We knew exactly how much we needed to live that envisioned life long before we stepped off the merry-go-round. It wasn’t figured as a percentage of current income, it was a net annual amount. For two decades, we saved my entire salary and 50% of DH’s to amass a nut that would achieve that result. So, in our case, we were fortunate enough to be able to manipulate our pre-retirement income/lifestyle to produce the lifestyle we currently enjoy. We lived on 50% of one income to live a bit better now than we did then.
ETA: For more than 20 years I’ve produced a monthly cash flow that accounts for every penny in and every penny out. I know exactly where every dollar is spent. Zero surprises in retirement. But, retirement was my life goal from the first day of my first job out of college. I hated working.
Those articles don’t apply to families like yours that are saving a significant portion of their income and may have better salaries to begin with. A recent article said that about 1/3 of all American families couldn’t cover an unexpected $2,000 expense within a month. These people are indeed living paycheck-to-paycheck and do need to replace almost all of their income.
We tracked our annual spending for over 20 years so we can see how certain categories trend over time. Health care was the hardest to budget since we will need to buy our own for a decade before Medicare. I add a 20% increase to be safe.
I can’t tell you what percentage it is since our income fluctuated. We apply the 4% rule to our portfolio instead. So far, the market has outperformed that benchmark for the last few years. The “surplus” will cushion future downturns.
I agree with everyone that a spreadsheet is an absolute must.
I retired from my job during Covid, but my husband,who loves to work, is still working.
The “living frugally” thing also is high on our agenda, but things do happen that are really unexpected. We had a flood that affected two floors of my house. This was not a simple $2000 fix.
Those types of things are just impossible to plan for, but we have now created a “maintenance budget” on the spreadsheet.
The maintenance budget covers upkeep for our home, cars, and our property.
The other “maintenance budget line” that we’ve created is for our health expenses and costs.
We also have what we call a “play” budget line item. This is for travel for weddings and family events. If we don’t have to go we don’t go.
Until you have your spreadsheet put together, and you match:
-what your expenses are per month currently,
-and what will happen when your income from your work stops,
those are the numbers you have to play with.
The bills and expenses will continue to come in but your work dollars won’t.
My experience of one (well, two, if you count my husband separately):
We are living comfortably on around 65% of our highest earning years. The biggest savings is that we’re no longer saving!, so our expenses dropped around 10% just from that. We also sold the Big Old House and moved to a Smaller New (for us) House, so we eliminated the mortgage, which was another ~12% of our old income. In my last years of working full-time, my job was far from home, so I “boarded” with a nice woman during the week and paid her another 2 1/2% of income.
No dry cleaning and hardly any need for new clothes.
So it feels like a lot of expenses went away. We are very comfortable and I feel like anything I want, I could certainly buy. Maybe not everything at once but nothing is off limits due to cost.
I semi-retired 15 years ago at 48 (went p/t) and have never looked back. It took a while to adjust financially but I had (and still have) no debt, and a well paying p/t job. Unfortunately I am not eligible for benefits (healthcare) so those are out of pocket. But with ACA (Affordable Care Act) and Covered California (subsidy to help cover the cost of health insurance) I am “self” insured - in less than 2 years I could collect SS but doing the math it makes more sense to wait a little longer. But I may change my mind - as long as I can keep my job (it’s quite stable, but as we know, nothing is “secure” any more!) I can be comfortable. And I haven’t begun thinking about when I will be required to start taking $ from my IRA which is still almost 10 years away. I think I’m in a fairly good position. At least I hope so.
Before H retired, we kept track of all in income and expenses for several years. We estimated how they’d change over time (no kids’ Ed expenses once they were done with school, no retirement savings contributions once H retired, no mortgage payments after mortgage was paid off, perhaps more travel & expenses related to that, more dining out, perhaps hiring more help).
When we tracked things, we realized H’s pension would more than cover our current and projected future expenses and leave us with a growing nest egg.
The last few years at H’s job, his salary kept rising and increasing his pension. We paid off both the kids’ ed expenses and mortgage before H retired so we could sleep well at night.
We were right in our calculations and have never had to dip into savings since H retired—savings and investments just keep growing and pre-Covid we traveled quite a lot and dived our regularly.
I retired before I had expected to do so (left a job, expected to take a short break before finding another, then decided not to work). We had an idea of how much we needed, since that was part of our retirement planning, but we didn’t have it completely nailed down yet. It turned out that we actually needed quite a bit less than we thought. Covid has helped with that, but we can work in trips even with the lesser amount we are currently living on.
We originally thought we would need about 55-60% of our prior income (this includes income tax). We are finding it comfortable to live on 45%. We could probably live on even less, but we are withholding a tax bracket up & doing an annual Roth conversion at year-end. Our house is paid off, we have no debt, and our property taxes are very reasonable. In the future, I expect that we will have a larger monthly income, once we take Social Security (we plan to do that at 70; H will be 70 in less than 7 years). At that point, if things go as planned, we’ll feel very comfortable being able to redecorate, take the family on a cool vacation, or whatever else might strike our fancy at the time. As it is, we don’t feel that we are living more austerely than we’d like.
Our problem is that we want to do those things while we are active early retirees. Not when we turn 70.
My husband has some health problems and it’s uncertain how his active health will hold up.
I think that the hard balancing act is how to juggle money saved for retirement and how to spend in the early years. We know we will have more cash flow later. Need to figure out how not to spend it all now.
It will be interesting to see how things work out.
I’m not retired yet, but there’s a big difference between what we could live on and what I want to live on. I’d like to stay in my high tax, bigger than we really need house for as long as possible. We love the neighborhood. We will pay off the mortgage soon, but I know from experience there are always unexpected house expenses. We don’t have high commuting or clothing expenses and hope to travel more, so I’m not expecting our expenses to go down much. Luckily we have enough stashed away that we should be okay.
The problem is that our savings is in pretax 401k. We will have to start taking those pesky RMDs at some point. For us no way to avoid dipping into savings.
We will do some Roth conversations but personally the point is to live off pension, social security and what we have been saving for our entire working lives. I mean, isn’t that what it’s for?
True, we have had to take RMDs because H turned 70.5 but we didn’t SPEND them. We just shifted them from one account into another, after paying taxes. It’s not that big a deal.
We also got an inheritance that we hadn’t counted on, which will help us support D, as she’s never been able to hold a full time job due to documented chronic health issues.
@deb922 : Yes, that’s what it’s for. In your case, with an H who is in poor health, you will want to do things sooner rather than later. If you have adequate 401k savings, I don’t see any reason not to spend some if you need it to do things you want to do now. We have all of our retirement money in qualified retirement plans - no pensions. Yes, we are spending that money now. But that’s what we saved it for. We do have a financial advisor, and we are very comfortable with our spending plan. I think taking a careful look at what you need to cover your bills, adding in an estimated amount for your wants, and talking with a professional about your plan can be very helpful.
Agree that if you or spouse or loved one are in poor health with poor prognosis, definitely be sure to balance priorities and enjoy the journey—spend some money now to do things that bring pleasure. Of course, some dire prognoses have a way of being wrong so h sure to save enough to remain comfortable if folks live long past expectations (I know I’m about 15-20 years past my predicted demise).
Exactly. We are spending freely, even bought a cabin in Maine last year, but that is within the budget we planned for. We don’t have any concerns that we will run out of money because, barring the Apocalypse, we planned for exactly how much we can comfortably withdraw each year, and we are doing that without worrying that spending now will affect needs later. It won’t.
This. A good financial planner will ask the right questions, determine your risk tolerance, and help you concretely express and plan for your retirement needs and wants. The anxiety about early spending vs. later need is all part of this. Once you nail it down, you should be able to rest easy and enjoy the fruits of your labor.
I think this is our problem right now. My husband was resistant to changing financial planners and retirement was in the future. Until it wasn’t. We will be investigating new options soon.
I’m not saying there was anything wrong with how our investments were moving. I think we had someone who’s answers were more generic than we are looking for. We have some leads on other voices to talk to.
It’s one thing to save and save as much as possible. It’s harder to figure out how to spend when the time comes. Hope that makes sense. We’ve saved as much as we could. Everyone says we are in great shape. But I’d like to have a little more guidance
Like @ChoatieMom, I’ve been planning for retirement since the day I started working. I’m fortunate not needing to track every penny I spend, but I have a general sense of my expenses. The percentage of income doesn’t work for me as I just don’t need anything close to what the calculators recommend. I have an amount in mind and a range of incomes that will be more than sufficient to support the lifestyle I want, and I’m saving towards that amount.
We assumed that our spending level would be about the same, except no more need to save for college expenses and retirement.
For about 8 years pre-retirement I tracked our aggregate expenses (credit union monthly “outflow”…. cash + checks + VISA + other withdrawals…. omitting college payments and car purchase). That was our starting point for retirement “income” goal to be covered (via small pensions + SS + 401K withdrawals after tax). That total was reduced a bit after we paid off the mortgage. And it was increased by about same to cover medical (self-pay for my pre-65 medical insurance + medi-gap for husband). We plan to continue to do future car purchases in cash, from other savings/investments.
If you do consult a financial planner, find one who is a fiduciary and fee only (rather than commission).
We consulted with one once. It was helpful. Employer paid it as a benefit. There was no ongoing relationship. She used a calculator like firecalc to estimate whether we would have adequate assets. Projections are always based on assumptions, so the more accurate your assumptions, the better your projections will correlate with reality.