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FI Rule of Thumb?
Old 01-05-2012, 03:59 PM   #1
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FI Rule of Thumb?

I lifted this from another forum (that some here frequent), thought it was a good rule of thumb, at least for those without pensions and/or not counting on Soc Sec in large part.

Maybe #3 is the de facto LBYM threshold...just sayin'
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What matters most is the amount of money that is consistently put away. In my experience, regardless of the specifics, the following is usually true:
1)People who put away 10% of their income do fine.
2)People who put away 20% of their income thrive.
3)People who put away 30% or more of their income become relatively wealthy.
When I was still working, too many people I knew were saving less than 10% unfortunately. Some had nothing at all saved at 40 and 50 years old, even though they had steady employment with us.
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Old 01-05-2012, 05:18 PM   #2
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I like those estimates. I've always considered 10% to be a healthy minimum, and we're shooting for 30% to achieve FIRE.
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Old 01-05-2012, 05:24 PM   #3
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Interesting rule of thumb, Midpack. I believe it.

I regularly saved 30% annually, after I got interested in tracking my net worth at age 32. I RE'd at 56 (even after making some poor investments.)

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Old 01-05-2012, 05:25 PM   #4
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I was doing #3 about 26 yrs ago, and now ready for ER!
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Old 01-05-2012, 05:28 PM   #5
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Interesting rule of thumb .... I know a few folks in their 30s and 40s not able to save at all. From age 25 on, I've been saving 30 - 50% of my paycheck, but only invested 1/2 into the stock market, then extra toward the mortgage.

So if one is saving 30% or more, how long do they suggest before one becomes wealthy? ;-) I wanna start spending it
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Old 01-05-2012, 05:40 PM   #6
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After contributing the maximum to the TSP, I divided my take-home pay into thirds:

1/3 for rent or mortgage
1/3 for other expenses
1/3 towards more investments or paying down the principal on my house.

Once my house was paid off, that 1/3 also went towards more investments. This worked really well for me as a minimum savings guideline. I loved to challenge myself and see if I could beat these investment goals. I don't think most people at my work saved much at all for retirement, but then maybe they had other plans or resources.
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Old 01-05-2012, 08:36 PM   #7
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For aiming 4-55
Even by saving 30% or more, the definition of when it is enough is relative.
As stated in another thread, being wealthy is defined as being financially
independent, meaning one does not need to work to satisfy the basic life's requirement of food, shelter, transport, with added security of freedom from worry to do things reasonably. People's standards vary widely.
Lifestyle expenses affects tremendously. Income is an important factor as well as number of dependents, etcs.

I will guess that a person who save 30% or more income, with a middle class income, who lives frugal and lucky enough to stay in a job for 25 years, and not lose much money in investment, has a good chance of being wealthy by the above humble definition.
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Old 01-05-2012, 10:50 PM   #8
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Sounds like a good rule of thumb Midpack.

While I do understand that there are circumstances under which it can be very hard to save even a small sum, it's my opinion that almost anyone should be able to find a way to save at least 10% of their income. There are some low-income folk who make efficient use of their money and don't have anything left over to save, but most people I've known who don't make much could easily have found a way to save if it had been a priority for them.
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Old 01-05-2012, 11:12 PM   #9
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We are fortunate since we have managed to save about 40% of income for the last few years. That said, saving is difficult for an average income household. After necessary expenses, such as rent/mortgage, insurance premiums, car payments, groceries, education, etc., the amount of money left is not that great.
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Old 01-05-2012, 11:16 PM   #10
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At the risk of sounding like a braggart here, I'd like to tell my story.

As a dual income couple, we had excess income over expenses, even after maxing out our 401k. In the 90s, as we were both working hard, while raising 2 kids, the paychecks deposited kept piling up in our bank account, and we did not have time to do anything with that. Again, we had decent income, but not outrageous. I had set up monthly auto transfer to 4 mutual funds, but never got around to upping the transfer, as our income rose through the years.

So, there was a time when we had near $100K sitting in our checking account, earning very little. I did not buy CDs, or invested that. Didn't have time! Could you believe that? And my wife was like me, we knew we had the cash sitting there, but it never tempted us to go shopping or to spend it on something. I had some friends, who of course made the same money, telling me that if their wives saw as much as $2K in their accounts, they would go shopping!

Eventually, I did something with that money, but all that lost opportunity in a great bull market! I did not even check up on our MF accounts for several years. I was lucky that in the great bull market, one could not lose!

Anyway, even to this day, my wife has been so used to seeing a lot of money in the checking account for her to pay bills (I take care of all investment accounts). She does not like it when it drops below $10K. Right now, I have $23K sitting there, a surplus from my recent part-time income, and she is happy.

However, this time I cannot do anything with that money, as it may take a while before I get more money from w*rk, and that money might get spent soon.
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Old 01-06-2012, 06:07 AM   #11
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What is doesn't say is those percentages are of gross or net? I always had a goal to save 25% of gross income. That would include both tax deferred and taxable as long as the total was 25% of gross. I would max out 401K, use any other tax deferred I qualified for (usually deferred income), re-invested dividends and interest that I had to pay taxes on and make up any short fall with taxable savings. I most always achieved the goal. So between taxes and savings it left me with about 45% to 50% of gross to live on. So as I get ready to retire in 3 months, 3/31/2012, I believe a retirement income of about 50% of prior gross will be plenty to meet all our needs. Taxes are way down and I will no longer be saving but consuming those savings. I have targeted my SWR at 3% and think I can do even a little less after the first two years.
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Old 01-06-2012, 06:14 AM   #12
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I'd like to raise a somewhat related question. After spending years saving although not at the 30% level recorded here we have 2 military pensions and DW will have a small county pension (all covered somewhat by cola). We then have our retirement savings and will get something from SS. I expect we will be doing well with the pensions and SS once we get to 66-67. So our retirement savings will only be needed between retirement and SS dates.

At the SS point, we will have a pot of retirement savings and some other investments that will be above 1M. It will be nice to have a backup if we need long term care, but when do we start spending it? I don't want to die with lots of $$. Anyone on this forum having FIRE and have similiar thoughts? I don't need a new house, don't need to buy any more things, will will be able to travel and do charity. I guess it is about when I make the transition from saving saving saving to why save more when you have met the goal.

I know this sounds crazy, but I wanted to see if others have similiar thoughts. Thanks
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Old 01-06-2012, 06:28 AM   #13
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Originally Posted by RetireBy90 View Post
It will be nice to have a backup if we need long term care, but when do we start spending it? I don't want to die with lots of $$. Anyone on this forum having FIRE and have similiar thoughts?
My advice is to seriously consider spending some of it earlier in retirement rather than later when your health and ability to 'enjoy your money' could be seriously diminished.

One way I've seen this done is to set aside an amount you wish to use for travel, hobbies, etc. during the first ten years of retirement. I saw a post from someone a couple of days ago who said they'd budgeted $100k for travel and planned to spend $10k a year on trips, cruises and adventures until it was gone.

Sounds reasonable to me...
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Old 01-06-2012, 06:47 AM   #14
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Originally Posted by RetireBy90 View Post
I'd like to raise a somewhat related question. After spending years saving although not at the 30% level recorded here we have 2 military pensions and DW will have a small county pension (all covered somewhat by cola). We then have our retirement savings and will get something from SS. I expect we will be doing well with the pensions and SS once we get to 66-67. So our retirement savings will only be needed between retirement and SS dates.

At the SS point, we will have a pot of retirement savings and some other investments that will be above 1M. It will be nice to have a backup if we need long term care, but when do we start spending it? I don't want to die with lots of $$. Anyone on this forum having FIRE and have similiar thoughts? I don't need a new house, don't need to buy any more things, will will be able to travel and do charity. I guess it is about when I make the transition from saving saving saving to why save more when you have met the goal.

I know this sounds crazy, but I wanted to see if others have similiar thoughts. Thanks
Not crazy at all. Like REWahoo says, if you want to travel, early on in retirement is the moment. You might want to set aside a portion of the portfolio to fund long term care and then use the rest to travel.
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Old 01-06-2012, 07:49 AM   #15
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DW and I spend 1/3, save 1/3 and pay tax 1/3 not yet ERd but getting close.
On spending vs leaving behind. DW plan to spend however will more than likely leave some behind as we do not have kids. If we do it will go into trust only to be tappped of higher education for the heirs and thier children. Our spending plan in todays $$ shows more spent early on due to travel in retirement than later on and is outside of our retirement golden gooose investment pot. Like one poster no need for more stuff just want experiences of travel.
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Old 01-06-2012, 07:49 AM   #16
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Quote:
Originally Posted by NW-Bound View Post
At the risk of sounding like a braggart here, I'd like to tell my story.

As a dual income couple, we had excess income over expenses, even after maxing out our 401k. In the 90s, as we were both working hard, while raising 2 kids, the paychecks deposited kept piling up in our bank account, and we did not have time to do anything with that. Again, we had decent income, but not outrageous. I had set up monthly auto transfer to 4 mutual funds, but never got around to upping the transfer, as our income rose through the years.

Eventually, I did something with that money, but all that lost opportunity in a great bull market! I did not even check up on our MF accounts for several years. I was lucky that in the great bull market, one could not lose!
We went through a similar process. At some point in the mid/late 90s we decided we should push the additional savings hard and cranked the auto deposit to the mutual fund way up to the max it could/should be for the year. Unfortunately DW's cash withdrawals from her firm were not steady so we would occasionally go cash poor (particularly at second quarter tax payment time). Instead of pulling cash back from the MFs we ended up filling the temporary gap with our home equity line of credit. We knew it was a dumb idea and could be bettered with some financial discipline but the pressure of work/kids made it seem the more sensible approach was to keep the fire house directed to savings on a sustained, fixed basis.
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Old 01-06-2012, 09:17 AM   #17
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Not crazy at all. Like REWahoo says, if you want to travel, early on in retirement is the moment. You might want to set aside a portion of the portfolio to fund long term care and then use the rest to travel.
I think that your advice to Retireby90 is good for those who want to travel. It's hard to know how much to set aside for long term care years before it is needed, though. The question, to me, is how much the cost of long term care will rise once the leading baby boomers (my generation) create more demand for it.

What a dilemma. Luckily for me, I have no desire to travel so in my case it can all go towards care when I am elderly if necessary. If all I have isn't enough, well, so be it.
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Old 01-06-2012, 09:38 AM   #18
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I think that your advice to Retireby90 is good for those who want to travel. It's hard to know how much to set aside for long term care years before it is needed, though. The question, to me, is how much the cost of long term care will rise once the leading baby boomers (my generation) create more demand for it.

What a dilemma. Luckily for me, I have no desire to travel so in my case it can all go towards care when I am elderly if necessary. If all I have isn't enough, well, so be it.
The advice to set aside some 'fun money' is good even if you don't enjoy travel. Spending a little extra on yourself during the early years of retirement - on new furniture, an iPad, or whatever - isn't a bad thing if you set some reasonable limits.

I share your concern about not having enough resources to fund the final chapter in our lives, but I also don't want to have any regrets of being too frugal to have some enjoyment in my retirement. After all, I worked hard, saved and invested so I could fritter some bucks away enjoy myself a little before the grim reaper comes knocking.
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Old 01-06-2012, 10:01 AM   #19
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The advice to set aside some 'fun money' is good even if you don't enjoy travel. Spending a little extra on yourself during the early years of retirement - on new furniture, an iPad, or whatever - isn't a bad thing if you set some reasonable limits.
Zing! Well, I got the new furniture and iPad from my SWR money, from dividends not from the principal. I still only spent 2.2% last year. No need to set money aside for that. Not that I'm that rich, since I probably have less than many/most retirees here on the forum, but it just doesn't cost much for me to live a nice middle class lifestyle here.

Quote:
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I share your concern about not having enough resources to fund the final chapter in our lives, but I also don't want to have any regrets of being too frugal to have some enjoyment in my retirement. After all, I worked hard, saved and invested so I could fritter some bucks away enjoy myself a little before the grim reaper comes knocking.
If one doesn't travel, and has no desire for another car/boat/plane/RV/house, it's hard to know what to spend money on. I have never spent much, but am trying to spend more now. I am satisfied and happy, and do not feel deprived of anything I might want (other than immortality, and last I checked that was not for sale).

I know, I know - - my attitudes towards money and spending used to drive my parents nuts too, when they were alive. They couldn't understand how anyone could not be simply dying for something or other at all times. Maybe I need to dream a little more than I do.
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Old 01-06-2012, 12:00 PM   #20
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I don't want to die with lots of $$.
Why not?

It's better to die with money than to live without it.

People get hung up on the idea of having money on the table at death, and not being able to spend all of it. I/DW don't.

If we have any left (and it looks like we will) and it dosen't impact our current lifestyle (financially, we live the way we want to), so what?

Just our simple POV...
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