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FIREing Points
Old 11-18-2009, 04:57 PM   #1
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FIREing Points

There has been quite a lot of discussion about what an income replacement ratio really means and how it is relevant to retiree income.

Lets turn this discussion around a bit.

Suppose now that your nestegg/pension/SS/other income puts you above the suggested 60/70/80 or even 100 percent income replacement threshold. Should you then retire (or FIRE as we say).

What's the income replacement level that would make you retire ?
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Old 11-18-2009, 05:06 PM   #2
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Shouldn't it be a Spending Replacement Ratio?
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Old 11-18-2009, 05:07 PM   #3
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If we had a secure, inflation-protected 40% of our current household income for life, I could quit tomorrow. I could probably get close to half of that today with 72t, and hopefully in another decade it will be considerably more.
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Old 11-18-2009, 05:18 PM   #4
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Quote:
Originally Posted by MasterBlaster View Post
There has been quite a lot of discussion about what an income replacement ratio really means and how it is relevant to retiree income.

Lets turn this discussion around a bit.

Suppose now that your nestegg/pension/SS/other income puts you above the suggested 60/70/80 or even 100 percent income replacement threshold. Should you then retire (or FIRE as we say).

What's the income replacement level that would make you retire ?
In my case, there really wasn't one until I became eligible to continue my medical coverage (10 days ago). Without that coverage, health care was a big unknown and I didn't know how to figure it into my ER budget. It scared me. How do you pin it down, with health care and premiums spiralling ever higher, and benefits and eligibility qualifications getting tougher and tougher?

With health care coverage, I would have quit on a very small percentage of my gross income, about 15%-20%. However, because of having to wait (and earn and save) until I could get medical coverage, and because of having inherited unexpectedly the year before retirement, my retirement "take-home pay" will be around 98% of my working take-home pay if I use an SWR of 3.5%.
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Old 11-18-2009, 05:19 PM   #5
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Quote:
Originally Posted by Meadbh
Shouldn't it be a Spending Replacement Ratio?
Anyone who FIREs with less than a 100 percent spending replacement ratio is in (eventually) for some reality adjustment training.

Quote:
Originally Posted by ziggy29
If we had a secure, inflation-protected 40% of our current household income for life, I could quit tomorrow. I could probably get close to half of that today with 72t, and hopefully in another decade it will be considerably more.
You COULD retire then but WOULD you. perhaps you really want something more.

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Originally Posted by W2R
In my case, there really wasn't one until I became eligible to continue my medical coverage (10 days ago). Without that coverage, health care was a big unknown and I didn't know how to figure it into my ER budget. It scared me.
health care and some other golden handcuffs are helping keep me where I am. I suspect though that some sort of "affordable" health care options will be legislated this year.

The time versus money trade off - Now and some or later and some more.
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Old 11-18-2009, 05:23 PM   #6
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My point is that the income replacement ratio is irrelevant unless spending and income are related in a linear fashion. Which they are not, for most of us FIRE wannabees.
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Old 11-18-2009, 05:38 PM   #7
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You know, I think what is making these ratios difficult for us to get our heads around is the immense changes in retirement in the past 20 years or so. I think the 80% ratio was a good one for those who could expect a very, very generous pension, with medical.

But who gets those full pensions any more? Now, we are expected to fund our own retirements using 401K's or other retirement investments. Salaries have essentially been cut sharply, because of the lack of retirement benefits. Where employees with full pensions can actually spend all of their pay, we can't- - we have to max out our retirement account and save more in taxable if we can. Our salaries may have high nominal values but in reality, we are earning tens of thousands a year less.

What is more logical to address, is the relative rates of spending before and after ER. There are many expenses that drop out on retirement, such as work clothes, possibly a second car, and so on. But there are also many that one could optionally add, such as travel, entertainment, and so on.

OK, I'm done with my little speech.... carry on!
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Old 11-18-2009, 05:45 PM   #8
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Since my husband is already retired, we have been living on 1 salary and 1 pension for quite a while. Thus, I would not like to settle for less than 100% replacement (via pension and investments) of current income, minus most of what I am putting away for retirement. (I never see my 401K or pension deductions, so won't "miss" them). In addition, I would like us to be able to continue to save and invest "new" money after I retire. It would not need to be as much, obviously.

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Old 11-18-2009, 05:53 PM   #9
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Quote:
Originally Posted by MasterBlaster View Post
Lets turn this discussion around a bit.

Suppose now that your nestegg/pension/SS/other income puts you above the suggested 60/70/80 or even 100 percent income replacement threshold. Should you then retire (or FIRE as we say).

What's the income replacement level that would make you retire ?
Why is all about "do you have enough"? Is your question really "do you really want to"? If you do and can, great. If you can and don't, also great. It's all about having a choice.
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Old 11-18-2009, 06:07 PM   #10
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Why is all about "do you have enough"? Is your question really "do you really want to"? If you do and can, great. If you can and don't, also great. It's all about having a choice.
To paraphrase - Is enough really enough ?

Don't all of you really want enough...and then some ?
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Old 11-18-2009, 06:10 PM   #11
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Quote:
Originally Posted by MasterBlaster View Post
To paraphrase - Is enough really enough ?

Don't all of you really want enough...and then some ?
Those who follow that logic to its natural conclusion will never retire.

Right, Rich?
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Old 11-18-2009, 06:18 PM   #12
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I'm right there with W2R. I was significantly past my FI level, but I stayed with Megacorp until I was eligible for health coverage. I didn't so much care about the money part (they're paying 56% of what they pay towards an active employee's health) as I was the guaranteed coverage. DW and I both have pre-existing conditions. When I was financially able to retire I checked into getting health coverage in VA for the pair of us. I could find very few companies that would even talk to us. We couldn't even get coverage from the HMO we had been with through the company for 25 years.

Luckily I was able to volunteer to get RIFed, and was able to get out 2 years ealier than I thought I would.

Personally, if health insurance wasn't an issue (either you have it covered or it doesn't come into play regarding employment) I would retire the moment I was absolutely sure I had the FI part covered. But that's just me.
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Old 11-18-2009, 06:48 PM   #13
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A % of income is not the answer, was not, will not be. Spending is the question and 100%+ is the answer.
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Old 11-18-2009, 06:55 PM   #14
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My semi-official FIRE date is whenever 4% of FIRE stash exceeds 100% of adjusted current spending. At the moment that is 4/18/2014.

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Old 11-18-2009, 10:57 PM   #15
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IMHO the answer is you will need 100% of your actual expenses covered.
... simple as that.
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Old 11-19-2009, 07:59 AM   #16
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As others have said, it's how much spending you have to cover, not how much you make. If you havn't LBYM's then you probably arn't going to be able to ER anyway.

I started keeping track of my net worth in January 1998, I started tracking my spending in January 2004 when I noticed my net worth was climbing at a decent rate. I retired at the end of 2007 when a 4% withdrawl rate gave me 10-15% more than I was currently spending. I did not factor SS and figure that is just a bonus. But I also waited till my wife had 25 years in at her employer that allowed us to keep her health insurance at their group rates. Currently $900 a month.

So I waited till we had a little cushion, but also waited till we had health insurance available for a hopefully reasonable price.
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Old 11-19-2009, 08:49 AM   #17
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when:
Cola'd pensions exceeded expenses by 25%
lake house was built
work was no longer fun!

The last two had more to do with it than the money. If work had still been as much fun as say 5 years ago, I would still be there. The lake house was DW's reason. I think she was ready 20 years ago! LOL
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