Really cutting back in retirement

[modhatter]

I just posted this by mistake in the "Hi I AM" section and don't know how to delete it. Hope the moderator comes to my rescue. Like to know if we can delete a post we did or move it ourselves for any future mistakes.

I am curious how many of you have been successful in drastically cutting back your expense and spending habits n retirement. I am talking about individuals who went from making $100,000 a year to maybe $50,000 or from $60,000 to $30,000.

Now I know that a portion of this would come from not having to save any longer and fund your roth or Ira, but what about other spending.

Did anyone go from "free with money" to "very careful with money"?

When all the articles talk about needing 80% of your current income, they are not really talking about cutting back so much as not having to save any longer and not having work related expenses. They don't expect people to be able to really cut back and alter their current spending habits.

Who has been successful in proving them wrong? How difficult was the adjustment for you?

[Jarhead*]

Quote:

Originally Posted by modhatter I am curious how many of you have been successful in drastically cutting back your expense iand spending habits n retirement. I am talking about individuals who went from making $100,000 a year to maybe $50,000 or from $60,000 to $30,000. Now I know that a portion of this would come from not having to save any longer and fund your roth or Ira, but what about other spending. Did anyone go from "free with money" to "very careful with money"? When all the articles talk about needing 80% of your current income, they are not really talking about cutting back so much as not having to save any longer and not having work related expenses. They don't expect people to be able to really cut back and alter their current spending habits. Who has been successful in proving them wrong? How difficult was the adjustment for you?

Modhatter:

I'll take a wack at this one. (Raining this a.m., and no golf).

First off, though, I think while you have youngsters in the home, and financial obligations that haven't been met yet, retiring early can be risky business.

That being said, I retired over 20 years ago, after my children were pretty much raised. (My wife was a stay at home mother). We had no pension, or health ins. so we were on our own.

O.K., there's a little background, but to answer your question, regardless of what the pundits that suggest there is a direct relationship to your prior earnings, and your requirements to retire based on a percentage of previous earnings, I have never, ever, seen any direct reason to suggest that it has any validity.

Your spending is what you should concentrate on. (In my own situation, my spending was about 35% of my previous income. Lots of reasons for this, and I believe Dory covered this in one of his posts. (Lower taxes, no longer saving for retirement, family obligations met, etc. etc.).

As far as tightening the belt, we have probably spent more in retirement
on ourselves than we did when we were "In the belly of the beast". I play tournament golf, we don't go to extraordinary belt-tightening, etc. (Would have never retired if that were a requirement).

In any case, forget about what you are making, and concentrate on what your are spending.

All in all, I consider the idea that you base your ability to retire based on a percentage of previous income of no value at all.

Good Luck in your decision.

[Rich_by_the_Bay]

Jarhead speaks wisely, as usual. It's as if the less golf he plays the smarter he gets . I second the advice to focus on expenses, not percent of pre-retirement income.

I'd only add that getting a handle on your expenses is not as easy as it sounds. My wife is our domestic bookkeeper and uses Quicken. Yet when we went through this exercise, it was clear that she categorized things a bit differently from how I would have (probably better than I, in retrospect), but trying to decide what will remain ongoing expenses, what will drop out, how much to add for leisure time activities, what expenses will be new after retirement, and even how to handle getting a new car (ignore? amortize the cost? plan it in systematically?).

Ultimately we decided to just make a best guess as to our anticipated expenses, stay flexible, and focus on the big picture. The big decision for me is determining what your base, essential expenses will be and then how much cushion you need beyond that.

It's easy to over-think it. Make a good faith estimate and then be prepared for change and flexibility.

[modhatter]

Ok, I will re-phase the question then. In my case I am spending pretty much what I earn now in salary while working. I am not putting any additional monies towards retirement, but I am not taking anything that is compounding out either.

In preperation of retirement without an income ,I am trying to make certain adjustments by selling my large expensive house and getting away from a mortgage payment and outrageous taxes and upkeep that comes with it. That part is easy to do, and it will reduce my expenses considerably, but not enough without also changing my spending habits. I will still need to cut back more and become frugal again. I was once when I had no money, but as I got older and made more money, I learned to spend more money.

So my question is more not about actual predictable and set monthly expenses, but more about altering that attitude that you can drop $100 for that new widget that caught your eye at Costco the other day, or that new set of dishes that really goes nicely with your house, or buying your mother a $200 Birthday presant instead of a $30 one. When you are used to spending more of that "disposable part of your income" before retirement, how hard would it be to reign yourself in when you retire?

Or am I to assume that one should not retire if that is the case. Yes, I know it is about choosing. Do you want to retire more than you want to spend? Yes, of course I do. But I have developed a way of life now that has become a habit, and breaking that habit and "going back" in time, might not be that easy. Those are my thoughts and fears. (and yes I have read the Millionaire Next Door)

[Martha]

We did some cutting in spending a few years ago when we sold our big expensive house on the beach and sold our cabin a fews years after that. It took a while to adjust to smaller quarters but we adjusted just fine. And there is less to clean. I think that there likely will be a period of time where it is a bit tough, but people are extraordinarily adaptable, especially if the spending is discretionary. You will get used to the different spending level if what you really want is to retire.

[Orchidflower]

OK, call me a Pollyanna, but I really had no trouble cutting back. I made the big bucks and bought every damned thing that caught my eye--figuring I never wanted to
retire anyway. I overbought and overbought.
Well, I was retired by the economy not needing my service in my late 50's! I never expected that; and was thinking of what business to go into next...when my parent had a stroke; so, that was that, and my new position as elder caretaker started.
However, back to the subject, I found that the discipline I had that enabled me to build a business and make the big bucks kicked in, and allowed me also to stop spending money that I didn't have coming in. It was not hard for me to reason out: "You have nothing coming in, stupid...quite spending like there is no tomorrow...there is a tomorrow and it is here."
Now I have become just like I was before I made the big bucks: cheap! Ha! Ha!
Am I just as happy as when I made the big bucks? Honestly, yes! No more stress, alot more time to smell the roses.
Even I cannot believe that I am saying that last statement, but it's true; however, when my eldercare job is done, I do want to build another--not the 60-80 hour business I had before--small business that brings in enough to live on. But just enough...I'm really getting off on smelling those roses.

[JustCurious]

Quote:

Originally Posted by modhatter Ok, I will re-phase the question then. In my case I am spending pretty much what I earn now in salary while working. I am not putting any additional monies towards retirement, but I am not taking anything that is compounding out either. In preperation of retirement without an income ,I am trying to make certain adjustments by selling my large expensive house and getting away from a mortgage payment and outrageous taxes and upkeep that comes with it. That part is easy to do, and it will reduce my expenses considerably, but not enough without also changing my spending habits. I will still need to cut back more and become frugal again. I was once when I had no money, but as I got older and made more money, I learned to spend more money. So my question is more not about actual predictable and set monthly expenses, but more about altering that attitude that you can drop $100 for that new widget that caught your eye at Costco the other day, or that new set of dishes that really goes nicely with your house, or buying your mother a $200 Birthday presant instead of a $30 one. When you are used to spending more of that "disposable part of your income" before retirement, how hard would it be to reign yourself in when you retire? Or am I to assume that one should not retire if that is the case. Yes, I know it is about choosing. Do you want to retire more than you want to spend? Yes, of course I do. But I have developed a way of life now that has become a habit, and breaking that habit and "going back" in time, might not be that easy. Those are my thoughts and fears. (and yes I have read the Millionaire Next Door)

Modhatter, you will find that the people on this board do NOT equate income with spending. In other words, we do not spend more money simply because we make more money. Once you accept that, you will realize that your question answers itself because we don't have to adjust downwards in our spending, since most of us did not adjust upwards in the first place.

Most people are like you...as they make more, they spend more...which means that they may never become financially independent, and when they retire and the higher income stops, they are then forced to adjust their spending downard to adjust to the new reality. The people on this board are different.

[Jarhead*]

Quote:

Originally Posted by Rich_in_Tampa I'd only add that getting a handle on your expenses is not as easy as it sounds.

Rich: Although one size doesn't fit everyone, here's what we have done in the last 20 years to cover that contingency.

We figure $7200.00 annually to take care of car repairs, maintenance on home, dental bills, deductibles on health ins. (Figuring in inflation, it has been amazingly close. (Certainly close enough for Gov't Work).

[Gone4Good]

Quote:

Originally Posted by modhatter Do you want to retire more than you want to spend? Yes, of course I do. But I have developed a way of life now that has become a habit, and breaking that habit and "going back" in time, might not be that easy. Those are my thoughts and fears. (and yes I have read the Millionaire Next Door)

It's a mistake to wait until after you quit your job to try to adjust to a downsized standard of living. If you need to cut your expenses to hit your retirement goal, why wait? Cut those expenses now. If you find that you're unhappy doing with less, then you know you have to work longer to afford the budget that works for you.

About a year and a half ago I got serious about early retirement and started to focus on my spending for the first time ever. I figured even if I didn't change my planned retirement spending, the less I spent on every-day things that didn't add much value the more I'd have available to spend on travel, classes, or other activities in retirement. As a result, my spending became an effort in resource allocation . . . "honey did you know we could nearly take an extra trip to Europe every year for the amount we spend on gym memberships?" (yes, its true!). So we started trying to be more thoughtful about our spending and managed to reduce our expenses by about $12K last year. We're on track to save an additional $5K this year.

We still do the things we want to do (we just got back from Paris, and are looking forward to trips to California, Morocco, Cape May, and Vermont for leaf season). But just as I didn't know where all my spending went, now that I've cut back substantially, I can't imagine what I originally spent all that money on. I can tell you I don't miss it. I can also tell you that I'm happier spending less knowing that I'll have to work fewer years, my portfolio will go farther and my retirement will be more secure.

[dm]

I'm not quit there yet, but I just started sending every dime I got from job to my brokerage account. We always saved a good portion of our income, but last year I just sent everything I made and lived on my wifes salary alone. We really havn't noticed a difference.

I think the big thing will be that we really never worried about money as we always new we had a paycheck comming in. I just figure that with our investment income we will still have a decent income and there is alot of people getting by with less. In fact when you figure all the expenses that we no longer have we will be alot better off than we were 10yrs ago when we were working with a mortgage, car loans, and kids in the house.

[tiredofwork]

Quote:

Originally Posted by modhatter When all the articles talk about needing 80% of your current income, they are not really talking about cutting back so much as not having to save any longer and not having work related expenses. They don't expect people to be able to really cut back and alter their current spending habits. Who has been successful in proving them wrong? How difficult was the adjustment for you?[/i][/b]

My gross spending budget for ER (including taxes), is 32% of my pre-ER gross income. However, my net spending budget for ER (after taxes are deducted), is 75% of my pre-ER after tax spending on living expenses. This reduction in after tax spending includes a house downsizing and relocation to more affordable area.

I've only recently ER'd, so we'll see in a year how well I budgeted.

[dumpster56]

4 months into ER and my 90K pre ER salary is now 50K and I am able to pay my bills easily. So far so good. We really have not changed our lifestyle much.

Not having the 1500 per month mortgage, not spending an additional 200 a month on gasoline and not having the 380 a month car payment helps.

[modhatter]

Well, I do not belong to the group that spends every cent they earn. If I did I would not have close to 2M now. I have had a lot of expenses because I support two families and have for many years. That will hopefullly be changing soon I hope. But my goals are to preserve my assets as best I can for a disabled child, thus my wanting to drastically reduce my spending in my retirement.

If I did not want to leave a legacy, then I would not sweat it as they say. I think I led as balanced a life as I could as far as spending and savings go. I did not deprive myself by any means, but I also managed to save for retirement.

I would assume that "most" people on this board also led or lead a balanced life and spent some and saved some. I am just saying in my case, I need to spend less when I retire, and I hope I can make the adjustment without feeling deprived.

I am generally good with money and always get good value for what I do spend.

[rockyj]

Quote:

Originally Posted by modhatter my question is more not about actual predictable and set monthly expenses, but more about altering that attitude that you can drop $100 for that new widget that caught your eye at Costco the other day, or that new set of dishes that really goes nicely with your house, or buying your mother a $200 Birthday presant instead of a $30 one. When you are used to spending more of that "disposable part of your income" before retirement, how hard would it be to reign yourself in when you retire?

Perhaps this is obvious, but as for the gadgets, new dishes, etc., it's pretty painless to just start spending "intentionally" as opposed to recreationally, impulsively or even opportunistically (i.e. those great deals on unneeded items that one happens upon when shopping). Approach shopping with a mission and stick to it. It also helps that over time in life, the house gets furnished, you accumulate many of the tools or other durable goods you need, etc., so you just plain need less new stuff. Might want to check with your Mom on the birthday present though.

[txdakini]

six years ago, I was working as a CIO and made mega bucks. Quit after 9/11 thinking I'd just find another job. didn't happen, so I started my own business which makes a pittance compared to what I made before. DH and I have always split expenses. I have cut back approximately 65% on spending in the last few years. I went from spending about $80k to about $25k. Astonishingly, I never felt it. Mostly because I was moderating a YMOYL group (which advances the idea of thoughtful spending) and had a "money buddy" who talked out anything I was puzzling over. Also, it was really easy when I saw some BSO (bright, shiny object) that I knew I had to have, all I had to do was ask myself "are you willing to go back and work for a megacorp to have it?" The answer was and is always NO! So, beautiful silk suit and work for megacorp or consignment store jeans and a t-shirt and be semi-retired. New china and work for megacorp or same old dishes and stay semi-retired. etc. It has been really easy for me. But I know that's not true for everyone as I listen to people daily in my business struggle over their spending and financial decisions. DH is retiring this year and he is facing exactly this question. so far he's cutting back fairly easily.

[Eagle43]

Quote:

Originally Posted by Jarhead* Rich: Although one size doesn't fit everyone, here's what we have done in the last 20 years to cover that contingency. We figure $7200.00 annually to take care of car repairs, maintenance on home, dental bills, deductibles on health ins. (Figuring in inflation, it has been amazingly close. (Certainly close enough for Gov't Work).

And another $7200 for twisted and broken golf clubs?

[Jarhead*]

Quote:

Originally Posted by Eagle43 And another $7200 for twisted and broken golf clubs?

Eagle: O.K., you asked for it.

Was watching Johnny Carson show in the late 60's, and one of his guests that night was George Goble. (Lonesome George). He was a very low handicap golfer. He told following story:

"Our finishing hole was a 5-par, that ran parallel to a river from tee to green. My playing partner duck-hooked his first shot into the river. He re-loaded, and hit another one in the river. He threw his driver into the river.
Long-story short, he continued down the fairway, and before reaching green, he duck-hooked 4 more shots into the river, and threw 4 more clubs into the river.

I hit my third shot into a green-side bunker that had a large lip. I hit first shot, hit lip, and rolled back into bunker. Second shot, I had same results.

I got out of bunker, walked over to my partners bag, pulled out his sand-wedge and threw it in the river."

[aenlighten]

If you're the type that prefers acquiring investments to acquiring things, it's a cutback of a different sort. That said, I may not ever own a second home, a Louis XV cartel, or a horse.

[txdakini]

"Did anyone go from "free with money" to "very careful with money"?


We will be cutting back from ~130K to ~70K. This will reqire me to move from significantly "spending whatever, whenever" (although my tastes run much more quality than quantity) to being very aware of expenses. I'll miss the financial freedom, but not the servitude, and its costs, to corporate America.

[modhatter]

Thank you txdakini. That's what I am talking about. It sounds like you haven't experienced it as of yet either. I have just started trying to make some changes in my spending habits now, even with my payroll check in preperation of the day there will be no more payroll check. I bought a little calander book yesterday, and yesterday was the first day I wrote down everything I spent.

A pain in the butt, but an interesting practice. I hope I can remember to do it each day I'm out.