Mark,
When you are retired you are no longer paying high income taxes, the mortgage or saving for retirement - So figure you need about 33% to cover living expenses and property taxes. This will be much closer than the 80% number.
I've looked at the 33% thread, too, and you just need to make sure we are comparing apples to apples: if we are talking about what % of pre-tetirement Income you need to spend in retirement, then the number gets low, but if you look at what % of pre-retirement _spending_ then it might not drop so low. A lot of people probably don't think of their savings and their taxes as "Spending" but rather think of spending as the amount of checks they write each month or year for bills.
It is true, though, that we ERs get taxed like 'working poor' if we only earn a little earned income (and hopefully set that off against an S-corp or LLC expenses) and get our money from cap gains, some interest and dividends. I worked out once that earning 100k of income the old fashioned way (and making a few assumptions about sched a deductions) would tax you at 25k (including social security) whereas the ER can live on the same amount of net income and pay about 1/4 as much tax or less.
The key reason is that the ER is spending a combination of interest, dividends and capgains, as well as selling some appreciated assets to make up the actual SWR that he spends each year. Much of the portfolio appreciation, then, sits in the Portfolio and is not taxed until some future point when the money is withdrawn. This is like taxfree compounding in an IRA, only better. The only capgains tax you pay (aside from those in fund distributions) is the capgains on the appreciation in the small portion of assets you sold to raise cash.
Now it is true you paid taxes on those assets when you first earned them, so it isnt exactly a free gift from the govt, but its nice when you are actually doing it. Also, you can pay dividend and capgains taxes at 5% if you are in the 10 or 15% fed income tax bracket, which is a worthy goal for all of us. The salaried worker is usually in a higher bracket for the same amount of annual spending, and his capgains would therefore be taxed at 15%.
My personal figures for state and federal taxes work out something like this, with no benefit assumed from using capgains taxloss carryforwards (which are making my actual state and fed taxes paid zero these past few years):
Taxes paid as a % of portfolio: 0.24%
Taxes paid as a % of income: 5.2% (divs, interest, CG)
This beats the heck out of the salary worker who would be paying more like 20-25% of an equivalent amount of salary as state/fed/ss taxes.
So yeah, your taxes go way down in ER! I get a kick out of some retirement models that show taxation of all portfolio earnings at 33% as if a) all the gains are actually realized every year and b) a retiree actually pays that rate even at the margin! It is calculators like these that keep people at the grindstone.
My only other point on budgets is that we travel more in ER which even with careful shopping on orbitz and jetblue and so forth is still a non-trivial expense, possibly even a larger expense in ER. Also, my hobbies spending went up because with all that time I needed some toys, in my case one toy called a boat which costs more than you wish it would to feed the beast every year but makes ER worthwhile for me.
the only difference is I'm not paying for substitutes to do things I didnt have time to do myself, and I dont have to pay for compensations created by the demands of a full time job.
