Magic Number to Income at Retirement Ratio

[bbuzzard]

Inspired by the interesting "Magic Retirement Number" poll, I offer the more interesting (to me anyway ) "Magic Number to Income at Retirement Ratio" poll.

Divide your Magic Number (considered to be the gross assets required for you to retire tomorrow) by your current income. Thus, if you intend to retire at your current standard of living, spend everything you make, and believe in the 4% SWR, your ratio would be 25 (ignoring savings associated with quiting the job).

For purposes of this poll, pretend you do not have a pension (if in fact you do have one) and your mortgage is paid off. The question is, how much cash would you need, relative to your current income, to retire tomorrow.

My purpose in this poll is find out if people are willing/planning to retire at a reduced income in order to retire early, or are willing to retire later to get a higher income.

I'll go first, obviously. My ratio is 20. I would be out in a heartbeat! I may, at some point in the future, go out at a lower number. However, I would act today at that point.

[edit -> added "spend everything you make"]

 

[dm]

I came up with 9. I am retireing in July and don't plan on reducing my standard of living at all. Im at 25 of my current living expenses though. And I could reduce those more if needed without much difficulty. I currently make a very nice salary and could live nicely on just what I currently pay in taxes.

 

[ScaredtoQuit]

My ideal ratio is 13. With a little belt tightening, I will probably settle for 10.

 

[justin]

My "magic number" divided by our current income is 13. My "magic number" divided by our household expenses is 30. I don't really know what this tells my about anything though?

Is there some way that one can use these ratios to evaluate how one is doing? Or to benchmark oneself?

 

[bbuzzard]

My "magic number" divided by our current income is 13. My "magic number" divided by our household expenses is 30. I don't really know what this tells my about anything though?

Is there some way that one can use these ratios to evaluate how one is doing? Or to benchmark oneself?

This indicates you are saving about 57% of your income assuming that taxes are included in household expenses. I would say this is pretty good.

 

[Sam]

Justin, I think those ratios say a lot.

Your 13 and 30 ratios together say that you are an extreme LBYMer, to me at least. Your 30 ratio tells me that you are ultra conservative. Is that how you see yourself too? May be not.

 

[justin]

My current expenses are different than my projected FIRE expenses. I won't have a lot of expenses like mortgage, as many miles on the cars each year, etc. But I will have to pay out of pocket for health insurance, and for greatly increased travel/pursuit of leisure.

I generally follow the 4% SWR for long range planning purposes. So my "magic number" divided by our FIRE projected expenses will be 25.

 

[GLM]

Ratio of about 15 would do it .
I like this poll - it tells more when you take out the pensions . Our ratio would be lower if we were not 16 & 18 years away from full SS and felt surer about it being there - not to mention the unknowns of health coverage. when youngest gets out of college the ratio might nudge down a bit.

 

[Bikerdude]

Divide your Magic Number (considered to be the gross assets required for you to retire tomorrow) by your current income.

When you say current income do you mean gross or net? As you know, your gross goes way down when you retire but not necessarily you’re net.

 

[Warthog]

I answered '10-14'...but I'd 'quit my job' at < 9

Having enough residual income to travel the country in my RV and do some consulting and/or teaching is a much lower ratio than what I'd consider my 'ideal' retirement nest egg.

I'm going to go through a period in the not to distant future where I won't have to work, but will continue to do so because I'm throwing money in the bank like crazy.

Thus, if things get too stupid at work, I'll politely bow out (never burn bridges), and hit the road.

-Warthog

 

[bbuzzard]

When you say current income do you mean gross or net? As you know, your gross goes way down when you retire but not necessarily you’re net.

Gross for this poll.

 

[old woman]

I chose under 9 because most of my income goes to taxes and saving for retirement. If I paid off the house I could live on 25-35% of my pay. I would like more but I probably won't have more I have 7.5 times my gross now but I am already old

 

[modhatter]

I think this poll is misleading because of two factors.
First the magic number tends to be lower for those folks who will either be receiving a pension as well as social security. Also two people with generous social security checks vers one individual with not so healthy social security check. The later will require a much larger portfolio balance.

Also, some retirees plan on reducing their income substancially when retiring, and others are planning on maintaining their current work status income when retired, so this too will efffect the required retirement nut.

So, in order to really look at this poll accurately, one would have to put a figure on their social security and pensions, and also disclose their percentage of current income requirement for retirement.

Without this, you will have numbers all over the board.

 

[kcowan]

Four years into retirement, using last full year gross employment earnings, the number is 10x. I excluded any income from self-employment on the side because we still have the option to continue that if needed.

 

[Rustic23]

A number of years ago, a friend of mine left the air force. (no retirement) when we got together a year later he said something that shaped my retirement. “It is unbelievable how hard it is to stop spending!” Lowering his standard of living or spending less on day to day things was the most difficult thing he had done. I remember that, an decided that I would not retire until I had 100% of my current expenses covered plus some. I retired when the pension checks and social security cover that and then some. The savings I consider emergency funds or play money. Therefore I don’t have a clue how to answer this question.

 

[bbuzzard]

Note sure of the significance, but I figured there would be a normal distribution about some mean here. However, the data is pretty flat. Any comments?

 

[OAG]

OP: I voted the bracket that includes 16.5 but that excluded Retired Pay, SS (@ X25) and home equity. If I included Retired Pay and SS it would be 58.1 and if I include home equity it would be 69.7. Guess I do not understand the reasoning for excluding a pension.

 

[teejayevans]

Lowering his standard of living or spending less on day to day things was the most difficult thing he had done.

That's why you should go into retirement spending mode before you retire.

If you work for megacorp, I would recommend to anybody thinking of retiring
to take a sabbatical, that way if something doesn't work out the way you thought
it would and can go back to work and regroup. But I never see any experts mention
this?
Tom

 

[kaudrey]

I'm like Justin. Current income = 12. Future expenses = 25. Which would make sense, because my magic number assumes a SWR of 4%. Anyone shooting for that SWR wouldn't retire until the # was 25, right?

I guess this does show that I save a good portion of my current income, but don't most of the people here? How else would we be planning to FIRE (or already be FIREd?).

Karen - confused.

 

[jIMOh]

depends.

To retire in my 50's, it's current income/.03. I'll still have a mortgage and I think I'll live a long time.

At age 59.5, it's income/.04 (the 25X typically used).

 

[HobbyDave]

Mine is around 6, which I suppose is why I think I have a pretty good chance of retiring in 10 years. My wife and I aren't all that LBYM (we generally buy whatever we want), but we still manage to save a decent amount. We both make around 90k (180k gross), but are planning on retiring once we hit 1M.

I've always assumed we'd change our lifestyle once we retired, which is how our number became so low. We both enjoy the outdoors, we have families from the woods of Wisconsin & Michigan, so we figure that's the type of place we could retire to. One car, fewer restaurants, lower computer costs, lower housing costs, etc, I believe it all adds up.

If we're really wanting more money, we can always look into ways to add to our income without being in high stress corporate jobs. Plus, I figure if it's a choice between buying that new computer (and finding a job to pay for it), or just sticking with my slow older one, it'd be an easy choice

 

[Gumby]

Since we currently spend only about 30% of our gross income, we could retire with a 4% SWR on about 7.5 times our current income and not change our standard of living a bit. Of course, we don't yet actually have 7.5 times our current income, but we are gaining fast. And I think we will probably economize a little more when we don't have a regular paycheck coming in, so the ratio could be lower.

 

[tryan]

Anyone shooting for that SWR wouldn't retire until the # was 25, right?

Only if you want to spend MORE than you do working.

Taxes ate a 1/3 of our gross ... now we're in the 15% bracket. Used to save 25% .. now nothing (no need). If your mortgage is paid off add that to the pile. You get the point ...

 

[heyyou]

LBYM has multiple benefits:
You can test drive your retirement lifestyle before you leave your job.
With lower expenses, you need a smaller nest egg.
My pension was a pay-raise, since we were saving so much prior to retirement (mandatory overtime means you don't have time to spend it).
When your average annual investment income catches up to your expenses, pick a retirement date.

 

[teejayevans]

LBYM has multiple benefits:

We need a LBYM poll, especially considering the rule of thumb is that you'll need
80-90% of your current income. I wonder if/how they treat taxes with those rule
of thumbs?
TJ