Retiring Richer Than When You Were Working?

[ATC Guy]

I am 22 and trying to map out my net 15-20 years until I hopefully FIRE. I'd really like to actually retire with more income than when I was working. This is mainly because I want to be able to really have no restrictions on what I can do during retirement, especially while I'm young. This includes traveling, boating, flying, and helping my children out when need be.

Is this rare, common, or half and half amongst the FIRE community? I know the FIRE community is different from how other people think about retirement because we actually want to enjoy our lives while we are retired. Online "how much do I need" calculators only allow me to put up to 100% of my current salary... what if I want 200%, or 250%? Yes I know how to calculate this but I wanted to see if anyone else is planning to have a higher income in FIRE than in their working career...

 

[MasterBlaster]

Dream Big

Years from now, when you are sitting in your cube dealing with the a@@hole boss and difficult co-workers you just may want to re-evaluate just how much you need.

meanwhile before reality and life set in you can dream big.

 

[Rustic23]

Well, if you are talking boating and flying, you have picked just about the two most expensive hobbies I could think of. I am retired, so planning for a higher income is not a question.

What I can say is we planned our retirement to have enough money to do what ever we wanted to do, and I think most here would give the same answer. We do make choices, but so far, finances have not stopped us from enjoying retirement. I would be suprised if people that practice LBYM, become really big spenders in retirement.

 

[jblack]

I'd be willing to wager than your plans change a few times in the next 15-20 years, but that aside you should be able to use FIRECalc to run some simulations.

Make sure you to understand the difference between income and expenses. No retirement plan is limitless on what you can afford to spend.

DW and I expect to increase some of our expenses with a young family (child care, vacations, college savings, food, etc) and others to stay fixed (mortgage). Over time these items will come and go, but eventually all the big ticket items will be paid for and we can reallocate for more RE or SRE enjoyment. We'll still have a budget, though.

 

[Milton]

Certainly it is possible to retire with a passive income stream greater than their current employment income. This could be done in four ways:

(1) engage in highly leveraged, very aggressive [-]speculation[/-] investing. You'll need lots of luck for this to work.

(2) spend many, many years of working, saving, investing and compounding. Of course, this is incompatible with ER. I also doubt that the retirement income would equal 200-250% (!!!) of employment income.

(3) inherit money (if Mom and Dad aren't rich, pressure them to work harder and longer, and avoid spending. They should also take up smoking, and discourage them from regular exercise).

(4) marry money (too bad you're already married; but you could get divorced and try again).

In any case, I suggest that picking a somewhat arbitrary percentage of employment income is not terribly helpful. As Rustic23 says, a better approach is to figure out what your actual retirement expenses are likely to be - including amounts for hobbies and luxuries - and then work towards acquiring sufficient capital and/or pension rights to generate that income.

Finally, I agree with jblack: unless one is a billionaire (and maybe even then!), there will always be restrictions on what one can afford to spend. Striving for a life without financial limits is rather unrealistic, especially since it will involve either taking huge risks, or working well past FI.

P.S. I too like boating, flying and travelling, and they are all factored into my projected retirement income needs. Since I currently enjoy those activities, it is pretty easy to come up with more or less accurate figures.

 

[FIREd]

I don't want to burst your bubble, but... A quick excel simulation shows that, in order to replace 100% of your net income within your time frame, you would have to save 95% of your net income for 15 years and earn 10% + inflation on your investments... Keep doing it for an additional 5-6 years and you may get to 200% of net income. You have your work cut out for you...

We save about 70% of our net income, so we are used to live on only 30% of our net salaries. We have no need to replace 100% of our net salaries in order to get a raise in retirement. Replacing only 40-50% of our current salaries would give us a 33%-66% raise in retirement compared to now.

 

[Rustic23]

Interesting Scott Burns kind of talks about this in his weekly article:

http://assetbuilder.com/blogs/scott_burns/archive/2010/07/14/recovering-from-bad-investments.aspxIt is more about why your expenses might be lower in retirement.

 

[ATC Guy]

Well my current plan might not be the typical FIRE plan. Trying to save as much as you can for small gains doesn't seem to be the fastest or most efficient way to FIRE. I'm looking at using long term real estate investing. Using multifamily rental properties and letting the tenants pay them off over the next 15-20 years. This will then allow for either a nice passive income hopefully more than what I was making, or the sale of the properties (depending on the markets at the time) supplying a nice lump sum of cash.

I fully understand someone cannot save enough in 15-20 years to earn 2 times their income, however there are more forms of investing besides saving and putting it into an index fund. I realize real estate investing takes more work than direct deposit out of my account into a fund, but the payout, if done correctly, over 15 years could be significantly much more substantial.

 

[Walt34]

One of the common characteristics I see in successful retirees is that they retire with ample (to them) savings/investments or a defined benefit pension with COLAs, and either zero debt or very close to it. The first requires considerable self-discipline and foresight and the last requires the ability to steer clear of the siren song of immediate gratification offered by the credit industry. I have the DB pension and will readily admit that at age 22 retirement was the last thing on my mind.

At age 22 it is unlikely that you have a paid-for home, and you're ahead of most if you have a paid-for car. Furnishing a home from scratch is an expensive proposition, even if you haunt the sales and/or buy a lot of stuff used.

Now, if you can stand to live in a low-rent basement apartment for the next 20 years you might pull it off.

But even a retiree with a $500k/year income will still have to choose between the private jet and the ocean-going yacht.

 

[plex]

No matter what your investment plan is, what you are trying to do is go from famine to feast. Assuming you do go the real estate route, you will have to get something like 10+ properties. That means saving most of your income, and then having a pretty significant job (landlording), after you quit your regular job. Eventually you will also get the properties paid off, and will sell some of them. All of that takes a lot of time, all the successful ERs I've seen who did this, were in their 50s or older.

 

[Meadbh]

I'm looking at using long term real estate investing. Using multifamily rental properties and letting the tenants pay them off over the next 15-20 years. This will then allow for either a nice passive income hopefully more than what I was making, or the sale of the properties (depending on the markets at the time) supplying a nice lump sum of cash.

You are correct, this is a good strategy for the long term because people will always need a place to live, and if you are good at providing them with a desirable place to do so at a reasonable cost, rental properties can be a cash cow, particularly if you manage them yourself. That, of course, is a j*b. The key to this is leverage. If you buy a suite for $100K but put $25K down, the ROI is calculated on your $25K investment. Cash flow, of course, is king.

Here's a simple tool you might find useful:
Evaluator Spreadsheet ~ Canadian Housing Price Charts and Real Estate Evaluator Blog www.chpc.biz

I have a couple of rental properties and I must say it was very reassuring during the market meltdown to see the cash flowing in. I wish I had started at a younger age.

 

[Eager Beaver]

I'm with Meadbh on this one. Real estate is a good route to go, although you can't call yourself retired if you are self managing enough properties to live off the cash flow entirely. ESR yes, FIRE no. And if you pay someone to manage them for you, you'd have to be rich already or leveraged to extremely dangerous levels to maintain a cash flow positive position.

There are no free lunches...

 

[NW-Bound]

I dunno about having more income than when we were working full-time. It would be nice.

We just have no problem spending more money than when we were working.

Wait! No problem? But that IS the problem!

 

[kumquat]

Certainly it is possible to retire with a passive income stream greater than their current employment income. This could be done in four ways:

(1) engage in highly leveraged, very aggressive [-]speculation[/-] investing. You'll need lots of luck for this to work.

(3) inherit money (if Mom and Dad aren't rich, pressure them to work harder and longer, and avoid spending. They should also take up smoking, and discourage them from regular exercise).

(4) marry money (too bad you're already married; but you could get divorced and try again).

My bold. I'd suggest that 3 and 4 involve lots of luck too.

You missed number 5 which needed luck but worked for me.
5) Join mega-corp in a position the awards stock options as part of the pay package. Have shares stagnate for several years (as you accumulate more and more options) and then go up by a factor of 8 just before the options expire. Cash them in. Congratulate yourself for being so smart.

 

[BigNick]

I am 22 and trying to map out my net 15-20 years until I hopefully FIRE. I'd really like to actually retire with more income than when I was working. This is mainly because I want to be able to really have no restrictions on what I can do during retirement, especially while I'm young. This includes traveling, boating, flying, and helping my children out when need be.

The logic of the last two sentences is that you are expecting to spend a certain amount of today's dollars per year. It's not related to a percentage of your current income.

So, work out how much you want to be able to spend - say, $100K per year, but it could be half or five times that - and then work out how much you are going to need to sock away to allow you to draw that down and protect it against inflation. For a 40-year retirement I wouldn't plan on a withdrawal rate much above 3.5%, so for $100K/year, plan to have $3million clear by the time you're 40. If you're starting from zero today, plan to save $120K/year for 18 years and hope for 8-10% growth. Better get that $200K/year job now.

Of course, that means that your retirement income won't be higher than your working income, but that's pretty much mathematically impossible anyway. It can be realistic for your retirement spending to exceed your pre-retirement spending, and indeed for a young retiree it might well be - so much more time and inclination to travel, etc. So you could perhaps envisage 20 years working for $150K (good luck finding that job at age 22, BTW) and living on $30K, then being able to spend $100K once you have time away from the desk.

 

[donheff]

More income, better raise your FIRE date. More personal expenses, doable. If you focus on non-essentials DW and I spend more now than when we worked. We eat out a little less frequently but we travel a lot more. But we no longer have mortgages, education (private schools), or savings. Our spending is far below our working income but our lifestyle is a bit better. But no boats, no flying.

 

[FIREd]

You missed number 5 which needed luck but worked for me.
5) Join mega-corp in a position the awards stock options as part of the pay package. Have shares stagnate for several years (as you accumulate more and more options) and then go up by a factor of 8 just before the options expire. Cash them in. Congratulate yourself for being so smart.

yep. Worked for me too.

 

[scrabbler1]

You missed number 5 which needed luck but worked for me.
5) Join mega-corp in a position the awards stock options as part of the pay package. Have shares stagnate for several years (as you accumulate more and more options) and then go up by a factor of 8 just before the options expire. Cash them in. Congratulate yourself for being so smart.

Worked for me, too. I was given shares of company stock which appreciated by a factor of 30 by the time I left and cashed them in. Most of it was NUA so it got taxed relatively lightly, enabling me to keep 75% of the proceeds and retire on it in 2008.

 

[Sarah in SC]

Getting lucky with investing in anything, including real estate, stock options, or more traditional stock market pickings is probably the key to the ending you want.

I'm not entirely confident in my ability to find the right properties, the right tenants, and the right set of landlording skills needed. This might take you a few years to develop. I can say that I wanted investments that I could leave behind when we travel, which pretty much eliminated landlording from my investment portfolio.

 

[Letj]

Getting lucky with investing in anything, including real estate, stock options, or more traditional stock market pickings is probably the key to the ending you want.

I'm not entirely confident in my ability to find the right properties, the right tenants, and the right set of landlording skills needed. This might take you a few years to develop. I can say that I wanted investments that I could leave behind when we travel, which pretty much eliminated landlording from my investment portfolio.

These days, you can do landlording from anywhere in the world as long as you're not away from your properties for too long. I travel internationally every year and in most places I can use my cell phone and have access toe-mail. To avoid the big cell phone bills, I retrieve messages and place phone calls from a local phone. For me, it's a simple phone call to a handy man back home.

 

[Bestwifeever]

Man plans, God laughs -- ancient Yiddish proverb.

You are smart to be planning for the future at your age; enjoy the journey getting there, too.

 

[Milton]

The best-laid plans o' mice an' men gang aft agley -- ancient Scottish proverb!

 

[Rambler]

I think it would be pretty difficult if not impossible for me to try to exceed my income, and be able to ER. But, I CAN get my target SWR of <3% to exceed current spending.

R

 

[Moscyn]

It appears you will require some aggressive saving and investing. I just wish to add that in your route to ER, don't forget to reward yourself and make life interesting and enjoy some luxuries. Otherwise, it's a long dry road towards the goal. When people hear about my coming ER, they immedietedly asked me whether I will be travelling a lot, and I then realised that I travel a fair bit for vacations even in my working years which had made the route to ER fun and interesting.

 

[kumquat]

The best-laid plans o' mice an' men gang aft agley -- ancient Scottish proverb!

Close, but no cigar. One line by Robbie Burns. The entire poem is here.