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Old 11-17-2009, 04:32 PM   #21
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Originally Posted by ziggy29 View Post
Plus, unlike earning more money, there's no tax on spending less of it.
I like that! Thanks!
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Old 11-17-2009, 04:51 PM   #22
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Originally Posted by Delawaredave5 View Post
Wow. Friend of mine has spouse "between jobs" - early 50's, severance package from old job, not sure if they'll work forward or not.

Friend commented how at home spouse is spending more - lunches out, hobbies, piano lessons, etc. All reasonable stuff - not excessive - but their expenses have gone up with one spouse semi-retired.

As said on this board many times, best advice is to "dry run" your retirement budget during last years of w*rking.
It helped that our pre retirement income was good. Also I started tracking my spending several years before retirement as ER, or at least the ability to ER, was always in my plans. Before I retired I had two sons that were either at home, or at college that were expensive. Plus I still had a house payment. Our standard of living has definatly not gone down, we have just alway's lived below our means.
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Old 11-17-2009, 05:15 PM   #23
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I think for most people, who don't LBYM, 80% is a good amount. Y'all understand that the people on this board are not a large majority, right? I be shocked if more than 10% of the working population saved more than 10% of their income for retirement.
TJ
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Old 11-17-2009, 05:24 PM   #24
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Originally Posted by ziggy29 View Post
Plus, unlike earning more money, there's no tax on spending less of it.
Technically there is, a few examples:
Inheritance tax
Tax on your social security if you make a certain amount from your investments/IRA withdrawls, including the tax free munis.
No financial aid for higher education if you have savings
TJ
psst, don't give congress any ideas, they may come to the conclusion than anyone if more than $200K in savings is rich and that wealth should be spread around.
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Old 11-17-2009, 07:21 PM   #25
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As said on this board many times, best advice is to "dry run" your retirement budget during last years of w*rking.
To some extent but not entirely. I've been spending a lot of time looking at expenses lately (had a long thread on it). While DH and I are both working with teenagers in the house it is really hard in some areas to simulate a retirement budget. In some areas, sure it can be done. Other areas, not so much. Of course there are the obvious ones. Driving/automobile expenses that might be much higher while working. Work clothing and related expenses much higher. And, so on.

But it isn't just that. In looking at spending, I realize that we spend a lot of money for things that DH and I don't have time to do while we both work and have 3 kids at home. We trade money for convenience at times. If we were retired we would eat much differently because I would have time to cook. Right now, I get home and most everyone has already eaten by the time I'm home and I'm tired and don't feel like cooking. There is a lot of stuff where by spending more time researching or doing it ourselves the cost could be less. And, if retired, we would do that. But, while working, we don't. Once we downsize the house I do want to get closer to the retirement budget but recognize it will have a lot of exceptions in it while we still are both working.
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Old 11-17-2009, 10:00 PM   #26
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Although I do our planning based on pre-retirement spending and then adjusting for increases/decreases, the amount for us comes out to about 55% of pre-retirement income.

The reductions in pre-retirement spending are:
1) Mortgage paid off (the year we re-hire)
2) No more FICA taxes (7.65%)
3) Lower income taxes based on lower tax bracket
4) No more savings (we save 32%, so that's a biggie)
5) Modest reductions in work-related expenses

The additions are:
1) Health costs (we'll be in early '50s and will have to buy insurance on the open market until we're 65)
2) Utility costs since we'll be home during the day
3) LTC
4) Vacations / entertainment (plan to take one additional vacation/year)
5) Hobbies

When you LBYM, the fact that you no longer need to save is a HUGE deal. 15 year mortgages are also awesome.

Dave
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Old 11-18-2009, 07:50 AM   #27
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For now, I'm shooting for the same amount in retirement as I'm living on now. That should equal "enough" and then some as some expenses will go down while there may be additions in other areas. I will get more specific as the date approaches (hopefully, mid-2014). If this holds, I'll be living on right around 50% of my current gross (and maybe continuing to save a bit to boot).
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Old 11-18-2009, 09:03 AM   #28
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Originally Posted by teejayevans View Post
I think for most people, who don't LBYM, 80% is a good amount. Y'all understand that the people on this board are not a large majority, right? I be shocked if more than 10% of the working population saved more than 10% of their income for retirement.
TJ
It depends on what you mean by "most".
Are we talking young couples with a mortgage and children at home?
Or are we talking about people who rent and don't have kids?

The second group may well need 80% to maintain their current spending, the first group doesn't.

This article is the subject of another thread:
retirement-saving-through-the-ages: Personal Finance News from Yahoo! Finance

I think it represents the "conventional wisdom" as promoted by the financial services industry, and I also think it's wrong for too many people.
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Old 11-18-2009, 09:09 AM   #29
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I think it represents the "conventional wisdom" as promoted by the financial services industry, and I also think it's wrong for too many people.
Personally I think it varies *so* drastically on individual situations that it's a useless rule of thumb, and often might be poor advice.

If I waited until we had 80% of our current income, we'd probably never retire, and as of now we could easily live on 40% of our income, and probably still wouldn't be hurting on 1/3 of it.

I'm shooting for about 50% of our current income, but I know there's also a fudge factor there so that if we're fairly close and I can't take it any more, I can still flee (pending the health insurance situation).
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Old 11-18-2009, 01:05 PM   #30
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...(pending the health insurance situation).
It seems to come down to that for many of us.

My employer currently offers an option to terminated 55+ employees to continue in their group plan - (paying the entire cost, of course) but who knows if that will continue for as long as I need it?

I am currently exploring the additional options Massachusetts offers - but that would pretty-much crush any thoughts of relocating to warmer climate.

I'm still a couple years away from my target date - we'll see what happens in the meantime.
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Old 11-19-2009, 08:09 AM   #31
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I think that many of use miss the point of the 80% rule. For the vast majority of Americans, who spends everything they make and earn $30-60k/year, this is probably not an unreasonable rule of thumb, although I personally would say 60-80%.

For us here, who save heavily and generally appear to have a higher than average income, it is nuts. Myself, I currently only spend 25-33% of my income, and plan to spend about 150% of that in retirement. My spending will go up because I am young, so plan to be very active when I retire at 50. I currently spend little because I work a lot and want to retire early. Thus, my post-retirement spending will be 37-50% of retirement income.
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Old 11-19-2009, 08:15 AM   #32
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Personally I think it varies *so* drastically on individual situations that it's a useless rule of thumb, and often might be poor advice.
Ziggy, you are certainly correct in the absolute sense. However, I would hate to limit popular media advice to the great unwashed to "post-retirement financial requirement vary so widely from person to person, that we cannot give you any." The reality is, the average American is not going to hook up with a competent FA, or learn on their own. Better to give sound bite advice that is generally correct, as opposed to the alternative.
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Old 11-19-2009, 08:56 AM   #33
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I think that many of use miss the point of the 80% rule. For the vast majority of Americans, who spends everything they make and earn $30-60k/year, this is probably not an unreasonable rule of thumb, although I personally would say 60-80%.

For us here, who save heavily and generally appear to have a higher than average income, it is nuts. Myself, I currently only spend 25-33% of my income, and plan to spend about 150% of that in retirement. My spending will go up because I am young, so plan to be very active when I retire at 50. I currently spend little because I work a lot and want to retire early. Thus, my post-retirement spending will be 37-50% of retirement income.
Once again, is your "vast majority" child-free renters? If so, I'd agree.
If the "vast majority" is couples with mortgages and children, I'd disagree.

I think there are enough people in the second group that I'd prefer the media give more accurate advice, even if it takes an extra sentence or two. Certainly a long article like the Yahoo link could do a lot better.
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Old 11-20-2009, 06:51 AM   #34
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We currently spend just a very small portion of our income, and I won't post it. I've always thought that we should figure out what we spend today, what will change plus and minus, add a nice fudge factor, and use that as a target for spending in retirement. Being a belt and suspenders kinda guy, my fudge factor is BIG. Simply using 80%, or 50% of income or whatever simply won't work in our case.

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Old 11-20-2009, 03:02 PM   #35
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I went and read the AON report on replacement income which is what a lot of stories are based on.

FWIW, the report is clear that people who save more than average will need less replacement, people who save less will need more.

Basically the idea is what income after retirement would allow someone to live at the same standard of living. Of course, some people don't want the same standard of living in retirement (I personally plan a standard of living less than current standard, although not less than would be palatable to me).

They back out taxings, savings and some expenses that they think varies with retirement. This all seems to be based upon actual numbers.

FWIW, people of high income -- they did $250k for example -- generally need a higher replacement income.

For savings, their model generally uses between about 4.5 and 5.5% depending on income. Again, they are clear that if someone saves more than average then their replacement number would be lower.
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Old 11-21-2009, 06:07 PM   #36
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I just took my excel spreadsheets and roughed out some working vs. retirement numbers.

We have been living on 27-28% of our income. The rest has gone to taxes, savings, work related expenses, etc.

Our retirement after-tax income from pension and SS is about 130% of our after deduction take home while working even though the gross retirement is only 46% of our gross salaries while working. I am thinking of delaying SS because it looks like we could match our current income with a very small supplement from our savings (<$5000/year).

These are rough numbers from Quicken records but I have run the numbers before and it is close. I alway compute that if we keep our current life style without costly unexpected bills, we won't need to tap our savings for awhile. His pension is not COLAed and mine is CPI-1 so we will need to make up some COLA deficits somewhere along the line on top of that $5000 if I delay SS. That won't make much of a dent in our savings.

The not so funny thing is that the less people save the more they need as a % and the more they save the more apt they are to know how to have a good life on a limited income. (Note - I am using current federal and state income and sales tax rates.)

So my target number is the after-tax retirement income is initially 100% of the take home while working.
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Old 11-21-2009, 08:19 PM   #37
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I spend about 50% of my gross - If I went much lower I would be feeling deprived, as I sat in the corner in the dark, gnawing on my dry cracker.

I save 32% of my gross -

The balance is assorted taxes - 18%

ta,
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Old 11-22-2009, 08:44 AM   #38
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I think the 80% rule of thumb is a good rule.......for those who don't know what they spend every year, or even how much they have in savings.

With that said I don't think many on this board fit that description. I did get into this discussion with a co-worker. He is planning to retire in 2-3 years and is set on the 80% rule. I brought up the idea of basing your retirment needs on what you spend then asked two simple questions, what if you save 20% or more of your gross income? Do you still need 80% to retire comfortably? Unfortunately all he could do was restate I needed 80% of my working income to retire comfortably. He is going to retire very comfortably as he says he will have 84% of his pre-retirement check. He also drives 100 miles to get to and from work every day.
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Old 11-23-2009, 11:47 PM   #39
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Good thread and lots of good replies here.

As for me, the 80% rule was meaningless because my income changed a lot in the last 10 years. I was working full-time until the middle of 2001. Then, I was working part-time, earning 53% of my previous gross pay (but slightly higher in % terms after taxes). In 2007, I further lowered my gross pay by 40% of my previous part-time pay (again slightly higher after taxes).

Each of these reductions changed some large expenses (other than income taxes) such as commutation and health insurance premiums, generally in opposite directions so they offset each other to some degree.

My overall personal savings rate (excluding retirement plan) did not vary much even as my gross pay was decreasing because my non-retirement investments were spinning off enough dividends and cap gains to offset the lesser surplus (of net pay minus expenses) being added to my investments, and the lower denominator (gross pay) helped boost the ratio.

When I was planning out my retirement budget, I had to include a more costly individual health insurance policy to replace the COBRA plan I was in. But the commutation expense went to zero (YAY!) and a temporary assessment by my co-op ended when I retired. My cash expenses decreased slightly because I wasn't buying those costly lunches in New Jersey any more (more YAY!).

Certain elements have interactive effects on income taxes, too. For example, a lower retirement income lowers the income threshold (7.5% of AGI) needed to deduct health insurance expenses. Paying no more FICA taxes is nice, too.

As others have said here, work from the bottom up. But using your pre-retirement budget as a starting point is good for some expense items.
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Old 11-24-2009, 04:57 PM   #40
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Yes,I lived within my means most of the time while working and still do afterwards and need 100% of what I made then and even more, since I don't have the Tax Deductions and Shelters to hide my income anymore.. I was Self employed and could write off over 50% of my Personal income thru buying things as Business expenses..and pay alot less taxes..not to mention deducting 25% of my Homes expense as a office..

So It All Depends where your comming from
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