Salary to retirement income drop

[dm]

We are getting by on around 35% of our former income. The last few years my wife and I both got some pretty good raises but just saved the money instead of spending it. For years every time we got a raise we simply used part of the raise to either pay off the house or increase our retirement savings. I can remember when we first made over a 100k and thought we were doing great. At that time we had a house payment and two kids at home. The last few years we made close to 250k but never spent more than 100k even with paying for the kids college and house. So now we have no trouble getting by with around 85k with no house payment and no kids at home.

And with the economy the way it is, the last few months we have reduced our spending around $750 per month. And still doing fine.

[Walt34]

We've been doing it for years. When we pulled the plug our gross income dropped by ~60%. However, the last couple of years we were saving 45% of our gross income (house paid off then) and at retirement payments to the retirement systems (7.5%) and SS stopped. Income taxes dropped also of course.

So we were living well below our means and were used to it.

I elected to go back to work, but I'm only working about 30-35 hours a week, next week I'll only be working 14 hours. This is all "play money" although being the way we are we still save more than half of it, recognizing that the job will end sometime. This gives us a six-figure income and I think any couple who can't make it in West Virginia on a six-figure income has a serious problem. One can still buy a habitable single family home for less than six figures here.

Edit: The only thing we'd do differently is buy a smaller house for lower utilities, but we agree we wouldn't give up the two-car garage.

[aenlighten]

My expenses were around 25% of my final salary and have hardly changed at all. Now if I actually had to cut back that could be painful, but the only thing I had to trim were my expectations.

[Khan]

My last year (2004) was $75,000; for the last 3 years of employ I was spending $25,000 (not including taxes). My pension for 2005 was $25,000; bumped up to $30,000 in 2006; the CD ladder starts maturing Dec. 2008.

I would suggest that you start recording ALL expenditures every day.

[yakers]

One reason the 80%, or any %, of final salary is questionable is that in the last few years before retirement our income was at its peak & DW was still working. But if you look at the 5 years before the last 3 or 4 then we are doing fine as a % of replacement income and that is what we lived on all those years.
Our basic expenses are covered by COLAd pensions, the rest of our income will determine how much we travel and other life activities.

[FIREd]

At age 34, we comfortably live on only 37% of our gross income. Our income still has the potential to increase but we are determine to keep our expenses pretty constant over the years (no kids) so by the time we retire our expenses should represent an even smaller percentage of gross. We don't expect to spend more (or less) in retirement than we do now, just spend differently. About 40% of our budget is already dedicated to discretionary spending and, once the mortgage is paid off, that should increase to about 60%.

[CyclingInvestor]

I retired 2 years ago at 48 from a programming career. I live on 72t withdrawals (more than funded by dividends) plus a post-tax reserve. My 'gross' is now about 50% of my final salary. However, my net (after adjusting for savings, taxes, health insurance) is about the same as before retirement. If I adjust for paying off my mortgage 2 years before retiring, I have about 40% more.

[Ronnieboy]

I guess I need to do a better a job at keeping track of expenses, or track at all. I net about 60% of my income after deductions (including max 401k). Then out of that take another $10k for IRA's for me and dw, some non-tax deferred savings etc. That drops it to less than 50%....I suppose if when the market turns around that will help determine if we can make it.

Not paying the tax man as much will be a big factor!

Informal poll....what is the best tracking software to keep tabs on the expenses. Keep in mind I am very lazy. So lazy I am dictating this to my kid. (o.k. not that lazy but close).

[Rambler]

Quote:

Originally Posted by Ronnieboy Informal poll....what is the best tracking software to keep tabs on the expenses. Keep in mind I am very lazy. So lazy I am dictating this to my kid. (o.k. not that lazy but close).

Not the best but the cheapest: Back of an envelope...

R

[OAG]

MS Money is cheap and works fine, some on this board also use Quicken, the cheapest version is sufficient. Also if you have a Spreadsheet Program (Excel, or Open Office Calc) that works fine. BTW Open Office is FREE. Years ago I used to just note stuff on a lined pad with about 3 columns (from where (cash, check, etc)), what it was (food, gas for car, etc) and date spent (or received) and then every once in a while put all the stuff into MS Money. Getting this detailed for about a year should tell you what your expenses are/will be - be sure to account for "extraordinary item" (Auto replacement, and other bit ticket items). You should be able to answer your question at that time. IMO EXPENSES drive the train. Using a % of income would be fine if expenses were static, I find they are not, if fact most of the time, even month to month, when I think everything is financially fine, something is bound to go wrong or break requiring money to replace or fix. Using a % of income can get you into trouble or, as can be seen, from some of the responses to the original question, cause you to delay ER beyond what could be possible.

[LOL!]

Quote:

Originally Posted by Ronnieboy Informal poll....what is the best tracking software to keep tabs on the expenses. Keep in mind I am very lazy. So lazy I am dictating this to my kid. (o.k. not that lazy but close).

Best is to let someone else do it for you. That's why I use a credit card for EVERYTHING and try not to carry any cash around. I simply look at my annual statement and know what I spent the previous year.

[Alan]

Quote:

Originally Posted by LOL! Best is to let someone else do it for you. That's why I use a credit card for EVERYTHING and try not to carry any cash around. I simply look at my annual statement and know what I spent the previous year.

Same here - on my spreadsheet on expenses each month I have Credit Card plus a quick sum of the other stuff from my monthly bank statement for what I can't charge to the CC (rent, cash etc)

[mbooth]

Quote:

Originally Posted by LOL! Best is to let someone else do it for you. That's why I use a credit card for EVERYTHING and try not to carry any cash around. I simply look at my annual statement and know what I spent the previous year.

That might be fine at a global $-value spending level, but does it allow you to define and analyse the categories in which you are spending?

For example, using your method, can you determine how much you are spending on: household expenses (mortgage/rent, cleaning, property taxes, repairs, tools & materials, etc); utilities; transport; medical; food; gifts/alcohol/vices ; leisure/hobbies/entertainment; et al.

Wirthout knowing exactly where the money is going, it's hard to determine where 'economies' might be made in the tough periods.

Me, I use a home-rolled Excel spreadsheet to determine that, logging each expenditure, against an expenditure category, on a daily basis. Sure, it's somewhat anal, but at least I can obsess on valid data rather than guestimates

Cheers

[Texarkandy]

Quote:

Originally Posted by Ronnieboy .... Informal poll....what is the best tracking software to keep tabs on the expenses. ....

I suppose that depends upon how complicated your financial life is. Do you run a business? Do you have extensive investments to keep track of? Do you have multiple lines of debt to keep track of etc etc.

Me, my financial life (like the rest of my life) is very uncomplicated, and I like it that way & try to keep it that way.

One salary (until last year, now two) - no debt other than mortgage - very little invested outside of my tsp plan (like a 401k) - always try to be thrifty in our purchases & evaluate the cost vs benefit of unnecessary items like luxuries, travel, (& financial software ) to make sure we are getting the best value for our hard earned & saved $ and not paying for something we really don't need & won't use enought to justify the cost. Emergency funds are in checking & MM.

I Pretty much can keep up with it all with two checkbooks & monthly statements. I set up Excel sheets every once in a while for long-term planning/projections, mostly cause I like setting up spreadheets for fun. Other than that it's all in my head.

[Texarkandy]

Quote:

Originally Posted by LOL! Best is to let someone else do it for you. That's why I use a credit card for EVERYTHING and try not to carry any cash around. I simply look at my annual statement and know what I spent the previous year.

We do that too (pay off every month of course!).

We can go over the monthly statement & get an idea of where we "splurged" last month & where we may need to cut back.

The annual statement for my State Farm visa card even breaks it down by category of vendor.

[shoe]

My DH plans to retire from his second career at the end of '09. At that time our income will drop 60% to $48,000 a year. We live on that amount now so we don't anticipate any big changes but indeed there will be some we cannot foresee. We are plain people with little desire to travel far and wide and we will do everything possible to live a satisfying life within the bounds of our income.

[heyyou]

Annual Expenses: Gross income minus your savings. You spent the rest. Look at your tax return for the gov't share of your spending.

15 years proior to retirement, I realized my lifestyle was good and enough. I tried to freeze my spending at that level. Bonuses and pay raises then went towards the mortgage and taxable savings, since we were already maxing the tax sheltered accounts. When my proposed retirement income caught up to our spending, I retired.

Those years prior to retirement, we were just practicing for living on our retiree income. We now travel during the shoulder seasons, cheaper and less crowded. We live just like many working people, we just don't have jobs. We buy used cars from older retirees. Having to watch our weight, we eat healthier at home. We would like to eat out more often, but the foods are either high-calorie or the portion sizes are too big. So our dining out is followed by more dieting afterwards. That takes some of the shine off of that activity.

[Alan]

Quote:

Originally Posted by mbooth That might be fine at a global $-value spending level, but does it allow you to define and analyse the categories in which you are spending? For example, using your method, can you determine how much you are spending on: household expenses (mortgage/rent, cleaning, property taxes, repairs, tools & materials, etc); utilities; transport; medical; food; gifts/alcohol/vices ; leisure/hobbies/entertainment; et al.

No it doesn't, but Ronnieboy was asking for simple.

Quote:

Originally Posted by Ronnieboy Keep in mind I am very lazy. So lazy I am dictating this to my kid. (o.k. not that lazy but close).

[FIREd]

I also use my credit card to pay for everything, then I download all the transactions in Quicken. It takes about 2 minutes once a week. It allows me to have a very detailed picture of our spending. I have been tracking our spending in Quicken since 2004.

[Independent]

Quote:

Originally Posted by Ronnieboy I know there have been 'what are your annual expenses' surveys but I am interested in people who have gone from moderate to high income levels then drop to 50% or less in retirement. Did you do it? Any problems? Things you would do different? An example would be someone(s) earning $200k year then retire on $2m portfolio with a SWR of $80k. That is 40% of your pre-retirement income when the standard suggestion is 80% ($120k/$4m portfolio). Heck, even earning $100k would put a $1m portfolio below the suggested amount. I feel like I cannot save enough..... I can see where someone from a high cost of living area sells their house for bank (maybe not anymore) and moves to a low(er) cost of living (California to Idaho). But lets say you live in an average cost of living and plan on staying there. How do you make up the difference? Top Ramen?

For many of our working years we were supporting 3 kids, paying a mortgage, paying FICA/FIT/SIT, and putting money into savings. Our actual spending on "the two of us" was about 25% of gross wages.

We said goodbye to the kids (almost), paid off the house, stopped paying FICA, drastically reduced our taxable income, and stopped saving. We have no problems living on a gross income that's way below pre-retirement income. If we wait till 66 to take SS, we'll be able to cover our pre-retirement spending on just SS.

Making the step was easier because we had tracked expenses well enough to know approximately what we were spending on the kids (the other items are pretty obvious).