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Saved well but still not where I need to be
Old 04-18-2010, 05:19 PM   #1
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Saved well but still not where I need to be

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
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Old 04-18-2010, 05:29 PM   #2
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10k a month expenses is where I would look first. You must be smoking the good stuff, is all I can say.
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Old 04-18-2010, 05:47 PM   #3
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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.
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Old 04-18-2010, 05:49 PM   #4
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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.
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Old 04-18-2010, 05:56 PM   #5
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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.
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Old 04-18-2010, 05:57 PM   #6
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Welcome to the board, Global, I think.
Quote:
Originally Posted by Global1 View Post
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.
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Old 04-18-2010, 05:58 PM   #7
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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)
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Old 04-18-2010, 06:23 PM   #8
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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.
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Old 04-18-2010, 06:28 PM   #9
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Forget about a current budget, your expenses will go down when you retire.
Maybe for some; but ours have not.
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Old 04-18-2010, 07:04 PM   #10
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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.

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Old 04-18-2010, 07:45 PM   #11
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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.
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Old 04-18-2010, 08:40 PM   #12
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"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?
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Old 04-18-2010, 08:48 PM   #13
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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.
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Old 04-18-2010, 08:56 PM   #14
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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?
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Old 04-18-2010, 09:09 PM   #15
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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
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Old 04-18-2010, 09:59 PM   #16
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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
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Old 04-18-2010, 10:13 PM   #17
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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.
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Old 04-18-2010, 10:37 PM   #18
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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...
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Old 04-18-2010, 10:55 PM   #19
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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
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Old 04-18-2010, 11:51 PM   #20
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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.
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