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Old 09-09-2011, 06:05 AM   #21
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Yes & No

Nobody is a robot, and therefore their spending habits can/do change.

You really will have more leisure time and your health will not get better. Both of those issues can play a big role in your retirement expenses.

On the surface, I'd say you are doing a fine job of crunching the numbers.
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Old 09-09-2011, 06:46 AM   #22
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Originally Posted by bikeknit View Post
The one thing I've been unsure how to calculate are expected income taxes. I don't seem to know enough about how they are calculated to estimate what ours would be in retirement. How do you all do it?
Suggest starting with a chart like on this page.
2011 Income Tax Bracket - Marginal Tax Rate

Then you can work up approximate taxes for both income levels (pre/post) as follows.

Let's assume you make $186,000 gross and are married filing jointly...the math looks like this:

10% x 1,700 = $170
15% x (69,000 - 17,000) = 15% x 52,000 = $7,800
25% x (139,350 - 69,000) = 25% x 70,350 = $17,588
28% x (186,000-139,350) = 28% x 46,650 = $13,062
Total taxes = $38,620
In this case, your MARGINAL tax rate (the amount you pay on each additional dollar you earn) is 28%. But your AVERAGE tax rate = $38,620/186,000 = 20.8%

Now assume you rehire (I plan to take a much lower paying part-time job) and make only $40k/year.
10% x 1,700 = $170
15% x (40,000 - 17,000) = 15% x 23,000 = $3,450
Total taxes = $3,620
In this case, your MARGINAL rate is 15%, and your average rate is 9.1%

Your tax savings (I hate to call it savings...maybe call it "reduction" instead) is $38,620 - $3,620, or $35,000. So you'd remove $35,000 from your "income needs" due to lower taxation.

For us the above number is nearly $60,000 instead of $35,000....it will feel so good to get the government out of my pocketbook so heavily.

*Note the above is not perfectly accurate, as it fails to discuss AGI (Adjusted Gross Income), which is what you're really taxed on...but it's an estimate you can use. To get a little closer, simply subtract any pre-tax items (i.e. 401k pre-tax contributions) and the standard deduction from both estimates.
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Old 09-09-2011, 06:51 AM   #23
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Im going with 40% but I was high income (~150K). Alot of costs have disappeared. FICA/medicare, I'm no longer putting 20K into my IRA, 15 year mortgage was paid off last year, Kids finally out of college (well one has a year left but I have that covered), no spousal support (divorced). I ran all kinds of firecalc scenarious and used other calculators to confirm I should be OK (barring some kind of super hyper infllation or end of the world scenario since my pension is 45K and not inflation adjusted. Also plan to move out of high cost area (DC suburbs).

Still new here, just been reading, not posting much. Class of 2011, just turned 56, retired Jan 2011.
Exactly...this is similar to the situation I'm in. My big reductions are what you mentioned...fed income taxes, FICA, Medicare, no more savings in my 401k or Roth (we max those out currently), and our mortgage will be paid off in about 3 years or a little less. I usually assume 5% inflation, as I think we'll see more of it in the next 5-10 years.
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Old 09-09-2011, 08:23 AM   #24
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With respect to the OP, the 80% of gross is about right in your case if it is applied to the income that you are spending. Since you are saving 30% of your gross then you are "spending" 70% of gross. 80% of 70% is 56% of gross.

That said, i fully agree with others that the 80% rule of thumb is bunk. What is more important is what you need to live on in the lifestyle that you need/desire.
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Old 09-09-2011, 09:17 AM   #25
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thanks all. I think I'm in good shape on my analysis...just fine tuning some things.
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Old 09-09-2011, 08:11 PM   #26
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When I retired, I figured we could live on my pension which was 31% of my pre-retirement wages. I planned on a substantial cushion. That was a good thing since we have used it for unexpected expenses that we that we didn't have before retirement.

You are certainly going about it the right way, and 55% isn't a surprising number.
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Old 09-10-2011, 09:20 AM   #27
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Originally Posted by EwanRPark View Post
10% nett per month on an investment - 100% safe.
This will raise a few eyebrows I know.
I got so brassed off with all the trash on the net I put together my own schedule.
Comments very welcome.
Enough with the windup, give us the pitch...
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Old 09-10-2011, 12:59 PM   #28
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The one thing that I think "rules of thumb" are good for are the people who don't want to run the numbers - or who simply don't have the skills to do so. Having a rule of thumb is better than not thinking about it at all. But as we've all seen from everyone's examples, running your own numbers is much more precise.
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observations.
Old 09-10-2011, 09:52 PM   #29
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observations.

1. % of what:It all depends on your pre Ret. income. If you earn a lot, a small % of it will do.
2. Standard of living: This is the real kicker. We are used to already spending only a small % of our gross income, so there is not a lot of adjustments there. But if you live like a king, even 100% may not be enough.
3. Travel: Expect to spend a lot in the next few years, & 10K/year sounds reasonable for my frugal sense.
4.Health: Let's hope and pray all of us don't develop an expensive life threatening illness, or else everything is out of the door.
5. Cars: All of our vehicles are fully paid for,with low miles, and plan to drive them for a few years to avoid big expenses. Avoid expensive rides.
6. House: will live in the same house or will buy exactly the same price home during retirement. Will also scale back later in years.
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Old 09-11-2011, 08:15 AM   #30
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% of current income is meaningless for a variety of reasons already stated.

I find it more meaningful to understand your living expenses (add taxes), any anticipated major events (50th wedding anniversary reception, new car, etc.) plus cushion, and oh some cushion.
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Old 09-11-2011, 01:49 PM   #31
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I have done all possible income and expense projections. I come out at between 40% and 45% of current income. I have done highest possible expenditures, lowest possible and used the average. I have done all expenses added contingency amount and they all come in between those percentages.
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Old 09-12-2011, 08:29 AM   #32
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Found this related article, which confirms much of what we've been saying.

Retirement savings strategies: Live well on less - Sep. 12, 2011
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Old 09-12-2011, 10:46 AM   #33
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My post-retirement gross is 50-60% of pre-retirement gross. This covers 100%+ of projected retirement expenses which are only slightly less than pre-retirement expenses after excluding higher fed tax, all state income tax, savings contributions.
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Old 09-12-2011, 11:16 AM   #34
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Great thread! I have not retired yet either. But I built the same two estimates of my post retirement neads 5 years ago (One based on income, the other based on spending). In my case they both totalled up to about 62% of pre-retirement income. I think I was a bit conservative in assumptions, so actual would be a bit lower. This 62% would provide my current standard of living (financially) and I call it my bare-bones level. I am holding out on retirement until I can afford an 80% level for additional travel, recreation, etc.
Thanks for posting the questions. It is great to see all the other comparisons.
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Old 09-12-2011, 01:11 PM   #35
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Quote:
Originally Posted by Finance Dave View Post
Suggest starting with a chart like on this page.
2011 Income Tax Bracket - Marginal Tax Rate

Then you can work up approximate taxes for both income levels (pre/post) as follows.

Let's assume you make $186,000 gross and are married filing jointly...the math looks like this:

10% x 1,700 = $170
15% x (69,000 - 17,000) = 15% x 52,000 = $7,800
25% x (139,350 - 69,000) = 25% x 70,350 = $17,588
28% x (186,000-139,350) = 28% x 46,650 = $13,062
Total taxes = $38,620
In this case, your MARGINAL tax rate (the amount you pay on each additional dollar you earn) is 28%. But your AVERAGE tax rate = $38,620/186,000 = 20.8%

Now assume you rehire (I plan to take a much lower paying part-time job) and make only $40k/year.
10% x 1,700 = $170
15% x (40,000 - 17,000) = 15% x 23,000 = $3,450
Total taxes = $3,620
In this case, your MARGINAL rate is 15%, and your average rate is 9.1%

Your tax savings (I hate to call it savings...maybe call it "reduction" instead) is $38,620 - $3,620, or $35,000. So you'd remove $35,000 from your "income needs" due to lower taxation.

For us the above number is nearly $60,000 instead of $35,000....it will feel so good to get the government out of my pocketbook so heavily.

*Note the above is not perfectly accurate, as it fails to discuss AGI (Adjusted Gross Income), which is what you're really taxed on...but it's an estimate you can use. To get a little closer, simply subtract any pre-tax items (i.e. 401k pre-tax contributions) and the standard deduction from both estimates.
Shouldn't the $170 number be $1,700?

-CC
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Old 09-12-2011, 01:22 PM   #36
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Originally Posted by Finance Dave View Post
First off, let me say "good to see everyone again", as I tend to come and go to the forum...but things are heating up so you may see more of me.

I don't follow the rules of thumb ("you'll need 80% of your pre-retirement income to maintain your lifestyle"), but I want to just check to see if I'm missing anything.

Currently 49 (birthday soon) , married, both of us work professional jobs. currently save ~30% of our gross. Everytime I do a rehirement (yes, I spelled that right) budget, I only can come up showing that I need about 55% of my pre-retirement income...no where near the numbers all these calculators and "experts" use.



Thanks in advance,

Dave
If you save 30% that means you spend 70%, and that 70% is probably gross... (meaning taxed come out of the 70%...), then subtract 6.2% SS and 1.45% medicare and you can see how the 70% starts approaching 55%.
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Old 09-12-2011, 01:58 PM   #37
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I'm with the % of income is irrelevant folks. As a more or less self employed professional in a small firm, income has varied greatly from year to year. We have lived based on an expense budget that has been generally substantially less than expected income. The expense budget includes 10% of the total to faith based charities and 10% to savings. When extra money comes in, which happens almost every year, we save part and use part to fund infrequent expenses like a new tv every 10 years or so; okay, every 7 or 8 if I have my way. We have generally avoided debt that way and the savings are now substantial.

My wife is already retired at 57 and I'm going part time in a few months. I believe our expenses in retirement will go down, at least after a few years, but I've done the calculations assuming they will go up 3% a year. Of course, I know when the mortgage will be paid off and reduce the expenses by that amount in the pertinent year, but still assume general expenses will continue to rise.

My gut tells me I am being overly conservative but it is better to be safe than sorry. Trying to figure out how to generate 55% or 70% or whatever of our current income is pretty much a waste of time since the relevant number is how much we spend.

But now I'm going to work on that, just to make sure! You guys keep me thinking.
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Old 09-12-2011, 03:26 PM   #38
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We had better be able to live on ~25% of my normal income, because that is all we will have.

I think we can do it, once we are debt-free, which is coming closer.
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Old 09-12-2011, 03:27 PM   #39
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oops yes, and the 1,700 should be $17,000, two errors, I'll go back and fix it all...thanks for catching me.
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Old 09-12-2011, 03:29 PM   #40
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Don't see an edit button...how do I change a prior post?
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