Saving by not working & downsizing

[Andre1969]

I tend to look at my 401k both ways...as an expense, and as an asset. Essentially, I'm paying to fund my retirement. I'll benefit from it down the road when it's time to live off of it, but for the time being, it's still an expense.

I have thought about trying to cut back on my 401k a bit, as it's grown enough that adding more to it doesn't have the effect it once did. However, I'm addicted to the tax savings right now. I'm in the 25% federal bracket, so by the time I tack on state and local taxes, every dollar I put in the 401k only "costs" me about 67 cents. Plus, I get a 4% company match, which is nice.

I would never cut out the 401k completely, though. I'd always make sure to at least get the company match. Most likely, I'll keep maxing it out for the foreseeable future. Even though I'm calling it an "expense", the more I pay, the sooner I can "buy" my early retirement!

[aja8888]

SS contributions, while a "hit" as a payroll deduction, are used in building a future income stream. We couldn't be where we are at this point, income wise, if it wasn't for the $45K per year we get back from SS.

[sengsational]

Quote:

Originally Posted by walkinwood ... hourly income after taking into account work related costs, commuting time and taxes & shows just how little you make - and therefore, how valuable each dollar is.

This is the logic we used 22 years ago when the first kid arrived; after removing employment taxes, employment related expenses and day care, just the slightest belt tightening got us even.

Quote:

Originally Posted by aja8888 SS contributions, while a "hit" as a payroll deduction, are used in building a future income stream. We couldn't be where we are at this point, income wise, if it wasn't for the $45K per year we get back from SS.

Good point. My calculations 22 years ago ignored this factor. But then again, everyone has been saying not to depend upon SS to continue in its current form, and I'm not planning on engaging SS for 15 more years.

[Andre1969]

Quote:

Originally Posted by aja8888 SS contributions, while a "hit" as a payroll deduction, are used in building a future income stream. We couldn't be where we are at this point, income wise, if it wasn't for the $45K per year we get back from SS.

That's a good point. The SS that I currently pay out, while an expense right now, also helps out with retirement down the road. Even if I were to quit work right now, what I've earned so far will cover about 30% of my baseline budget, starting at age 62. Provided they don't monkey around with it, that is!

[gardenfun]

Quote:

Originally Posted by chris66 This is absolutely our expectation. We sold our primary home in Columbus, Ohio, and moved to our second home in Missouri wine country. We did this last year when hubby and I were both part of a reduction in IT staff at MegaCorp. Columbus has insane property taxes, and we had mortgages when we were working. With the proceeds of the Cols home sale, we were able to pay off the Missouri home mortgage, and buy a truck, and then some... I got another job, but after running the numbers, and considering how long it's taking us to remodel the current home, I gave my notice a few weeks ago. I agreed to stay on until the end of this month, and then my ACA insurance begins 4/1. It's affordable, even without subsidies (since we've made to much already this year for a reduction in premiums). If it wasn't for ACA, I wouldn't be able to do this (I'm 48). We live in town, so we can walk to about everything. Lots of cheap entertainment nearby. Room for gardening (which is both entertainment and money saving for us. I'll have time to research to save money, and to do all that frugal living stuff that I actually have fun doing when I have time. Overall, if I continued working, we'd have even more money -- but, really, we have enough, and not working, we can effectively and enjoyably live on considerably less money.

Nice story, Chris. Especially the part about gardening being both entertainment and money saving.

Congratulations on appreciating the true pleasures of life (as opposed to adding to the money pile)!

[devans0]

While running calcs, our taxes will decline such that 85% will give us the same take home pay. Social security is approx 7%. Long capital gains rates will make up the bulk of the other 8%. Other savings by having time to save will be a bonus. I expect LTCG to increase though.

[pb4uski]

Quote:

Originally Posted by Rex .... It's shocking to me that w**king & living in the family home costs me this much. I would welcome any comments and shed some light on what I am missing.....

Downsizing from two homes to one home was a key for me pulling the plug (we were using both homes living in one int eh summer and the other in the winter). Between property taxes, heating oil, electricity, cable, internet, snowplowing, insurance and maintenance on our main home, we saved a bundle. Plus we added the proceeds from the sale of the main home to the nestegg and that was earning now rather than home equity sitting there. All in I figure I was $25-30k a year ahead of having two homes.

I didn't view the taxes or 401k contributions as a savings because they were all coming out of income but I understand your point.

[Senator]

Here is what I was thinking as to what my situation would do.

110,000 – Salary
(-8,415) – Medicare/SS
(-23,000) – 401K Deduction
(-2,115) – Purchased Vacation
(-16,800) – P&I of Mortgage paid off

$59,670 equivalent.

Factor in commute and parking costs, it may be even lower. If you are making only 59K, rather than 110K, your federal taxes are probably lower too.

[chris66]

Quote:

Originally Posted by gardenfun Nice story, Chris. Especially the part about gardening being both entertainment and money saving. Congratulations on appreciating the true pleasures of life (as opposed to adding to the money pile)!

Based on your username, it seems we're kindred spirits. I'm looking forward to talking with you more. I'll add my interests to my user info...

[youbet]

Quote:

Originally Posted by RetireAge50 We see 30% of our income. The rest currently goes to taxes 23% retirement savings 22% and kids college 25%.

Despite being employed for many decades, we never saw a penny of our income. It all went to taxes, spending and savings!

[sengsational]

Quote:

Originally Posted by gardenfun Nice story, Chris. Especially the part about gardening being both entertainment and money saving.

I was just reading an Andrew Weil book and he includes exercise in the list of benefits of gardening. I might need to start gardening again!

[chris66]

Quote:

Originally Posted by sengsational I was just reading an Andrew Weil book and he includes exercise in the list of benefits of gardening. I might need to start gardening again!

Oh, totally! I exercise longer and harder when I'm gardening, because it doesn't "feel" like a workout (at least not until sometimes the next morning). I workout every muscle group. It's great stuff. For comparison, in winter, I do old Firm workouts that I have on VHS, but I think I get more benefit from gardening. However, I am very physical when I garden. I'm usually covered in dirt, and a total mess. I'm turning compost with a manure fork, and digging holes, and moving plants...

[robnplunder]

Quote:

Originally Posted by ERD50 I don't see any way that the end of 401K contributions can be called 'saving' - no 'hair splitting' about it. In fact, if the OP gets a company match, it is a loss. You keep the 401K money you contribute, it isn't 'spent', so ending it isn't saving anything. I think the OP is confusing the comparison between annual spending, take home pay, and gross pay. Taxes and other payroll deductions are a hit, 401K contributions or other savings are not. -ERD50

Agreed. I restrained from making similar comment.

IMO, quitting a job to save on expense only makes sense if the job doesn't pay much to begin with.

[daylatedollarshort]

Quote:

Originally Posted by robnplunder Agreed. I restrained from making similar comment. IMO, quitting a job to save on expense only makes sense if the job doesn't pay much to begin with.

I think it depends on your individual circumstances and tax situation. Here is one way to not work at a W2 job and break even financially. Assume the ACA subsidies and an HSA plan equal your last employer health care subsidies so health care expenses are a wash.

1. Lower your housing expenses by moving to a lower cost resort or beach area: 20%

2. No more job and commute costs: 10%

3. Pension income replaces some of former salary: 30%.

4. Lower taxes - no more Social Security tax, lower state and federal income taxes, more time for tax planning: 15%

5. Lower personal expenses from being home more, cooking from scratch, more time to price shop, switch to LED bulbs, etc.: 15%

6: More time for credit card and frequent flyer hacks for cash and free travel: 10%

This hypothetical worker would break even with working a 40 hour a week W2 job - the categories above all add up to 100% of his former gross salary. It isn't the exact salary as much as the percent in each category that matters. Other categories could include the money an early retiree saves from having the kids launched, downsizing the house instead of just a lower cost of living area or working part-time at an enjoyable hobby job.

If you have a high salary but live where 3/2 tract homes cost $1M like the South Bay, just moving to Southern Cal and buying an equivalent house for $500K is going to free up $500K you can use for after tax living expenses, which might reduce your taxable income significantly.

And I left out not having to save for retirement as an expense.