An offline discussion bears repeating here. Add your own thoughts, please!

I certainly agree. I think it is posted somewhere here, but we discussed this a while back.

Think about it -- after retirement, you are probably debt free (or probably should be - my soapbox item), so mortgage interest, car loan, etc are probably gone. Call that 25% of typical gross income.

You also are no longer saving for retirement, through salary deductions for a 401k, through Social Security, and through after-tax personal savings and investments. That's probably another 25% of your pre-retirement gross income.

So you're already down over 50% of your previous gross.

Let's say you were making $100,000 gross, and now can live the same lifestyle spending some $50k less. I

Well, that's not all. That $100k gross was taxed - let's say at an effective rate of 20%.

If you made $100k before, and spent or saved $50k on items no longer applicable, and spent $20k on taxes, you really lived on $30k, for those things that will continue past retirement.

Now, you'll probably manage your IRA withdrawals to take out at least the amount of your annual "tax free" amount -- probably $15,000 or so -- to avoid losing that annual deduction forever.

If you continue the same $30k "lifestyle expense" as before with no reduction, you'll probably take another $15k from post-tax sources -- your personal savings and investments -- so the tax is already paid on all but the growth or interest component. So tax becomes a 2-3 thousand dollars, not twenty or so.

Bottom line: if you pay off the mortgage and car(s) at retirement, your spending drops to about 33% of your previous gross, with no appreciable change in your lifestyle.

That doesn't even factor in that you are no longer driving to work, having suits cleaned for daily wear, and so forth. Maybe one less car, and associated insurance, maintenance, and tax costs?

Little things start showing savings. Your drive distance to work is a factor in insurance rates, so that will be lower (but be sure to let your agent know, or you'll never see the reduction).

I'd better stop. I'll repost this on the public board so others can chime in!

Dory36

__________________
Often uninformed, seldom undecided.

Twenty years from now you will be more disappointed by the things you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. Mark Twain

Make mine 40%

My personal goal is to eventually get to 40-45% of pre-retirement income. I'm not quite there yet, but close.

As you say, many things cost much less. The one item that has increased substantially for me since retirement is health insurance.

Before retirement, the company picked up most of the cost. However, I am now responsible for a large portion of that expense. I haven't gotten the kids entirely out of the nest (2 in college) so still relying on family coverage for health insurance.

To make matters worse, received another jump in health insurance cost for 2003 (30% increase for me). Once the kids are no longer covered, my cost will drop again.

Hopefully by that time we can live on the 40% level.

Now if can get my portfolio out of negative annual returns!

Red

But it is a small fraction of what we used to blow through.

Insurance is the most visible ongoing expense. Health, car and homeowners insurance all cast their shadow across our sunny situation. What makes the shadow darker is how little control we have over these line items. We have already taken all the easy steps, large deductibles, etc. to keep these charges in line. Beyond that we seem to be at the mercy of our insurers. It is probably that lack of control that makes insurance expenses so annoying.

Controllable expenses seem to have dropped quite a bit. With more time at our disposable, we tend to cook our elaborate meals rather than go to an elaborate restaurant. When we do eat out now, it tends to be inexpesive meals like breakfast and lunch. If we travel we can fly on Saturdays, Tuesdays and Wednesdays to avoid the crowds and get cheaper fares. Plus we can stay home during holiday periods since we don't need to worry anymore about how many vacation days we have.

Finally there is the mental discipline that comes from having built a nest egg capable of supporting you for the rest of your life. You have enough to buy virtually anything, but not enough to buy everything. Years of not buying creates a powerful habit that is not easily broken.

Regards,

Baanista

With no debt and saving a high % of my income, I have found that my expenses equal about 25% of my income.

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Thanks, Patnbj, and welcome!

The financial advisors who talk about 70% - 90% must be talking about people who carry heavy debt into retirement years, because their figures just don't make sense otherwise.

As Baanista mentioned, we find that our lack of time pressures allows us to do the things we want on the off days, thus both avoiding crowds and reducing costs.

<grin> I never understood why "old people" always drove so slow before, but after I retired and didn't need to get there so quickly, I found myself routinely driving at speeds that were more fuel efficient, rather than trying to get someplace at just 1 mph less than would incur a speeding ticket.

As he said, though, health insurance is a potential threat. Shop carefully. Our policy went from 300/mo for a healthy cople in our early 50's to close to $500 after the first year; we were able to shop and get a new plan for $300 again. But what a hassle!

Dory36

__________________
Often uninformed, seldom undecided.

Twenty years from now you will be more disappointed by the things you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. Mark Twain

I agree that the 70 - 80% estimates are based on a very low saving rate and/or a high debt load. My current estimate on post retirement expenses would be about 45 - 50% of pre-retirement income. The big difference is due to our savings rate, which drops to zero after retirement - no debt other than mortgage.

DW is a little more conservative than I and would like to see income a little higher, but we've tracked our actual expenses for the past year or so and 45 - 50 % seems to work just fine. And that's living at our current life style level. We could cut back below that level in hard times. I estimate we could live on as low a 40%(probably a little lower) if we had to.

It's all a matter of choices. How bad do you want the financial freedom vs working full time.

I'm sure you nailed it. Remember most people in a forum like this are the exception in how they plan and handle finances. I submit most retirees visiting a financial planner have upgraded to a bigger house late in their career, make payments on that pretty new Camry, etc. etc.

People visiting this forum probably have "no debt" as one of their major goals to retire, while most others look at retirement as a benefit of reaching a certain age.

HI folks! Re. the "scaling back" vs. bigger houses and that
"new Camry", I have found that in my case the scaling
back process has been continuous with no end in sight.
Besides eliminating all debt (a no-brainer) I am always
looking to simplify and put every dollar to work
(no lazy money). It's been almost 10 years since I
semiretired and I am still finding things I can easily do without. Plus, I don't feel the least bit deprived,
even though my lifestyle bears little resemblance
to what it was when I was working. I am living on
less than 25% of what I was making when I last
worked full time.

An interesting observation:

Some of you seem to have altered your lifestyles before retiring to help retire early while others have altered their lifestyle after retiring to stretch their money and minimize withdrawals.

I think the crux of the matter is what you want to do. If you want to drive the newer cars, eat out a lot, travel by air, take paid tours and otherwise live the more expensive life then you'll probably need that 70%-90%. If you want to be financially independent with the least work then you cut back your expenses by being smart and taking advantage of the available deals then you reach FI sooner and can RE sooner and more comfortably.

It's nice to hear that you can be happy spending so much less. It's a shock to realize that I had more spare money when I made $18k/year than when I made $30k/year, and I don't recall being deprived when making $18k/year. The most important lesson I've learned since learning about finances is that it's far easier and more effective to spend less than it is to earn more.

Not to spark a rent vs. buy debate again (a periodically hotly debated topic on the TMF board), but in cutting back to 25% or 30% of preretirement spending are you renting or owning outright?

I don't see myself being settled anywhere in the next two-to-five years, and I'm starting to wonder if I'll be a lifelong renter. That's not what I envisioned, but the circumstances just haven't been right for me to buy in the past and I don't see that they will before I'm 40. (At present I doubt I'll retire before 50.) Plus I'm beginning to like the idea that I'm not anchored to one location.

The figures I was using assume a paid-off residence. Knocking the spending down by 65% or so is accomplished solely by eliminating interest (by being debt-free), ceasing the contributions towards retirement, and reductions in taxes because of the now reduced gross taxable income. Additional savings might come from reduced requirements for dry cleaning, commuting expenses, and so forth.

The main point is that spending on lifestyle can be left completely intact post-retirement, and that supporting a $100,000 lifestyle might require somewhere in the $33,000 - $40,000 range.

Dory36, not anchored to one location either

__________________
Often uninformed, seldom undecided.

Twenty years from now you will be more disappointed by the things you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. Mark Twain

We figure 28 to 35% of pre-retirement gross. The higher end for some years to cover child school expenses, then dropping to the lower level.

I guess we didn't have to adjust downwards pre- or post-retirement, because we never adjusted UPWARDS a large amount over the years

Or, maybe I was just paid too much! Nahh, that's not it

__________________
-- Telly, the D-I-Y guy --
Two fools dancing on the hands of time

One of my business mentors (now long deceased)
was a wealthy man, at least by my standards.
After he retired he told me that he was amazed at how
little he could live on. Many years later I understand
fully what he meant.

This has been my mantra for years! We could have afforded a bigger house, newer cars, to buy each kid a car, private universities, fancier vacations, more expensive wine , etc. We never had the inclination.

In the case of the kids, I think it is the best thing we could have ever done for them. They don't have inflated expectations because they never lived in McMansions or got given cars. They are settling down nicely now (31, 30 and 27) to reasonable lifestyles given their income, and I believe very little debt (I'm not nosy) except for mortgage. In fact #1 son just locked in a mortagage for a nice Cape Cod at 5.5%

Anyway, when you look at it, most of the extras we pay for aren't worth it in the long (and often the short) run. However, if you have some passion, you certainly should find room for it in your budget.

arrete - life's too short to drink really cheap wine

Hi arrete! Well, it should have been my MANTRA also.
Alas, I opted for the big houses, Cadillacs, cars for the kids, the whole 9 yards. A friend once told me I was
"making it pretty hard on the non-Jones" . All behind me now. Alas, my former lifestyle continues to haunt
me in the person of my ex-wife and youngest
daughter. It's my fault though. I trained them!

After reading everyone's comments, it is clear that there is no "one answer" to the question of the % of pre-retirement income required upon retirement. It depends on many things, including your mortgage balance, what you plan to do with your free time, the extent to which you have been postponing certain activities (i.e.; travel) until you really had the time, and whether you are comfortable with various degrees of lifestyle changes. Another factor which must be considered is that the % could change (up or down) over the years...for example, if uncovered medical expenses begin to consume more of your funds, or in those years when you need to replace your fully paid-off car. I spend much of my pre-retirement time planning for RE, but it looks more and more like some factors may be beyond your control (health, inflation, etc). On the other hand, everyone seems to be happy they decided to RE!

Yes, the RE satisfaction numbers appear pretty close
to 100%. In my case it's probably the most important
(and arguably the best) decision I ever made. And,
I am certain that I appear draconian in my
conversion from work life to RE life. My wife and I were
discussing this yesterday, as even though we are not deprived, I try to do everything "on the cheap".
My theory is that you do not need to be spending big $
and accumulating debt to maintain a certain level of class, which after all is mostly what's inside you anyway.
Now, many would disagree with that but I bellieve it
completely. There are some saciifices I am unwilling to make in cutting back. If the ER gods continue to smile on us, I see no reason this should not continue.
Finally, while it is true that many many aspects of ER
are unpredictable, so is day to day living. What I do
is plan for the worst case and how to handle it if fate
deals me a bad hand, at the same time hoping
and expecting things to go my way. The important thing is that even if I get blindsided I still feel like I will
handle it and that the ER will continue on, altered a
bit but bascially intact. I believe I have considered about every potential disaster, and I try to remember
that most of the things we worry about never happen
anyway.

Hi,

New here, first time reply. Always thought about how and when to retire, but was sort of pushed into it by a layoff. Am in a wheelchair for 40+ years and worked 30+ years in automotive design. It all happened about a year ago now. Had to review my finances and goals and it seemed to make since to try it. One year later absoloutly no regrets. Bottom line is after reading this 33% factor and reviewing my financial situation its amazing I or should I say we (wife and I) fall right on the 33% mark. We have made adjustments but again am very happy and glad about the decision. Spend leasure time traveling in our Hi-Lo Trailer and floating on our old pontoon boat as much as we want.

Sounds like a nice life (pontoon and all). More evidence
that those who have taken the leap are pretty
unanimous in their satisfaction. As far as "making
adjustments", if you can't/won't do it you'd better stay
out of the RE game. It's a major life change, even if you
are sitting on a big pile of cash. For example, if you still
get a rush making all those big decisions, wielding
influence over the worker bees, and lunching with the
fat cats, hang onto your leather
chair and your Xanax. You're not a candidate for ER.

Re. "My percentage is much closer to the 33% than
70/80". Me too.. BTW, Where the hell is Duck??

How far is "Duck" from New Bern?? I have friends there
and thought I might migrate their way some time.