Retirement income as a percentage of NET working income?

[Perryinva]

I've done all that, including firecalc, fidelity and various other calculators. The reasoning is simple. If you plan on living the same way in retirement as you do when working and never accumulate debt, and are a decent saver, then you ALREADY know how much you need. If you pay less taxes, no SS etc, and lose a $1600 P&I mortgage and save just a small amount, then it is easy to come up with a number. I am absolutely not looking to live on as little as possible to retire as soon as possible. Not worth it to me. I want tomlive while I am living, not do without to only have it later.. FWIW, DWmthinks I am too stingy. Yet we've been to Europe and Caribbean a couple of times in Business or First class, drive nice cars, and eat out often. We don't smoke, & drink or gamble rarely.

 

[scrabbler1]

So in Scrabbler1s case, you reduced work hours/income as a phased in plan to work less and live on less, and sought to a livable level and then basically ERd when FI income equaled a number that you could live with? So you saved more when working 37.5/wk, and saved less in part time, I assume. And discovered no need to work that hard for the level that you wanted to live at. Gutsy, as I would wonder if I was taking a chance at that, depending on age.

I reduced my work hours to work less and live on less, as you correctly pointed out. I had paid off the mortgage in 1998 and greatly reduced my expenses so that I was basically living on one biweekly paycheck while totally saving the other. Even while earning about 60% of my after-tax pay in the first part-time era (2001-2006), I was still saving some of that reduced pay, as you pointed out.

There was one thing which happened in those 6 years, however, which greatly pushed me in the ER direction and it had nothing to do with income. Two years into that part-time era (in 2003), my company ended the mostly telecommuting deal I had worked out with my boss. I could still work part-time, but I had to fulfill all my hours at the office. This was devastating news for me, as it returned many of the horrors of the long, awful commute I had been able to reduce to 1 day a week.

I also knew at this time that it would be the ultimate undoing for my career. I was soon ramping up my plans to ER at some point in the next few years. I was putting together my first ER spreadsheet and figuring out my "magic number" to leave the company and began looking around for an affordable individual health insurance policy (this was years before the ACA, and New York was a far more hostile state to buy individual HI back then).

I put up with the bad commute from 2004-2006 before asking to reduce my weekly hours worked from 20 to 12 in 2007. This reduced my weekly commute from 3 days to 2, and trimmed an hour off my workday so I could get home at 6 PM instead of 7 PM. My pay was further reduced and I lost my eligibility in the group health insurance program (so I went on COBRA for 18 months). I was still saving a little bit of my even further reduced pay, but remember that I still had considerable investment earnings, just not enough to live on independently.

I hoped this further reduced work schedule would save me for a while. But "for a while" turned out to be only about a year. I became unhappy with this arrangement fairly quickly, especially as I was quickly approaching my "magic number" to retire in 2008. I had also found an affordable HI policy for 2009 after COBRA expired.

By the middle of 2008, I had hit my "magic number" and the crashing markets actually provided a huge benefit to my being able to ER because the big bond fund I planned on buying into saw its price decline by 20-25%. This enabled me to buy many, many more shares than I had first anticipated.

The pieces fell into place by the end of September, and I gave my notice at the end of the month for a Halloween end date. It was all treats, no tricks, for me that day!

 

[gerntz]

It's too long ago to remember or know how to correct for inflation.

 

[scrabbler1]

I can't speak for Scrabbler, but I also dropped to half time for a few years, and didn't cut my spending. I was saving a LOT when I was working full time, and saved very little when I went to half time--I maxed out my 401K but don't think I saved anything else. I may have dipped a bit into my nest egg to make up for the reduced wages. I think I did, but don't remember for sure and am not going back to check. But I know I didn't consciously cut spending at all. So assuming someone who goes part time is living on less is a flawed assumption.

In other words, I probably could have fully retired earlier, but instead went to half time and dipped a lot less into my savings then if I fully retired. Nothing gutsy at all. It gave me more buffer in my nest egg once I retired full time, and also helped me mentally transition toward full retirement instead of going directly from 40+ to 0.

I kind of glazed over on the wordy first post, so I don't really get the point of the question. I don't think in terms of retirement income, but rather retirement expenses that I have to fund from a variety of sources, which may or may not result in taxable income. So the only question I know how to answer is whether I'm spending more or less in retirement, and I'd say maybe a bit more due to travel. But I'm not even sure of the bottom line without going to some work, including compensating for irregular expenses, like the year I bought a $30K car.

IMO you shouldn't worry about whether others are spending more or less because everyone's situation is different, so you have to figure out if they moved to a cheaper place, travel more, had large work-related expenses, etc. Figure out for yourself what you will spend and whether you have enough saved to fund your retirement.

I didn't have to cut my spending when I switched from FT to PT. I knew I would probably need to buy a new car at some point soon because it was 10 years old when I first made the switch. I would buy a new one for about $18k in early 2007, before I further reduced my weekly hours worked.

As I wrote in my recent response to the OP, switching to PT resulted mainly my saving less of my after tax pay. I was still saving in my 401k because I remained eligible for the company match. I did increase my % of withheld pay slightly to offset for the loss of actual company match dollars. In 2007, however, when I made my second reduction in weekly hours worked, I became ineligible for the company match. Needing to keep more of my further reduced take-home pay (to pay for COBRA), I abandoned further 401k contributions.

Reducing my hours from 37.5 to 20 was a much bigger transition to my everyday life than losing the telecommuting or second reduction in weekly hours worked (from 20 to 12) or even going from 12 hours to zero when I retired. That first reduction is what opened up my personal life for vast improvements. After that, it was just tweaking my personal activities schedule.

Outside of health insurance and health-related expenses, my spending has been pretty much unchanged. One condition of ERing and all of the previous work schedule changes was that there would be no change to my general spending habits. The elimination of my commutation expenses and FICA taxes roughly offset the increase in my HI premiums. Income taxes dropped a little while some other expenses rose a little.

I have sufficient "slush funds" to cover the purchase of a new car, now that my current one is 10 years old. I'd like to get another 5 years out of it in case I need to tap into my IRA in an unfettered manner (the year I turn 59.5) to get some of the funds.

 

[Perryinva]

Thats a beautiful accounting, thank you. So you ERd around 53-54. As I mentioned, technically I can go anytime. I won't play games, I'm greedy. I make more each year than I ever planned on making, but nothing like some of the millionaires here. Pretty much everyone agrees that you will "know" when it's time to leave. I've read all the clichés, you can't buy time, etc, etc. as many here have noted, it's often hard to give up what you worked so hard to get. And my job is actually easier now than ever. I'm the expert. I have fun. My pension grows $5k a year each year. But I clearly see that I am getting older and more tired fast approaching 60. And at some point soon, when gross retirement pay gets too close to gross working pay, it really just makes Zero sense to keep working. The increases are too incremental to really change my lifestyle, so all I end up doing is to add to my safety and discretionary funds. I also have the choice of part time, which I am contemplating. I could work 3/4s time, still get full benefits, and the hit on my pension growth is only $300/yr. 3 months off plus 4 weeks vacation and 12 paid holidays, flexible schedule, for what I was making say 5 years ago. My commute is 1.5 miles. I can take the bus, ride my bike, whatever. Zero stress.

I am extremely encouraged by so many here that ERd so much younger on much less, and have zero issues with money. Thank you all!!!

 

[Onward]

At time of FIRE I projected my expected retirement income to be 13% of my w*rking income.

I didn't see any relationship between the two numbers at the time, and I still don't.

For me the point of FIRE was to change my lifestyle radically (for the better, of course), so there was no point in comparing income before and after.

 

[Perryinva]

Well, that's why I asked, as without that kind of info, comparisons are meaningless. My life has always been good, and fulfilling. I don't see any need to radically change it besides getting to do more of what I enjoy, like travel.

 

[scrabbler1]

Thats a beautiful accounting, thank you. So you ERd around 53-54. As I mentioned, technically I can go anytime. I won't play games, I'm greedy. I make more each year than I ever planned on making, but nothing like some of the millionaires here. Pretty much everyone agrees that you will "know" when it's time to leave. I've read all the clichés, you can't buy time, etc, etc. as many here have noted, it's often hard to give up what you worked so hard to get. And my job is actually easier now than ever. I'm the expert. I have fun. My pension grows $5k a year each year. But I clearly see that I am getting older and more tired fast approaching 60. And at some point soon, when gross retirement pay gets too close to gross working pay, it really just makes Zero sense to keep working. The increases are too incremental to really change my lifestyle, somall I donis add to my safety and discretionary funds. I also have the choice of part time, which I am contemplating. I could work 3/4s time, still get full benefits, and the hit on my pension growth is only $300/yr. 3 months off plus 4 weeks vacation and 12 paid holidays, flexible schedule, for what I was making say 5 years ago. My commute is 1.5 miles. I can take the bus, ride my bike, whatever. Zero stress.

I am extremely encouraged by so many here that ERd so much younger on much less, and have zero issues with money. Thank you all!!!

Perry, I am 54 now, I ERed at 45, nearly 9 years ago. Your commute is 1.5 miles? That's pretty awesome, only my 2 years of telecommuting were better than that.

 

[CyclingInvestor]

I felt FI when my fully adjusted retirement income would match my salary, and retired 2 years later in 2006. I spend alot more now than then (mostly travel) and still feel like there is plenty extra.

 

[Perryinva]

Doh! Yes, I meant 43-44. Just a brain fart. At that age, I was getting married for the 3rd time to present DW, and was finally getting past having to give away everything I owned to a spendthrift ex. And was starting from scratch financially. Two divorces will do that to a person. So from 0 to FI in 15 years, just a lot later. I can't complain.

Bingo to Cyclinginvestor! That's what I mean. Even when you had enough,myou went 2 more
years. Do you ever wish you only went one more or none more? Basically gone when you equaled?

 

[Dd852]

My retirement income is about 50% of my net take home pay when I retired ~ and that's cool as the reason I retired early is I was able to save half of every paycheck for many years.

 

[brucethebroker]

I figures that I would need about 35% of my working salary to live the same lifestyle in retirement.

Comparing a $100K salary, you can deduct

Salary	$100,000
-FICA/Mcare	($7,650)
Less 401K	($24,000)
Mortgage P&I	($16,836)
Tax Savings	($15,000)
Annual Total	$36,514
Monthly Total	$3,042.83
Salary Equiv %	36.51%

Senator, I think you used these numbers before, and I have been thinking about it since. We are in a similar mindset, but I never quite put all those pieces together on paper. I agree with your numbers, since our taxes have never been lower since we dropped our AGI through business deductions and real estate depreciation, when we lowered our overall income in semi-retirement. Too many people don't take the lowered taxes and cessation of retirement contributions into consideration when deciding to pull the trigger on FI. Thanks for the input.

 

[brucethebroker]

We moved into semi-retirement (I have a hobby job) when I hit 62 (early SS) and by downsizing our home size/payment (ridiculously small amount, 3.5% int.)-our total housing expenses are about 50% of what it would cost to rent. (DW retired at that time). We also eliminated one vehicle. We found that not having to save for retirement, not having car payments, having lower taxes and a small mortgage gives us the freedom to live as comfortably as we did when we both worked full time. The PT work is fun and flexible and does not detract from our satisfaction with this point in our lives. We can travel on a whim (have to board DDog). Should have done it sooner.

 

[DrRoy]

Our spending is running 10-20% higher than it was before RE, but still nearly 1/3 less than my old work compensation. The difference is no more saving, lower taxes, but more travel. The mortgage was paid off 10 years ago so that is not part of the change. We are running off a modest pension and 1.5% WR, but no SS since we are late 50's. Since the WR is low, we will pop for extras from time to time. We have been FI for a few years, but I wanted to wait out an age reduction in the pension, just to max it. Until the last year, the job was OK, but toward the end was becoming more of a bother so the timing was good.

 

[Danmar]

Our spending is around 130-150% of what it was prior to ER. Not including large capital expenditures on property. Too difficult to calculate as a %'age of pre ER comp. Too many options, DSU's, RSU's, special bonuses, etc, in the mix.

 

[Fedup]

Income is 15% of gross working income before retirement. But spending is about 15% more than when we were working because we spend money travelling.

But if I were in your case, I would stay working. 1.5 miles commute is heaven.

 

[pb4uski]

Our spending, which is about the same as when I was working, is about 38% of our income from my last full year of working (54% of net pay).

 

[Huston55]

I kind of glazed over on the wordy first post, so I don't really get the point of the question. I don't think in terms of retirement income, but rather retirement expenses that I have to fund from a variety of sources, which may or may not result in taxable income. So the only question I know how to answer is whether I'm spending more or less in retirement, and I'd say maybe a bit more due to travel. But I'm not even sure of the bottom line without going to some work, including compensating for irregular expenses, like the year I bought a $30K car.

I've done all that, including firecalc, fidelity and various other calculators. The reasoning is simple. If you plan on living the same way in retirement as you do when working and never accumulate debt, and are a decent saver, then you ALREADY know how much you need. If you pay less taxes, no SS etc, and lose a $1600 P&I mortgage and save just a small amount, then it is easy to come up with a number. I am absolutely not looking to live on as little as possible to retire as soon as possible. Not worth it to me. I want tomlive while I am living, not do without to only have it later.. FWIW, DWmthinks I am too stingy. Yet we've been to Europe and Caribbean a couple of times in Business or First class, drive nice cars, and eat out often. We don't smoke, & drink or gamble rarely.

Our answer is <25%...but, on different things.

However, my approach is similar to RunningBum's; I focus on expenses. Frankly, I don't like the "% of income" approaches; I think they're a roundabout (and often misleading) way to approach FI. So, even though we did the "net" calculations you describe (gross income minus taxes, savings, etc.), we did so years ago only to confirm the ballpark of our annual "spend." From there, it was all about expenses for us: (1) tracking annual spend by category to confirm budget, (2) establishing RE budget for expected changes, (3) RE after FI & BS buckets full.

But, different folks approach problems in different ways so, great if it works for you.

 

[MikeWillRetire]

I am within a few years of retirement, and have closely followed my spending. It looks like the following expenses should disappear (as a percentage of my current income):
7.5% medicare/SS
12.5% 401k contribution
6% mortgage P&I
7% less in taxes
25% expenses for children

So it looks like I could retire on 42% of my current income. I expect other expenses to go down (life insurance), and other expenses will go up ( travel, health, etc.). So I am planning on 50%.

 

[woodguy00]

I look at spending needs in two ways. First I built up a retirement budget based on estimated spending costs, like most do, which totalled up to about $100K annually. As a sanity check, I then looked at my current take home pay deposits plus what we normally spend out of bonus. I then adjust for differences I expect after retirement. This makes sense to me as my gross pay is quite different than take home due to high taxes, aggressive savings, commuter deductions, salary deferral etc. In addition most of my comp is from annual and long term bonuses that all go into savings or deferral except for the small amount shown. The calculation is below:

Current take-home $90,000
plus bonus spending $10,000
less mortgage princ/int (21,000)
less prop tax difference (4,000)
less high utilities (3,000)
plus indiv health insur diff $12,000

Budget Needed 84,000
+ income tax 11,220

Total needed - when retired $95,220
based on current spend

It gives me much more confidence that both methods come up very close to each other.

 

[Winemaker]

So your the evil, rent gouging landlord I always hear about.. The rent control/rent stabilized activists will soon be picketing at your door front.

Nah, I had two long term tenants move out, one 16 years, the other 8 years. The rent just moved to market rates that have greatly improved over those years.

And we don't have no stinkin' activists here in Grapetown!

 

[pacergal]

Not being any sort of accountant or math wiz, I just looked at what our "spending amount" was --that is, what went into our checking account after everything else was taken out-- this was what was left for monthly spend/bills/etc.
Currently, what goes into the checking is about 25% per month more than when we were working. It sure has been fun to spend a little more now.

 

[Perryinva]

I look at spending needs in two ways. First I built up a retirement budget based on estimated spending costs, like most do, which totalled up to about $100K annually. As a sanity check, I then looked at my current take home pay deposits plus what we normally spend out of bonus. I then adjust for differences I expect after retirement. This makes sense to me as my gross pay is quite different than take home due to high taxes, aggressive savings,.....

It gives me much more confidence that both methods come up very close to each other.

Exactly what I did. Compared estimated retirement expenses that I used in Firecalc, and looked at how much Inwas chrrently "spending" to live and they were close enough to spit at each other. I have a ~ $150k ($200k estimate when I retire) Roth that I do not count as a income generation source. That wil be travel, car, fun money. We do essentially nothing with DWs SS and pension except fill her IRA, and bank. She uses about $200/mo of it on hair and woman stuff. My current take home is about 50% of gross, and I save about 25% of gross total and get 6% matching. I'd like to end up with an extra $30k after tax extra in retirement to start, knowing that inflation will eat away at it. Every year from now adds about $15k to retirement income. So every month I say "there's another $100/mo". Keeps me motivated.

 

[CyclingInvestor]

Bingo to Cyclinginvestor! That's what I mean. Even when you had enough,myou went 2 more
years. Do you ever wish you only went one more or none more? Basically gone when you equaled?

No. Those two years were at a very sweet spot at my programming job - stuff I could do in my sleep. I retired when everything turned to cr&*p (transition to Extreme Programming) and I had 50% more $$.

 

[Perryinva]

Nice! My worry is if the job stays as reasonable as it is, I will delay pulling the plug because its easy money. Especially if I go part time, and have enough free time.