Tech Sales Professionals: Advice on gauging annual income and savings targets

[Cincyguy63]

*Caution: "First World Problem" here

I've been in the profession of sales for the past 32 years. The last 2 decades I've been working mostly in MegaCorp Software and a 4 year stint at an IPO that paid off. As I start to evaluate an exit strategy, I see many sites or calculators that ask to put in your current annual income as a starting point. As a software sales exec you could have incredibly large swings in income from 300k to well over 1M+ per year. Love to hear from anyone else out there about how they save/ and plan for retirement with these large swings. When I look around at peers my age I see all the trappings of these large income years (ie big house, cars, trips, boats etc). I've focused on reducing debt, paying down mortgage, funding 529's etc.

What income basis do you use? I've basically looked over my W-2's for the past 15 years and take out the lowest and highest income years and take the avg. Make sense?

I've also been more focused on expense and lifestyle monthly and annual costs by assessing Needs/ Wants/ Dreams and tracking everything in Mint.

Any other advice around planning for fixed income retirement while living your entire professional life on variable comp.

[DrRoy]

Quote:

Originally Posted by Cincyguy63 What income basis do you use? I've basically looked over my W-2's for the past 15 years and take out the lowest and highest income years and take the avg. Make sense?

That is what I would do. Also, you could run an estimate of what you will need for spending in RE, including taxes, medical, car replacement, and something for the unexpected, like the furnace goes out.

[Aerides]

Most of us here do not focus on Income as a starting point to defining our retirement needs. (because most of us are saving a far greater percentage than those defined by most other sites).

A lot of those places assume you'll need ~70% of your income in retirement. But most of us focused on ER were saving way way more than 30% to begin with.

Instead, (see firecalc) the focus is on real expenses. Bottom up vs. top down, to know what you'll need. For example, many here making say $300k per year had actual annual expenses - discretionary and non - of $100k, and so planned for a portfolio with a SWR around 3.5% that would reliably support that $100k (or whatever WR they prefer, but usually between 3-4% at the highest).

[flintnational]

When the DW and I were w*rking, we had a fixed budget that included our normal savings goals. Any income over that number also went into savings. We did not change our lifestyle in high income years. So, prior to FIRE, we reviewed the fixed budget from the prior years and made retirement adjustments (income was not a factor). Travel and entertainment went up and other categories including taxes and savings went down. This is the same budget we use today, 4.5 years into FIRE. Obviously when you are retired, spending is the only item that matters. IMO, you should track spending and use that number, adjusted for FIRE. If your current spending fluctuates with income, you will need to pick/build a budget for FIRE.

[COcheesehead]

Like others have said, base it on expenses, not income. Any retirement income over expenses in a given year will get rolled or just added to the travel budget.

[brett]

I was in a similar situation in the IT industry. We lived on the lower end of our earnings. Saved the rest to pay off mortgages early, invest, etc. We lived well, travelled, but did not try to keep up with our neighbours or work associates. Helps not to be car proud etc.

We based our retirement targets/estimates on our desired lifestyle which included downsizing and frequent travel. We were overly conservative on the numbers, the inflation factor, and investment returns. It worked for us. We never have had budgets per see and still do not. The only number that concerns us is the annual after tax spend.

We spend and buy on value so the in between components tend to take care of themselves. So far, so good. After six years our assets have grown substantially. We were conservative but better that than the other. One thing though, where we live the cost of healthcare is not an issue. I reLize that this can be a large variable for some people.

[38Chevy454]

X2 on just focus on expenses, and when you have enough savings to meet that need, with a withdrawal rate at an acceptable risk for you, then you can be confident in ability to retire. Budget understanding is needed, i assume you have a good idea of your expected expenses, both fixed and discretionary.

[dcoy]

I am in tech sales as well. I focus on my monthly and annual expenses and not so much on the inputs as they vary too much. Sounds like you do this too. Expenses are understood, so during those big pay off years i simply bank it away.

[HarveyS]

Once upon a time I was a high earner with wide variability. Like others said, you need to focus on expense, not earnings. Expense is the lifestyle, not income. Like you, we kept our lifestyle in check regardless of the income. Since most people spend everything they make, most plans look at income. That is also a number most people have.

If I were you I'd go back 5 or 7 years and see what you really spent each year. Hopefully it will be fairly flat - indicating you did keep lifestyle in check. If it varies by more than 20-25% year-to-year you need to re-assess that belief. Personally, I look at my bank and brokerage statements and track spending in big buckets - mortgage, utilities, credit card bills (paid in full each month), medical/dental/vision (that is outside of credit cards), ATM cash-out (me and DW), checks written (usually charity or gift), insurance, property tax, income tax payments, ..., you get the idea. Car and/or house maintenance is usually a credit card charge or check written. 401(k) contributions are not included. My kids 529's are funded, so I don't worry about that either. Once you know what you spent, and if you are happy with that lifestyle, that tells you what you need each year. If you feel you are spending too much, then the hard work of looking deeper into what each utility bill was, what each credit card charge was, etc. has to happen.

Looking forward, add some extra $$ for health insurance as well as medical/dental/vision co-pay as that goes up with age. Then you need to think about a replacement car, big ticket house item (roof, HVAC), wedding, etc. that might be in your future.