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Old 03-09-2013, 06:46 PM   #41
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One requirement for me when planning my ER budget was that I would have no lifestyle change. I could maintain my volunteer work, even expand it a little. (It is not a costly activity). Same for my hobbies.

I could go out to eat now and then with my ladyfriend, just as I have been doing all along, without breaking my budget. If there is something I need to buy, I buy it. I often go months without using my credit or debit card and that has not changed since I ERed.

Related to the "no lifestyle change" requirement is one in which I build into my budget a cushion or surplus I can use to cover any small, unforeseen expenses. I bought a new PC last year, I had it covered. I was a little spendy with cash one month, I had it covered. I know these things won't repeat every month.

And even for some regular expenses which have risen in the last few years, I have it covered. The cushion has shrunk a little bit but it still averages about $400 a month.
I think like you do Scrabbler budget wise. I was not going to retire until I was assured everything stayed the same. Despite detailed budgeting for retirement, crap always came up. So I got around it by just adding $350 for "whatever" on top of my $100 "unexplained expenses". This has worked out well for me, as I also still budget for monthly savings that still is a priority that I won't trim. I agree with Midpack too on living a year in retirement on planned ER income. Yes, lifestyle could change in retirement, but you can factor that into the equation, such as change in housing costs.
I would be worried for a person who lives "a certain lifestyle" and then is going to drastically cut expenses just so they can ER.
One of my favorite sayings.." There is only one thing worse than being poor. That is being rich first, then becoming poor." Saying it, and being able to do it day in and out without practice may become a frustrating experience. Frugal type people generally don't have this to worry about as they are minimalists to begin with. Assuming of course they don't have to downscale their budget to ER.
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Old 03-09-2013, 06:53 PM   #42
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So if taxes are 125k and you save 150k you currently live on about 125k? Going to 90k is not (that) much of a change.
Good point. Even many articles claiming you should live on "x" percentage of your w#rking income don't precisely account for changes in effective tax rates after retirement.
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Old 03-09-2013, 06:59 PM   #43
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So if taxes are 125k and you save 150k you currently live on about 125k? Going to 90k is not (that) much of a change.
Shanty - look through your spending using your checking account and credit card statements to see where the 125k is going. Look at what you could easily give up (maybe you go on three trips per year and could just do 2 ?) to get your 125k down. Then look at the remainder of the spend and think about it the other cuts you'd need to make. And really think about if it will "hurt" to give those things up.

For comparison my budget is 88k per year, but of that I have 29k budgeted for healthcare (HI plus out of pocket costs). I dont have expensive tastes; my vacation budget is 4k a year, my "buying stuff" budget is 2k a year.
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Old 03-09-2013, 07:01 PM   #44
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I guess only you can decide whether that level of income can cover what you want to be spending. You'd probably need to examine real-life numbers of someone who is living like what you envision. I wouldn't expect mine to drop by that much, perhaps because I got all my wage bumps early on and basically no raises over the past decade. Hitting the wage ceiling made it easier for me to decide to go, if I was climbing up a J, I admit I probably wouldn't, even after reaching target. Although I still might if the working conditions were not to my liking.
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Old 03-09-2013, 07:54 PM   #45
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If I retire now, it would be about 25% of current income. We would have to leave California for a lower cost state and tone down the life style. Kids are launched. Our Fire income would be comfortable by many standards, but not compared to our current lifestyle costs. Anyone know of a successful downshift by that much? Not enjoying work anymore, but it is lucrative. Retirement income would be less then our Federal Tax bill is now.
As other have pointed out, there should be no need to cut back your spending since (hopefully) you are spending roughly as much as or somewhat less than your proposed retirement spending, while saving for retirement.

IMO it would be a difficult task at best to exactly replicate your retirement spending pattern right now, but that does not mean you should not do your best to approximate it. By cutting back, you will reach retirement faster, too.
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Old 03-09-2013, 08:42 PM   #46
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I've been living on less than half of my w-2 income for many years. All my extra income has gone into investments which now bring in about as much as my living expenses every year. I'm 37. I wouldn't be surprised if I am living off only 25% of my total yearly income by my mid 40s.
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Old 03-09-2013, 10:02 PM   #47
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I calculate it would take 140K a year to continue current lifestyle in California (Excludes current savings rate and lower tax bill and lower charity $ upon retirement, so 90K would still be a significant reduction from that. My hope is we could have a scaled down, yet comfortable lifestyle in the Southeast US for 90K. All I was really looking for are any examples where someone actually retired with that much of an income step down. Otherwise, I will need to work about 8 - 10 more years to keep current spending assuming a 3% SWR. My other assumption is most folks scale down $$$ donations to charity in retirement and donate more time instead.
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Old 03-09-2013, 10:25 PM   #48
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You guys comparing after-tax income pre retirement with after-tax income post retirement?
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Old 03-09-2013, 11:11 PM   #49
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Old 03-09-2013, 11:57 PM   #50
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The "x% of income" guideline for retirement has never made any sense to me.

I'm living on less than 25% percent of pre-FIRE net income and doing fine.
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Old 03-10-2013, 12:59 AM   #51
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I calculate it would take 140K a year to continue current lifestyle in California (Excludes current savings rate and lower tax bill and lower charity $ upon retirement, so 90K would still be a significant reduction from that. My hope is we could have a scaled down, yet comfortable lifestyle in the Southeast US for 90K. All I was really looking for are any examples where someone actually retired with that much of an income step down. Otherwise, I will need to work about 8 - 10 more years to keep current spending assuming a 3% SWR. My other assumption is most folks scale down $$$ donations to charity in retirement and donate more time instead.
Shanky, you keep throwing the word "income" into the discussion. That tends to be a red flag on this board and attracts much discussion about pre-retirement income not being the appropriate metric to base post-retirement spending/budgeting needs on.

I understand your question. And it sounds like you're doing all the right things including counting on no further retirement saving, less taxes, etc. Still, continuing your current life style will cost $140k/yr and you can only budget $90k/yr. That's a pretty hefty drop.

Few here would argue that a "comfortable" lifestyle for a retired couple with no unusal expenses can't be be financed for $90k/yr living in the SE. But no one but yourself can answer as to whether the $50 worth of stuff/experiences you'll no longer have will be tolerable.

Why don't you list where the $50k will come from? Put it in 2 buckets: (1) money saved by moving out of Calif and (2) money saved by not spending on X, Y and Z things and activities that you spend on now. We can take a crack at whether the savings seem realistic or not. You'll have to decide whether the new life style would be worth it for you or not.
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Old 03-10-2013, 01:24 AM   #52
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My expenses in retirement were difficult to estimate because I wasn't sure what kind of life I would be leading. I was living as a renter in Silicon Valley so I just had to make educated guesses at these costs. I figured 3 possibilities for retirement budgets:

1) Extensive travel abroad but maintain an inexpensive USA home base in a low cost area, maintain USA health insurance
2) Live abroad and maintain no USA home base, maintain USA health insurance until very comfortable with this as a long term lifestyle
3) Live in the USA in a low cost area, maintain USA health insurance

And I planned for rising health care costs in the intermediate to long term.

I took the most expensive alternative (#1) as the budget I should plan for.

I am living lifestyle #2 today and my expenses, 6 years later and even ignoring ~13% CPI inflation during that period, are still lower than 25% of my peak gross income.

About a year ago I went back and looked at my estimated retirement expense guesses and my guesses were actually pretty good.
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Old 03-10-2013, 01:47 AM   #53
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Shanky,

having lived in both CA and the SE, I can tell you that the SE will offer markedly lower expenses in only 2 categories: housing and state income taxes. Unless you radically change your lifestyle, I don't think you will see huge savings in other expense categories.

And BTW, we will retire on less than 25% of our current gross income.
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Old 03-10-2013, 06:14 AM   #54
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My post above still stands, whether comparing after tax or before tax income.
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You guys comparing after-tax income pre retirement with after-tax income post retirement?
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Old 03-10-2013, 06:36 AM   #55
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Keep in mind that even though someplace like Texas has lower general housing costs, if you buy in a really nice neighborhood it can be nearly as much as California and with higher property taxes to boot (but no income taxes).

Where you would get real savings is in a smaller town or a lake cabin. Much less to do in those places but you can find them an hour or so from the major metropolitan areas. For instance the Dallas area is almost seven million people with plenty to do and you could live in the Bonham or Lake Texoma areas very cheaply - maybe a home for $50 to $75K. Also there are some cheaper suburbs for around $200K. Property taxes and insurance on something like that might be as much as $7K.
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Old 03-10-2013, 08:00 AM   #56
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whether comparing after tax or before tax income.
Both after tax. My post-FIRE after-tax income is less than 25% of my pre-FIRE after-tax income.
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Old 03-10-2013, 08:22 AM   #57
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Keep in mind that even though someplace like Texas has lower general housing costs, if you buy in a really nice neighborhood it can be nearly as much as California and with higher property taxes to boot (but no income taxes).

Where you would get real savings is in a smaller town or a lake cabin. Much less to do in those places but you can find them an hour or so from the major metropolitan areas. For instance the Dallas area is almost seven million people with plenty to do and you could live in the Bonham or Lake Texoma areas very cheaply - maybe a home for $50 to $75K. Also there are some cheaper suburbs for around $200K. Property taxes and insurance on something like that might be as much as $7K.

I agree that the property taxes in both CA and TX are even. www.taxfoundation.org confirms that. But at the same time CA has an income tax rate of 10.3% which is a large amount. The sales taxes are also alike. One other point here is only SS and Railroad pensions are exempt and disability is also exempt. All other pensions private and government are fully taxed. That makes for a large chunk of change that comes out of a person's pocket. As mentioned there is no income tax in TX and all pensions are not taxed either. This people is from a person living in MA. So if someone wants to find a lower cost of living income tax has to be part of the equation. If it isn't then I don't know what is.
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Old 03-10-2013, 09:17 AM   #58
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I've met people who sold their California homes and bought two homes in Austin / San Antonio, Texas. As you know, there are other areas cheaper than CAL as well. That was before the housing market bust. Assuming the California housing market comes back up, you might be able to pocket some change by doing something like that. That would give you more slack in your retirement portfolio.

However, it's a big personal lifestyle change.

I've lived in San Diego a couple of summers surfing, and it's a totally different and wonderful life if you can afford it. If you like the unique lifestyle (I did, but not the housing cost), you might choose to stay. If I had been more persistent / creative as some other posts suggested, I might have found a way to stay out there.

We are also thinking of moving at some point out of Houston, but will talk with DW about renting a couple of months first to see how much we actually like the new area. She is ready to move to Arizona next week, and I want to check it out first.

Good luck!
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Old 03-10-2013, 09:46 AM   #59
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You guys comparing after-tax income pre retirement with after-tax income post retirement?
In my first post about the 25% figure, I was comparing ER expenses to a hypothetical full-time income (before taxes, because I never actually filed an income tax return on an income I never achieved due to switching to part-time work hours years earlier).
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Old 03-10-2013, 10:43 AM   #60
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I've lived in San Diego a couple of summers surfing, and it's a totally different and wonderful life if you can afford it. If you like the unique lifestyle (I did, but not the housing cost), you might choose to stay. If I had been more persistent / creative as some other posts suggested, I might have found a way to stay out there.
I used to live in that area and I used to think that. But the lifestyle is mostly ephemeral. The water probably averages a shivering 63 degrees over the year, peaking at around 70 degrees for a bit in the summer. Any land near the coast is outrageously priced *and* highly regulated by litigious cities and far-reaching laws. I think for the vast majority who live near the beach that doing beach stuff represents a vanishing small percentage of their time -- and forget bonfires or alcohol in most locations and be prepared to cover up for the cold and wind of the evening most of the year. Even the climate is better several miles inland if you enjoy actually seeing the sun. This is just my opinion, hope you don't mind I still go visit family there each year in the peak of summer.
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