Transition from higher income while working to moderate income in retirement

[jollystomper]

We have always saved first and are ready to take the jump and retire in 2018. Over the last 6 months we have worked to start living within our expected retirement budget (going ok. Kind of hard to fully replicate retirement life while working in high pressure job).

My real question is. Have others made this transition from high income while working to more moderate income in retirement and how has it gone?

Thanks for any thoughts on your experiences.

We have done exactly this - periodically (once a quarter) up until 2016, and all this year we lived on on our targeted retirement income.

The results were very encouraging and confirmed we should not have any issues in retirement. I structured my paycheck as if it were my after-tax pension check, and put our expected SWR into an account and just used those two sources to pay our expenses. There is about half the SWR money left. Of course it wasn't totally accurate since our health premiums will go up, but even accounting for that we would still have SWR money left over.

 

[Teacher Terry]

WE live on half of what we made. We actually are spending more $ on going out to events, etc because we are not tired all the time. We spend about 10k/year on vacations that comes from our savings. I teach an online uni class all 3 semesters and love it. I can do it from anywhere.

 

[Senator]

Once you retire, expenses such as FICA, 401K, Mortgage, etc. should no longer be a drain on your budget. Taxes are much lower too.

You will need less to live. My spending went up.

 

[FireFool]

Only a year and a half into retirement, but after the first year I've learned to loosen up a bit in our spending. First year we were basically spending at the same rate as when we worked, with the exception of the added expense of un-subsidized health insurance. What I've learned this past year is that we just won't be able to spend all of our money, without changing to extravagant and careless spending. Because it's not in our nature to be extravagant or careless with money we'll likely leave a sizable estate. With that in mind what I've come to accept is we can partake in luxuries a bit more that we formerly didn't. Examples being economy plus seats on our international flights (we still can't see the merit of 1st class being worth the cost differential) and plow service for our drive this winter. I've also decided to be more generous to my adult children now, when they can really benefit from the money, instead of making them wait for a windfall when they themselves will likely be in their 60's or 70's.

So in our retirement we're spending a bit more, but that's more than o.k. because we worked hard to be able to do so. I also rationalize that as we get older travel will become harder and naturally decrease our expenses. In the meantime we're doing our best to live life to it's fullest.

 

[Danmar]

. What I've learned this past year is that we just won't be able to spend all of our money, without changing to extravagant and careless spending.

I've also decided to be more generous to my adult children now, when they can really benefit from the money, instead of making them wait for a windfall when they themselves will likely be in their 60's or 70's.

So in our retirement we're spending a bit more, but that's more than o.k. because we worked hard to be able to do so. I also rationalize that as we get older travel will become harder and naturally decrease our expenses. In the meantime we're doing our best to live life to it's fullest.

This reflects my view as well as our situation. Perhaps it’s a little easier for us to up the spend than you. You may find you get more comfortable with a higher spend as your portfolio continues to (hopefully) grow. Great problem to have, eh?

 

[scrabbler1]

Once you retire, expenses such as FICA, 401K, Mortgage, etc. should no longer be a drain on your budget. Taxes are much lower too.

You will need less to live. My spending went up.

When I was putting together my ER plan, I saw that the elimination of FICA and commutation expenses were roughly canceled out by an increase in health insurance costs The rest of my expenses were roughly unchanged, including income taxes because my income was so low in the last 17 months of working part-time.

 

[Teacher Terry]

The cost of my HI went up 5x's and that was still with the state retiree insurance from my employer. We helped our kids in their 20's when they really needed it. My parents and inlaws did the same for us.

 

[kcowan]

Focus on expenses rather than income.

Our expenses stayed the same but the mix shifted. Our spend was about 1/3 of our income. Now it is about half after 15 years of retirement.

 

[daylatedollarshort]

We have always saved first and are ready to take the jump and retire in 2018. Over the last 6 months we have worked to start living within our expected retirement budget (going ok. Kind of hard to fully replicate retirement life while working in high pressure job).

My real question is. Have others made this transition from high income while working to more moderate income in retirement and how has it gone?

If I'd known how much we could lower our expenses and keep the same or better lifestyle, I would have retired ten years sooner than we did. But it is kind of a catch-22 because until we retired we didn't have the free time to work on analyzing and optimizing our expenses like we do now.

 

[mamadogmamacat]

In nearly two years of ER I have not spent much effort yet in optimizing spending, but it is something i plan to do eventually. having too much fun right now. Some expenses went up and others down, the total is right about at what was expected. I did think it would bother me some mentally to have an AGI less than half what it was while working. Turns out it did not bother me at all. my focus is solely on enjoying the satisfaction of the tax free cap gains and QD portion of my income. ER is a whole different mindset than before ER, and you really cant fully appreciate that until you are in it. IMHO

 

[NW-Bound]

Have others made this transition from high income while working to more moderate income in retirement and how has it gone?

Quite well.

The simple reason is that our expenses are now way down. College cost going away is a big item, but other expenses are also down perhaps due to a more relaxed lifestyle.

I did not track my expenses until 7 years ago, so did not have a long record of pre-retirement expenses to compare. Travel expenses may be up some, but that's still not as much other stuff that went away. Just a bit here and there, and the reductions add up although I cannot put a finger on it.

This year, we spent 1/2 of what FIRECalc says what we can spend. And what we can spend is much less than our income when working.

 

[RockyMtn]

Eight years ago I retired from a very high income position at MegaCorp. I had a difficult time at first moving from the accumulation phase to the spending phase. Fortunately I had a five year consulting gig with former employer (more of a non compete) that covered our yearly living expenses and then some. Still, it was hard not seeing that large monthly paycheck, year end bonus, car allowance and stock options show up in my accounts.

A couple of years ago the consulting agreement ended (still do a little here and there if it interests me). I took my pension from MegaCorp and began taking dividends as cash as opposed to always reinvesting them. That is what we live off now. Have another small pension at 65 and then two SS checks sometime after that.

Fortunately the stock market run up has left our net worth about double what it was when I retired. There is no way we could spend everything we have amassed on ourselves so we have started in the last couple of years to substantially loosen up the purse strings. Money to GF's five grand kids 529's. Some money to my snowboard/ski instructor kid to help with some minimal expenses and to fund his Roth so that he learns about investing. Rest goes to our DAF that we dole out to our favorite causes. Don't know what else we would spend on. If we need or want something we buy it. We live very comfortably and lack for nothing.

I was doing some tax planning for 2018 and realized that we spend in a year about what I took home in pay in a month (salary, bonus, car, stock/12) at the end of my career.

So my advice to the OP is to ease into things. It is not unusual to have a hard time going from accumulation to spend down. It is in our nature to be hesitant at this new phase of life. You'll get used to it and you'll figure it all out as you go. Enjoy your new life....I know we are.

 

[DrRoy]

This was our first year of RE. Our income was lower, but because we no longer have RE savings and the taxes were down, our spending was actually higher.

 

[Senator]

This was our first year of RE. Our income was lower, but because we no longer have RE savings and the taxes were down, our spending was actually higher.

That was my experience too. Assuming a person was maxing out the 401K ($24K) and recently paid off a mortgage, you can get by on less than $40K easier than working for $100K.

My scenario was something like this. Healthcare was the big unknown, and my healthcare turned out to be cheaper after I quit work. I did position myself solidly by assuming rental income would be half of what it was, and my expenses would be twice what they were.

Salary	$100,000.00
FICA/MCARE	($7,650.00)
401K	($24,000.00)
House Mortgage	($16,836.00)
Income Tax Savings	($12,000.00)
Total	$39,514.00

 

[candrew]

Our expenses stayed the same but the mix shifted.

+1

 

[Ready-4-ER-at-14]

We are doing a trial living on planned retirement income but not really budgeted.

We set aside in savings and checking what we thought we'd need for the year and then really pumped money from work income this year into Roth 403b with lots into HSA and transportation.
Idea was the pay check take home would be the amount that the budget planning says we would need and plan to take out.

We dipped into the extra by about 40k. We have to pay taxes on Roth conversion and the earnings that went into Roth along with several one time taxable income events.
That was probably about 20k of it. Upgraded cars 2x as one totaled. Probably 15k over expected there. About 5k for vacations not exactly planned but partly budgeted.

Next year will also have Roth conversions and possibly a daughters wedding. So may dip again. Know we will travel.

I suspect it will take us about another two years to settle into the basics with extras budget.