How Much is Enough

[RetiredAndFree]

Our pre-retirement spend was pretty close to what we thought we'd need post-retirement, other than a doubling of our travel spend, and that is what we used as our FIRE threshold. I.e., the point that 3% of our assets matched our current spend rate.

The big surprise for us in retirement was that we are actually leaving very comfortably at a withdrawal rate of 2.75% because we've discovered much less expensive ways to go about enjoying our lives. We've literally cut many thousands of dollars from our annual run rate simply by dropping things we really didn't value, or making lower priced substitutions.

Our goal in retirement was to travel half of the year, which we've accomplished. We have an RV, which goes a long way in stretching our travel dollars, though we take plane trips and rent vacation properties as well. Otherwise, we live pretty simply, focusing most of our non-travel time and energy on being outdoors and active (hiking and biking primarily), and attending a Lifelong Learning program at a nearby college.

All of these, as others have wisely pointed out, are things we enjoyed prior to retirement. We just get to spend a lot more time on them now.

[scrinch]

Quote:

Originally Posted by butterfly Does anyone else NOT include the principal in their SWR? We are only including the income from the principal in our calculations as we will be 42 and 38. Obviously that is a safer option, but just curious as to what the "proper" calculation would be.

The calculation is usually taken as x% (say 3%) of your invested balance (3% of your principal, if you prefer). But whether that 3% annual withdrawal happens to have recently been principal, dividends, interest, or other is immaterial (except for its tax treatment). If you have a balance of $1M at the time of year you take your withdrawal, and if you withdraw 3% of it to live on for the year, it doesn't matter what account or type of security that $30k came from. You have full control of your money and can invest any amount in any way, any time you want. That $30k might have been dividend, equity, and cash during the past 12 months, depending on how often you shuffle your investments. If you reinvest $1000 in dividends today into stocks, tomorrow is it principal or dividends? Other than for tax treatment, it doesn't matter what you call it.

I think what you are trying to do is maintain at least a certain balance in your portfolio. Is that right? If you are invested in mostly dividend-paying stocks or mutual funds, then in order to maintain a minimum balance you would withdraw less than the dividend amount. If you are invested in growth stocks, then you would likely sell shares for your withdrawal.

[jerome len]

I guess I'm a bit spoiled. Since I've been fairly successful my retirement income is substantially more than 75k a year that most on this blog thinks is a lot. I don't know if I could live on less unless I sold a car, bought a smaller house and asked my kids to quit their private colleges and enroll in community colleges instead.

So, how many on this blog make more than a couple hundred grand a year and expect to come close to that income in retirement. And, how many of the high income bloggers intend to substantially reduce their income and accept less in life.

I really don't consider myself rich.....I believe I'm middle class but on the upper income end of what would be considered middle class. My challege is this year we needed a new roof, DW and I got new glasses, DW spend 4 days in the hospital and I'm about to get a dental implant. I wonder how some say they live on 30k a year and do everything we had to do in the past 12 months.

I guess "how much is enough" is vastly different for many of us. What makes all of us lucky is when we don't have to worry about having enough.....what we believe is enough for us. I think I've got enough, basically because I've earned, saved and now invest in index funds living off of my dividends....But I do hope next year is a better spending year than this year......I'd rather take a longer vacation than spend my fun money on another dental implant.

[daylatedollarshort]

Quote:

Originally Posted by jerome len I guess I'm a bit spoiled. Since I've been fairly successful my retirement income is substantially more than 75k a year that most on this blog thinks is a lot. I don't know if I could live on less unless I sold a car, bought a smaller house and asked my kids to quit their private colleges and enroll in community colleges instead.

In California kids can go to community college for two years and then transfer to schools like Berkeley, UCLA or Cal Poly with majors in STEM career fields.

Between community college, California middle class college scholarhships effective next year, college income tax credits, internships, financial aid and/or merit aid, an in state student could get an engineering or computer sciences degree from Berkeley or any other UC or state college for quite a modest investment in relation to the graduation starting salary.

I think the point of the popular ER bloggers is that it is possible to live quite well for not a lot of money, and that can even include college for the kids, too.

Georgia Tech is partnering with AT&T to develop a $7K online masters degree in computer science.

[gcgang]

I'm 59, wife 56, 12 year old daughter. Our health insurance premiums alone will total over $16,000 this year. How one could live on $20-$30 k per year is out if my comprehension.

[Ozstache]

Quote:

Originally Posted by gcgang I'm 59, wife 56, 12 year old daughter. Our health insurance premiums alone will total over $16,000 this year. How one could live on $20-$30 k per year is out if my comprehension.

I'm not an American, but MMM at this link Our New $237/month Health Insurance Plan | Mr. Money Mustache leads me to believe that you can get high deductible health insurance and self insure the rest much cheaper than that.

[2B]

Quote:

Originally Posted by gcgang I'm 59, wife 56, 12 year old daughter. Our health insurance premiums alone will total over $16,000 this year. How one could live on $20-$30 k per year is out if my comprehension.

You won't have to pay the $16,000 for the insurance premiums next year with that income. I think you are above the medicaid income level so you fall into the subsidy zone. I'm not familiar with all the income limits but in other threads people have made comments about arranging income to make them eligible for the subsidy.

Health insurance aside, it's always hard to imagine people living on less than you do but it's likely many people do. Many things we spend our money on today didn't exist a century ago - like health insurance.

[2B]

Quote:

Originally Posted by jerome len So, how many on this blog make more than a couple hundred grand a year and expect to come close to that income in retirement. And, how many of the high income bloggers intend to substantially reduce their income and accept less in life.

I resemble that remark. FireCalc says that I could take out an inflation adjusted income that is greater than my current income (after deducting SS, FICA and the taxes paid for them). This would give me an after tax income greater than I now have.

My "basic" living expenses are about half of that. I could economize easily although DW may not be happy. What's left is available for travel and decadence.

So, why am I still drawing a paycheck? First, my work is easy and comfortable. I get more PTO than DW will spend traveling with me although life has settled down enough for her that I will begin pushing the envelope on that issue again. I also haven't really figured out "what I'd do all day." In many ways it's nice knowing I could just walk out the door if I so choose.

[scrinch]

Quote:

Originally Posted by jerome len So, how many on this blog make more than a couple hundred grand a year and expect to come close to that income in retirement. And, how many of the high income bloggers intend to substantially reduce their income and accept less in life.

We plan on living on about $100k/yr which includes a hefty travel budget. Actually we live on less than that now and just save the rest.

[imoldernu]

How Much is Enough?

After 24 years of retirement...
1. When you are happy with your life.
2. When money is not a worry, but a hobby.

Cheers!

[butterfly]

Quote:

Originally Posted by scrinch The calculation is usually taken as x% (say 3%) of your invested balance (3% of your principal, if you prefer). But whether that 3% annual withdrawal happens to have recently been principal, dividends, interest, or other is immaterial (except for its tax treatment). If you have a balance of $1M at the time of year you take your withdrawal, and if you withdraw 3% of it to live on for the year, it doesn't matter what account or type of security that $30k came from. You have full control of your money and can invest any amount in any way, any time you want. That $30k might have been dividend, equity, and cash during the past 12 months, depending on how often you shuffle your investments. If you reinvest $1000 in dividends today into stocks, tomorrow is it principal or dividends? Other than for tax treatment, it doesn't matter what you call it. I think what you are trying to do is maintain at least a certain balance in your portfolio. Is that right? If you are invested in mostly dividend-paying stocks or mutual funds, then in order to maintain a minimum balance you would withdraw less than the dividend amount. If you are invested in growth stocks, then you would likely sell shares for your withdrawal.

Thankyou. Yes you are right. We are calculating on having a 3% SWR but only calculating the dividends/rental income/interest on our principal to draw that from.

We do not want to touch our invested principal and keep reinvesting into it between 25-50k pa. We are doing this because we will have a long retirement and two children to include in our expenses. (aged 4 and 6 currently).

I suppose I was wondering if others calculated this way or just did an automatic drawdown until the entire amount runs out?

Quote:

Originally Posted by imoldernu How Much is Enough? After 24 years of retirement... 1. When you are happy with your life. 2. When money is not a worry, but a hobby. Cheers!

That is cool.

Quote:

Originally Posted by scrinch We plan on living on about $100k/yr which includes a hefty travel budget. Actually we live on less than that now and just save the rest.

Yes, we plan that too. Our ER includes long term travel and we hope not to spend that amount but will be happy to have that budget.

[Katsmeow]

Quote:

Originally Posted by jerome len So, how many on this blog make more than a couple hundred grand a year and expect to come close to that income in retirement. And, how many of the high income bloggers intend to substantially reduce their income and accept less in life.

Toward the last few years before DH retired 3 years ago and I semi-retired our combined income was a bit over $300k a year. We don't expect to come close to that in our long-term retirement. However, after 3 years of DH being retired and me being semi-retired it is clear that we don't have to come close to that to have a great life.

Right now, we are spending a little over $100k a year because we have kids at home, one in full-time college and the other just starting college. My projections for what we will spend once kids are gone is between $65k and $70k a year and, frankly, that could be cut.

Our son did go to community college. He transferred his credits just fine to the state university. I looked at the cost of private colleges and the level of education of each and just saw no benefit to paying that extra cost. FWIW, DS's classes in CC were smaller than many of the first two years classes at a 4 year school and he had great instructors. And, yes, it did cut costs a lot.

We do spend less than we spent when we were both working. Part of it is that we don't have a lot of work related expenses we had before. Part of it is that we live in a less expensive to maintain house that is smaller (this was totally our choice and was not something we felt forced into). Part of this is that we don't have a lot of expensive hobbies and kid related expenses are a lot less now.

We did look at the budget and really decide what we felt added value to our enjoyment of life and what didn't. Having someone clean our house for us? We cut that. We also cut our grocery bill by a couple hundred dollars a month just by paying more attention to what we were doing.

On the other hand, having a nice gaming computer? I made that purchase.

[RetiredAndFree]

Quote:

Originally Posted by Ozstache I'm not an American, but MMM at this link Our New $237/month Health Insurance Plan | Mr. Money Mustache leads me to believe that you can get high deductible health insurance and self insure the rest much cheaper than that.

It WAS $237 - my guess is it will at least double under ACA in 2014.

Our health insurance rates, after several years of modest 3% increases, are renewing for 2014 under ACA at an increase of 125%. This is solely due to ACA provisions, not due to mismanagement by our insurer - we received a rebate at the end of summer 2013 because our insurer had achieved their profit objectives.

[RetiredAndFree]

Quote:

Originally Posted by Katsmeow Toward the last few years before DH retired 3 years ago and I semi-retired our combined income was a bit over $300k a year. We don't expect to come close to that in our long-term retirement. However, after 3 years of DH being retired and me being semi-retired it is clear that we don't have to come close to that to have a great life. Right now, we are spending a little over $100k a year because we have kids at home, one in full-time college and the other just starting college. My projections for what we will spend once kids are gone is between $65k and $70k a year and, frankly, that could be cut. Our son did go to community college. He transferred his credits just fine to the state university. I looked at the cost of private colleges and the level of education of each and just saw no benefit to paying that extra cost. FWIW, DS's classes in CC were smaller than many of the first two years classes at a 4 year school and he had great instructors. And, yes, it did cut costs a lot. We do spend less than we spent when we were both working. Part of it is that we don't have a lot of work related expenses we had before. Part of it is that we live in a less expensive to maintain house that is smaller (this was totally our choice and was not something we felt forced into). Part of this is that we don't have a lot of expensive hobbies and kid related expenses are a lot less now. We did look at the budget and really decide what we felt added value to our enjoyment of life and what didn't. Having someone clean our house for us? We cut that. We also cut our grocery bill by a couple hundred dollars a month just by paying more attention to what we were doing. On the other hand, having a nice gaming computer? I made that purchase.

+1

We were grossing over 500K our last few years of work, but we lived on about 125K. We've whittled that down to about 90K, exclusive of taxes, without any impact on our standard of living. We were too busy and stressed during our working years to pay attention to the minutia of our spend, and once we retired we drilled down and found lots of stupid spending that we eliminated.

We were actually able to find and cut enough waste to both lower our projected annual spend and double our travel budget.

We could technically increase our spend rate, but as you've suggested, we're already living a terrific life and would be hard pressed to justify spending more just because we can. For now, there is peace of mind in knowing we have a cushion in our budget planning.

[Gumby]

Our spending has been remarkably steady for about the past 15 years now. In the days when we made four times as much as we do now, we just saved more. If all goes according to plan, we will have income of about two times our current spending (using a 4% withdrawal rate) when we retire in about 4-1/2 years.

[daylatedollarshort]

Quote:

Originally Posted by RetiredAndFree We were too busy and stressed during our working years to pay attention to the minutia of our spend, and once we retired we drilled down and found lots of stupid spending that we eliminated.

We have been on a similar path. We still work at home but have more free time for budget analysis. We cut 45K so far from our annual expenses without downsizing or downgrading the cars, so we still have the same basic lifestyle.

We have just been going over the budget line item by line item - getting Ooma instead of the landline, dropping life insurance we no longer needed, dropping collision on the kids cars, switching to LED bulbs, low flow shower heads, etc.

I keep a spreadsheet of all the ideas and how much money each one has saved. I still have quite a few to implement. That is one of my main hobbies these days.

I don't see it as accepting less. I see it as waking up to the value of free time vs money and that it feels good getting rid of a lot of clutter and expenses that didn't really add to our happiness.

[meierlde]

Note that one other expense you can eliminate after retirement is disability insurance.

[Al in Ohio]

Quote:

Originally Posted by meierlde Note that one other expense you can eliminate after retirement is disability insurance.

Dropping both life insurance and disability if you had it certainly help, the big question on either is how far in advance should you drop them. Life insurance is intended to cover lost future income, but most mega corps include at least one years salary as a benefit, plus your built up wealth self insures you. So the question is how many years ahead of FIRE does one safely feel comfortable dropping their life insurance?

[meierlde]

Quote:

Originally Posted by Al in Ohio Dropping both life insurance and disability if you had it certainly help, the big question on either is how far in advance should you drop them. Life insurance is intended to cover lost future income, but most mega corps include at least one years salary as a benefit, plus your built up wealth self insures you. So the question is how many years ahead of FIRE does one safely feel comfortable dropping their life insurance?

One question of course is on life insurance, do you keep enough to pay final expenses? One nice thing about the old whole life policy, is you can turn it into a paid up policy and keep getting the dividends. (Actually if you have an old whole life policy it may not be costing much, as the premiums almost all go to cash value, have a 45 year policy where the insurance cost is now $10 per year, and in 2 more years or so it will be paid up)

[2B]

Quote:

Originally Posted by meierlde One question of course is on life insurance, do you keep enough to pay final expenses? One nice thing about the old whole life policy, is you can turn it into a paid up policy and keep getting the dividends. (Actually if you have an old whole life policy it may not be costing much, as the premiums almost all go to cash value, have a 45 year policy where the insurance cost is now $10 per year, and in 2 more years or so it will be paid up)

For any evaluation of keep or cash out, you need to know what the cash value is if you take it now vs what your heirs would receive when you die. Throw into this what your health and longevity are likely to be.

My FIL had an old whole life policy that we found when we took over his finances. It had a $25,000 death benefit and had a $17,000 cash value. Since he was in poor health, we kept paying the payments and in a couple of years my DW and her sister split the death benefit and cash value. Overall, it was a poor investment for my FIL since he had paid on it many, many years with a low return. However, the time frame we expected for the payout made it obvious that this was the time to keep the policy. This runs counter to my normal response to most financially based insurance products.