Do you need 70% of your pre-retirement income

[Rustic23]

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.

 

[shortstop14]

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.

 

[timo2]

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.

 

[imoldernu]

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.

 

[Meadbh]

Recent article

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

 

[growing_older]

I've always had income tax deducted from my salary while working, so I'm most used to planning for expenses in an after-tax world. Likewise, medical insurance is an employment benefit, so that isn't in my current budget except for co-pays and the like. In planning for ER expenses, I expect my ordinary expenses to remain more or less the same (not 70% or 80%, but pretty much identical) but I will have to account for paying income taxes and medical insurance instead of having them deducted before I see the money. So it will feel to me like expenses went up from what I'm used to while working.

On the other hand, as I'm saving more than 20% as I push toward ER, I will still be spending much less than my gross income. I suppose I could figure out what percentage I'm spending from that gross salary number, but it's pretty much meaningless to me as that's not how I budget or think of expenses.

 

[Big_Hitter]

Recent article

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

I'll wait for the second installment...

 

[Sea Kayaker]

For us, perhaps 30%...or less.

A indicator of how high our incomes were, and how little we have to spend to be in our "happy place".

 

[wmc1000]

for us it was 75% pre-retirement w/mtg. and is 60% in retirement - no mtg. and same standard of living adding HC costs

 

[friar1610]

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