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Transition from higher income while working to moderate income in retirement
Old 12-28-2017, 07:12 AM   #1
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Transition from higher income while working to moderate income in retirement

Curious if folks have experienced the scenario below and how it has gone.

My wife and I (now 53 years old) started out of college with nothing. We have worked and saved hard for 30 years (wife retired 5 years ago and kids are out and on their own). We have always lived below our means. For the first 20 years of our careers we had moderate income levels. But over the last 10 years things have gone really well and we have been fortunate enough to have a high income level (5 times what we were making at age 40).

Over these last 10 years we maintained a moderate lifestyle, but were less careful with our budget as we were in much more demanding jobs and spent more on conveniences (out to eat more, maid come in to clean the house once a month, stay in nicer hotels, perhaps did not shop to chase down the absolute cheapest price on things, etc)

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.
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Old 12-28-2017, 07:22 AM   #2
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Yes... lifestyle change were minimal as in our case our spending didn't change much but income did... one thing is you have much more free time to shop for bargains.... a bit of a sport. You'll find a lot on these boards on cost saving tips people use to get good value our of their spending.
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Old 12-28-2017, 07:29 AM   #3
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Sure. For the last decade of work we were saving at a very high rate so that left us spending at a moderate rate. Plus we had all the expenses that accompany those earlier years. Now, retired, we continue spending at the moderate rate we adopted while working but without a few significant expenses (tuition, mortgages,top tier tax).
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Old 12-28-2017, 07:39 AM   #4
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I'm at about 40% of my pre-RE income.

After 1.5 years I'm more or less on budget, despite some unexpected big-ticket expenses. By "on budget" I mean I haven't had to dip into my contingency savings, knock wood.

I know a lot of people who get by just fine on less. I know some who would be appalled at trying to survive on my income. A lot depends on what you're used to. I don't mind (and in fact, enjoy) doing a lot of my own maintenance. But I'd never settle for an inside cabin on a cruise ship.

Like you, I made a conscious effort to live at my projected RE income level before I actually retired. It really didn't take any effort; it was more a realization that my savings balance was increasing by an amount about equal to the difference between my pre- and post-retirement income. I just had to prove to myself I could sustain it.

If you're used to living below your means, and keeping an eye on expenses, you'll be fine.
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Old 12-28-2017, 07:51 AM   #5
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I was concerned with that too but after 5+ years of retirement I don't think much about it anymore. We really never changed from our pre-retirement lifestyles and now find that we have more NW than we did on retirement day and that's not due to stock market gains. A lot of worry about nothing, for us.
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Old 12-28-2017, 07:53 AM   #6
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As long as you can maintain your desired standard of living, you'll be fine. And that seems to be the case. Your extra spending at present as you said is mostly for convenience while working, and when you FIRE and have more free time, those expenses will be reduced.
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Old 12-28-2017, 08:13 AM   #7
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During the last few years of working my income was very high but our spending stayed much more constant. Saved about 60-70% of income but this was mostly incentive comp awards (options and DSU’s). Once retired, at 56, spending increased somewhat, but it would have been easy to stay at old spending level.

As long as you are confident that the spending in retirement is adequate, carry on. If you are not sure, a little cushion achieved through working a couple more years might be wise. I ended up having more than I thought I needed, but had no trouble utilizing such and was glad to have it. Depends on how you feel towards your job and whether you could reasonably use a little more once retired.
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Old 12-28-2017, 09:14 AM   #8
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I think mental accounting is key.

For the LBYM person who is already saving most of your income, expenses during the w*rking years will not be radically different from expenses during retirement. Focus on expenses rather than income.

For a number of years during my w*rking life, I had a salary of $40K to $50K, plus other income of $XXX. That provided a useful discipline, because I lived on the $40-50K and saved the $XXX (both after taxes). In preparation for ER, I documented and categorized all my expenses for two years. I then developed a budget for ER. What do you know: it came out to ~$50K! That represented a SWR. So when ER started I was quite comfortable spending normally as outlined in my budget. Meanwhile, my taxable income remains above $100K because of investments. Income is just a number. The really important number is how much I spend, which was modest then and is modest now.
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Old 12-28-2017, 09:31 AM   #9
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When I was putting my ER plan together in 2007-2008 (leading up to my 2008 ER), one condition was that my general, day-to-day lifestyle would not change. If I needed to splurge once in a while, I could do so without worrying about where the money would come from. Implementing this condition meant that I would build in a cushion, or surplus, into my budgeting to that any rare splurge would come out of the cushion.


It was more of a coincidence, but the last 17 months I worked I had reduced my wage income to be about what my monthly investment income would be in ER. This more or less got me used to having a monthly income inflow matching what it would be after I ERed. I had to do a little more long-term budgeting. That is, I had to carry forward extra accumulated surpluses a few months to cover the larger, lumpier expenses such as estimated income taxes and car insurance.


I have been doing this for the last 9 years and it has gone very smoothly.
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Old 12-28-2017, 09:42 AM   #10
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In my case, the total of our SS and pensions was more than my take home pay from Megacorp. Also moving out of LA county helped.
My DW was able to move her property tax exemption to our new home, decreasing our tax from over 2K to less than 1K.
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Old 12-28-2017, 10:21 AM   #11
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Sort of, I guess. Our big transaction to lower spending was by downsizing. This had benefits beyond lower cost and lower property taxes. We also lowered associated costs of house cleaner, landscaper, utilities, and maintenance (from huge 100 yo home to 5 yo old home that is 1/3 the size on lot that is maybe 1/8 the size). We now spend almost the same overall but much more of it goes for.
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Old 12-28-2017, 10:51 AM   #12
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My spending went down in retirement, in good part because my big ticket spending was used to offset stress. Taxes also plummeted, drive less, wear fewer, less expensive clothes and have all day to shop for bargains if I choose.
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Old 12-28-2017, 11:37 AM   #13
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Our baseline spending is 25% of our former gross income and we live better now, especially the part about not having to work and commute 100+ hours a week between us every week. I get a kick out of bargain hunting, optimizing expenses and trying to get our long term withdrawal rate to zero.
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Old 12-28-2017, 11:53 AM   #14
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My problem wasn't about living the same lifestyle, that was set and expenses were as expected. The problem is more free time means more time to explore new things and it only takes one or two new hobbies to run up the bills.

Hiking is "free" they tell you, sure other than shoes, backpack, etc oh and injuries requiring physical therapy.

Volunteering, that is free too right? but then they suck you in and your donating money and time, now I'm spending $150/month on rescuing cats.

Its the "fill the void" part that caught me off guard.
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Old 12-28-2017, 11:59 AM   #15
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We've had the opposite occur, that is going from moderate income to higher income in RE. This was due to a significant inheritance which prompted the RE, but as I've posted in other threads, going this way can be just as difficult as the other. Old spending habits die hard. But I'm very grateful for this problem.
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Old 12-28-2017, 12:01 PM   #16
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During my highest income years, I was living on less than 25% of my salary and saving the rest for retirement. (This is what happens after a financially disastrous divorce at age 50.) In the 10-11 years between my divorce and retirement, I knocked myself out trying to get back on track financially. I maxed out the TSP and Roth, and also saved more than both of those combined in my taxable investments, saved up a hefty down payment and bought a house which I paid off in four years, set aside enough for a new SUV as soon as I retired, blah blah blah.

In order to do these things, I pretty much lived like a student. I never got to spend that high salary so I don't miss it. Even though my AGI is lower in retirement than before, I can spend more now than when I was working. I don't have to start over, pay off old debts, or save for retirement any more.
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Old 12-28-2017, 12:13 PM   #17
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Originally Posted by karen1972 View Post
My problem wasn't about living the same lifestyle, that was set and expenses were as expected. The problem is more free time means more time to explore new things and it only takes one or two new hobbies to run up the bills.

Hiking is "free" they tell you, sure other than shoes, backpack, etc oh and injuries requiring physical therapy.

Volunteering, that is free too right? but then they suck you in and your donating money and time, now I'm spending $150/month on rescuing cats.

Its the "fill the void" part that caught me off guard.
I hear you. I decided I could have one expensive hobby (Golf) so I built that into my budget. My other hobbies are frugal: cooking (I have bought a few kitchen gadgets, but I eat out less frequently, there is less waste, and I eat much better), and reading (I’m in two book clubs. Most of the books I read are available electronically from the library). I volunteer my time on the HOA and have made new friends as a result. I’m also contributing to keeping our community thriving and our investment growing. I have steered clear of any volunteer opportunities that would require donations.
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Old 12-28-2017, 12:18 PM   #18
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I’d imagine a big part is mental - I’m giving up this $$$ job to live in substantially less (queue OMY thought processes). I only consider income when comparing myself to others but it does not drive my budget. I set our budget around 30% of gross and frequently have 10% monthly overages (believe my SO dips into her savings for lots of discretionary ‘needs’). While I will face retire vs increased assets question at some point - the last 2 weeks of vacation around the house really had me thinking that I’d prefer less Work to more money
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Old 12-28-2017, 12:22 PM   #19
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My goal has always been to enjoy an equal or better lifestyle after retirement (financially speaking). So the plan, which is now 18 months from fruition, is that pension+social security+4% draw on portfolio = current gross income from employment. Net spendable income after retirement will then be substantially higher than our current net income, and over two times our current spending.
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Old 12-28-2017, 12:43 PM   #20
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Over the course of our careers our income went up 10x (with a big jump halfway through), but our overall expenses (after tax) remained pretty much the same throughout. There was a brief uptick in expenses when we moved to a higher cost of living area for work (due mostly to the elevated cost of housing) but it is back to our usual now that we left that area.

We retired on a much, much smaller income than we had right before retirement (less than 1/10th in fact), but our lifestyle has not changed much at all.
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