Successful ER on 25% of pre-retirement income?

[youbet]

I calculate it would take 140K a year to continue current lifestyle in California (Excludes current savings rate and lower tax bill and lower charity $ upon retirement, so 90K would still be a significant reduction from that. My hope is we could have a scaled down, yet comfortable lifestyle in the Southeast US for 90K. All I was really looking for are any examples where someone actually retired with that much of an income step down. Otherwise, I will need to work about 8 - 10 more years to keep current spending assuming a 3% SWR. My other assumption is most folks scale down $$$ donations to charity in retirement and donate more time instead.

Shanky, you keep throwing the word "income" into the discussion. That tends to be a red flag on this board and attracts much discussion about pre-retirement income not being the appropriate metric to base post-retirement spending/budgeting needs on.

I understand your question. And it sounds like you're doing all the right things including counting on no further retirement saving, less taxes, etc. Still, continuing your current life style will cost $140k/yr and you can only budget $90k/yr. That's a pretty hefty drop.

Few here would argue that a "comfortable" lifestyle for a retired couple with no unusal expenses can't be be financed for $90k/yr living in the SE. But no one but yourself can answer as to whether the $50 worth of stuff/experiences you'll no longer have will be tolerable.

Why don't you list where the $50k will come from? Put it in 2 buckets: (1) money saved by moving out of Calif and (2) money saved by not spending on X, Y and Z things and activities that you spend on now. We can take a crack at whether the savings seem realistic or not. You'll have to decide whether the new life style would be worth it for you or not.

 

[kramer]

My expenses in retirement were difficult to estimate because I wasn't sure what kind of life I would be leading. I was living as a renter in Silicon Valley so I just had to make educated guesses at these costs. I figured 3 possibilities for retirement budgets:

1) Extensive travel abroad but maintain an inexpensive USA home base in a low cost area, maintain USA health insurance
2) Live abroad and maintain no USA home base, maintain USA health insurance until very comfortable with this as a long term lifestyle
3) Live in the USA in a low cost area, maintain USA health insurance

And I planned for rising health care costs in the intermediate to long term.

I took the most expensive alternative (#1) as the budget I should plan for.

I am living lifestyle #2 today and my expenses, 6 years later and even ignoring ~13% CPI inflation during that period, are still lower than 25% of my peak gross income.

About a year ago I went back and looked at my estimated retirement expense guesses and my guesses were actually pretty good.

 

[FIREd]

Shanky,

having lived in both CA and the SE, I can tell you that the SE will offer markedly lower expenses in only 2 categories: housing and state income taxes. Unless you radically change your lifestyle, I don't think you will see huge savings in other expense categories.

And BTW, we will retire on less than 25% of our current gross income.

 

[obgyn65]

My post above still stands, whether comparing after tax or before tax income.

You guys comparing after-tax income pre retirement with after-tax income post retirement?

 

[WestLake]

Keep in mind that even though someplace like Texas has lower general housing costs, if you buy in a really nice neighborhood it can be nearly as much as California and with higher property taxes to boot (but no income taxes).

Where you would get real savings is in a smaller town or a lake cabin. Much less to do in those places but you can find them an hour or so from the major metropolitan areas. For instance the Dallas area is almost seven million people with plenty to do and you could live in the Bonham or Lake Texoma areas very cheaply - maybe a home for $50 to $75K. Also there are some cheaper suburbs for around $200K. Property taxes and insurance on something like that might be as much as $7K.

 

[Onward]

whether comparing after tax or before tax income.

Both after tax. My post-FIRE after-tax income is less than 25% of my pre-FIRE after-tax income.

 

[GolfingDuo]

Keep in mind that even though someplace like Texas has lower general housing costs, if you buy in a really nice neighborhood it can be nearly as much as California and with higher property taxes to boot (but no income taxes).

Where you would get real savings is in a smaller town or a lake cabin. Much less to do in those places but you can find them an hour or so from the major metropolitan areas. For instance the Dallas area is almost seven million people with plenty to do and you could live in the Bonham or Lake Texoma areas very cheaply - maybe a home for $50 to $75K. Also there are some cheaper suburbs for around $200K. Property taxes and insurance on something like that might be as much as $7K.

I agree that the property taxes in both CA and TX are even. www.taxfoundation.org confirms that. But at the same time CA has an income tax rate of 10.3% which is a large amount. The sales taxes are also alike. One other point here is only SS and Railroad pensions are exempt and disability is also exempt. All other pensions private and government are fully taxed. That makes for a large chunk of change that comes out of a person's pocket. As mentioned there is no income tax in TX and all pensions are not taxed either. This people is from a person living in MA. So if someone wants to find a lower cost of living income tax has to be part of the equation. If it isn't then I don't know what is.

 

[Grigori]

I've met people who sold their California homes and bought two homes in Austin / San Antonio, Texas. As you know, there are other areas cheaper than CAL as well. That was before the housing market bust. Assuming the California housing market comes back up, you might be able to pocket some change by doing something like that. That would give you more slack in your retirement portfolio.

However, it's a big personal lifestyle change.

I've lived in San Diego a couple of summers surfing, and it's a totally different and wonderful life if you can afford it. If you like the unique lifestyle (I did, but not the housing cost), you might choose to stay. If I had been more persistent / creative as some other posts suggested, I might have found a way to stay out there.

We are also thinking of moving at some point out of Houston, but will talk with DW about renting a couple of months first to see how much we actually like the new area. She is ready to move to Arizona next week, and I want to check it out first.

Good luck!

 

[scrabbler1]

You guys comparing after-tax income pre retirement with after-tax income post retirement?

In my first post about the 25% figure, I was comparing ER expenses to a hypothetical full-time income (before taxes, because I never actually filed an income tax return on an income I never achieved due to switching to part-time work hours years earlier).

 

[kramer]

I've lived in San Diego a couple of summers surfing, and it's a totally different and wonderful life if you can afford it. If you like the unique lifestyle (I did, but not the housing cost), you might choose to stay. If I had been more persistent / creative as some other posts suggested, I might have found a way to stay out there.

I used to live in that area and I used to think that. But the lifestyle is mostly ephemeral. The water probably averages a shivering 63 degrees over the year, peaking at around 70 degrees for a bit in the summer. Any land near the coast is outrageously priced *and* highly regulated by litigious cities and far-reaching laws. I think for the vast majority who live near the beach that doing beach stuff represents a vanishing small percentage of their time -- and forget bonfires or alcohol in most locations and be prepared to cover up for the cold and wind of the evening most of the year. Even the climate is better several miles inland if you enjoy actually seeing the sun. This is just my opinion, hope you don't mind I still go visit family there each year in the peak of summer.

 

[haha]

used to live in that area and I used to think that. But the lifestyle is mostly ephemeral. The water probably averages a shivering 63 degrees over the year, peaking at around 70 degrees for a bit in the summer. Any land near the coast is outrageously priced *and* highly regulated by litigious cities and far-reaching laws. I think for the vast majority who live near the beach that doing beach stuff represents a vanishing small percentage of their time -- and forget bonfires or alcohol in most locations and be prepared to cover up for the cold and wind of the evening most of the year. Even the climate is better several miles inland if you enjoy actually seeing the sun. This is just my opinion, hope you don't mind I still go visit family there each year in the peak of summer.

I lived in Venice Beach for several years, and swam all year around without a wetsuit. Less often November through mid March. In August during Santa Ana winds the water in Santa Monica Bay got up over 70, and although it felt good almost like East Coast summer water temp, it was full of jelly fish that stung the hell out of you. I remember some days going down to Huntington Beach when it was almost too cold-not quite in the 60s. Anyway, I went close to every day in the 6 warm months to swim, and year round I walked my dog and recreated daily on the Boardwalk. Most people who lived within 2 or 3 blocks of the beach lived the same way, though maybe not as much swimming as I. The Boardwalk was a village unto itself. By far the best place I ever lived. I believe that Santa Monica Bay is warmer than farther south. Even old people sunned at Venice Beach in winter. There was a low concrete wall jutting out into the sand facing more or less south, near the shuffle board area almost to the Santa Monica Pier, and it was really nice and warm and sunny there most days with the heat being cought by the wall.

This said, there are lots of beaches in the SE too. IF I were thinking of moving down there, I would go to the central Florida Atlantic Coast, south of CaPe Kennedy, and locate within a few blocks of a fishing pier. This can make a really fun, low cost retirement lifestyle, and supply some good food too. If someone likes the ocean, really try to avoid the "only one mile to the beach" kind of thing. One mile to a beach is mostly useless. The road will be clogged with cars, the parking will be crowded and mostly you will stay home and watch tv or cut grass.

Ha

 

[ERD50]

Originally Posted by GolfingDuo
I don't want anyone to think that I am disagreeing with the idea. I just think it is impractical as a physical tool to do that. On the flip side all the planning and calculating in the world will not account for everything either and will not be always 100% or 0% or anything in between.

...
And it beats picking a % out of thin air, or even someone else's actual %.

If you have another suggestion that would help the OP, I am sure it would be welcome.

Reminds me of being back at work, 'I don't have any better ideas of my own, but I'd like to criticize yours anyway...'

I thought GolfingDuo was quite clear, you don't pick a number out of the air or go with someone else's number - he was saying you can calculate and estimate to a pretty good degree.

But I also wanted to point out, having a better idea really isn't a prerequisite for a critical review. Illustrative example:

You are cooking with someone and a grease fire flares up. Other person grabs a pot of water to throw at it. Now, maybe you haven't figured out the best way to put out this fire yet, you're still reacting and looking around for a pot lid big enough to smother it, or a fire extinguisher. But that's no reason not to yell and stop the other person from throwing water on it, which will just spread the fire. Yes, sometimes we recognize a bad idea, even if we don;t have a better one. Plain logic.

Though neither apply to this discussion - your idea isn't 'bad', it just isn't practical for many, and it still involves estimates/projections. And others offered up other ideas. That's all.

-ERD50

 

[Midpack]

I thought GolfingDuo was quite clear, you don't pick a number out of the air...

Just wondering if you were planning to quote and comment on the exact same message a third time, or is twice enough? #36 & #62

 

[Swamp Fox]

I think you could do it if you moved abroad.

 

[Katsmeow]

I calculate it would take 140K a year to continue current lifestyle in California (Excludes current savings rate and lower tax bill and lower charity $ upon retirement, so 90K would still be a significant reduction from that. My hope is we could have a scaled down, yet comfortable lifestyle in the Southeast US for 90K. All I was really looking for are any examples where someone actually retired with that much of an income step down.

OK to be clear. When DH and I were working our combined income was about 300k per year the last few years, the last year or so about $320k. Our estimated expenses for this year (one child currently in college and one child in high school) is about $110k. We could cut this if we really wanted to. DH had a pension which he took as a lump sum at retirement. I still work part-time (last year I made about $87k). DH receives SS.

Once we no longer have the kids at home and I am not working and we no longer have some current expenses that we won't have then, I expect that our expenses will be about $70k to $75k a year. That is not a bare bones budget at all and is what we would like to spend.

 

[Katsmeow]

I think you could do it if you moved abroad.

He says he will have $90k a year in retirement. Why would he need to move abroad? Lots of people in the US live quite happily on less than $90k a year.

Whether he can or not depends on what he wants to spend. I know that for us in determining our retirement budget I have looked at what we want to spend and whether I was happy with that number. That is going to be individual to the person.

 

[Corporateburnout]

OK to be clear. When DH and I were working our combined income was about 300k per year the last few years, the last year or so about $320k. Our estimated expenses for this year (one child currently in college and one child in high school) is about $110k. We could cut this if we really wanted to. DH had a pension which he took as a lump sum at retirement. I still work part-time (last year I made about $87k). DH receives SS.

Once we no longer have the kids at home and I am not working and we no longer have some current expenses that we won't have then, I expect that our expenses will be about $70k to $75k a year. That is not a bare bones budget at all and is what we would like to spend.

Our combined income when we both worked was over $250k. DW no longer works and our retirement budget when I retire next year is around $75K. Not quite 25% of combined income but pretty comfortable and we live in an expensive area of the country.

With no mortgage, no debt, no IRA contributions and lower taxes in retirement it's quite doable.

 

[ERD50]

Just wondering if you were planning to quote and comment on the exact same message a third time, or is twice enough? #36 & #62

Yes, I think you just 'inspired' me to! I'll let it age a day or two first, for effect.

I was just trying to emphasize that last remark (should I quote it? ) about not critiquing if one doesn't have a better suggestion. I ended up re-hashing a bit in the process to get there. So sue me, I'll soon have hundreds of thousands in opportunity cost that obgyn is going to send me!

-ERD50

 

[ERD50]

He says he will have $90k a year in retirement. Why would he need to move abroad? Lots of people in the US live quite happily on less than $90k a year.

Whether he can or not depends on what he wants to spend. I know that for us in determining our retirement budget I have looked at what we want to spend and whether I was happy with that number. That is going to be individual to the person.

Yes, once he got to actual numbers, it appears to no longer be a case of 'can', but 'want'. Unless there are some unusual expenses that he didn't mention, $90K isn't a question of 'will I have enough to eat', but it might not mean lots of expensive vacations, etc. It's a personal thing, OP will need to evaluate it.

-ERD50

 

[daylatedollarshort]

Shanky, 90K is almost double the median income in the U.S. With the affordable health care act for health care, I don't see how you could not retire on that amount of money if you really wanted to. Only you can decide how much you dislike your job versus the extra money it provides.

If you have not read it yet, the book Your Money or Your Life is a good read on that topic.

Also, here is an article you may find helpful.. At 90K you should be good to go! - People say money doesn't buy happiness. Except, according to a new study from Princeton University's Woodrow Wilson School, it sort of does — up to about $75,000 a year. The lower a person's annual income falls below that benchmark, the unhappier he or she feels. But no matter how much more than $75,000 people make, they don't report any greater degree of happiness.

Read more: http://www.time.com/time/magazine/article/0,9171,2019628,00.html#ixzz2NCUem8gc
​

 

[Swamp Fox]

Okay, I see now that the 25% equals about 90k. Not many folks have that much to live on in retirement. Thus, my comment about moving abroad. If your 25% equalled about 35k, that might be an option to consider.

 

[daylatedollarshort]

Here is another article on simplifying your life that may help you make your decision on how much income you really need to be happy versus spending time at a job you dislike - http://www.nytimes.com/2013/03/10/o...ith-less-a-lot-less.html?pagewanted=1&_r=1&hp

 

[Lagniappe]

I was able to ER, like many on this board, on less than 25% of my pre-retirement income. I was living on 25% before I retired. By giving up California and moving to a lower cost area,I now spend more like 15% of my former income. A few things are more than I had hoped but still less than CA - I didn't save as much on property taxes as I had hoped, and I spend a lot more on electricity now that I need air conditioning for a large part of the year. But high quality food at nice restaurants is substantially less expensive. I don't pay for parking anymore, when it was commonplace to pay $20 or more to valet park my car for dinner in SF. Gas costs less. Gyms cost less. Personal services, like hair and nails and massages cost less.

I don't think you can reduce your costs by 35% realistically without changing your standard of living. But you may find it less challenging than many are suggesting to have a very fulfilling life on $90K a year in an area you like quite a bit, especially if part of that $140K current spending is for a mortgage.

 

[Midpack]

I was just trying to emphasize that last remark (should I quote it? ) about not critiquing if one doesn't have a better suggestion.

You mean this one? After being told 3-4 times an idea that many people have used and supported just couldn't work...without an alternative.

Reminds me of being back at work, 'I don't have any better ideas of my own, but I'd like to criticize yours anyway...'

 

[EvrClrx311]

Certainly an eye catcher... fwiw, I guess I currently live on just 35.1% of what I make.

W2 reporting for 2012 = $154,000
Mortgage = $26,424
Retirement = $39,270 (employer does most of that, which is how I get over the max)
Taxes = $22,176
Savings = $12,000

Assuming the mortgage is gone by the time I retire, I suppose you could say that I live on just $54,130 (which is $154,000 - $26,424 - $39,270 - $22,176 - $12,000) or only about 35.1% of my current income.

$90,000 a year will probably be comfortable for you, even in California, as long as the house is paid for. If it is not, maybe accelerate payments and set your retirement date for when you no longer have that expense.