I just got this in my email...
http://www.fool.com/news/commentary/2004/commentary04120903.htm
Who here actually agrees with this?
http://www.fool.com/news/commentary/2004/commentary04120903.htm
Who here actually agrees with this?
"Foolish" Advice
- Thread starter Marshac
- Start date
I'm not sure what "this" you're referring to, so I'm going to answer in my own quirky fashion.
"If you're not making money, you're spending money," according to the article. That's true, but not necessarily to the extent the article implies. For example, if I'm not at work earning money, I might go to the library to borrow books. Thus, I've spent the money for the gas to get the books. It's not much, but I have spent money. Somehow, I don't think that's what the author meant.
The author seems to mean that "new hobbies" will necessarily cost a lot of money. Drawing costs only a pencil and a pad of paper - $5-15 - and you'll get hours, if not days, of enjoyment from it. Certainly stained glasswork or adventure travel will cost more, but those aren't the only hobbies around.
It all comes down to the individual. No rule of thumb will work for all of us, and it's up to us to figure out what our likely expenses will be.
"If you're not making money, you're spending money," according to the article. That's true, but not necessarily to the extent the article implies. For example, if I'm not at work earning money, I might go to the library to borrow books. Thus, I've spent the money for the gas to get the books. It's not much, but I have spent money. Somehow, I don't think that's what the author meant.
The author seems to mean that "new hobbies" will necessarily cost a lot of money. Drawing costs only a pencil and a pad of paper - $5-15 - and you'll get hours, if not days, of enjoyment from it. Certainly stained glasswork or adventure travel will cost more, but those aren't the only hobbies around.
It all comes down to the individual. No rule of thumb will work for all of us, and it's up to us to figure out what our likely expenses will be.
I agree, and the really good advice I see in there is to make a budget and see how much money you ACTUALLY need.
But when an author says this:
"Some studies support the 70% to 80% rule. The "2001 RETIRE Project" report, conducted by Georgia State University, found that retirees need 74% to 83% of their income to maintain the same lifestyle in retirement.[...] I looked at actual spending figures from the U.S. Census Bureau and found that most older Americans have lower expenses -- along with lower incomes. "
And then contradicts that study by saying this:
"I've found that many retirees require the same level of income in retirement they enjoyed while working. "
What is the reader supposed to take away from this? I believe most non-savvy folks will do some simple math and think "hmm, we make $100k/year... and we will live for 20 years... therefore we need $2M" and conclude that it's hopeless, especially if they are like most folks in their cohort and only have about $50k in their 401k. Dispair will lead to inaction, further compounding the problem.
The great thing about this board is that it's full of stories from people who have retired on budgets of <$30k/year and are having a GREAT time.... I think if folks saw that they CAN retire on less (and thus lower the target amounts), the task of saving and investing wouldn't seem quite as daunting or impossible.
My 2 cents.
But when an author says this:
"Some studies support the 70% to 80% rule. The "2001 RETIRE Project" report, conducted by Georgia State University, found that retirees need 74% to 83% of their income to maintain the same lifestyle in retirement.[...] I looked at actual spending figures from the U.S. Census Bureau and found that most older Americans have lower expenses -- along with lower incomes. "
And then contradicts that study by saying this:
"I've found that many retirees require the same level of income in retirement they enjoyed while working. "
What is the reader supposed to take away from this? I believe most non-savvy folks will do some simple math and think "hmm, we make $100k/year... and we will live for 20 years... therefore we need $2M" and conclude that it's hopeless, especially if they are like most folks in their cohort and only have about $50k in their 401k. Dispair will lead to inaction, further compounding the problem.
The great thing about this board is that it's full of stories from people who have retired on budgets of <$30k/year and are having a GREAT time.... I think if folks saw that they CAN retire on less (and thus lower the target amounts), the task of saving and investing wouldn't seem quite as daunting or impossible.
My 2 cents.
brewer12345
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Mar 6, 2003
- Messages
- 18,085
Marshac, the stuff that TMF puts out has degraded so far down into the "garbage scale" that I rarely even bother reading it any monre. They are in the business of selling sleazy stock-picking newsletters and do a lot of hyping and promotion. Sad, really.
haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I personally spent way more money when I was working than I do now.
I was always stressed out enough to think, I need that nice meal in a restaurant, I need that vacation to Costa Rica, I need that new sports gear, etc.,etc..
I did need it too, because otherwise I wasn't able to distract distract myself from my onerous job.
But now, although I would like much of those same things, I don't really need them, and all in all I am not sure I would enjoy then any more than what I am doing with my time. For sure I wouldn't want the whole package, with hard job and all.
Mikey
I was always stressed out enough to think, I need that nice meal in a restaurant, I need that vacation to Costa Rica, I need that new sports gear, etc.,etc..
I did need it too, because otherwise I wasn't able to distract distract myself from my onerous job.
But now, although I would like much of those same things, I don't really need them, and all in all I am not sure I would enjoy then any more than what I am doing with my time. For sure I wouldn't want the whole package, with hard job and all.
Mikey
Yes, these are the types of articles that had me really intimidated about the idea of early retirement until I found this board.
As for hobbies requiring requiring so much money - I guess it depends. It occurs to me that if you are retired you have more time to seek bargains, travel in the off season, etc. If you are early retired then you probably also have the health to enjoy some lower cost activities like hiking, bicycling, etc. I don't see us needing 80% of pre-retirement income, but we're still at least a decade from ER, so who knows.
J
John Galt
Guest
25% in a walk, without touching our "base".
JG
JG
These articles always seem to confuse income and expenses. I'm planning on having 100% of my current expenses in retirement... but that's a very far cry from 100% of income. It would be scary to try to replace even 70% of income, considering that we're living on about 25% of current income. (Not counting taxes, which take another 25%).
The really scary thing about these kinds of articles, IMO, is that they reinforce the belief that the "normal" thing to do is to spend all that you earn. I didn't even do that when I was a grad student!
The really scary thing about these kinds of articles, IMO, is that they reinforce the belief that the "normal" thing to do is to spend all that you earn. I didn't even do that when I was a grad student!
unclemick
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Dory's 33% That's my story post got me to join this forum. Me and the SO's combined salary plus rental was about 100k in 1992. My personal best 'cheap SOB'(frugal?) was 12k for a year - I was threatened with bodily harm if I ever tried to get that frugal again.
The 18-24k area was ballpark for the first ten years with no hard core budgeting. We'll probably exceed 33k in coming years because of pensions, SS, Step daughter in spare room, widowed mom's SS, & pension - in short spent more - 'because we're not taking it with us'.
Painfull! - I like cheap. FireCalc indicates 60-70k/yr once SS kicks in next year. I have no idea what we'll piss it away on - but I'm sure the women will think of something.
The 18-24k area was ballpark for the first ten years with no hard core budgeting. We'll probably exceed 33k in coming years because of pensions, SS, Step daughter in spare room, widowed mom's SS, & pension - in short spent more - 'because we're not taking it with us'.
Painfull! - I like cheap. FireCalc indicates 60-70k/yr once SS kicks in next year. I have no idea what we'll piss it away on - but I'm sure the women will think of something.
BigMoneyJim
Thinks s/he gets paid by the post
Holly beat me to the punch. I'm already living on 60%-70% of income while I'm working. Lately the rest has gone to debt elimination (~= savings), and after I figure out what the next phase of my life is and implement it that money will be directed towards savings which I won't be doing after retiring.
Some people spend more than their income. They'll probably need more than their income to retire.
As far as whether expenses go up or not, that's on a case-by-case business. I can entertain myself quite cheaply, but I do like to travel, too.
Some people spend more than their income. They'll probably need more than their income to retire.
As far as whether expenses go up or not, that's on a case-by-case business. I can entertain myself quite cheaply, but I do like to travel, too.
I have thought that these popular estimates of what percent of your current income you need when you retire made little sense. If you currently have 200,000 of income, why would you need 150,000 when you retire? If you make 30,000 you may very well need 30,000 when you retire, not 22,000.
These formulas are assuming you live a certain lifestyle and you need to maintain the lifestyle. If you are retiring early, you probably did not live the assumed lifestyle.
On the other hand, a number of younger people on this board have talked about living on about 25,000 of income a year. They talk about their minimal needs. One danger is that your needs change over time. Insurance might be cheap now when you are young and healthy, but expensive when you are 55 after a bout of cancer. You may want to travel in a comfortable car, not by bike. You may want to stay at hotel, not a tent. Desires and needs both change over time. This makes it more difficult to properly plan for an early retirement.
These formulas are assuming you live a certain lifestyle and you need to maintain the lifestyle. If you are retiring early, you probably did not live the assumed lifestyle.
On the other hand, a number of younger people on this board have talked about living on about 25,000 of income a year. They talk about their minimal needs. One danger is that your needs change over time. Insurance might be cheap now when you are young and healthy, but expensive when you are 55 after a bout of cancer. You may want to travel in a comfortable car, not by bike. You may want to stay at hotel, not a tent. Desires and needs both change over time. This makes it more difficult to properly plan for an early retirement.
J
John Galt
Guest
I was intrigued by unclemick's post, especially their
total family income peaking at around 100K, and his best
"cheap SOB" year spending around 12K. This is kind of my story also, except I don't think I ever got down to 12K. However, just after I ERed and was still being extra careful, I lived in a $230/mo. apartment, drove a
small Chev pick up, no pets, no cable, no cell phone, and ate a lot of meals at my folks. My big expenses were child support and dating. Courtship was the one area
where I didn't spare the horses
JG
total family income peaking at around 100K, and his best
"cheap SOB" year spending around 12K. This is kind of my story also, except I don't think I ever got down to 12K. However, just after I ERed and was still being extra careful, I lived in a $230/mo. apartment, drove a
small Chev pick up, no pets, no cable, no cell phone, and ate a lot of meals at my folks. My big expenses were child support and dating. Courtship was the one area
where I didn't spare the horses
JG
I agree, and have pointed it out before. The number to use is expenses, but don't get there by adding them up. I much prefer using income minus taxes, minus long term savings. That is what you are really living on, and adding up expenses is error prone. If you got the money, and didn't save it, you spent it and that is the expense number to use.
I'm not really sure what the difference is. Maybe for someone who only tracks income/expenses loosely your method makes sense, but in my house we track *everything* - every single expense. It's easy to do since we use hardly any cash at all, and instead use the credit card for everything possible. And cash withdrawals get tracked too - I usually indicate what they're for (buying vegetables at the farmers' market, mostly) but otherwise they're a "misc expense" that still shows up as an expense.
C
Cut-Throat
Guest
Yup, Me too!
My wife and I are retiring on 100% of our income, our NET income that is. While working we paid SS Tax, Medicare Tax, a mortgage with tons of extra principal, and we saved like crazy for retirement. We needed sufficient gross income to cover those expenses and that put us in the 33% tax bracket. This left us with about $50k per year in NET income for normal expenses.
After retirement, we will be spending the same NET money even accounting for health insurance premiums, but our gross income needed to sustain that is much much lower. Our tax burden drops by 90%, and we fall into the 15% tax bracket.
After retirement, we will be spending the same NET money even accounting for health insurance premiums, but our gross income needed to sustain that is much much lower. Our tax burden drops by 90%, and we fall into the 15% tax bracket.
