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Old 12-03-2011, 10:59 AM   #21
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The 80% is ludicrous.
All of which depends upon your living expenses and lifestyle.
I happen to be in a very high income rate, but my lifestyle is so low, and I save like heck in the last 26 years.
Actually your present income is only a small part of it. How much you can spend yearly depends on how much you saved.
In my case, my living expenses remains the same.
I expect to do some travel the first 5 years of retirement which will add.
We'll keep the same cars as long as it runs.
I don't drink coffee.
I eat P&J sandwich and an apple for lunch and mostly eat at home for supper. Eat out on weekends only.
Buy clothes on sale.
Try to do things that are free.
BTW, I'm, glad to note that some say they enjoy their money better in retirement since they have the time to appreciate it.
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Old 12-03-2011, 11:03 AM   #22
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When you actually sell funds as part of your annual withdraw, can you choose those shares that were purchased over a year ago so that you get the lower capital gains rate?

For instance, I have VG funds that I've bought over the years.

Of course in a year's time, they would all be over a year old so I guess they'd all be at the long-term capital gains rate.
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Old 12-03-2011, 11:11 AM   #23
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Originally Posted by explanade View Post
When you actually sell funds as part of your annual withdraw, can you choose those shares that were purchased over a year ago so that you get the lower capital gains rate?

For instance, I have VG funds that I've bought over the years.

Of course in a year's time, they would all be over a year old so I guess they'd all be at the long-term capital gains rate.
I have always used the FIFO (First In First Out) method when I sold shares of my mutual funds over the last 20 years I have been in them. From what I recall at the time of my first sale circa 1991, this was the default method for IRS purposes. And, as you have figured out, it gives you the best chance of having the sale taxed at long-term cap gains rate.

It can be a little tricky to keep track of the shares you have sold, but using a simple spreadsheet it can be done.
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Old 12-03-2011, 11:13 AM   #24
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Originally Posted by pb4uski View Post
I've always believed the 80% rule of thumb to be bunk.
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Originally Posted by RockyMtn View Post
Using a preset amount of one's former income is useless.
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Originally Posted by nun View Post
80% income always annoys me because income is never defined, is it gross or net.
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Originally Posted by theOAP View Post
I find 'retirement calculators' using the 80% (or higher!) figure absolute rubbish.
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Originally Posted by Huston55 View Post
Agree that retirement income requirement should be based on expenses versus some % of salary.
Man people here just love to bash on the you need X% percent of your income (rather than expenses).

It can make sense to use income for many people, just not us here. As I've posted before:

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Originally Posted by arebelspy View Post
While I agree that planning retirement based on income instead of expenses is Stupid, with a capital 's', let me offer a small defense of it, and hopefully everyone won't jump all over me, but recognize it may make a little sense for some people.

It doesn't for most on this forum because we LBOM. MOST people though live AT or even above their means!

If their lifestyle while working is paycheck to paycheck (as it is for the vast majority of Americans these days, from what I understand), their expenses level IS their income level.

So it could make sense to start there and say "Okay, I'll need less in retirement because no commute, etc etc, so 85% of my income" or "I want to do X, Y, and Z, so I need 135% of my income."

Now yes, those authors could still put expenses and have all those LAtYM people put their income, however most of those Americans don't know their expenses!

So while yes, I wish every article used expenses for planning, for most Americans (who don't know their expenses and live at their means) it is easier and quicker (and yes, lazy on the author's part) to say income. It may be the only thing that makes sense to all of those people.

Even though it makes no sense to us. It's easy to forget sometimes we're in the small minority, because everything you hear here is in such strong agreement.

For example, everyone bashing using income to plan retirement.

Still a bad idea, but hope I showed you it could make a small amount of sense for people not on the ER forum. Don't flame me too hard.
tldr: using expenses is ideal. Since most people don't know their expenses, and their expenses = their income anyways, as they live paycheck to paycheck, using income instead of expenses works for the majority of people.
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Old 12-03-2011, 11:17 AM   #25
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If you need 80% of your current income to live on, I don't see how you've ever been able to save enough to build up a nest egg to replace that income. Income tax and payroll tax (Medicare/SS) likely take up the other 20%. That fact alone tells me it's nonsense.

As virtually everyone on this board agrees, you need to know your current spending, make necessary adjustments to reflect any spending differences attributable to your retired versus working status, and build up a big enough nest egg to replace that amount.

You don't need an expert to tell you that.
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Old 12-03-2011, 11:23 AM   #26
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Quote:
Originally Posted by explanade View Post
When you actually sell funds as part of your annual withdraw, can you choose those shares that were purchased over a year ago so that you get the lower capital gains rate?

For instance, I have VG funds that I've bought over the years.

Of course in a year's time, they would all be over a year old so I guess they'd all be at the long-term capital gains rate.
Yes, you can. But you have to do the accounting yourself, for now. For current shares, Vanguard reports the AVERAGE cost to you. You can go through your records and do FIFO or specified shares. If you've already sold some shares with the average cost method, you can't switch because you've already sold a fraction of all shares.

Starting in 2012, they have to report the cost basis to the IRS, so you have to specify the accounting method to use. You can use a different method with those shares than you used in 2011 and before. You should have received emails from Vanguard asking you to select a method now, and also giving information on the methods.
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Old 12-03-2011, 11:24 AM   #27
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If you need 80% of your current income to live on, I don't see how you've ever been able to save enough to build up a nest egg to replace that income. Income tax and payroll tax (Medicare/SS) likely take up the other 20%. That fact alone tells me it's nonsense.
If you assume that taxes are part of your expenditures, so you need 80% to of your current income to "live on" counting all expenses, that means you're saving 20%.

According to the math at Nord's post here it'd take about 29 years: How many years does it take to become financially independent? | Military Retirement & Financial Independence

Putting the following assumptions into the spreadsheet at the bottom: saving 20%, spending 80% at an 8% rate of return (debatable, but not unreasonable given the long-term timeframe) and shooting for a 4% SWR would take 28.5 years.

Easily within a working lifetime. Heck, easily within an early retirement lifetime, if you start early enough. And SS will take care of a little of that.
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Old 12-03-2011, 11:33 AM   #28
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SHouldn't be that hard to figure out the prices you actually paid, because there can't be that many transactions.

It's the cap gains distributions and reinvested dividend transactions that are hard to keep track of.
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Old 12-03-2011, 11:46 AM   #29
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Originally Posted by arebelspy View Post
If you assume that taxes are part of your expenditures, so you need 80% to of your current income to "live on" counting all expenses, that means you're saving 20%.

According to the math at Nord's post here it'd take about 29 years: How many years does it take to become financially independent? | Military Retirement & Financial Independence

Putting the following assumptions into the spreadsheet at the bottom: saving 20%, spending 80% at an 8% rate of return (debatable, but not unreasonable given the long-term timeframe) and shooting for a 4% SWR would take 28.5 years.

Easily within a working lifetime. Heck, easily within an early retirement lifetime, if you start early enough. And SS will take care of a little of that.
I'll grant your math above, but the article that started the thread just says "earnings". I'd guess most people think of "earnings" as gross earnings, not net after taxes.
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Old 12-03-2011, 12:15 PM   #30
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Originally Posted by Gumby

I'll grant your math above, but the article that started the thread just says "earnings". I'd guess most people think of "earnings" as gross earnings, not net after taxes.
Fair enough, if that's how most people do think.

I actually don't know my exact gross off the top of my head. I do know how much is deposited into my bank account biweekly.

I wonder what's more common.
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Old 12-03-2011, 01:24 PM   #31
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Originally Posted by arebelspy View Post
If you assume that taxes are part of your expenditures, so you need 80% to of your current income to "live on" counting all expenses, that means you're saving 20%.

According to the math at Nord's post here it'd take about 29 years: How many years does it take to become financially independent? | Military Retirement & Financial Independence

Putting the following assumptions into the spreadsheet at the bottom: saving 20%, spending 80% at an 8% rate of return (debatable, but not unreasonable given the long-term timeframe) and shooting for a 4% SWR would take 28.5 years.

Easily within a working lifetime. Heck, easily within an early retirement lifetime, if you start early enough. And SS will take care of a little of that.
I posted on this earlier. IMHO 8% is far too optimistic and inflation must be considered. If you put in 3% inflation and 3% annual salary rises and use the numbers you suggest you reach FI after 35 years.

If you use the industry recommended 15% saving, 6% return (still optimistic IMHO), 3% inflation and annual salary increases and take a $100k annual salary after 40 years your 80% income is $253k and your savings with produce $149k using the 4% rule. If you get the max SS payment of $114k you will be ok, but without it you have to work for 54 years before you can retire.

I see some major problems with the assumptions in this calculation; most people do not save 15% for retirement for numerous reasons, 6% return may be optimistic - there will certainly be years of poorer growth and depending on their timing they could cause significant problems, SS will probably replace a smaller %age of our future income in retirement and this is all really stupid as it assumes you just keep spending at the same rate.

The obvious way to solve the retirement income problem is to get away from the 80% rule. For those of us with good salaries who LBYM that is easy, we save at least 20% and pay off the mortgage early so that we can go into ER needing to replace a small %age of our income to live just like we did pre ER. However, for people on low wages our LBYM numbers take 100% of their income and for many in the US they just can't go any lower; 15% of the people in the US are on food stamps.
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Old 12-03-2011, 01:41 PM   #32
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I'm planning on 100%. Sure, there will be some expense categories that will decrease, but that will be made up for with increases to healthcare, travel, hobbies, and various projects.
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Old 12-03-2011, 03:13 PM   #33
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and this is all really stupid
lol. No more argument from me.
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Old 12-04-2011, 06:52 AM   #34
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I'm planning on 100%. Sure, there will be some expense categories that will decrease, but that will be made up for with increases to healthcare, travel, hobbies, and various projects.
Assuming you mean expenses, 100% for me too,. Outside vehicle miles costs, nothing day to day goes down & we'll spend more on travel. Offsetting is that taxes will be lower.
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