How's your life going at 33%

[Roger Rouch]

I am new to this forum and excited to find the tools and discussions here. I have been calculating and speculating on ER for some time and subscribe to a simple living philosophy.

Of interest to me was the FIRE calculator and the 4% safe withdrawal. Running the calculator, I find that I am at the 95% success rate to earn 30%-40% of my current income, which ends up being about $20K to $30K per year depending on the figures I use.

I am single and aged 52. I have to say that at first or second glance planning 30 years of income based on historical averages is a little scary, but I think I am getting in the ballpark of reaching my annual spending income from my savings and investments. A few more years in the work place would make things a little more comfortable, but my work is stressful and less than pleasant. I probably would like to play around with part-time or seasonal employment for a while.

I am wondering how those who are now living on their 33% or so pre-retirement income are living and how minimal things get to be. I have thought through some of the health insurance issues - I will have to provide my own. But how do you think about, say, re-roofing the house, buying the new (used) car, or a knee replacement with moderate deductable insurance? Are you able to travel as you would like and can you entertain friends without embarrassment? Do you buy books or use the library? I guess generally how is you lifestyle and what are your worries about the future and unexpected expense.

I would sure like to hear about your experiences and thoughts, though I know I’ve asked a lot of questions. I’ve worked hard and lived frugally to get to this point, and it’s a bit hard to figure how things might without these things. Much thanks - certain it will help!

 

[sgeeeee]

R^2,

It is probably best to work out a specific budget rather than use a 33% rule-of-thumb figure for your living expenses. For some people, 33% is too large and for others, too small.

Start by itemizing where all of your current income goes for a year. Then modify each item for your situation in retirement. Items like investment go away. taxes go down significantly. Medical expenses go up. Clothing goes down. etc.

You do have to figure in items that may not occur every year. You may plan on buying a new car every several years, roofing your house every 18 years, buying a new computer every 5 years, a new major appliance every 4 years, . . . These costs need to be averaged and included in your retirement budget.

This exercise will give you a target withdrawal rate to use in your FIRECALC simulations.

Here's a strawman budget item list for you to work from if it helps:
Income: In Retirement
Salary/Wages Reduced
Commissions/Bonus Reduced
Interest/Dividends Same
Business/Partnership income Same
Pensions Increased
Social Security Increased
Trust distributions n/a
Alimony/Child support n/a
Sale of assets n/a
Gifts Same
Tax refunds Reduced
Other income ??
Total Income REDUCED
Expenses:
Savings and investments Reduced
Housing:
Rent/mortgage Same
Heat/Light/Water Same
Telephone Same
Trash removal Same
Maintenance Reduced
Insurance Same
Real estate taxes Same
Improvements Reduced
Automobile:
Loan payment n/a
Insurance Same
Gas and oil Increased
Maintenance Increased
Commuting costs Reduced
Laundry and cleaning Reduced
Clothing purchases Reduced
Furniture Same
Medical/dental care and insurance Increased
Entertainment Increased
Dining out/Take home food Reduced
Groceries Increased
Personal care Same
Business/Professional expenses and allowances Reduced
Child care expenses and allowances n/a
Tuition/Educational expenses n/a
Child support and alimony n/a
Gifts Same
Donations to church and charity Same
Life/Disability/Other insurance Increased
Loan payments Same
Credit card payments Same
Income taxes Reduced
Social Security taxes Reduced
Miscellaneous out-of-pocket expenses Reduced
Other (list): ??
Total Expenses

 

[dory36]

Roger,

SalaryGuru's list should be really helpful.

By the way - about that 33%...

One big component of the 33%number that I posted a while back was an assumption that while working, we're often making mortgage, auto, credit card, etc. payments, and that when the paycheck stops, many of us would no longer have those debts - either because we timed our ER and debt payoffs to happen at roughly the same time, or because it just seemed prudent to take $xxx out of the (+3-5% interest earning) fixed income portion of our portfolio to eliminate the (5-15% interest paying) fixed outflow portion of our spending.

Some have differed with that opinion/suggestion, preferring to keep debt and use the funds they would have used to pay that debt off for investing in higher potential return stocks. That's a matter of risk tolerance and investment aggressiveness that no one can decide for you.

Good luck!

Dory36

 

[Roger_R]

Thanks for your suggestions. At the time of my retirement I will indeed be debt free, and I've gone through my estimated budgets backwards and forwards. And coincidentally works out to about 33%. I guess what I'm wondering is how pre-planning and reality have met and if things are working to allow you the life you expected. And if you are comfortable with things with out being too minimal or stressing over money.

There are some things that I thought were a little hard to figure. I'm planning a $1000 annual pool for a car fund that will either be used for repairs or accumulate to eventually replace. and also a $1000 home fund per year to do repairs. Then, a roof replacement could rain on the parade if it happened the year after a furnace replacement. I would suppose a medical pool might also be good. And so on.

Even though the numbers seem to work, once the plan is reality, it is a big leap.

 

[John Galt]

I was reading a magazine (Kiplingers Personal Finance??) yesterday which included the "experts"
giving us the old 70-80% needed of pre-retirement
income. We are way under Dory's 33% and doing just
fine. Eleven years ERed in 2004

John Galt

 

[unclemick]

2004 will be our 11th yr in ER. Also well under 33%. Since we peaked in 92 at 100k - percents and dollars are equal.

93-12k
94-16
95-36k(remodeled)
96-18k
97-16k
98-22k
99-17k
00-47k(remodeled)
01-21k
02-23k
03-26k

Getting more extravagent in our old age - three (me,her,widowed mom).
Roughly - all in expenses including travel.

 

[unclemick]

BTY- Looking back, we indulged in overkill on frugal. In 04, we plan to 'uplift' our spending to the 30-50k range.

 

[Roger_R]

Unclemick, That is darned encouraging for three people. I'm also impressed that you have tracked things. Something I could get better at. When you say more extravagent, I'd be curious, if you don't mind saying, what sort of expenses these might be for, and how you might have felt restrained on things in your frugal years? Thank you for the interesting figures in your post.

 

[Nords]

Re:  We're a little above that, but...

Roger_R,

We haven't felt restrained at all. Frugality isn't about deprivation or want, it's about matching your "wants" to your goals. I "want" to live in a beach house so that I can to surf in 5 seconds instead of in 25 minutes, but I'd NEED to go back to work to support that habit. I won't do that, but I won't live a life of deprivation either. No one would go on a 1000 calorie/day diet (deprivation) but most people would probably stop eating three daily bowls of ice cream when they realized what the consequences would be. Once you know what you enjoy doing, then the challenge is to figure out ways to do the same thing for less money. After a while you'll find yourself doing the things that truly matter to you and spending less time on the material frivolities.

You're already tracking your expenses and projecting a budget that zeroes out the stuff you'll clearly do without-- for example, dry cleaning and business meals. You can butcher your own hogs if it's something you enjoy, but otherwise I'd keep buying pork chops-- now that you have the time to look for a good deal, you just might buy them in bulk or on sale. I guess you don't have to wait for ER to pick up those frugal habits-- you can pick them up now at the Dollar Stretcher now (http://www.stretcher.com).

Your instincts are sound. 12 years of persistent (obsessive?) Quicken data tells us that buying used cars and having average repair bills of $100/car/month will keep them on the road for 7-10 years (but I don't do winter weather). We've never paid more than $8000 for a used car so it's pretty easy to set aside the savings between car purchases. And in ER you can schedule your trips more intelligently, go out less frequently, or just walk. When it's your time it becomes your choice. You'll have the time to find a much better car deal, too.

A new roof, a new furnace, a new joint, a fantasy vacation-- it all has to be part of the retirement budgeting process. If you can't estimate it now, you'll probably wish you had. It's nice if you can defer an expense for a year or two, but only if the delay doesn't become even more costly. (And only if you don't have to go back to work to pay for a new roof.)

One approach you may prefer is Bud Hebeler's "Analyze Now!" website at, well, http://www.analyzenow.com. His book (at your local library) also goes into great detail on planning for those capital expenditures.

Another website for the truly anal-retentive amateur financial planner (I count myself in that august group) is http://www.financialengines.com. Chugging through their process will make you question assumptions and review everything you've taken for granted. It's tedious but you will be filled with righteous self-confidence.

As for "extravagant", it's mostly entertainment but it's also the things that are important to us. I read voraciously and I'm my library's #1 customer. I'll still buy the occasional investing book from Amazon but eBay is usually cheaper. I went out and bought myself a longboard-- and paid full retail!-- but it's paid for itself many times over teaching the kid to surf. We bought a couple cheap VCRs at a local pawnshop so that spouse can record the favorite shows and keep up with the TV habit. I'm looking into replacing our cable TV/RoadRunner system with a broadcast antenna in the attic, a satellite dish on the roof, and DSL. I'm just waiting for the price wars to get really ugly before I swoop in for a killer deal. We've overhauled the diving gear; spouse had the chance to go diving in Truk with a friend and we'd like to do a live-aboard someday (~$5000). We're vacationing in Vegas next month. Our kid has a chance to go to a school field trip to Space Camp (Huntsville, AL)-- that was paid for with fund-raising and a little out of the college fund (for our budding aerospace engineer). We're considering staking a friend's kid for a $1000 college tuition because she's worth it and we can do it. I've indulged my home-improvement hobby by putting in a new water heater & water conditioner and remodeling the master bathroom. In the next five years we WILL learn how to replace a livingroom window with french doors and re-pour the back lanai. (Thank goodness for Home Depot's shop courses.) And in 10 years we'll probably need a new roof, but I'm watching it like a hawk. When we do the roof we'll also capitalize a radiant-insulation upgrade and perhaps a couple hundred square feet of photovoltaic cells.

Another way to budget for the unexpected is to plan to put aside 10% each year for savings and $2000 for "fun money". After a couple years you'll know what percentages/numbers to use. It's better to be very conservative on the first few years' expenses, or to ease into it by working part-time.

"Entertain friends without embarrassment". Um, if you're retired and they're not, who should be embarrassed? Do you care to have friends like that if you feel embarrassed?

So planning the basics is straightforward. Planning for surprises will take some time & effort. Brainstorming ways to make everything more cost-effective will probably take your first year or two of ER... but it's well worth it.

-- Nords
Nords_Nords@Hotmail.com

 

[unclemick]

Roger_R

I should have prefaced my post with DON'T EVER DO THIS! In 1993, I was layed off from work and looking for a job - the ER thought hadn't dawned yet. No detailed budget - but from my notebooks:

$ 1943 - Housing land lease/taxes
648 - Utilities/basic phone
1430 - Auto/car insurance
3120 - food
1480 - her car pool/ work lunches 480 - Mom's meds
______
$9101

The rest we spent on camping trips and other stuff. All maintenance/ depreciation was not accounted for - put off.

Did I mention INTJ and left handed. Here are some items some people might think fall into realm of overkill:

Turn off the electricity except for 2-3 hours a night. You can flush the toilet with lakewater. Don't buy food that requires the fridge. Line dry clothes. Use free wood (swamp ) in winter and no A/C in summer. Eat simple - red beans and rice type. Bunch all trips - ie drive no more than 1-2 days/week. 'Maypop' used tires from the junkyard, rebuilt batteries, no new clothes. No insurance of any kind except minimum vehicle.

Since she worked one more year and associated with 'normal people' , she gradually convinced me that I was carrying frugal to the extreme and for a start the hot water timer needed to come on more than one hour a night. Everything went down hill from there.

 

[cute fuzzy bunny]

What it comes down to is planning to reduce or eliminate large unexpected costs and replacing a lot of convenience with your own time and expertise. In some cases doing one or both is hard to do or impossible, but...

I avoided large surprise house expenses by purchasing a relatively new, well built home, with a stucco exterior and cement tile roof. Except for spraying paint on it once every 10-15 years and cleaning out the gutters, I'll have no exterior maintenance of any kind for 50-100 years. I'll have to replace the kitchen appliances in 20-25 years, a water heater in 20-25, and a furnace/AC unit in 25-30. Or more likely I'll sell the place in 20 years before I need to do the work and either buy another smaller newer one or move into a rental and pull the equity out to re-energize the cash stash.

Learn to fix stuff around the house yourself, do your own cleaning and yard maintenance.

Stop eating out. Learn to cook well. You can make better meals for pennies on the dollar. While you're at it, eat more healthy and more vegetarian. My fiancee and I just returned to our 90% vegetarian diet we were on up until 4 years ago. In 3 weeks I lost 8 pounds and she lost 5. We feel better. My grocery bill is half. This type of cooking requires looking around for interesting recipes and more preparation time, but time is what we have plenty of.

Stop buying expensive cars. Buy inexpensive, well made used cars. Learn to fix them yourself, at least maintenance and minor stuff.

Dress modestly with a simple wardrobe. I have a couple of "nice" outfits but the majority of my wardrobe is shorts, jeans, sweat shirts and tee shirts all bought from a warehouse club.

Develop inexpensive but entertaining hobbies. I rollerblade, mountain bike, kayak, take the dogs for walks and trips to the lake, etc. These dont take much money in the form of equipment and the gear once purchased lasts a long time.

Replace exotic weeklong vacations with a day or two trip to someplace interesting near you. This helps if you live in an interesting area. I live near san francisco, napa valley, lake tahoe, monterrey/santa cruz, etc. There are 1000 one and two day trips to interesting places that cost us $50 for gas and for a 2 day trip $50-100 for the motel room and some simple meals (although we pack a cooler with drinks, snacks and sandwiches). We bought a book on "fun places to take your dogs in california". Turns out most of these places are pretty fun for people as well.

Rent or borrow stuff you're going to watch/read/use once or twice. Buy stuff you'll use all the time, keep it in good condition and wear it out. My old new england grandpa had a saying "Use it up. Wear it out. Make it do. Or do without."

None of this qualifies as "hardship". Its simply getting off the 80's bigger/better/faster rollercoaster and finding whats really good.

There are plenty of "simplify your life" books out there you can borrow from the library. Half the stuff they suggest is a little overboard and dialing down the other half is prudent, but the gist is beneficial to your life and your wallet.

By the way, my pre ER income was mid six to low seven figures yearly. I ate 90% of my meals out, lived in a McMansion, had five expensive foreign cars, housekeepers, gardeners and handymen. The money ran like water.

I live in a very nice home now with one inexpensive SUV, eat 99% of my meals at home, and do my own work. Including annualizing expenses like replacement appliances, cars and whatnot, my annual out of pocket is under 30,000. Excluding the annualized expenses like appliances and cars, I'm in the vicinity of $24k per year.

I dont feel like I'm "missing out" on a thing...

 

[JOhn Galt]

Hello TH. My story is pretty much like yours, although
I can't fix anything more complex than a martini.
At one time, I could have saved/made a pile of money
(pre ER and post ER). While it would still be nice if I was
handy, I don't have the energy or inclination to do much
DIY stuff. Funny thing is that my father and my son
can repair/build about anything. The gene must have skipped a generation.

John Galt

 

[Bob_Smith]

...what are your worries about the future and unexpected expense.

Planning for expenses involves some thought and analysis. Example: household appliances. How does one plan for that? Here's what I've done:

I plan to allow about $52.00 per month for appliances. I know they'll wear out. I know I'll want to replace them, so I must account for them. These figures are based upon current prices for new appliances.

What about a car? We'll get by with one car. I found the price of a new Nissan Sentra 4 Door ($13,071 + 5% tax = $13,725. If I drive the car for 7 years (84 months) the cost is $164 per month. So I allow for that in the budget. But I must also allow for maintenance/repairs/license/insurance.

I went through every single expense I could think of and converted each item to a monthly amount. And that's what I plan to spend. However, there is a built in margin of safety because I haven't accounted for finding great deals, buying used, better than expected length of service, going without for awhile, etc. You'll notice that I was probably too conservative on the life expectancy of the household appliances we use; I did that intentionally to add a margin of safety. So I expect that my expenses will probably be less. I did that on most of the expenses I expect to encounter. So if Social Security is trimmed, or my investments don't do as well as expected, or health care becomes un-affordable, I hope that have a little wiggle room so that some belt tightening will enable me to stay ER'd.

Bottom line: I think it's best to plan for every single expense you can think of rather than relying on any rule of thumb.

 

[eridanus2]

Excellent list, Bob! I'm going to use that information for my planning.

That brings me to an appliance question: the tankless water heater. Anyone use one? It only heats water when you need it instead of constantly heating 40-60 gallons. I've wondered how effective they are. I'm actually looking forward to my water heater dying so I can install one.

 

[unclemick]

Oh yeah - one of my 'experiments' in frugal was a British built 220v tankless water heater smaller than a breadbox. Only 1-2 gpm so showers and getting a lot of hot water for other uses took getting used to. The gas ones have much higher capacity. The technology probably has improved since the 80's so do some research.

It actually froze when we were gone on vacation and destroyed the tubing inside.

Also used timers - automatic and manual (me with an on/off switch). 24/7 hot water is one of our big luxury items now.

 

[Skylark]

We are still in the working and saving mode, but if I add up our expenses excluding mortgage payments and investments we are at a little over 22K. We do need a new roof, however.

The big moneysavers seem to be:
Walk or ride a bicycle whenever you can
Cook your food at home rather than eating out a lot
Make large meals and freeze leftovers in single serving plastic bowls
When you get the urge to buy something, think "what can I do with what I have now"

We are actually having fun thinking about what we buy rather than just going to the store and just buying whatever you feel like. I am doing some research on who has the cheapest bulk food items (oatmeal, raisins, sunflower seeds, brown rice, whole wheat pasta, etc.), and it looks like the food coop in the college town down the road may be the cheapest and a lot of the products are organic too.

I was chatting with a guy who makes twice as much as we do, and when he heard how much we were saving each month, he accused me of living with my parents!

We don't seem to be missing anything, actually because of the walking and healthy foods I am feeling better than I have for a long time. If I could just get rid of this job from hell!

 

[cute fuzzy bunny]

Holy Cow Bob, a $1200 computer? It better give me massages for that price. Modern PC's can be had with more than enough power for well under $500 including a monitor.

TV's should last 10 years. A current model fridge 20. A range at least 15 or 20, more if cleaned regularly.

On the other hand, i've never had a disposal go 12 years, but I can replace it with a new one that only costs $65.

Good template though, similar to what I've put together although I include cars, tires, and other periodic expenses and annualize them.

 

[cute fuzzy bunny]

I am doing some research on who has the cheapest bulk food items (oatmeal, raisins, sunflower seeds, brown rice, whole wheat pasta, etc.), and it looks like the food coop in the college town down the road may be the cheapest and a lot of the products are organic too.

I just about LIVE in the bulk section at my local cheapo supermarket. I've been buying my spices there about a half bottle at a time for usually under 50c a batch, and refilling the fancy labeled bottle when it runs out. By only buying half a bottle at a time they dont go stale before I use them. I buy dried fruits, rice, grains, oatmeal, salt, etc. The prices are head shakingly low.

Finding the right supermarket was a definite help. The one I go to has really nice produce, the great bulk section, and a good amount of ethnic foods (large indian and asian populations here). They're non-union and cash only, so the prices are about 30-45% cheaper than the usual markets. I'm about the only person in line without food stamps, but I dont care about the "quality" of the people I shop with... :

 

[Bob_Smith]

If I could just get rid of this job from hell!

Same here, Skylark! Less than a year to go for me.

Your comment is repeated often here. Reading through this site it becomes quickly obvious that many of the people who post here have several things in common:

-- Intelligence (I'd wager there are many geniuses posting here; myself excluded).
-- Creativity
-- Self-sufficiency
-- Guts (it takes courage to leave the security of a regular paycheck)
-- Low tolerance for the stupid stuff one must endure in most workplaces.

With the demographic wave that is coming, it would seem that some forward thinking corporate execs would try to create part-time work schedules and work atmospheres designed to attract and retain people with these traits. Instead they seem to prefer passive, boring, conventional, drones they can control. They actually drive away the very best. What a waste.

 

[Bob_Smith]

Holy Cow Bob, a $1200 computer?  It better give me massages for that price.

Hi TH!

Yes, those are prices based on my tastes. Some could be done for less, I'm sure. I prefer to build my own computers - and I use the very best components I can find. It's a hobby. Costs more than off the shelf. The point is, everyone's needs are different and rather than using rules of thumb (like 33%) it's best to actually know what one's individual costs are today, and go from there.

 

[wzd]

Also, anyone planning on a budget for retirement should do a sanity check. Answer the question 'how does this budget compare with what I am spending today?' And don't use todays budget to do it unless you have a lot of confidence in it. Take your take home pay, after all periodic savings; Then subtract any extra savings and see if what you spent (or gave away, or lost, or whatever) compares with your budget. Unless you are planning a lifestyle change along with retirement, they should be real close. You should be able to point to specific reasons why they are different. You also have to account for reserves for capital items, as several people have just mentioned.

If you think you can live on less money, I recommend you think real carefully about why. There are some valid reasons for a difference, such as house payments, etc. for the costs to go down, and some reasons the costs might go up, such as for a golfer (which I am not). If you think you will simply be more frugal, it is time for some introspection; why aren't you more frugal now? Because if you were more frugal now, you would be saving more and retiring earlier!

I think doing an exercise like this to validate your plans is an important step. It helps to have some kind of a sanity check on your plans.

Wayne

 

[unclemick]

Sanity is overrated. Left handed, INTJ, and working career spent mostly in R&D.

'33% That's my story' was the reason I joined this forum. 33% turned out to be about ballpark income over the last ten years. Which did not prevent any of my somewhat 'aggressive' experiments in frugal - there is no need to be PC in ER - provided she doesn't put the ki-bosch on some of them.

Fundamentals are unchanged - LBYM. Running the numbers and practicing before ER is good. So is a 'margin of safety' ah la Ben Graham.

 

[cute fuzzy bunny]

Hi TH!

Yes, those are prices based on my tastes. Some could be done for less, I'm sure. I prefer to build my own computers - and I use the very best components I can find. It's a hobby. Costs more than off the shelf. The point is, everyone's needs are different and rather than using rules of thumb (like 33%) it's best to actually know what one's individual costs are today, and go from there.

Me too, but I just built a nice rig last year and sans monitor and printer the parts ran me roughly $500. What the heck are you putting in that box?

Mine has an Antec case with truepower supply, an albatron 845pe motherboard (albatron is run by the guy who used to run Gigabyte, who ER'd and couldnt stand it, went back to work...he took some of gigabytes top engineers, so you get gigabyte features and one of the quietest and most stable/overclockable motherboards around for very cheap money), 512GB crucial DDR 400, Pentium 4 2.6GHz, ATI 9000 graphics card (no fan and excellent output quality for my home theater albeit without blazing speed), cheap ac3 fiber optic sound card to my stereo, seagate 120GB drive with an older 100gb backup disk, cheapo 52x cd writer and a dvd writer. I put in a couple of inexpensive thermal probe fans that run verrrrryyyy sloooooooww when the case is cooler, and speed up automatically as things warm up. Its almost inaudible in regular use...in fact the refrigerator is running in my kitchen about 20 feet away and that noise is drowing out the box.

For those not in the mood to build their own, Dell regularly runs a special with rebates for a built system in the $300-400 range, again without monitor and printer. I think their latest offering was a 2.2-2.4GHz machine with 256mb of ram and an 80gb hard drive...not a bad setup for the average joe!

 

[sgeeeee]

Sanity is overrated. . .

I think you're probably right, but I can't say for sure since I've never actually experienced it myself.

 

[Bob_Smith]

What the heck are you putting in that box?

TH,

Two things:

1. Upgrades (whenever the mood strikes, usually every year or two).

2. Software (I don't go crazy here, but I don't skimp either).

I do track all expenses in Quicken and it comes to about $1200 over a typical five years, after accounting for price drops over the past several years. Actually, I keep three systems going - one for me, one for my wife, and one for my daughter. Theirs usually can be upgraded with parts from my system, but not 100% of the time. My prices run very close to those you describe when it comes to individual components. I too use Crucial memory and P4s. And my system is so quiet I can hear a pin drop. The box is very cool too. I started doing this years ago because I didn't want to be dependent upon someone to fix my system when problems developed. Now there's nothing I can't fix.