Salary to retirement income drop

[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]

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!]

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]

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]

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]

.... 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]

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]

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.

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]

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).

 

[FurBall]

I'm also lazy. So, rather than keep track of various spending categories, we used a very gross measurement of our expenses to determine what our retirement needs would be:
Expenditures = checking balance at year start + money coming in - money to savings - checking balance at year end

For these purposes money coming in is net - after tax, after 401K, after health insurance.

To get the final estimated need for retirement income we then added estimated amounts for health insurance taxes to the post-tax expenditures numbers.

After tracking expenditures in this way for a few years we were pretty confident about our needs. Health insurance was and still is the biggest budget risk.

 

[FIYes]

I think that my expenses in retirement will be the same or even slightly more than they are now that I am working. I just don't understand the idea that expenditures will drop---except for the amount that I am saving each month for retirement.

Commuting costs---I have a short commute and I figure that I will not want to stay at home every day.

Lunch---I bring my lunch to work most days and only eat out occasionally. I figure eating my leftovers at home versus at my desk---no savings and I will still want to go out to lunch with friends occasionally.

Clothes---truth be told---when did I last actually by clothes that I really needed versus wanted. I figure I will still want the occasional new item of clothing---just different clothing since I will no longer go the office. I probably have clothes in closet right now that after retirement I can just get rid of---but I will probably want more casual clothes than I currently have.

I do think that I will want to spend a little more on hobbies than I do now.

Current retirees---if my thinking on this is not what you have experienced then I would appreciate hearing your experiences.

 

[Rustic23]

Our normal expenses are about the same. However, we have spent more on big ticket items than I thought we would have. 2 scooters, 1 car, a craft room for wife, big tv and sound system. All in 3 years. Each of these purchases were made staying within a 4% swr, so there was a lot or rationalization going on. I think/hope that slows down next year, unless that is, they want to give us another stimulus to spend.

 

[Gotadimple]

My core expenses haven't changed (shelter, food, utilities), however, I have no taxes to pay and I am not putting 6% of income into a 401K. Just the 401K, FICA, and Social Security are a sizable amount of "salary."

-- Rita

 

[youbet]

I think that my expenses in retirement will be the same or even slightly more than they are now that I am working. I just don't understand the idea that expenditures will drop---except for the amount that I am saving each month for retirement............

Current retirees---if my thinking on this is not what you have experienced then I would appreciate hearing your experiences.

At 29 months into RE, that's been pretty much my experience. We aren't saving for retirement anymore, obviously, but, other than that, expenses are about the same. The few bux I save not going to work are more than offset by higher health insurance costs. Everything else is pretty much the same.

Bottom line is that out retirement budget is pretty much our pre-retirement budget net of retirement saving.

 

[freebird5825]

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?

i essentially cut my total gross income in half. the combo of my own GS-13 salary and my survivor pension had me in too high a tax bracket with no really big deductions for Schedule A. Add to that year end cap gains and dividends in normal market conditions...sheesh!
i was losing a whole lot of the whole shooting match to federal taxes and normal payroll deductions. and i hated my j*b.
the only problems i've had since FIRE is inflation. i have no trouble meeting my bills. i just have very little mad money for a month or two after i pay my property tax bills. it is a mental adjustment, not a $ crisis.
i am not pulling anything out of my retirement portfolio. it's way too early for me to do that.
things i would do differently? i should have FIREd sooner once i found my escape pod. i was aware of the path to FIRE, but it was one of those big decisions i was not supposed to make for a year. so i planned it all out and waited 2.5 years...maxing out my TSP to the IRS limit, replaced the roof, bought my 'Stang...then I FIREd on April 1, 2007.

 

[aenlighten]

My tracking method

is a number of envelopes listing expense categories that I tuck all receipts into as I get them. For the rare item that does not have a receipt, I make up one. Once a year I total everything up for an Excel spreadsheet. I spend about 6 hours a year balancing everything out, income, expenses, assets, liabilities, cash flows. I have almost 30 years of data.