How low can you go?

[Gumby]

IMHO, many folk in the developed world have relatively high expectations for their material standard of living. To be clear, I have absolutely no problem with people spending what they can afford. Compared to what my ancestors in England and Ireland accepted as an adequate standard of living in the early part of the twentieth century, most of us are living in the lap of luxury.

When I started this life, I lived in a council flat (for Americans, public housing) in the slums of London, the bastard son of an uneducated, teenaged Cockney mother. Things did not get substantially better when we emigrated to the USA and lived in a series of cheap apartments and trailer parks. I often cannot believe how fortunate I have been in my adult life. If my mother were still here, she probably would be appalled at my spendthrift ways.

 

[LarryMelman]

I also wonder how people live on so little. Including all taxes (income and property), our yearly spend is approximately $100,000. And we don't live extravagantly.

I doubt most people include income tax in their "spending". I certainly never have. And maybe property taxes should not be considered in this discussion since they are so variable. (Mine on a 1700 SF house in the suburbs of Phoenix was about $1600 last year.)

Since paying off my house in 2009, my annual spending runs between $16K - $20K. Including: property tax and an unplanned major item in the 2K to 4K
range every year (home and/or vehicle and/or medical expenses) . Excluding: Income taxes, medical insurance premiums, and a car purchase.

 

[Gumby]

I doubt most people include income tax in their "spending". I certainly never have. And maybe property taxes should not be considered in this discussion since they are so variable. (Mine on a 1700 SF house in the suburbs of Phoenix was about $1600 last year.)

Since paying off my house in 2009, my annual spending runs between $16K - $20K. Including: property tax and an unplanned major item in the 2K to 4K
range every year (home and/or vehicle and/or medical expenses) . Excluding: Income taxes, medical insurance premiums, and a car purchase.

If you want FIRECalc to be accurate, you need to include all taxes in the spending figure.

 

[Jerry1]

For those couples living on less than $60k/year, how do you do it? What does your budget look like?

My budget is $100K. Last year we spent under $90K. When I really got serious about retirement and the budget, I separated out necessary and discretionary spending and really hammered the necessary expenses. I could live a good life with a roof over my head, good food and a little bit of entertainment and be in at around $50K, definitely under $60K.

Key in my case is to have a paid off house (1700sqft) and cars, and no other debt. Property taxes are around $4500 and utilities are reasonable here. Good food (healthy food) is not expensive and you don’t eat out much which would be fine if necessary. Necessary did include some sinking funds for home maintenance (roof and such) and auto (repairs and replacement). Healthcare insurance is subsidized (employer sponsored retiree healthcare) but not free. About $500 per month for me and DW with reasonable out of pocket costs. Of course that’s a big help.

I’m thankful I can live above that level, but there is a great deal of comfort in knowing that there is a pretty good life even if I had to tighten up my spending significantly.

 

[lauradrops]

We are 1 1/2 years into our early retirement and have been under 40k a year. We budgeted more, but with covid there has been no travel.

We have no mortgage, property taxes around 8300, fully paid for health insurance and no car payments. I expect it will go up when we are comfortable traveling again.

 

[SecondCor521]

I also wonder how people live on so little. Including all taxes (income and property), our yearly spend is approximately $100,000. And we don't live extravagantly.

My guess would be that you live within about 50 to 75 miles from either the Atlantic Ocean or Pacific Ocean. I'll bet you could buy a house of the same age as yours and with the same number of bedrooms and bathrooms in, say, Tennessee for a literal fraction of what it's worth where you live.

My $28K number includes income taxes, both federal and state, and property taxes as noted above.

 

[GenXguy]

I doubt most people include income tax in their "spending". I certainly never have. And maybe property taxes should not be considered in this discussion since they are so variable.

Taxes are usually not considered as part of spending/expenses during the accumulation phase, but they are during the drawdown phase.

Absolutely include property taxes if you have them as as expense. Mine are a significant part of my pre-FIRE and planned FIRE budgets at $4000+/yr that I must account for.

 

[Gumby]

My guess would be that you live within about 50 to 75 miles from either the Atlantic Ocean or Pacific Ocean. I'll bet you could buy a house of the same age as yours and with the same number of bedrooms and bathrooms in, say, Tennessee for a literal fraction of what it's worth where you live.

But then I'd have to live in Tennessee (no offense to those who do). Currently, the Atlantic Ocean is about 300 feet from my bedroom.

 

[Cobra9777]

FWIW...

For DW and I, basic living expenses average $65K/yr, with no mortgage and no car payments. Federal income tax and local property tax add about $40K. But half of that is driven by voluntary Roth conversions to take advantage of the temporary 22% bracket.

No state income tax, but property tax in Texas is quite high and we still own a very large house on 2.2 acres. The house also drives higher insurance, maintenance, utilities, etc, which are included in the basic $65K.

We also allocate $25K/yr for pure discretionary spend, like travel, home improvements, new cars, etc. And we also use the $25K like a sinking fund to cover major repairs, such as a new HVAC system, etc.

Discretionary spend was WAY down in 2020, mainly due to no travel. But normally, overall spend comes in around $110-120K/yr, excluding conversion tax. Subtract the big house, which is our only real vice, and we are in the $90-100K club.

For a 2-person household in a low-ish-but-growing-COL area in North Texas, that feels pretty normal to me. Sub-$60K... not so much.

 

[Mr. Tightwad]

I spent 50k in 2019 for my household, all taxes, 6 insurance policies and the expenses of 2 rental properties. All mortgages are paid off. Property taxes were 12k

 

[Major Tom]

When I started this life, I lived in a council flat (for Americans, public housing) in the slums of London, the bastard son of an uneducated, teenaged Cockney mother. Things did not get substantially better when we emigrated to the USA and lived in a series of cheap apartments and trailer parks. I often cannot believe how fortunate I have been in my adult life. If my mother were still here, she probably would be appalled at my spendthrift ways.

I had a slightly different experience to you, Gumby, growing up in a very tranquil middle class environment in a small English village. A caring, conscientious woman, my mother was, it has to be admitted, somewhat concerned with appearances. Both her and my father would have been happy to know that I have been careful with my money and have security for the future. However, she would have been perplexed at my willingness to stop work so early, and be so content with such a modest existence. Even I occasionally wonder if I should have suffered a little more, for longer, in order to have more.

 

[mrfeh]

I doubt most people include income tax in their "spending". I certainly never have. And maybe property taxes should not be considered in this discussion since they are so variable. (Mine on a 1700 SF house in the suburbs of Phoenix was about $1600 last year.

+1

Comparing raw numbers is next to useless without a shared definition of "annual expenses" that every poster uses.

 

[jldavid47]

For DW and I our projected budget for this year is about $42,300 and that includes all taxes (although we will pay ZERO income tax because of how the taxability of Social Security is calculated). That allows us to live off our combined Social Security payments and not dip into our IRAs until until we hit RMDs unless we want to. It isn't even a bare-bones budget. $5400 of it ($450 a month) is set aside for "mad money" that we can just go out and spend on a whim. The one thing I don't include in our budget is medical expenses (outside of medical insurance payments) because we have a dedicated HSA account to pay for those "off budget."



FWIW, we live in central Indiana where the cost of living is below the national average. We also have no mortgage, only a HELOC with a small balance. We are living comfortably at that spending level.

 

[Nemo2]

Major Tom/Gumby: I learned that my mother had died while I was out of contact, (in the middle of a variety of nowheres), age 20/21. My father died, 52 years ago, in the same rented, unheated, London basement apartment where I was 'raised'.....they never had a car, a TV, a fridge, etc....different lives.

 

[jldavid47]

I doubt most people include income tax in their "spending". I certainly never have. And maybe property taxes should not be considered in this discussion since they are so variable.

Well, Income taxes are certainly an expense for most people in retirement. And income taxes are far more variable than property taxes for us. There are really two ways to look at income and spending.


1) Take gross income and include taxes as part of annual spending.
2) Take disposable income (gross income minus taxes) and exclude taxes as part of annual spending


Before retirement I used (2) (except property taxes were counted as spending) and after retirement I use (1). Both work. YMMV.

 

[Blue531]

I lived on about 13K in 2020. That includes EVERY expense, everything I paid to live during the year. I keep a record book monthly of where all my money goes as I have for years. I live in a very low cost area compared to most places. Also, when I was working all these years, I never made more than 40k. My average salary over 39 years of working was probably less than 30k. When I was working, my expenses were usually around 17k or 18k. I always lived within my means. I Really didn't start investing seriously until 22 years ago. Single and managed to attain financial freedom even on my relatively low income. I live in a very inexpensive home that is paid for and have two used cars, one that is 26 years old and one that is 17. Taxes and insurance on a cheaper home and cars is lower.

 

[2017ish]

We all suffer a bit from selection bias.

I don't know that my parents ever made 60k a year. Very few of my aunts and uncles are likely to have done so. All seem to have handled retirement well enough. (All that made it that far, of course.). Mom remarried and their spend rate definitely appears to be well under 60k--a couple of car trips a year, a paid for small place near St. Louis, and maybe a flight (in economy) to somewhere every couple or three years
Not what DW and I do, but...

 

[vrijheid]

My budget is $100K. Last year we spent under $90K. When I really got serious about retirement and the budget, I separated out necessary and discretionary spending and really hammered the necessary expenses. I could live a good life with a roof over my head, good food and a little bit of entertainment and be in at around $50K, definitely under $60K.



Key in my case is to have a paid off house (1700sqft) and cars, and no other debt. Property taxes are around $4500 and utilities are reasonable here. Good food (healthy food) is not expensive and you don’t eat out much which would be fine if necessary. Necessary did include some sinking funds for home maintenance (roof and such) and auto (repairs and replacement). Healthcare insurance is subsidized (employer sponsored retiree healthcare) but not free. About $500 per month for me and DW with reasonable out of pocket costs. Of course that’s a big help.



I’m thankful I can live above that level, but there is a great deal of comfort in knowing that there is a pretty good life even if I had to tighten up my spending significantly.

This . There is no greater feeling of financial freedom than knowing you can afford to do as you please.

 

[finnski1]

I/we live on exactly $60,000/yr. We live in a $245,000 condo home/cottage of almost 2000/sqft in Summerville, SC. We have 14 years left in our 15 year mortgage. We have 2 cars. A 2014 VW Tiguan loaded with sunroof, Nav and everything else. It is paid for. We just turned 50K miles on it. It is our “local” car.
We also have a 2018 Audi Q3. Loaded again. Low miles yet we have traveled to every state east of the Mississippi, to Maine, to Florida a dozen times or more. I owe $19,000 on it. At 1.9 interest rate.
We have no consumer debt. Our 4 chi are grown and in their own. Each has a family. They all went to premium universities. 3 are done with student loan payments, the youngest has 2 years left. Each had $25,000 in loans so they learned how to handle debt.
We take several vacations a year. Last year we went to Naples, Florida, Apalachicola, Florida, Michigan, Wisconsin and California (flew) rented car there.
We are fortunate. We have enough. Nice home, nice cars, nice furniture, nice friends. We have our health. And we have each other after 59+ years.

Nice first post!
You seem to live a very full and fulfilling life on 60k.

DW and I do very similar on only $40-42k per year tough we never had kids.

 

[scrabbler1]

Well, Income taxes are certainly an expense for most people in retirement. And income taxes are far more variable than property taxes for us. There are really two ways to look at income and spending.


1) Take gross income and include taxes as part of annual spending.
2) Take disposable income (gross income minus taxes) and exclude taxes as part of annual spending


Before retirement I used (2) (except property taxes were counted as spending) and after retirement I use (1). Both work. YMMV.

While I consider income taxes a part of my annual spending, when I put together my projections for spending, I split my income taxes into two parts - a "basic" part which is based on the regular, monthly dividends from my main bond fund and annual dividends from my main stock fund, and an "excess" part which is based on the more erratic cap gain distributions and any irregular distributions from all of my mutual funds. This "excess" part can be very large (in prior years, not so much any more), and I was never worried about being able to pay the income taxes on them because the income from those distributions was always there to pay them.

 

[SonofCohoes]

Need 80k no if ands or buts. How does any couple only spend 4K on groceries

 

[GravitySucks]

IMHO, many folk in the developed world have relatively high expectations for their material standard of living. To be clear, I have absolutely no problem with people spending what they can afford. Compared to what my ancestors in England and Ireland accepted as an adequate standard of living in the early part of the twentieth century, most of us are living in the lap of luxury.

Looking at my spice rack folks the the 13th century would assume I was at least a Duke

 

[mckittri2000]

It all depends on where you live. We live out in the county where the property taxes are low ($800/yr on a $200K house). Our house and cars are paid off and we take 2 modest vacations a year. Our annual budget including health and dental care is between 30-35K. We live very comfortably.

 

[jldavid47]

Need 80k no if ands or buts. How does any couple only spend 4K on groceries

If you are an aggressive shopper it isn't hard. If you never shop sales or just buy on impulse with no planning it's probably impossible.

 

[athena53]

depends on the definition of "spend". roughly 14% of our monthly income is earmarked either for recurring bills like utilities, food, gas, etc. but another 59% is set aside in various sinking funds either for specific long term goals such as a new car or for certain types of regular spending like entertainment, out-of-pocket medical, vacation, etc.

Yeah, I've got "sinking funds", too. I think the low-spenders get into trouble if they have big-ticket items such as cars and houses that may need maintenance or replacement once in awhile and no resources to cover them. It always saddens me to see houses that are occupied but are falling apart- probably because the owners can't afford needed repairs.

I went back and looked at my 2020 expenses. Take out travel, all charitable deductions, the cost of installing quartz countertops in the kitchen, income taxes (assuming that if I were lower-income I wouldn't owe any) and half my Medicare premiums (assuming no IRMAA) and I get under $40K with no reduction in my grocery and utility spending, which I could pare down if I had to. My mortgage is $700/month. Still a pretty steep number for one person but more than covered by SS and two non-COLA pensions.