Transition from higher income while working to moderate income in retirement

[beachfire]

Curious if folks have experienced the scenario below and how it has gone.

My wife and I (now 53 years old) started out of college with nothing. We have worked and saved hard for 30 years (wife retired 5 years ago and kids are out and on their own). We have always lived below our means. For the first 20 years of our careers we had moderate income levels. But over the last 10 years things have gone really well and we have been fortunate enough to have a high income level (5 times what we were making at age 40).

Over these last 10 years we maintained a moderate lifestyle, but were less careful with our budget as we were in much more demanding jobs and spent more on conveniences (out to eat more, maid come in to clean the house once a month, stay in nicer hotels, perhaps did not shop to chase down the absolute cheapest price on things, etc)

We have always saved first and are ready to take the jump and retire in 2018. Over the last 6 months we have worked to start living within our expected retirement budget (going ok. Kind of hard to fully replicate retirement life while working in high pressure job).

My real question is. Have others made this transition from high income while working to more moderate income in retirement and how has it gone?

Thanks for any thoughts on your experiences.

 

[pb4uski]

Yes... lifestyle change were minimal as in our case our spending didn't change much but income did... one thing is you have much more free time to shop for bargains.... a bit of a sport. You'll find a lot on these boards on cost saving tips people use to get good value our of their spending.

 

[donheff]

Sure. For the last decade of work we were saving at a very high rate so that left us spending at a moderate rate. Plus we had all the expenses that accompany those earlier years. Now, retired, we continue spending at the moderate rate we adopted while working but without a few significant expenses (tuition, mortgages,top tier tax).

 

[CaptTom]

I'm at about 40% of my pre-RE income.

After 1.5 years I'm more or less on budget, despite some unexpected big-ticket expenses. By "on budget" I mean I haven't had to dip into my contingency savings, knock wood.

I know a lot of people who get by just fine on less. I know some who would be appalled at trying to survive on my income. A lot depends on what you're used to. I don't mind (and in fact, enjoy) doing a lot of my own maintenance. But I'd never settle for an inside cabin on a cruise ship.

Like you, I made a conscious effort to live at my projected RE income level before I actually retired. It really didn't take any effort; it was more a realization that my savings balance was increasing by an amount about equal to the difference between my pre- and post-retirement income. I just had to prove to myself I could sustain it.

If you're used to living below your means, and keeping an eye on expenses, you'll be fine.

 

[Car-Guy]

I was concerned with that too but after 5+ years of retirement I don't think much about it anymore. We really never changed from our pre-retirement lifestyles and now find that we have more NW than we did on retirement day and that's not due to stock market gains. A lot of worry about nothing, for us.

 

[Which Roger]

As long as you can maintain your desired standard of living, you'll be fine. And that seems to be the case. Your extra spending at present as you said is mostly for convenience while working, and when you FIRE and have more free time, those expenses will be reduced.

 

[Danmar]

During the last few years of working my income was very high but our spending stayed much more constant. Saved about 60-70% of income but this was mostly incentive comp awards (options and DSU’s). Once retired, at 56, spending increased somewhat, but it would have been easy to stay at old spending level.

As long as you are confident that the spending in retirement is adequate, carry on. If you are not sure, a little cushion achieved through working a couple more years might be wise. I ended up having more than I thought I needed, but had no trouble utilizing such and was glad to have it. Depends on how you feel towards your job and whether you could reasonably use a little more once retired.

 

[Meadbh]

I think mental accounting is key.

For the LBYM person who is already saving most of your income, expenses during the w*rking years will not be radically different from expenses during retirement. Focus on expenses rather than income.

For a number of years during my w*rking life, I had a salary of $40K to $50K, plus other income of $XXX. That provided a useful discipline, because I lived on the $40-50K and saved the $XXX (both after taxes). In preparation for ER, I documented and categorized all my expenses for two years. I then developed a budget for ER. What do you know: it came out to ~$50K! That represented a SWR. So when ER started I was quite comfortable spending normally as outlined in my budget. Meanwhile, my taxable income remains above $100K because of investments. Income is just a number. The really important number is how much I spend, which was modest then and is modest now.

 

[scrabbler1]

When I was putting my ER plan together in 2007-2008 (leading up to my 2008 ER), one condition was that my general, day-to-day lifestyle would not change. If I needed to splurge once in a while, I could do so without worrying about where the money would come from. Implementing this condition meant that I would build in a cushion, or surplus, into my budgeting to that any rare splurge would come out of the cushion.


It was more of a coincidence, but the last 17 months I worked I had reduced my wage income to be about what my monthly investment income would be in ER. This more or less got me used to having a monthly income inflow matching what it would be after I ERed. I had to do a little more long-term budgeting. That is, I had to carry forward extra accumulated surpluses a few months to cover the larger, lumpier expenses such as estimated income taxes and car insurance.


I have been doing this for the last 9 years and it has gone very smoothly.

 

[Souschef]

In my case, the total of our SS and pensions was more than my take home pay from Megacorp. Also moving out of LA county helped.
My DW was able to move her property tax exemption to our new home, decreasing our tax from over 2K to less than 1K.

 

[Crewer]

Sort of, I guess. Our big transaction to lower spending was by downsizing. This had benefits beyond lower cost and lower property taxes. We also lowered associated costs of house cleaner, landscaper, utilities, and maintenance (from huge 100 yo home to 5 yo old home that is 1/3 the size on lot that is maybe 1/8 the size). We now spend almost the same overall but much more of it goes for.

 

[travelover]

My spending went down in retirement, in good part because my big ticket spending was used to offset stress. Taxes also plummeted, drive less, wear fewer, less expensive clothes and have all day to shop for bargains if I choose.

 

[daylatedollarshort]

Our baseline spending is 25% of our former gross income and we live better now, especially the part about not having to work and commute 100+ hours a week between us every week. I get a kick out of bargain hunting, optimizing expenses and trying to get our long term withdrawal rate to zero.

 

[karen1972]

My problem wasn't about living the same lifestyle, that was set and expenses were as expected. The problem is more free time means more time to explore new things and it only takes one or two new hobbies to run up the bills.

Hiking is "free" they tell you, sure other than shoes, backpack, etc oh and injuries requiring physical therapy.

Volunteering, that is free too right? but then they suck you in and your donating money and time, now I'm spending $150/month on rescuing cats.

Its the "fill the void" part that caught me off guard.

 

[hesperus]

We've had the opposite occur, that is going from moderate income to higher income in RE. This was due to a significant inheritance which prompted the RE, but as I've posted in other threads, going this way can be just as difficult as the other. Old spending habits die hard. But I'm very grateful for this problem.

 

[W2R]

During my highest income years, I was living on less than 25% of my salary and saving the rest for retirement. (This is what happens after a financially disastrous divorce at age 50.) In the 10-11 years between my divorce and retirement, I knocked myself out trying to get back on track financially. I maxed out the TSP and Roth, and also saved more than both of those combined in my taxable investments, saved up a hefty down payment and bought a house which I paid off in four years, set aside enough for a new SUV as soon as I retired, blah blah blah.

In order to do these things, I pretty much lived like a student. I never got to spend that high salary so I don't miss it. Even though my AGI is lower in retirement than before, I can spend more now than when I was working. I don't have to start over, pay off old debts, or save for retirement any more.

 

[Meadbh]

My problem wasn't about living the same lifestyle, that was set and expenses were as expected. The problem is more free time means more time to explore new things and it only takes one or two new hobbies to run up the bills.

Hiking is "free" they tell you, sure other than shoes, backpack, etc oh and injuries requiring physical therapy.

Volunteering, that is free too right? but then they suck you in and your donating money and time, now I'm spending $150/month on rescuing cats.

Its the "fill the void" part that caught me off guard.

I hear you. I decided I could have one expensive hobby (Golf) so I built that into my budget. My other hobbies are frugal: cooking (I have bought a few kitchen gadgets, but I eat out less frequently, there is less waste, and I eat much better), and reading (I’m in two book clubs. Most of the books I read are available electronically from the library). I volunteer my time on the HOA and have made new friends as a result. I’m also contributing to keeping our community thriving and our investment growing. I have steered clear of any volunteer opportunities that would require donations.

 

[pj.mask]

I’d imagine a big part is mental - I’m giving up this $$$ job to live in substantially less (queue OMY thought processes). I only consider income when comparing myself to others but it does not drive my budget. I set our budget around 30% of gross and frequently have 10% monthly overages (believe my SO dips into her savings for lots of discretionary ‘needs’). While I will face retire vs increased assets question at some point - the last 2 weeks of vacation around the house really had me thinking that I’d prefer less Work to more money

 

[Gumby]

My goal has always been to enjoy an equal or better lifestyle after retirement (financially speaking). So the plan, which is now 18 months from fruition, is that pension+social security+4% draw on portfolio = current gross income from employment. Net spendable income after retirement will then be substantially higher than our current net income, and over two times our current spending.

 

[FIREd]

Over the course of our careers our income went up 10x (with a big jump halfway through), but our overall expenses (after tax) remained pretty much the same throughout. There was a brief uptick in expenses when we moved to a higher cost of living area for work (due mostly to the elevated cost of housing) but it is back to our usual now that we left that area.

We retired on a much, much smaller income than we had right before retirement (less than 1/10th in fact), but our lifestyle has not changed much at all.

 

[Katsmeow]

Yes. It has been interesting. DH retired in 2010 and I went from working very full time to working part time (one day a week). We had been high income and had had 3 kids at home some of whom needed a lot of spending on them. 2 of our kids graduated high school in 2010, the other was just starting high school.

Since then it has been an adjustment. We knew when DH retired and I went semi-ER that we would deplete some of our net worth for a few years since we had school/kid costs still ongoing. We had way more than a 4% withdrawal rate. But, we anticipated that.

This year is a our last year with significant kid expenses (youngest just turned 21). Over the past few years, we are spending much less than we spent beforehand. We did downsize so that cut a lot of expenses. We eat out a lot less. I don't have to buy the expensive office clothes any more (I do still do a little bit of part-time work but I do it from home). So, lots of expenses are less just because the circumstances are different.

Without the kid expenses we are almost ready to be at our "final" spending level. We actually plan to downsize again this year. That will long term reduce costs although there will be extra costs this year to get house ready to sell and those involved with moving.

The other big expense we have this year is that I am on DH's retiree insurance and even partially subsidized is insanely expensive. In 2019, though, I will turn 65 and move to Medicare which will immediately decrease our expenses at least $10k a year.

Anyone on the adjusting to moderate income. The big thing is adjusting to needing to be more careful. DH and I were out somewhere the other day and he saw something we could maybe use (I don't remember what it was). Well, in the old days we would have just bought it. But, now I mentioned that maybe we didn't really need it and, if we did, we should check costs online and so on.

Now in past we would have done that for a big purchase but not for something like this (it was under $50, maybe $30 or so). That is the sort of thing that we want to be more cautious about.

 

[Scuba]

I was concerned with that too but after 5+ years of retirement I don't think much about it anymore. We really never changed from our pre-retirement lifestyles and now find that we have more NW than we did on retirement day and that's not due to stock market gains. A lot of worry about nothing, for us.

+1 after 14 months of ER

 

[skipro33]

A lot of costs involved with raising a family or even starting out just are not there when you are retired. For example, home furnishings are already bought an paid for. Not that you might not want to replace a chair or sofa some day or that the fridge might go on the fritz, but it's nothing compared to setting up house or the wear-n-tear that kids put on those things.
I discovered I enjoy cooking and have gotten quite good at it. It's amazing how little effort is really needed once you have the knowledge of what and how to fix good food. We rarely eat out any more because it's so difficult to find food that tastes good now.
craigslist has just about everything you could ever imagine and it's really amazing what people sell quality stuff for. I guess they are too busy in their work life to deal with dickering and just want to get rid of something?
Thrift stores are the retiree's antique store. I go maybe twice a week to cruise through. I get all sorts of stuff; I collect colored glass bottles, DW likes to rotate cookie jars, we find tons of fresh new-to-them toys for the grand kids, then re-donate them when they get tired of those.
I like to restore furniture and I'll pick up used shirt and pants for painting, stripping furniture. We went on a 3 month RV trip and I rarely had to do laundry as we just hit up the thrift stores for my shirts and pants.
I'd say my quality of life increased substantially after retiring and my household budget dropped to about half of what I used to spend. On top of that, my net worth of my bank/investment accounts has grown every year at least enough to keep up with inflation while drawing enough to enjoy what ever we want. We take a big trip every year, Hawaii or New Zealand for a month as example.

 

[Alvin Tostig]

Wow! This is a very timely thread for me. I resigned on November 30th (age 61 2/3), to my CEO/President, as I was heading into FIRE. I gave more than three weeks notice. He asked if I would stay on through a transition for my replacement - and I agreed since we have a good relationship (personally, but professionally he's a pain). We interviewed two people, but they were not the right fit.

So, I'm figuring it could be another month or two tops - no big deal.

The CEO is out of the country now, so life in the office is a breeze. So, I'm still here. But I got a tipped off from our CFO that he's going to come back at me when he returns (second week of January) and offer me a reduced schedule with the benefit package. It will likely be 3 days a week.

If that's the case - since I'm in the driver's seat - I may try it - and work Thursday, Wednesday, and Thursday and then have 4 day weekends. My concern is if he or the company tries to pack 5-6 days of assignments on me in 3 days.

What have I got to lose if that's the offer? I can try it for a month or so, and if it still is a burden on my lifestyle, I can move straight to FIRE. The fallback option is for the company to call me in for a specific assignment, so perhaps I'm off for three weeks, then I'm in for a week, off for two weeks, in for 3 days, etc. But again, I would say no if it interferes with my plans.

I've tipped off some others in the industry, and they may seek my services on a case-by-case basis. It's an option I could explore also.

I also teach as an adjunct one night a week every other semester - and that will continue, and maybe I do it every semester.

So, as I move into 2018, probably around February - I'll know if I'm fully FIRE'd (except for teaching), working 60% for my company (3 days a week), taking on only periodic assignments with my company (I'm thinking 25% - 33% of the time), or taking on some other assignments with other companies (10% - 25%).

I would have to like what I'm doing and I need my real life back after working ridiculous hours the past few years. The information on this thread has been very helpful as it relates to each individual's experience going part-time or "no-time".

 

[skipro33]

Alvin; Might I make a suggestion? Proceed as planned with leaving, putting pressure on your boss to find that replacement, then tell him you need 3 months off before you can come back at the reduced schedule. See how you feel after 3 months away. I did this and it was amazing how badly I did not want to go back! They offered me the choices of projects, work schedules, double my old pay, etc. but what I discovered during those 3 months was three things; how exhausted I was from work, that it took me a week of just sleeping to relax. How busy I was with the things that retirement will find for you to do with all the 'free' time. How little I needed the extra money as I was burning nowhere near what I planned to.

My old boss balked at the extra pay at first, waited a few more weeks, then called me back to say they could meet my pay request. I told him that offer was no longer on the table, that there really wasn't any amount I could want that could get me to give up this freedom I now was experiencing.
A few of the vendors I worked with offered me to rep at trade shows. I did one and realized that lifestyle was not for me as I enjoy being home and really don't like staying in hotels. A single guy would have loved it though!