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Old 09-12-2011, 03:30 PM   #41
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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%.
Yes, and also the Federal income tax comes out...which is a HUGE amount today, but will be quite small after FIRE.
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Old 09-12-2011, 03:30 PM   #42
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Don't see an edit button...how do I change a prior post?
There is a six hour window to edit posts.
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Old 09-12-2011, 03:33 PM   #43
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Doh! Ok, then I'll copy and repost....give me a few.
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Old 09-12-2011, 03:39 PM   #44
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My apologies, but even with an engineering degree and scoring in the 98% percentile in math admissions exams, I still make mistakes. Below is the corrected info.

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Originally Posted by Finance Dave View Post
**********fixed math from earlier
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 17,000 = $1,700
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 = $40,150
In this case, your MARGINAL tax rate (the amount you pay on each additional dollar you earn) is 28%. But your AVERAGE tax rate = $40,150/186,000 = 21.6%

Now assume you rehire (I plan to take a much lower paying part-time job) and make only $40k/year.
10% x 17,000 = $1,700
15% x (40,000 - 17,000) = 15% x 23,000 = $3,450
Total taxes = $5,150
In this case, your MARGINAL rate is 15%, and your average rate is 12.9%

Your tax savings (I hate to call it savings...maybe call it "reduction" instead) is $40,150 - $5,150, 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 09-12-2011, 04:46 PM   #45
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There's quite a chasm between how some people would like to live and how they have to live based on their retirement income.

Along those line Dan Airiely asked people far from retirement how (and in what manner) they would like to spend their time in retirement. he then took their responses and figured out an income replacement ratio (ie. percent of final salary) that they would need and it turned out to be 135%.

My personal goal is at least that much. I could (and have) live(d) inexpensively, but wouldn't it be so much more fun to live "the good life".

You can read a little write-up of Dan's research here:

how-much-salary-need--retirement-marketwatch: Personal Finance News from Yahoo! Finance
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Old 09-12-2011, 04:52 PM   #46
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More of Dan's pearl's...

Savings, security, and spending, and the "when-should-I-retire" question answered all in 1 convienient chart. (Hint: Green is good...)

http://wpfau.blogspot.com/2011/09/da...etirement.html

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Old 09-13-2011, 08:46 AM   #47
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Quote:
Originally Posted by MasterBlaster View Post
There's quite a chasm between how some people would like to live and how they have to live based on their retirement income.

Along those line Dan Airiely asked people far from retirement how (and in what manner) they would like to spend their time in retirement. he then took their responses and figured out an income replacement ratio (ie. percent of final salary) that they would need and it turned out to be 135%.

My personal goal is at least that much. I could (and have) live(d) inexpensively, but wouldn't it be so much more fun to live "the good life".

You can read a little write-up of Dan's research here:

how-much-salary-need--retirement-marketwatch: Personal Finance News from Yahoo! Finance
yes, this was discussed in another thread recently.

55%, 80%, Nay, it's 135%!!
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Old 09-13-2011, 01:09 PM   #48
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I'm late to this thread, but I agree with much that's already been said about running your own numbers and ignoring the percentage rules of thumb.
But it's important to include amounts in your spreadsheet for Asset Replacement. I think I have $500 a month toward a new vehicle and a smaller amount to keep household furnishings and appliances spanking new (kidding just a bit there).

But there's a bigger issue that I've not seen yet in this thread and that has to do with those Big Elephant types of expenses that, for some of us, make retirement an eagerly anticipated goal. My 10-week driving/camping trip to Fairbanks is in that category, as is my month-long Australia trip, neither of which "fit" in my pre-retirement lifestyle.

So all this means is: figure the cost of maintaining a "normal" family & friends lifestyle for 12 months a year. I figured around $45K would cover me for that.
Then add an additional $10K to $20K per person per year to allow for some level of living large. This will vary considerably among folks depending on interests and available funds.
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Old 09-13-2011, 01:20 PM   #49
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So all this means is: figure the cost of maintaining a "normal" family & friends lifestyle for 12 months a year. I figured around $45K would cover me for that.
Then add an additional $10K to $20K per person per year to allow for some level of living large. This will vary considerably among folks depending on interests and available funds.
That is how we set our planned ER budget up. Roughly $30k a year to cover basic spending for our family. Then another $5-6k for amortized replacement costs (major home repair/replacements/upgrades and car replacements). Then $10-12k a year for fun and travel. If our portfolio took a big hit and remained depressed for multiple years, we would always trim back the amortized replacement costs and the fun/travel budget a little.
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Old 09-13-2011, 01:24 PM   #50
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I address this in my planning by developing an average over long periods of time. For example, with cars.....I assume we each buy one new car every 8 years.....so I picked a round number below of $32k per car.

$32,000/8 x 2 = $8k/year.

Thus, I've built $8k/year into my annual budget.

Similarly, with vacations....I assume 2 trips per year at $6k/trip. We recently returned from 14 days in Germany, and the total cost was $6,200...so I know that's pretty close for our needs.

IMO what's more difficult is knowing when these types of expenses will "tail off". For example, I won't be going to Germany for two weeks when I'm 82. And most likely by the time we're in our late 70s we'll share one car.

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Originally Posted by TheWizard View Post
I'm late to this thread, but I agree with much that's already been said about running your own numbers and ignoring the percentage rules of thumb.
But it's important to include amounts in your spreadsheet for Asset Replacement. I think I have $500 a month toward a new vehicle and a smaller amount to keep household furnishings and appliances spanking new (kidding just a bit there).

But there's a bigger issue that I've not seen yet in this thread and that has to do with those Big Elephant types of expenses that, for some of us, make retirement an eagerly anticipated goal. My 10-week driving/camping trip to Fairbanks is in that category, as is my month-long Australia trip, neither of which "fit" in my pre-retirement lifestyle.

So all this means is: figure the cost of maintaining a "normal" family & friends lifestyle for 12 months a year. I figured around $45K would cover me for that.
Then add an additional $10K to $20K per person per year to allow for some level of living large. This will vary considerably among folks depending on interests and available funds.
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Old 09-13-2011, 01:30 PM   #51
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Please take my below comment as sarcasm.

So you would actually spend less in years when your portfolio was down? I would never think of spending below my means...I deserve to live large at all times.

It's great that most on this forum are responsible enough to do just what you describe...I see too many people that are the other way.

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That is how we set our planned ER budget up. Roughly $30k a year to cover basic spending for our family. Then another $5-6k for amortized replacement costs (major home repair/replacements/upgrades and car replacements). Then $10-12k a year for fun and travel. If our portfolio took a big hit and remained depressed for multiple years, we would always trim back the amortized replacement costs and the fun/travel budget a little.
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Old 09-13-2011, 02:30 PM   #52
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But it's important to include amounts in your spreadsheet for Asset Replacement. I think I have $500 a month toward a new vehicle and a smaller amount to keep household furnishings and appliances spanking new (kidding just a bit there).

But there's a bigger issue that I've not seen yet in this thread and that has to do with those Big Elephant types of expenses that, for some of us, make retirement an eagerly anticipated goal. My 10-week driving/camping trip to Fairbanks is in that category, as is my month-long Australia trip, neither of which "fit" in my pre-retirement lifestyle.
Actually, we do have the same amount as you for car replacement, and also put away money for house maintenance/upgrades (just replaced the roof on our retirement home last fall). On planning for retirement, we did not expect to spend any more than what we did as pre-retirees, since we didn't defer our lifestyle until the future (you can die tomorrow).

It certainly makes it easier to plan for (as we did) when our retirement budget was based upon 100% of pre-retirement expenses (not income), including anticipated taxes and personal rate of inflation.

As far as travel goes, like a lot of folks on this forum, we have been doing that for many, many years (close to getting our third passport) and it has always been part of our current expenses. We just carried over what we were spending pre-retirement and expect to continue to do so (in the same manner) regardless if our health works out or not.

BTW, DW just called me from Zurich (she flew over on 9-11; no fear in her life) where she will be at with her travel buddy (another woman who shares her "travel bug") for the next two weeks.

I didn't go this time (been there before, with her in the past). I just hope she takes the window seat on the Glacier Express this time - St. Moritz to Zermatt (while the views are great, the dropoffs can be a problem for some folks, as she).

As far as "down under"? Did that two years ago (Here's looking at you, kid), along with checking out my "liquid assets" from the pipeline in Alaska, a few years earlier :
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File Type: jpg Alaska Cruise 033.jpg (538.1 KB, 2 views)
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Old 09-16-2011, 08:52 AM   #53
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My wife who does the budgeting, says that we can make it on 64% of my original salary and still be able to put away $1000 of the two pensions I have, for a possible rainy day or a cruise, each month.

Everybody's numbers are different.
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Old 09-16-2011, 09:22 AM   #54
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Percentage of income as a rule of thumb is complete nonsense. We look at our current budget, and then project retirement expenses by backing off these categories:
-fed tax
-state tax
-FICA tax
-life and disablility insurance
-retirement savings
-child / college savings and expenses
-mortgage payment

and then increasing these categories:
+health care
+travel and entertainment

and then project income taxes on the result.

Our number turns out to be about 50% of gross.
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Old 09-16-2011, 08:51 PM   #55
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I believe we will be fine with 50% or so at least for the first few years. We live modestly in an inexpensive city.
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Old 09-24-2011, 05:07 AM   #56
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Percentage of income as a rule of thumb is complete nonsense. We look at our current budget, and then project retirement expenses by backing off these categories:
-fed tax
-state tax
-FICA tax
-life and disablility insurance
-retirement savings
-child / college savings and expenses
-mortgage payment

and then increasing these categories:
+health care
+travel and entertainment

and then project income taxes on the result.

Our number turns out to be about 50% of gross.

Exactly how to do it. The one huge change everyone seems to forget is the retirement savings vs the managed withdrawal of those funds. I took the same approach and came in at 42% of current gross for expenses and 58% of gross for retirement income. So it should work.
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Old 09-24-2011, 10:40 AM   #57
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We're spending over 100% of the gross income we had in the final years prior to retirement. FireCalc says our WR is 100% safe historically, so what da heck!
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Old 09-24-2011, 12:25 PM   #58
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Not only everyone's numbers are different, but also the stage of the career may have a great impact to how the percentage works out. Our case in point: For the past year and half we have tracked our spending to the last penny, and the result shows that for the most recent 12 months our net spending (excl taxes) was 15.7% of our gross income excluding investment and option incomes. Adding the impact of private health care and loss of company cars as well as taxes at the post RE income level, a very conservative calculation would put the needed post retirement percentage at 25% of our current gross. We will be reaching FI around 2014, at which point I am planning on quitting the megacorp and after sufficient decompression phase I will be trying to get into certain nonprofit organizations which I know are in a need of people with my kind of background. These positions typically pay a low salary, but at that point of my life it won't be a problem. As a matter of fact, if DW chooses to RE 2014 as well (which I doubt), and my NPO salary became our only income, we would end up very close to our estimated post retirement net level. In other words we may be making a planned shift from 15.7% to 100%.
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Old 09-24-2011, 05:16 PM   #59
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YMMV is the real answer. No one's situation is exactly the same.
After 4+ years of FIRE, I have found that (with a fairly high gross income base) we are at about 40%. The real answer, as many have pointed out, is that you have to back into the answer. How much is your monthly budget for regular household expenses, add new health care insur. cost, add travel, delete work related expenses and adjust your taxes and voila, you have your estimated FIRE expense budget. wash, rinse, and repeat every few years and you will get a good feel for where it's going.

We actually tracked every nickel and dime for the 1st 3 1/2 years and found that we were fairly consistent and knew where are budget dollars were going. We have traveled extensively and so far have had a great time.

I have found that we got more comfortable with our budgeting as we found out it really worked. Plan vs. actual comparison was the key.

Best of luck to you.
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