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Living on your income
Old 03-17-2006, 08:49 AM   #1
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Living on your income

Do you base your 'living' on your income? Are you still saving money in retirement? Do you budget your expenses in retirement?

We've lived on a budget for so long that I don't even know how to live anyway else. I still separate accounts for short-term, long-term and health care expenses. We still save 15+% of our pensions each month and stash any money earned from part-time work in our Roth IRAs.

I'd love to hear what others are doing when living on their retirement incomes.
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Re: Living on your income
Old 03-17-2006, 09:28 AM   #2
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Re: Living on your income

Quote:
Originally Posted by kz
Do you base your 'living' on your income? Are you still saving money in retirement? Do you budget your expenses in retirement?
We've lived on a budget for so long that I don't even know how to live anyway else. I still separate accounts for short-term, long-term and health care expenses. We still save 15+% of our pensions each month and stash any money earned from part-time work in our Roth IRAs.
I'd love to hear what others are doing when living on their retirement incomes.
As Cut-Throat says, what are we saving it for?

We base our living on what we enjoy doing, which after years of LBYM doesn't require a lot of money. We didn't ER until there was enough SWR to support that lifestyle, so to some extent we base our living on our income, but arriving at this point was an iterative process. Today we don't deny ourselves, I spend more on books & eating out, and we spend more on fundraisers.

We don't try to save money, but we pick up loose change on the sidewalk. We ER'd on the assumption of an 8% mortgage but over the last four years we've refi'd that down to 5.375% and enjoyed the extra budget room. Having a teenager around the house tends to make you very conscious of setting a good example so we probably still focus on saving & LBYM. I didn't hesitate to buy new tae kwon do sparring pads, for example, but I haven't told our kid that I've bought them yet. I'll wait until the old pads have reached their end of life, and if there's a sudden failure then we won't have to scramble for replacements. However teenagers (ours in particular) have a very difficult time stashing assets for later use so I won't burden her with the knowledge of their existence until the time has come.

I think it makes great sense to stash money in a Roth IRA while you're spending your taxable accounts. Your income is extremely low and your taxable accounts can support your spending needs while you're deferring taxes on other income.

It does bug me that we won't use our full IRA eligibility this year. It's the first time in over 20 years that we'll have failed to max out. On the other hand I hope I'll train myself out of this feeling soon... I don't think it'll be worth feeling bugged about unused IRA eligibility when I'm in my 60s.

We still keep a budget. The habit isn't very burdensome, it sets a good example for our kid, and there's no benefit to NOT keeping a budget. It's also very useful, years later, to be able to research what we spent on a particular project or appliance.
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Re: Living on your income
Old 03-17-2006, 11:31 AM   #3
 
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Re: Living on your income

Quote:
Are you still saving money in retirement?
As in:

"I kept the thermostat low and saved money"

or as in

"I saved $5,000 in my Vanguard account this year." ?
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Re: Living on your income
Old 03-17-2006, 11:39 AM   #4
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Re: Living on your income

Both, Al.
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Re: Living on your income
Old 03-17-2006, 08:31 PM   #5
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Re: Living on your income

Quote:
Originally Posted by kz
Do you base your 'living' on your income? Are you still saving money in retirement? Do you budget your expenses in retirement?
We have never based our expenses on a percentage of our income.* I always scratched my head when I saw the retirement formulas that based the amount you needed as a percentage of your income.* If I made $1M per year, I would need $750K per year to live on . . .* I don't get it.* * *

I doubt if we are saving money in retirement, but I don't really know.* Every six months or so, I spend an hour or less doing a net worth calculation and make sure the results aren't drastically different from the most recent one.*

We only made one budget in our lifetime.* That was a "post" budget of the previous year to try and figure out what we were likely to spend per year in retirement.* *That budget convinced us that it was possible to retire early.

*
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Re: Living on your income
Old 03-17-2006, 09:47 PM   #6
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Re: Living on your income

My wife and I have lived "below our means" for so long that I frankly don't know how we're going to spend our 4% SWR without feeling uncomfortable. In other words, I think nothing will change and we'll save more.

That seems "wrong" but 36 years of habit is hard to break.

My original intent had been to retire on 02-01-07 at 59 1/2 (by nine days), but I'm thinking about taking a two-year contract in California instead. Not for the money but just for the fun of it. I think that's called a "bridge job," something you do at the end of your career because you want to, not because you have to.

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Re: Living on your income
Old 03-18-2006, 12:20 AM   #7
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Re: Living on your income

Quote:
Originally Posted by kz
Do you base your 'living' on your income? Are you still saving money in retirement? Do you budget your expenses in retirement?

We've lived on a budget for so long that I don't even know how to live anyway else. I still separate accounts for short-term, long-term and health care expenses. We still save 15+% of our pensions each month and stash any money earned from part-time work in our Roth IRAs.

I'd love to hear what others are doing when living on their retirement incomes.
We never did live on a budget. When we were young, DW and I spent every dime we made and still ended up eating meals of crackers and peanut butter by the end of the month. Once we started working full time, we always made more money than we knew how to spend.

Now, we are mostly retired but still work on the odd project and earn about 2/3 of our annual expenses. We could probably afford to spend at a rate twice as high as we actually do, but we are working up to that gradually. As long as we are spending at these levels, a budget seems pretty silly.
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Re: Living on your income
Old 03-18-2006, 12:53 AM   #8
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Re: Living on your income

I spend what I spend on the lifestyle that we wish to live that day. There is of course a background time spent to assure the cash flow and investments will cover the bills and that the money comes from somewhere.

Thats my job, but I was aided by being ER'ed for more than 3 years without ever hearing the term SWR or knowing what that entailed. Apparently its making pancakes out of tips and slapping them on trolls heads, a pineapple may be peripherally involved, and stuffed beavers along with prairie dogs might be factors.
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Re: Living on your income
Old 03-18-2006, 10:36 AM   #9
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Re: Living on your income

I ER'd once I realized that we had enough to generate enough (based on a conservative SWR) to cover the expenses we had at the time, plus a little extra. (In other words, we were FI).

Since then, we tend to underspend what we think we can get away with. This is an old habit. We lived well below our means all the years we were working, and rarely took on any debt. It's just a personal philosophy of ours, and a cornerstone to our feelings of financial security.

Now in retirement, by underspending a little we have a little extra put away for "that rainy day".

So, yes, we kind of live on a budget. But we didn't ER until we felt we could have the good enough standard of living we wanted.

Interestingly enough, our expenses have gone down each year we've been retired. I think we keep finding cheaper ways of doing the things we enjoy most.

Another thing we did: As part of getting ready for retirement, we set aside a "travel budget" - a rather generous chuck of cash to pay for some fancy travel during the first couple of years of retirement. This was to make up for all the years we didn't take vacations and/or skimped on nice vacations. We sold some high-flying stocks and assets (some land) to pay for this. This way we were able to "go a little crazy" during the first couple of years without worrying about the consequences on our long-term retirement fund.

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Re: Living on your income
Old 03-18-2006, 01:13 PM   #10
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Re: Living on your income

I'm currently reverse engineering into my spending plan as I've never actually adhered to a budget. I can look back over several years and see how much we've spent in aggregate, but am only now getting a handle on where all that cash went. Going forward I'm dividing my spending into two pots, necessary and discretionary. I'm working to get the necessary spending down as low as possible without actually shrinking the total - thereby maximizing the discretionary spending. At that point the budget becomes an exercise in asset allocation . . . i.e. "honey, should we buy the big screen t.v. or go to Italy this year?"
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Re: Living on your income
Old 03-18-2006, 01:18 PM   #11
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Re: Living on your income

kz,

Quote:
We've lived on a budget for so long that I don't even know how to live anyway else. I still separate accounts for short-term, long-term and health care expenses. We still save 15+% of our pensions each month and stash any money earned from part-time work in our Roth IRAs.
Can I borrow your plan? Your relatively simple explanation is rather fail-safe IMHO.
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Re: Living on your income
Old 03-19-2006, 10:14 AM   #12
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Re: Living on your income

We've never budgeted.* If I did, I would probably become a monomaniac about it.* But, I do LBYM.* Every year I seem to have more (investments and income) than I did the last.* Seems to make sense and I don't spend a lot of time worrying about it. Now, if it went down every year, a-budgeting we would go.

Spending may be a problem, however. It's hard to outgrow being a tightwad.
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Re: Living on your income
Old 03-21-2006, 07:49 AM   #13
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Re: Living on your income

We have never kept a budget.* However, after reading, Your Money or Your Life, I've been keeping track of every dollar we spend in a small notebook. I've been doing this since July, and have noticed that we're now spending less money.* Currently, we're saving 45% of our gross salary, but that will soon end when we both retire in June.
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Re: Living on your income
Old 03-21-2006, 09:18 AM   #14
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Re: Living on your income

Although as a working stiff I was responsible for a $1.5B budget (and was very anal meticulous about it), as a retiree I do not keep a budget. Two years before FIRE I tracked all expenitures for one year with Quicken and subtracted out all the expenses that would go away after FIRE and added in estimates for new costs. I used that total to estimate our withdrawal rate. Since it was less than 4% we just spend what we want and as long as our net worth at the end of the year continues to grow I don't sweat it.

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Re: Living on your income
Old 03-21-2006, 12:45 PM   #15
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Re: Living on your income

My withdrawal rate is a tiny bit above 3%, and as long as my net worth at the end of the year continues to grow I'm happy (just like grumpy).
Of course, my better half is still working and saving so we're both happy !
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Re: Living on your income
Old 03-22-2006, 12:04 PM   #16
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Re: Living on your income

It's a given that we will live on our income. In our case as Dual-DBP-Pensioners, it really is (and we laugh every time we say it out loud) a "fixed income". The joke at the JonnyM house is after listening to a certain evil stepmother who shall remain nameless blather for years about living on said fixed income, we realized one day, that most everyone lives on a fixed income. It's not just something retired people get to harp about. So much comes in, and in theory one should endevour to spend somewhat less than that amount.

Like some others above, in the last year, in order to prove to ourselves that FIRE was going to be a fact rather than a dream, we DID track expenses more or less accurately. Since we were also paying down the last bits of our accumulated debt we were able to determine that once those current expenses that would go away (before my final ER next week) were eliminated from the equation, we did indeed have enough "salary" in the non-working world to cover our desired (read existing) standard of living, and have 1-2k per month extra for undetermined FUN STUFF. We too expect to build up a Travel Fund, and a Toy & Hobby fund from the excess. We also allow that there will be months when unexpected stuff comes up to tap the extra bucks.

At the same time our somewhat meager 457 untaxed savings (75K) can be allowed to grow for the next decade. So no, we won't be purposely saving anymore, but may accidentally accumulate some extra monies that we'll keep liquid in order to preserve and grow the savings we already have tucked away for a rainy trip to Europe for a year or whatever we decide is fun later in our lives.
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