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Scott Burns Column on Replacing Income versus Expenses
Old 10-28-2006, 07:35 AM   #1
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Scott Burns Column on Replacing Income versus Expenses

It is nice to see someone outside of this forum applying a little common sense to the usual advice that a retiree needs 70+% of preretirement income without considering expenses. Maybe we're not entirely alone.

I called a local radio financial program several months ago when a financial advisor and the host were giving the usual advice. When I said that what really mattered was controlling expenses (and the corresponding increase in savings), I was dismissed nearly before I could finish my sentence. Boy, did I feel out there. Thankfully, I had you all to come back to!

http://www.dallasnews.com/sharedcont....74e837ff.html
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-28-2006, 09:51 AM   #2
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Re: Scott Burns Column on Replacing Income versus Expenses

I know how you feel.

One way to put it that may get through to people like the radio show folks:

"Hey, that 70% rule is interesting. You mean that if I make $150,000 a year but only spend $50,000 per year, that when I retire, my expenses will jump to $90,000? Interesting!"
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-28-2006, 10:27 AM   #3
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Re: Scott Burns Column on Replacing Income versus Expenses

The goal of most financial advisors is to get your money and collect the management fees and commissions as long as possible. If they said that you could retire now and start drawing out your money, they would lose income. They want all of us to work and save until we die. The 70% income replacement is almost unattainable for us wage slaves except for the very lucky investors or someone who lives on 30% of their income while saving for 40 years.

To truly FIRE, you must live below your means during your working years which means you must replace a much lower percentage of you working income to retire well.

Of course, there are always nice inheritances to change the balance. That's been the answer for a few posters here. Unfortunately for me, it's not in my future.
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-28-2006, 10:36 AM   #4
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Re: Scott Burns Column on Replacing Income versus Expenses

Replacing "expenses" versus "portion of income" says it better.

I think people quote percent of income because people know their income better than they know their expenses (sadly).

I personally think my expenses will rise when I ER - more time will require more $$$ for hobbies and travel, which will be more than offsetting tax and work-related-expense reductions.
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-28-2006, 11:49 AM   #5
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Re: Scott Burns Column on Replacing Income versus Expenses

Don't miss the other key point in Scott's response; that some of you may be saving too much. Boy, is that probably an understatement for this forum! You guys saving 50% of gross or more must really hate working.
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-28-2006, 12:09 PM   #6
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Re: Scott Burns Column on Replacing Income versus Expenses

Quote:
Originally Posted by Delawaredave
I think people quote percent of income because people know their income better than they know their expenses (sadly).
There ya go! For many folks with long term steady employment, their budgets are built around that income. Spend a percentage, save a percentage and all that. Their lifestyles are a reflection of that budget. So, for them, a benchmark for economic viability in retirement could be looked at as a percentage of their income. And, if that's what they understand, if that's whats going to ring their bell, hey I'm more than happy to duscuss it with them in those terms.

I always thought in terms of expenses. I knew what I wanted as my FIRE goal and drove my career and our budget to get there. But I understand how some folks, especially those with long term steady employment, think in terms of income. And I'm flexible enough to discuss it either way.

Maybe we're getting a little obcessed about this on this board?

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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-28-2006, 12:24 PM   #7
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Re: Scott Burns Column on Replacing Income versus Expenses

Quote:
Originally Posted by youbet
Maybe we're getting a little obcessed about this on this board?
After you've been here a while the main topics tend to repeat themselves ad infinitum-- perhaps ad nauseum.

But they're fresh, new, and exciting whenever they're rediscovered by the next newbie. It's just part of the cycle and those new threads don't necessarily require the continued participation of our more "experienced" posters.

You want obsessed, try some of the more zealous frugalites on the Simple Living board... or go ask the Vanguard Diehards how to hire a financial advisor!
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-28-2006, 12:42 PM   #8
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Re: Scott Burns Column on Replacing Income versus Expenses

Ahhhhhh.....good point!
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-28-2006, 12:46 PM   #9
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Re: Scott Burns Column on Replacing Income versus Expenses

I will agree with youbet...

The very vast majority of people need to replace the percent of their income as listed.... yes, it really means replacing their expenses, but I would bet that 90% spend that amount.... so it is a simple way for them to know what they need..
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-28-2006, 02:48 PM   #10
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Re: Scott Burns Column on Replacing Income versus Expenses

We saw our financial planner last week, and she went over everything with us and said she has us needing 100K per year when we retire. I distinctly remembered telling her we need about 65K, but she upped it.

It doesn't matter, we know what we need, and when it's time to stop.

She did a great job with out money though.
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-28-2006, 02:53 PM   #11
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Re: Scott Burns Column on Replacing Income versus Expenses

Quote:
Originally Posted by Callie
She did a great job with out money though.
Now that's the kind of financial planner I've been looking for...

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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-29-2006, 10:52 PM   #12
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Re: Scott Burns Column on Replacing Income versus Expenses

Some are investment advisors, some are retirement planners. From participating here, you may be a better planner than your advisor.
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-30-2006, 06:55 AM   #13
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Re: Scott Burns Column on Replacing Income versus Expenses

I am probably missing the point here but I figured that I should continue to
decrease expenses where ever possible and increase income as well through
investments.

The idea is that at some point in time my income investments will be more than
enough to cover my living expenses and I could retire if I wish.

I don't require much. A roof over head. Food in the belly. A few bucks for
entertainment. The hardest part is learning where to put it all to get the most
valued return on investment all the while having my investment income available
when I decide to retire.

To me both factors are important expenses and income. Less of one, more of the
other. Seems simple enough to me.
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-30-2006, 07:02 AM   #14
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Re: Scott Burns Column on Replacing Income versus Expenses

Quote:
Originally Posted by scrubradio
I am probably missing the point here but I figured that I should continue to
decrease expenses where ever possible and increase income as well through
investments.

The idea is that at some point in time my income investments will be more than
enough to cover my living expenses and I could retire if I wish.

I don't require much. A roof over head. Food in the belly. A few bucks for
entertainment. The hardest part is learning where to put it all to get the most
valued return on investment all the while having my investment income available
when I decide to retire.

To me both factors are important expenses and income. Less of one, more of the
other. Seems simple enough to me.
I see you are pretty new here. One of the rules is to keep this stuff
as convoluted/incomprehensible as possible. That way we "vets"
can explain it, over and over and over..........

JG
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Re: Scott Burns Column on Replacing Income versus Expenses
Old 10-30-2006, 07:13 AM   #15
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Re: Scott Burns Column on Replacing Income versus Expenses

Quote:
Originally Posted by Mr._johngalt
I see you are pretty new here. One of the rules is to keep this stuff
as convoluted/incomprehensible as possible. That way we "vets"
can explain it, over and over and over..........

JG
I do understand the way a board works. The same topics over and over again.
Everybody has an opinion to share. The bottom line for me is - I received my
statements on my investments for the month and realized that I have to continue
to work to get more investment money. It is working. My expenses have gone
down and income has gone up. This has happened repeatedly since I became
interested in FIRE. Quality of life has remained constant.
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