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Successful ER on 25% of pre-retirement income?
Old 03-09-2013, 08:39 AM   #1
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Successful ER on 25% of pre-retirement income?

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.
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Old 03-09-2013, 08:45 AM   #2
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Our Fire income would be comfortable by many standards, but not compared to our current lifestyle costs.
IMO, this is a red flag. How much would you have to cut down your expenses? Are you and your family comfortable doing this?
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Old 03-09-2013, 08:53 AM   #3
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I don't know if I really downshifted as I always LBYMed. I probably was at 25 -30% spending of net income. current expenses are less than what I was paying to feds. I did makes some cuts and stopped wasting money of useless crap.
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Old 03-09-2013, 08:56 AM   #4
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Depends on how much "25%" is and what you are willing to give up.

Leaving Planet California would be a good start.

I am going to have to live on about 25% of today's income. Shouldn't be a problem for me, but our circumstances are different.
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Old 03-09-2013, 09:12 AM   #5
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I retired on about 25% of income (income varied considerably annually with bonus), but we always lived well below our means. There is no universal answer of course.

Goes almost without saying that you have to track what you're actually spending now for the plan to have any credibility. Not to insult anyone, but people post here who are considering retiring and they've never tracked their spending, much less vs a budget.

IMHO everyone should spend at least one year living at their projected retirement annual spending level before retiring to make sure it can be done. I wouldn't trust myself to what I think I might do on paper, might work, might not (then what?). We lived at the reduced spending level for 3 years before I retired. And our annual spending target was built on:
  • what we actually spent in each of the 3 years before [edit: factor in expected changes in clothing, travel, etc. - ours were minor and predictable for the most part]
  • plus an "accrual" amount for major expenses that don't occur regularly (cars, roofs, major home repairs/replacements/remodels)
  • plus an amount for health care insurance before/after Medicare.
Add up those three and if it's 25% of current income, I'm not sure what others say matters...best of luck!
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Old 03-09-2013, 09:21 AM   #6
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Couldn't do it on 25% of our income....would have been around $20k. COULD do it if you wanted to cut everything.....
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Old 03-09-2013, 09:22 AM   #7
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If current income is $1,000,000 a year, way diffrent than DW & I, whose current annual income is $88,000. Your 25% would of course be $250k, which we would live like the Rockefellers on, while our 25% would only be $22k.

As it is, we will be at better than 100% of current net income. Net is where rubber meets the road, IMO.
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Old 03-09-2013, 09:24 AM   #8
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I retired on about 25% of income (income varied considerably annually with bonus), but we always lived well below our means. There is no universal answer of course.

Goes almost without saying that you have to track what you're actually spending now for the plan to have any credibility. Not to insult anyone, but people post here who are considering retiring and they've never tracked their spending, much less vs a budget.

IMHO everyone should spend at least one year living at their projected retirement annual spending level before retiring to make sure it can be done. I wouldn't trust myself to what I think I might do on paper, might work, might not (then what?). We lived at the reduced spending level for 3 years before I retired. And our annual spending target was built on:
  • what we actually spent in each of the 3 years before
  • plus an "accrual" amount for major expenses that don't occur regularly (cars, roofs, major home repairs/replacements/remodels)
  • plus an amount for health care insurance before/after Medicare.
Add up those three and if it's 25% of current income, I'm not sure what others say matters...best of luck!
+1 what Midpack says. I too have lived on 30% of my Gross for the past 3 years and as I face the FIRE question I'm pretty confident in my planned expenses. Once you have expenses figured out, you can take a good look at what assets will cover those for the long haul.

Having said that, 25% is certainly doable depending on what the current income is and whether you are willing to adjusts your lifestyle to what your assets will support.

You have some serious digging to do. Keep digging, the answer is there somewhere
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Old 03-09-2013, 09:27 AM   #9
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Originally Posted by Midpack View Post
I retired on about 25% of income (income varied considerably annually with bonus), but we always lived well below our means. There is no universal answer of course.

Goes almost without saying that you have to track what you're actually spending now for the plan to have any credibility. Not to insult anyone, but people post here who are considering retiring and they've never tracked their spending, much less vs a budget.


IMHO everyone should spend at least one year living at their projected retirement annual spending level before retiring to make sure it can be done. I wouldn't trust myself to what I think I might do on paper, might work, might not (then what?). We lived at the reduced spending level for 3 years before I retired. And our annual spending target was built on:
  • what we actually spent in each of the 3 years before
  • plus an "accrual" amount for major expenses that don't occur regularly (cars, roofs, major home repairs/replacements/remodels)
  • plus an amount for health care insurance before/after Medicare.
Add up those three and if it's 25% of current income, I'm not sure what others say matters...best of luck!

As good advice as that is I am not sure it is realistic. Here is my reason for saying this. First off the expenses are completely different if completely retired. Health insurance will be more since employer will pay less if any of it. Transportation costs will be different since instead of going to work maybe you are traveling. Food expesnes will be different all together. It will depend if you are traveling or not.

So many things could be different. Everyone will be different as well. Some will move to a lower COL area. Others will stay put. Some will just downsize in place while others will open up to encapsulate grandchildren.

I am not trying to completely disagree but I am just saying that testing that out for a year prior to retirement might not be possible.
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Old 03-09-2013, 09:32 AM   #10
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As good advice as that is I am not sure it is realistic. Here is my reason for saying this. First off the expenses are completely different if completely retired. Health insurance will be more since employer will pay less if any of it. Transportation costs will be different since instead of going to work maybe you are traveling. Food expesnes will be different all together. It will depend if you are traveling or not.

So many things could be different. Everyone will be different as well. Some will move to a lower COL area. Others will stay put. Some will just downsize in place while others will open up to encapsulate grandchildren.

I am not trying to completely disagree but I am just saying that testing that out for a year prior to retirement might not be possible.
OK, then what would you suggest to the OP who is evidently proposing living on much less than current spending/lifestyle?

And I mentioned accounting for health care BTW...
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Old 03-09-2013, 09:36 AM   #11
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Had I worked full-time right up to the point before I ERed, my expenses in ER would have been about 25% of the full-time income. But I had switched to working part-time 7 years before I ERed, so the ratio of expenses to part-time income was much higher. (This is also why using those ratios to pre-retirement income are so bogus IMHO. Which "pre-retirement income" would I use as a starting point?)

While it was a coincidence, in my final 17 months of working my wage income was about the same as my investment income in ER. This was after a second reduction of my weekly work hours. So it was an unintended but welcome test like the one Midpack referred to in bold.
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Old 03-09-2013, 10:07 AM   #12
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OK, then what would you suggest to the OP who is evidently proposing living on much less than current spending/lifestyle?

And I mentioned accounting for health care BTW...

I don't know if physically switching over to retired spending is realistic. I am not against trying it. I just cannot see how anyone can switch over to retirement while working. If there is a question about expenses prior to fully retiring maybe they should get a part time employment. Maybe they shouldn't retire if there is a question. If they don't have to leave the work force they shouldn't retire unless they have worked the numbers out.

If you can tell me how I am supposed to live on what I expect to live on in retirement without having cut out current expenses that will be gone when I retire and not kill my retirement funds by paying off a mortgage or two. Moving to a lower COL area where we know we are going while still working in a job I would like to know how that is done.

Please do not be defensive about it. It is really just discussion here. No disrespect is intended or implied here. I am not a grumpy old man or anything. I have a few years to go to retire. I know my lifestyle will be completely different not working than when it is working.

As for a suggestion they mention that they live in CA. We know that CA is a high cost of living. As nice as it is I am sure that there are much less expesive areas to live. Even those with nice weather but maybe not everything the OP is used to having. A compromise is in order. Take trips to possible places and study the area. Make an informed decision as to what will and what will not work.
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Old 03-09-2013, 10:08 AM   #13
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Yes. I can live or ER on 25% of my current income, although I am waiting a bit longer before calling quits.

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Originally Posted by Shanky View Post
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.
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Old 03-09-2013, 10:41 AM   #14
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I don't know if physically switching over to retired spending is realistic. I am not against trying it. I just cannot see how anyone can switch over to retirement while working. If there is a question about expenses prior to fully retiring maybe they should get a part time employment. Maybe they shouldn't retire if there is a question. If they don't have to leave the work force they shouldn't retire unless they have worked the numbers out.

If you can tell me how I am supposed to live on what I expect to live on in retirement without having cut out current expenses that will be gone when I retire and not kill my retirement funds by paying off a mortgage or two. Moving to a lower COL area where we know we are going while still working in a job I would like to know how that is done.
I think Midpack's idea is pretty good and is really getting at the issue of don't project a lower standard of living than you can feasibly accomplish in ER. Of course you won't be able to completely switch over all expenses but if you track spending carefully I think you can project out differences. You should be able to tell what's going to be similar/more/less in ER. For example, if my food budget (groceries) is $600 month while working, I'm wouldn't count on being able to reduce it $300. If I'm going to drop 1 of the 2 cars, I won't need insurance/maintenance etc. If I go on one weekend road trip a month at a cost of $200, I might increase that to 2/month in ER.

There is still the danger that with more free time your leisure expenses will go up more than expected. But you should at least be in the ballpark.
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Old 03-09-2013, 10:46 AM   #15
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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?
I would not look at the down shift in terms of percentage but rather in terms of actual spending dollars. FWIW I am also in california and looking at going from 200k+ to 40-50k budget in ER.

As others have suggested you need to track your expenses and figure out your budget in ER.

Is the main reason you need to leave CA is because of the mortgage costs? If so the differences between different areas can be estimated (rent, housing costs, property taxes) etc.
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Old 03-09-2013, 10:48 AM   #16
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I think Midpack's idea is pretty good and is really getting at the issue of don't project a lower standard of living than you can feasibly accomplish in ER. Of course you won't be able to completely switch over all expenses but if you track spending carefully I think you can project out differences. You should be able to tell what's going to be similar/more/less in ER. For example, if my food budget (groceries) is $600 month while working, I'm wouldn't count on being able to reduce it $300. If I'm going to drop 1 of the 2 cars, I won't need insurance/maintenance etc. If I go on one weekend road trip a month at a cost of $200, I might increase that to 2/month in ER.

There is still the danger that with more free time your leisure expenses will go up more than expected. But you should at least be in the ballpark.
All of that is true but it is not living in within those limits. It is projecting and computing. It is not actually living is the point. We can make assumptions. Those are great rules of thumb for planning purposes they are great tools.

Midpack is a very good poster here and a lot of great information and experience is packed in that 29 year old . I don't want anyone to think that I am disagreeing with the idea. I just think it is impractical as a physical tool to do that. On the flip side all the planning and calculating in the world will not account for everything either and will not be always 100% or 0% or anything in between.
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Old 03-09-2013, 11:26 AM   #17
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At 25% of income I would have had to move to another country or buy a trailer and hook it to my truck.
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Old 03-09-2013, 11:36 AM   #18
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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.
We retired on 1/3 of pre-retirement income, but that's what we were living on before retirement. So we had no lifestyle change. *

The conventional wisdom is that you should spend a year or two living on your post retirement budget before you take the leap. Since you're expecting to move to some lower COL area, you can adjust the budget for that (i.e. "We'll live on 30% now, and plan to eventually get down to 25% by moving").

BUT, I think you need to be realistic about how much you'll save by leaving CA. The biggest change in prices would probably be housing, and you may already have a paid-for house. During the year that you're dry-running, you can categorize your expenses and figure out which categories you expect to go down. You can take a week's vacation and live in a possible destination. See what you miss about CA, do some open houses, decide if you'll be bored there.

The BLS has some data, but it tends to be for metropolitan areas. That's of limited use if you think you'll save by moving to a small town. ("Regional Resources" here Consumer Price Index (CPI))


* The 1/3 includes the taxes payable on our much reduced retirement income, not the taxes we were paying before retirement.
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Old 03-09-2013, 11:40 AM   #19
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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.
Reading this forum, you may think that downshifting your lifestyle is easy. It is not and requires a significant change of mindset - yours and your spouse's. Many here have lived at their ER lifestyle for years before pulling the plug on working.

Downshift first. Live that way for a few years and then decide if that's for you.

All the best.
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Old 03-09-2013, 11:41 AM   #20
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I think it depends on what your pre-tax income was. Median household income in the US is about ~50K. Is that 25% of your current income? Would you be happy living a normal middle class life? If your kids are grown, your house is paid for, and you live in a low COL area you can have a normal middle class life for even less than that.

You can live well even in California on not a huge income if you have a paid for house, cook from scratch, use a clothesline, do your own yard and housework, have an edible front yard instead of a lawn, use LED light bulbs, have cheap hobbies (biking, hiking, camping, canoeing, archery, gardening, bird watching, blogging, sketching, reading, knitting), use free library passes to visit museums and zoos, etc.

Would you rather live like that than have a job you hate? We are moving in the direction of living like that in large part because we simply like the idea of living green and not spending a lot of money on consumer goods.

Living on as little money as possible / making as much money as possible without having an actual job can be a fun hobby / lifestyle, if you are into that sort of thing. But it probably isn't for everyone.

This is a fun site where many of the households live green, minimalist and have very low expenses -

*faircompanies - sustainable community, green videos and eco-news center

This is a pretty extreme version, but these people live in California on not much money at all -

Thoreauvian simple living: unelectrified, timeless tiny home - videos - *faircompanies
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