70 1/2 and taking RMDs, you've got more control over taxes than while you're working. Taxes should be quite different for a couple earning $90K at a job versus getting the same amount from qualified dividends and LTCG. Instead of using the same income tax numbers while working, you can use (presumably lower) estimated taxes from TaxCaster or something.
__________________
hnzw_rui is offline   Reply With Quote
Old 09-16-2015, 05:22 PM   #70
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,146
I treat income taxes as an offset to income. It is income that causes income taxes and it thus seems more intuitive to treat such as a negative income. Obviously property taxes or health premiums are expenses and I treat them as such. If my income taxes go up it is only because my income has gone up more. Income taxes are deducted at source from my pension so it is easier to record the net amount.
Obviously you can treat income taxes as a stand alone expense item, but doesn't seem the best way to me. It really boils down to where you spend your after tax income.
__________________
Danmar is offline   Reply With Quote
Old 09-16-2015, 05:37 PM   #71
Thinks s/he gets paid by the post
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 3,244
Quote:
Originally Posted by Fermion View Post
Lets see, last year we paid $60,000 just in federal income tax (not counting SS or medicare or ACA extras).

Our spending is about $40,000

So we actually don't need 70% of our pre-retirement income, we just need 67% of that federal tax back.
When you figure out how to do THAT, let us all know.
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 09-16-2015, 06:17 PM   #72
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,471
Quote:
Originally Posted by Danmar View Post
I treat income taxes as an offset to income. It is income that causes income taxes and it thus seems more intuitive to treat such as a negative income. Obviously property taxes or health premiums are expenses and I treat them as such. If my income taxes go up it is only because my income has gone up more. Income taxes are deducted at source from my pension so it is easier to record the net amount.
Obviously you can treat income taxes as a stand alone expense item, but doesn't seem the best way to me. It really boils down to where you spend your after tax income.
Same here. My budget is based on my after-income-tax income. My spending doesn't affect my income taxes - only my investments. My income taxes vary widely each year and can't be predicted, but aren't likely to be more than a certain fractional percentage of my investments. As long as I have my budget amount available to spend after withdrawal minus income taxes each year, I'm golden. That's the first calculation I do after calculating my withdrawal amount each year.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 09-16-2015, 06:50 PM   #73
Recycles dryer sheets
Willers's Avatar
 
Join Date: May 2013
Posts: 480
I hadn't really considered this, but was interested after reading this so I checked. Next year (our first in retirement) we plan to spend roughly 25% of our last year's gross income.

We once figured out how much we'd need to spend to blow all of our post-tax earnings (skipping the investments in 401k, IRA's, etc. as many do) and thought about how we would spend it all. We couldn't even figure out how we would. Lottery tickets I guess...?
__________________
“If you don't do it this year, you will be one year older when you do.” - Warren Miller
Willers is offline   Reply With Quote
Old 09-16-2015, 09:22 PM   #74
Thinks s/he gets paid by the post
martyb's Avatar
 
Join Date: Nov 2006
Location: Bossier City
Posts: 2,182
My net pay per year from my COLAd pension is currently $8000 more than my final year working (last year). Wife, still working, brings home almost the same as last year. Except for a $60,000 lump sum that I used to buy a boat (about 1/2) and do a few improvement projects around the house, we don't plan or need to take regular withdrawals from savings anytime soon. When wife is ready to stop working, my Reserve retirement will kick in and replace her income.

Sent from my SAMSUNG-SM-G900A using Early Retirement Forum mobile app
__________________
“Change is the law of life. And those who look only to the past or present are certain to miss the future.”
-John F. Kennedy

“Hard work never killed anybody, but why take a chance?” - Edgar Bergen
martyb is offline   Reply With Quote
Old 09-17-2015, 08:08 PM   #75
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
kcowan's Avatar
 
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 5,720
Send a message via Skype™ to kcowan
We treat income tax as an expense item and so try to minimize it along with our other expenses. Granted there is not as much opportunity on that line item!
__________________
For the fun of it...Keith
kcowan is offline   Reply With Quote
Old 09-18-2015, 11:59 AM   #76
Thinks s/he gets paid by the post
Rustic23's Avatar
 
Join Date: Dec 2005
Location: Lake Livingston, Tx
Posts: 3,624
In general we do not treat income tax as an expense. I have enough taken out of SS, and pensions to cover income tax, so when I look at spend I don't consider it. It is, for us, the same as Medicare. We never see the money. Any money I get back from the government just goes into the bank account and is usually spent during the course of the year, or not.
__________________
If it is after 5:00 when I post I reserve the right to disavow anything I posted.
Rustic23 is offline   Reply With Quote
Old 09-18-2015, 04:48 PM   #77
Recycles dryer sheets
shortstop14's Avatar
 
Join Date: Aug 2012
Posts: 221
Quote:
Originally Posted by kcowan View Post
We treat income tax as an expense item and so try to minimize it along with our other expenses. Granted there is not as much opportunity on that line item!
We're the same, treating it as an expense. It's a variable expense, but in my case living completely off the portfolio it's an expense I can control. First three years of retirement I've been taking capital gains up to the top of the 15% bracket - so income tax has been zero. Another year of that, and I'll start doing Roth conversions up to the same level, so tax will be 15% on that. I have to regard that as part of my withdrawal rate, since it reduces the portfolio value.

My view might change when we start drawing Social Security and small (very small) pensions. Then I might see the tax as just reducing the net income from those sources, rather than an expense out of the investment portfolio. But that's two to twelve years in the future.
__________________
shortstop14 is offline   Reply With Quote
Old 09-18-2015, 04:56 PM   #78
Thinks s/he gets paid by the post
timo2's Avatar
 
Join Date: Jul 2011
Location: Rio Rancho
Posts: 1,438
Quote:
Originally Posted by beowulf View Post
I'm confused by all the comments about "we spend XXX.....not including taxes, health costs, housing, and whatever."
We are planning on having 50% of our gross amount after I turn 70, including 'including taxes, health costs, housing, and whatever". Before that, probably near 60%, but it still includes everything.
__________________
"We live the lives we lead because of the thoughts we think" Michael O’Neill
timo2 is offline   Reply With Quote
Old 09-19-2015, 04:53 PM   #79
Thinks s/he gets paid by the post
imoldernu's Avatar
 
Join Date: Jul 2012
Location: Peru
Posts: 4,616
This may be a little difficult to understand, but a look at the average CD interest rates over the past nearly 30 years, provides a different picture about what one really "needs".

Think this one through... to see what the going savings interest rates were during the time when DW and I retired.

Look at the chart, and imagine yourself today, given the 1984 bank savings rates... then imagine what high inflation could do to the current economy and the effective increase in income and expense.

Suppose you were earning and investing @ 11% ... and a spiking inflation rate in ten years were to go from 11% to .2%...

Times change.
Attached Images
File Type: png cd-rates-history.png (10.6 KB, 21 views)
__________________
imoldernu is offline   Reply With Quote
Old 09-22-2015, 07:12 AM   #80
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,018
Recent article

This isn’t your grandfather’s retirement! Why the 70% income target no longer makes sense | Financial Post
__________________

__________________
Meadbh is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Pre-Retirement Then Post-Retirement Income Transition Planning LongTerm FIRE and Money 43 08-04-2014 11:01 AM
What is your pre-retirement income strategy? iam21177 Young Dreamers 17 03-20-2014 04:24 PM
What %age of your pre-retirement income do you need in ER? nun FIRE and Money 62 01-06-2012 07:02 PM
Poll:What Amount of Your Pre-retirement Income are You Living On? tgotch FIRE and Money 25 12-03-2010 03:39 AM

 

 
All times are GMT -6. The time now is 12:27 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.