Saved well but still not where I need to be

[Global1]

I am 51, married with a daughter in college. I left a fairly senior/global job at megacorp in 2005. Luckily I was able to take advantage of stock options, etc. so my current situation is this:

• $2 million in aftertax accounts
• $700k in IRA accounts
• Small pension (no cola)- $1k/month at 55 - no healthcare
• House paid off/college paid for

Since 2005 I have worked at 3 other companies in senior roles (at current company since early 2009) but my motivation is lagging. What I would really like to do is write business books (I have had one published already) and maybe do a small bit of consulting for limited income. The problem is that our expenses are about $10K/month after income taxes. I track expenses and I really don't feel like there are any huge extravagances - no country clubs, very limited travel, eat out 2/week, etc. Firecalc tells me if I quit today I have a 51.5% chance of success. So I am nervous about leaving the full-time world anytime soon. I feel like I have worked hard to save a good bit but to no avail.

Where did I go wrong? Am I missing something?

Global1

 

[brewer12345]

10k a month expenses is where I would look first. You must be smoking the good stuff, is all I can say.

 

[LOL!]

Perhaps your portfolio is not tax efficient.

You should have $0 on the top part of Schedule B on your tax return and for the bottom part, you should have only qualified dividends. A $2MM portfolio should generate at most $50K in qualified dividends a year and only capital losses. That $50K should have created only $7.5K in taxes. If you have more than that, you aren't investing efficiently.

Your $700K IRA should probably be 100% fixed income where it can be sheltered from taxes.

Does the $10K include college expenses? You said it was after-taxes. You should be paying less than $15K in taxes because you should be adding $22K of your earned income to a 401(k) each year. Spend down the taxable account instead if you feel you can't put $22K into a 401(k). Also you should be contributing to his and her Roths.

 

[Global1]

Yes. I would agree that it seems high but I do pay for our health insurance. We also spend a good deal on home improvements but most of the rest is not extravagances.

 

[Global1]

All of the IRA is in bonds. In fact, AA is 60/40 equity so much of the after tax $ is in bonds. Any equity is in various index funds so very little costs. About $1k/month is college/daughter expense so, hopefully, that goes away when daughter gets a job.

 

[Nords]

Welcome to the board, Global, I think.

I track expenses and I really don't feel like there are any huge extravagances - no country clubs, very limited travel, eat out 2/week, etc. Firecalc tells me if I quit today I have a 51.5% chance of success.
Where did I go wrong? Am I missing something?

FIRECalc doesn't care what your opinion is of your "huge extravagances", if you're spending $10K/month after taxes then you're gonna need a huge pile of money to sustain that spending.

Assuming that'd be $12K/month before taxes, you're looking at about $3.6M. The vast, vast majority of the ERs on this board have done it on a fraction of that amount-- almost all below $2M and a large minority below $1M.

You're making me feel a lot better about spending more than $6K/month, many months. Before taxes. Frankly a big chunk of that is mortgage debt. And we don't have anywhere near that amount in our ER portfolio because we're counting on spouse's pension to fire up in another 12 years.

I suspect you're going to get a lot of suggestions on cutting your spending.

 

[audreyh1]

Even I, who lives high on the hog, do not have $10K per month living expenses, and I know a lot of people on the forum spend half or less than what I do. I am 50, DH 54, and we pay for our health insurance ourselves (high deductible). We eat out a lot more than 2/week and travel extensively.

Seems like you must be in a high-cost-of-living area? Have a large expensive house with high fixed costs (utilities, maintenance, etc.)? Have a lot of big toys (cars, boats, etc.) that keep costing money?

Of course if you are continually upgrading the house you live in, that can be very expensive too.

Audrey (~$7K per month usually)

 

[Green Retirement]

You can spend $9,000 per month. Forget about a current budget, your expenses will go down when you retire, instead you should focus on creating a retirement budget. Create a $9,000 retirement budget and you can retire today.

 

[bbbamI]

Forget about a current budget, your expenses will go down when you retire.

Maybe for some; but ours have not.

 

[Amethyst]

Hi Global,
Try looking at your feeding habits. You said eating out twice a week isn't extravagant; but eating out twice a week is 100+ times a year. That is a steady $$ drain, even if you aren't going to high-end places. You pay 25% on top of the bill for tax and tip, and if you order wine, you'll pay 3-4X what it would cost to buy the same item at the wine store. Just something to ponder.

Amethyst

 

[W2R]

The problem is that our expenses are about $10K/month after income taxes. I track expenses and I really don't feel like there are any huge extravagances - no country clubs, very limited travel, eat out 2/week, etc.

You have isolated the problem, and I agree with you.

"no country clubs, very limited travel, eat out 2/week, etc." describes me, too! Except that I eat out 10-12 times per week, and my monthly expenses range from $1K-$2K. I guess some of my other expenses must be lower than yours.

It's great that you track your expenses. So many people have never done that and it's a huge step in the right direction. With your expense record in hand, at least you know the facts. Time to look at it and determine if there is anything there you can do without.

 

[haha]

"no country clubs, very limited travel, eat out 2/week, etc." describes me, too! Except that I eat out 10-12 times per week, and my monthly expenses range from $1K-$2K. I guess some of my other expenses must be lower than yours.

Maybe Global can't get his boyfriend to pick up the checks?

 

[W2R]

Maybe Global can't get his boyfriend to pick up the checks?

Hey, now maybe there's something he could work on! But anyway, in my case I have paid for my half of these for a long time now that my inheritance has come through. Good thought, though, and Global1's 2/week might include a spouse and kids making it 4-10/week or more if you consider meals purchased per week.

 

[dex]

The problem is that our expenses are about $10K/month after income taxes.

You've identified the issue:
What have you identified as the solution?

You are in a senior executive position. If a subordinate came to you with this situation; how would you handle it?

 

[Global1]

You've identified the issue:
What have you identified as the solution?

You are in a senior executive position. If a subordinate came to you with this situation; how would you handle it?

Yeah. I get it. Expenses are too high. Time to deal with it.

I was just looking for some of your perspectives. There seems to be a great deal of insight on this board.

Thanks

 

[haha]

Hey, now maybe there's something he could work on! But anyway, in my case I have paid for my half of these for a long time now that my inheritance has come through. Good thought, though, and Global1's 2/week might include a spouse and kids making it 4-10/week or more if you consider meals purchased per week.

I apologize for thinking that you get the lady ride.

Ha

 

[W2R]

I apologize for thinking that you get the lady ride.

Ha

No need to apologize for simply remembering my past posts about it some time ago. I am flattered! Frank always used to pay, until my improved circumstances made that seem a little odd, and in the past I posted that he paid when we went out. When my circumstances changed, the situation was no longer one of the higher-earning guy paying for a date on the weekends. It made sense to shift into Dutch treat mode and we adjusted to that pretty well.

Now that we are retired we eat out more than not and we are enjoying it! Often we split our meals to keep from gaining weight, and the amount of money really isn't very much at all (always less than $20 each, generally less than $10 each, and sometimes less than $5 each). New Orleans has some wonderful restaurants that are cheaper than fast food.

 

[Texas Proud]

Yeah. I get it. Expenses are too high. Time to deal with it.

I was just looking for some of your perspectives. There seems to be a great deal of insight on this board.

Thanks

I will agree that $10K a month is high.. since you are not paying on a mortgage OR college...

If you track the expenses so closely, put them down in big numbers and a good number of people will slice and dice them with what they do... to me this is very interesting.. to see others priorities...

Our expenses are in the $7K range, which includes taxes... but we pay a mortgage, a car note, almost $1k per month for insurance, paying off the new furniture... and my wife wants to fly home at least once a year with the kids which cost about $3K, bring her mother over for another $1K and do other traveling during the year...

 

[Rambler]

Global1 - have you read Bob Clyatt's "Work Less, Live More"? If you are working some, bringing in "some" income with your hobby, consulting, book writing, etc, you may be able to pull it off. If you go cold turkey on the workie, you do need to cut your expenses.

Another good one to read, if you haven't yet, is Ernie Zalinski's "How to Retire Happy, Wild and Free" or something like that. It also talks some about ESR as opposed to ER.

Just so you know, you are not the only one around here with a high budget. We expect ours to be pretty close, in about 3 years, when we pull the plug...maybe more, not likely much less if we hang on to the McMansion and try to have an RV as well (which we want to do). Without the RV and related costs and accruals for replacement 7-10 years down the stretch, we would be at around 8k per month. (BTW, one reason we want the RV is so that we don't have to eat out so much when travelling.)

By the way, WELCOME! Stick around, learn something, and help us learn as well.

R

 

[LARS]

Seems to me the biggest hurdle you face is college expense. If your daughter is in her last year (and you aren't going to pay for grad school) that is one set of facts. If she is just starting than that is a different ball game.

Still, taking a hard look at expenses, as others have said, seems to be an area worth really exploring.

 

[Moscyn]

Home improvements should not be a continually high expense - surely it should reduce in time - so that's one expense you can focus to control on. Eating out twice a week is pretty vague as eating out can cost differently for individuals. I have friends who order expensive wine when they eat out on gourmet dinners weekly. The price would cover 3 eat out meals for me. I do splash on such gourmet dinners - like once a month but not weekly. So, you may wish to look at the expenses on dining out - can you reduce the cost of one dine out meal to save a bit and still splash on the other dine out meal. I enjoy country club, eat out, buy things I like, travel etc. The thing is,on an average, I won't range these treats as pricey because I usually go to the medium to rare (rare being luxurious) range.

 

[LOL!]

Here's a list that seems appropriate for this thread:
6-things-youre-doing-to-delay-your-retirement: Personal Finance News from Yahoo! Finance

 

[walkinwood]

Where did I go wrong? Am I missing something?

Global1

Welcome to the board!

I found that the very act of tracking and inspecting expenses tends to reduce them. You also have expenses that should taper out - your daughter's college expenses, your home renovations (especially if you downsize). The Health Care reforms should help especially if you're in a high-risk pool or have very high insurance rates today.

Everyone has their own optimal budget. Rather than try to reduce yours by some arbitrary number, I suggest you keep recording and inspecting it. I like the concept proposed by Dominguez in Your Money or Your Life. He says that you should get "satisfaction" from your spending. If you aren't reduce expenses in that category. I recommend that book as well as Clyatt's book already mentioned earlier. Focus on the large expenses like cars, housing and any monthly subscriptions.

 

[HsiaoChu]

I've been budgeted to the wazoo for the 37 years of our marriage. Put the wife in charge back then after she spent the equivalent of a week's groceries on yarn for projects that she was making.

I don't believe that I've ever in 61 years had a gourmet dinner with expensive wine. I remember that for three years in a row back when a raise actually raised my paycheck(last year after the raise I got $41 every two weeks less than I did before the raise), we never accounted for the raise or for the sudden increase in her paycheck due that it wasn't being thrown back into her private school that she started for nearly four years, and suddenly realized that we had this enormous amount of money in our checking account that really shouldn't be there. We were sure that it was a bank error. My wife was dutifuly balancing it, and the number just creeped higher and higher, until I noticed one day. I don't write the checks hardly ever, or carry the check book even more hardly ever.

We fixed that. We bought a big retirement house far away. Now there's nothing in our checking account and we just barely make ends meet.

Z

 

[clifp]

At age 51 25-30x of your annual expense seems like a good target, with 2.7 million and a 1K pension and social security in the 1500-2500 range you are fairly close now.

If you could get another 1 million you could retire now, but I assume another bunch of stock options isn't in the cards. The alternative is much easierl.

When I was in visiting Hawaii, before moving here, while contemplating retirement. I bought this tourist T-shirt Kimo's Hawaii rules. Even though it was trite and tacky it was still the best $12 I spent.

Here are the important ones.
2) The best things in life aren't things.
5) Goals are deceptive - the unaimed arrow never misses.
6) He who dies with the most toys - still dies.
and the most important one.
(8) There are 2 ways to be rich - make more or desire less.