Let's talk about your FI # and family income [Financial Independence]

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Admiral
Posts: 863
Joined: Mon Oct 27, 2014 12:35 pm

Let's talk about your FI # and family income [Financial Independence]

Post by Admiral » Fri Sep 15, 2017 11:36 am

With all this talk (especially on this thread viewtopic.php?f=1&t=227667) about multiples of income/expenses needed for financial independence/retirement, it might be interesting to see the various views on how much is "enough" based on current household income (gross, not net). The reason is that presumably those with lower income have lower expenses and will need less, while those with more will need more.

I am using gross income and not current expenses because Bhs are a self-selecting sample and I think we can agree that most here try to save as much as they possibly can pre-tax while working, as well as keep a good handle on expenses. It will be equally revealing to see very high earners who have a fairly low FI #, which would mean they probably spend very little (and hence will need less).

Please just include current household income (rounded to nearest $10k) and target portfolio value that will allow you to be financially independent. (That doesn't mean you will stop working, only that you could.) Don't include expected future income or pensions, which of course will lower what you need to take from the portfolio.

I will start:

Household income: $250k
Target Portfolio value for FI: $2m

This is a high estimate, and likely we could stop working with more like $1.5m.

rkhusky
Posts: 4405
Joined: Thu Aug 18, 2011 8:09 pm

Re: Let's talk about your FI # and family income

Post by rkhusky » Fri Sep 15, 2017 11:47 am

What's included in your definition of income? See viewtopic.php?t=156155 for Livesoft Adjusted Income, which includes things like employer 401k match, health insurance contributions, etc.

soccerrules
Posts: 174
Joined: Mon Nov 14, 2016 4:01 pm

Re: Let's talk about your FI # and family income

Post by soccerrules » Fri Sep 15, 2017 11:49 am

Household income: $200k
Target Portfolio value for FI: $2.5m
Don't let your outflow exceed your income or your upkeep will be your downfall.

Admiral
Posts: 863
Joined: Mon Oct 27, 2014 12:35 pm

Re: Let's talk about your FI # and family income

Post by Admiral » Fri Sep 15, 2017 11:49 am

rkhusky wrote:
Fri Sep 15, 2017 11:47 am
What's included in your definition of income? See viewtopic.php?t=156155 for Livesoft Adjusted Income, which includes things like employer 401k match, health insurance contributions, etc.
Not adjusted gross. You and your partner's salaries, not including free money like company match. How much you are paid for your job. How's that?

The Wizard
Posts: 11018
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Let's talk about your FI # and family income

Post by The Wizard » Fri Sep 15, 2017 11:57 am

This is a touchy topic since many don't like revealing personal numbers.
Nonetheless, retired 4.5 years at age 67, my AGI, filing single, is in the $130k to $160k range, depending on how much, if any, part-time work I do each year. It was toward the upper end in 2016.
I may start part-time again next month, so maybe middle of that range for 2017.
This includes a Roth conversion amount of about $20k, if that matters.

At age 70 in a few years, my projections show an AGI around $140k including RMDs but no more Roth conversions...
Last edited by The Wizard on Fri Sep 15, 2017 12:19 pm, edited 1 time in total.
Attempted new signature...

elliott908
Posts: 2
Joined: Mon Apr 13, 2015 11:35 am

Re: Let's talk about your FI # and family income

Post by elliott908 » Fri Sep 15, 2017 11:58 am

Household income: $160k
Target Portfolio value for FI: $2.5m

rkhusky
Posts: 4405
Joined: Thu Aug 18, 2011 8:09 pm

Re: Let's talk about your FI # and family income

Post by rkhusky » Fri Sep 15, 2017 12:09 pm

Admiral wrote:
Fri Sep 15, 2017 11:49 am
rkhusky wrote:
Fri Sep 15, 2017 11:47 am
What's included in your definition of income? See viewtopic.php?t=156155 for Livesoft Adjusted Income, which includes things like employer 401k match, health insurance contributions, etc.
Not adjusted gross. You and your partner's salaries, not including free money like company match. How much you are paid for your job. How's that?
The numbers are not going to have much meaning because a $100K gross salary for a self-employed person is quite different than $100K for someone with good company benefits. And someone with a good pension will be financially independent with a smaller portfolio balance.

Dottie57
Posts: 2264
Joined: Thu May 19, 2016 5:43 pm

Re: Let's talk about your FI # and family income

Post by Dottie57 » Fri Sep 15, 2017 12:11 pm

Household income. About 100k
FI. = portfolio of 1.5m. Or more depending on availability of healthinsurance before age 64.

blevine
Posts: 1697
Joined: Sat Feb 27, 2010 3:57 pm
Location: Paradise

Re: Let's talk about your FI # and family income

Post by blevine » Fri Sep 15, 2017 12:25 pm

Never understand why people even look at household income.
If I am unemployed and win the lottery, I think it does matter whether my lottery winnings are $1,000 or $10,000,000
But either way, I have won an infinite multiple of my income.

I see expenses can be correlated with income, but for those of us who believe in LBYM,
not as highly correlated as one might think.

You can increase or decrease your spending in retirement, depends on your goals and how big a pot
you win/inherit/save/steal :-)

msgt
Posts: 7
Joined: Fri Sep 15, 2017 9:45 am

Re: Let's talk about your FI # and family income

Post by msgt » Fri Sep 15, 2017 12:40 pm

HH Income: $250,000
Target: $2.5M

The Wizard
Posts: 11018
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Let's talk about your FI # and family income

Post by The Wizard » Fri Sep 15, 2017 12:49 pm

blevine wrote:
Fri Sep 15, 2017 12:25 pm
Never understand why people even look at household income.
If I am unemployed and win the lottery, I think it does matter whether my lottery winnings are $1,000 or $10,000,000
But either way, I have won an infinite multiple of my income...
In all honesty, most people have difficulty dealing with an infinite multiple of their income...
Attempted new signature...

ved
Posts: 643
Joined: Sat Jan 18, 2014 6:56 pm

Re: Let's talk about your FI # and family income

Post by ved » Fri Sep 15, 2017 12:51 pm

Wouldn't the target FI number depend on the age?
A 30 year old FI number would be much larger than a 60 year old FI number

aristotelian
Posts: 3036
Joined: Wed Jan 11, 2017 8:05 pm

Re: Let's talk about your FI # and family income

Post by aristotelian » Fri Sep 15, 2017 12:53 pm

I think annual expenses are more important than annual income in determining your number. I would be curious to see those numbers too.

Gross income - $125k
----------
Expenses (not including taxes) - $65k
Anticipated SS - $30k
Additional Income Needed - $35k
----------
Number - $1M plus $30k per year of ER = $1.45M (assuming retire at 50).

JBTX
Posts: 1522
Joined: Wed Jul 26, 2017 12:46 pm

Re: Let's talk about your FI # and family income

Post by JBTX » Fri Sep 15, 2017 1:04 pm

Gross Household income varies $150k to $250k. I kind of work irratically off and on.

Expenses - varies also but let's say $120k.

Goal $3 million

We are on track to get there within 10 years barring a catastrophe or major protracted market meltdown.

We could probably do with less but we also want to have substantial amount to leave to kids.

saveinvestbecomefree
Posts: 24
Joined: Thu Jan 05, 2017 8:06 am

Re: Let's talk about your FI # and family income

Post by saveinvestbecomefree » Fri Sep 15, 2017 1:08 pm

I agree with others that income is not the relevant factor, expenses are. There is a wider range in savings rates as a % of income than you might think so a broad survey relative to income will have a lot of variability.

My FI "number" hasn't changed a lot over my working career since my expenses have been surprisingly constant. But my income has grown a lot, especially the last few years. So the main change has been the amount of time to reach FI (about 10 years earlier than planned - note that I made the initial plans in grad school a long time ago so a lot has changed).

My FI number (exceeded now) is about 6x gross income based on current income. A few years ago it would have been 10x gross income. When I started working it would have been 20x. I didn't move my FI target as my income moved up because my current spending provides me a lifestyle I'm happy with.

ScroogeMcDuck
Posts: 34
Joined: Thu Jan 22, 2015 4:25 pm

Re: Let's talk about your FI # and family income

Post by ScroogeMcDuck » Fri Sep 15, 2017 1:12 pm

Do these FI numbers assume a paid-off home?

Last year we grossed about $300k. Assuming a paid-off home, our FI number is around $1.2-1.5 million.

DVMResident
Posts: 1109
Joined: Mon Aug 01, 2011 8:15 pm

Re: Let's talk about your FI # and family income

Post by DVMResident » Fri Sep 15, 2017 1:14 pm

ved wrote:
Fri Sep 15, 2017 12:51 pm
Wouldn't the target FI number depend on the age?
A 30 year old FI number would be much larger than a 60 year old FI number
Surprisingly, the SWR difference at those ages is relatively small (medical coverage in the pre-ACA days and the SS are bigger issues). A 60 year old may use a 4% SWR while a 30 year old probably should use a 3.5% SWR. In other words, a 25x annual expenses vs 28x annual expenses. See the recent pod cast thread, play with FIRECalc, etc.

smitcat
Posts: 673
Joined: Mon Nov 07, 2016 10:51 am

Re: Let's talk about your FI # and family income

Post by smitcat » Fri Sep 15, 2017 1:15 pm

I have found that FI numbers have very little to do with income and everything to do about expenses.
Considering or comparing your FI goals to current income is wasteful at best and misleading at the worst.

Grt2bOutdoors
Posts: 17146
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Let's talk about your FI # and family income

Post by Grt2bOutdoors » Fri Sep 15, 2017 1:21 pm

DVMResident wrote:
Fri Sep 15, 2017 1:14 pm
ved wrote:
Fri Sep 15, 2017 12:51 pm
Wouldn't the target FI number depend on the age?
A 30 year old FI number would be much larger than a 60 year old FI number
Surprisingly, the SWR difference at those ages is relatively small (medical coverage in the pre-ACA days and the SS are bigger issues). A 60 year old may use a 4% SWR while a 30 year old probably should use a 3.5% SWR. In other words, a 25x annual expenses vs 28x annual expenses. See the recent pod cast thread, play with FIRECalc, etc.
3.5% at age 30? I'd think 2.5% if you wanted to be close to bulletproof.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

livesoft
Posts: 56608
Joined: Thu Mar 01, 2007 8:00 pm

Re: Let's talk about your FI # and family income

Post by livesoft » Fri Sep 15, 2017 1:23 pm

Yep, it is all about expenses and almost nothing to do with family income.

And I'll throw out another twist: I think in 2006 our investable assets were about 6X family income and we could have been considered financially independent (we know how to live well below our means). But 2008-2009 our investable assets dropped by an almost 7-figure amount to get us back to the 2006 level. I would like now to always have a million dollars more the minimum necessary to be considered financially independent.
This signature message sponsored by sscritic: Learn to fish.

flyingaway
Posts: 1369
Joined: Fri Jan 17, 2014 10:19 am

Re: Let's talk about your FI # and family income

Post by flyingaway » Fri Sep 15, 2017 1:30 pm

I think a pension will make a big difference.

soccerrules
Posts: 174
Joined: Mon Nov 14, 2016 4:01 pm

Re: Let's talk about your FI # and family income

Post by soccerrules » Fri Sep 15, 2017 1:31 pm

maybe a poll of options would have been better. It is easy for people to get off topic.
I am making the assumption that most BH's (if not all) will agree that focusing you FI# off of your expected expenses is the correct calculation.

I believe the thread was started as a fun consideration to look at Gross Income and FI # -- nothing more.

Interesting to see 3 different FI's # at 2.5M on Gross Incomes of $160K to $250K -- Must come down to expenses :D
Don't let your outflow exceed your income or your upkeep will be your downfall.

EddyB
Posts: 346
Joined: Fri May 24, 2013 3:43 pm

Re: Let's talk about your FI # and family income

Post by EddyB » Fri Sep 15, 2017 1:34 pm

Grt2bOutdoors wrote:
Fri Sep 15, 2017 1:21 pm

3.5% at age 30? I'd think 2.5% if you wanted to be close to bulletproof.
You may be interested in listening to, to reading the transcript of, the interview with Michael Kitces here: http://www.madfientist.com/michael-kitces-interview/

Admiral
Posts: 863
Joined: Mon Oct 27, 2014 12:35 pm

Re: Let's talk about your FI # and family income

Post by Admiral » Fri Sep 15, 2017 1:38 pm

rkhusky wrote:
Fri Sep 15, 2017 12:09 pm
Admiral wrote:
Fri Sep 15, 2017 11:49 am
rkhusky wrote:
Fri Sep 15, 2017 11:47 am
What's included in your definition of income? See viewtopic.php?t=156155 for Livesoft Adjusted Income, which includes things like employer 401k match, health insurance contributions, etc.
Not adjusted gross. You and your partner's salaries, not including free money like company match. How much you are paid for your job. How's that?
The numbers are not going to have much meaning because a $100K gross salary for a self-employed person is quite different than $100K for someone with good company benefits. And someone with a good pension will be financially independent with a smaller portfolio balance.
Well sure. But as I noted I am operating under the assumption that this self-selecting Bh sample is going to save as much as possible and live within their means. I would assume that most on the board save (or aspire to save) 15% of their income [EDIT: AT LEAST 15%]. Someone who's self employed will clear less and live on less than someone with the same salary who works for Widgetco. Ergo, their FI will likely be lower. We can't control for every variable; this isn't a peer-reviewed research paper, it's just a survey. :)

The problem with using expenses--which I agree are important when it comes to retirement--is that they are all over the place. Someone making $300k could live on $60k, and someone making 100k may live on $70k. The point of using income is to see where one's goals are relative to the goals of others with similar incomes. It's easy to reduce expenses in retirement, less easy to earn a lot more money than one has. Therefor there must be a general "safe harbor" that people use, based on their present income. I am already finding it interesting that those who earn much less feel that they need significantly more than I do. And I save a lot! Perhaps we have different assumptions about market returns.

Regarding the pension, I specifically did not include that. We do expect a sizeable pension but it's 12 years away and since it is underfunded we are not "saving less" and counting on it to live. I agree that if one is two years from retirement then it makes sense to count it, but presumably that person is very close to FI anyway.

Jack FFR1846
Posts: 5769
Joined: Tue Dec 31, 2013 7:05 am

Re: Let's talk about your FI # and family income

Post by Jack FFR1846 » Fri Sep 15, 2017 1:45 pm

I honestly think my numbers are meaningless in the context the OP presents them.

Why?

Our family has lived off of $50k a year for the last 20 years. Sure....inflation occurred but our mortgage got paid off during that time. Salary is about 3 times that. Liquid savings currently about $2.1MM. If pressed for a "I'd quit" number, I'd put it at $3MM. So live on 1.7% of liquid retirement savings.
Bogle: Smart Beta is stupid

WanderingDoc
Posts: 291
Joined: Sat Aug 05, 2017 8:21 pm

Re: Let's talk about your FI # and family income

Post by WanderingDoc » Fri Sep 15, 2017 1:48 pm

W-2 income: $12.5K/mo. post-tax
Rental real estate income : $3.5-4K/mo.
Expenses: ~$4K/mo.

Rental income alone already covers my basic expenses, although I plan on working for at least a few more years
as I only recently finished residency and don't have any kids yet.

I was thinking to transfer some real estate equity to mutual funds down the road, if I can be sure that I'll
the same monthly income from them.
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

Admiral
Posts: 863
Joined: Mon Oct 27, 2014 12:35 pm

Re: Let's talk about your FI # and family income

Post by Admiral » Fri Sep 15, 2017 1:49 pm

livesoft wrote:
Fri Sep 15, 2017 1:23 pm
Yep, it is all about expenses and almost nothing to do with family income.

And I'll throw out another twist: I think in 2006 our investable assets were about 6X family income and we could have been considered financially independent (we know how to live well below our means). But 2008-2009 our investable assets dropped by an almost 7-figure amount to get us back to the 2006 level. I would like now to always have a million dollars more the minimum necessary to be considered financially independent.
Here's the thing, though. In GENERAL, people's expenses rise as their incomes rise. Not always, of course, but when you have more, you tend to spend more. You may also save more. But I would venture to guess that few people on this board who make $400,000 a year live on $5,000 a month. That's my guess, I'm sure some cardiologist will post about his 1987 Chevette. The point (which I make above) is that people's expenses are tied in some manner to their incomes. COULD they live on rice and beans? Of course. But many choose not to. Therefore, if we assume that spending is in some way correlated to income, then it stands to reason that savings for the future is also tied to income.

livesoft
Posts: 56608
Joined: Thu Mar 01, 2007 8:00 pm

Re: Let's talk about your FI # and family income

Post by livesoft » Fri Sep 15, 2017 1:56 pm

Oh, I dunno about assuming too much. Once you have everything, you don't have to spend that much.
This signature message sponsored by sscritic: Learn to fish.

JBTX
Posts: 1522
Joined: Wed Jul 26, 2017 12:46 pm

Re: Let's talk about your FI # and family income

Post by JBTX » Fri Sep 15, 2017 2:15 pm

Admiral wrote:
Fri Sep 15, 2017 1:49 pm
livesoft wrote:
Fri Sep 15, 2017 1:23 pm
Yep, it is all about expenses and almost nothing to do with family income.

And I'll throw out another twist: I think in 2006 our investable assets were about 6X family income and we could have been considered financially independent (we know how to live well below our means). But 2008-2009 our investable assets dropped by an almost 7-figure amount to get us back to the 2006 level. I would like now to always have a million dollars more the minimum necessary to be considered financially independent.
Here's the thing, though. In GENERAL, people's expenses rise as their incomes rise. Not always, of course, but when you have more, you tend to spend more. You may also save more. But I would venture to guess that few people on this board who make $400,000 a year live on $5,000 a month. That's my guess, I'm sure some cardiologist will post about his 1987 Chevette. The point (which I make above) is that people's expenses are tied in some manner to their incomes. COULD they live on rice and beans? Of course. But many choose not to. Therefore, if we assume that spending is in some way correlated to income, then it stands to reason that savings for the future is also tied to income.
What you are saying is true, but the main issue I have is income for some (like us) can jump up and down a bit, of one or both is self employed. Our expenses do tend to follow, but they follow more slowly.

Grt2bOutdoors
Posts: 17146
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Let's talk about your FI # and family income

Post by Grt2bOutdoors » Fri Sep 15, 2017 2:20 pm

EddyB wrote:
Fri Sep 15, 2017 1:34 pm
Grt2bOutdoors wrote:
Fri Sep 15, 2017 1:21 pm

3.5% at age 30? I'd think 2.5% if you wanted to be close to bulletproof.
You may be interested in listening to, to reading the transcript of, the interview with Michael Kitces here: http://www.madfientist.com/michael-kitces-interview/
When Kitces provides a guarantee backing the claim, maybe I'll buy it. Until then, take everything with a big grain of salt, because when/if the Black Swan appears, I can guarantee you the "experts" will either be long gone or saying "how was I supposed to know". The easiest way to ensure your portfolio and by extension your income lasts as long as you would like is to discount the rate (you select the percentage). Of course, that may mean saving more or possibly ending up with money at the end of your life but it sure beats the alternative.

I'm always skeptical of folks who espouse strategies that they design that will protect you or provide you with something "extra". Curiously enough, I don't see any disclosure on their website of how well those strategies worked out in 2008-2009. (if you can find it and it meets/complies with GIPS standards, post it). He's a partner in that firm so he must believe in that philosophy as well and those fees seem to be much higher. http://www.pinnacleadvisory.com/investment-philosophy/
Last edited by Grt2bOutdoors on Fri Sep 15, 2017 2:43 pm, edited 2 times in total.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
Posts: 17146
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Let's talk about your FI # and family income

Post by Grt2bOutdoors » Fri Sep 15, 2017 2:21 pm

Admiral wrote:
Fri Sep 15, 2017 1:49 pm
livesoft wrote:
Fri Sep 15, 2017 1:23 pm
Yep, it is all about expenses and almost nothing to do with family income.

And I'll throw out another twist: I think in 2006 our investable assets were about 6X family income and we could have been considered financially independent (we know how to live well below our means). But 2008-2009 our investable assets dropped by an almost 7-figure amount to get us back to the 2006 level. I would like now to always have a million dollars more the minimum necessary to be considered financially independent.
Here's the thing, though. In GENERAL, people's expenses rise as their incomes rise. Not always, of course, but when you have more, you tend to spend more. You may also save more. But I would venture to guess that few people on this board who make $400,000 a year live on $5,000 a month. That's my guess, I'm sure some cardiologist will post about his 1987 Chevette. The point (which I make above) is that people's expenses are tied in some manner to their incomes. COULD they live on rice and beans? Of course. But many choose not to. Therefore, if we assume that spending is in some way correlated to income, then it stands to reason that savings for the future is also tied to income.
Not on the Bogleheads forum, here when you earn more, you defer more or when you can't defer, invest more. :wink:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

ved
Posts: 643
Joined: Sat Jan 18, 2014 6:56 pm

Re: Let's talk about your FI # and family income

Post by ved » Fri Sep 15, 2017 2:24 pm

Admiral wrote:
Fri Sep 15, 2017 1:49 pm
livesoft wrote:
Fri Sep 15, 2017 1:23 pm
Yep, it is all about expenses and almost nothing to do with family income.

And I'll throw out another twist: I think in 2006 our investable assets were about 6X family income and we could have been considered financially independent (we know how to live well below our means). But 2008-2009 our investable assets dropped by an almost 7-figure amount to get us back to the 2006 level. I would like now to always have a million dollars more the minimum necessary to be considered financially independent.
Here's the thing, though. In GENERAL, people's expenses rise as their incomes rise. Not always, of course, but when you have more, you tend to spend more. You may also save more. But I would venture to guess that few people on this board who make $400,000 a year live on $5,000 a month. That's my guess, I'm sure some cardiologist will post about his 1987 Chevette. The point (which I make above) is that people's expenses are tied in some manner to their incomes. COULD they live on rice and beans? Of course. But many choose not to. Therefore, if we assume that spending is in some way correlated to income, then it stands to reason that savings for the future is also tied to income.
The bolded blue text (by me) is not necessarily true. It maybe true when you are starting out in your career. But, after a while, especially getting into 40s and 50s, just because your income is increasing doesn't mean that the expenses will increase (proportionally or otherwise). Sure, you may go out for more dinners, stay at an even nicer hotel if you choose to, but these expenses wouldn't amount to much when compared to your overall expenses(if not overdone).

So, I think, expenses (especially after you have settled in life) are a better indicator than income for predicting FI amount needed.
Plus if you are looking at gross income, taxes come into play a big time - which could be drastically different in retirement

Admiral
Posts: 863
Joined: Mon Oct 27, 2014 12:35 pm

Re: Let's talk about your FI # and family income

Post by Admiral » Fri Sep 15, 2017 2:32 pm

ved wrote:
Fri Sep 15, 2017 2:24 pm
Admiral wrote:
Fri Sep 15, 2017 1:49 pm
livesoft wrote:
Fri Sep 15, 2017 1:23 pm
Yep, it is all about expenses and almost nothing to do with family income.

And I'll throw out another twist: I think in 2006 our investable assets were about 6X family income and we could have been considered financially independent (we know how to live well below our means). But 2008-2009 our investable assets dropped by an almost 7-figure amount to get us back to the 2006 level. I would like now to always have a million dollars more the minimum necessary to be considered financially independent.
Here's the thing, though. In GENERAL, people's expenses rise as their incomes rise. Not always, of course, but when you have more, you tend to spend more. You may also save more. But I would venture to guess that few people on this board who make $400,000 a year live on $5,000 a month. That's my guess, I'm sure some cardiologist will post about his 1987 Chevette. The point (which I make above) is that people's expenses are tied in some manner to their incomes. COULD they live on rice and beans? Of course. But many choose not to. Therefore, if we assume that spending is in some way correlated to income, then it stands to reason that savings for the future is also tied to income.
The bolded blue text (by me) is not necessarily true. It maybe true when you are starting out in your career. But, after a while, especially getting into 40s and 50s, just because your income is increasing doesn't mean that the expenses will increase (proportionally or otherwise). Sure, you may go out for more dinners, stay at an even nicer hotel if you choose to, but these expenses wouldn't amount to much when compared to your overall expenses(if not overdone).

So, I think, expenses (especially after you have settled in life) are a better indicator than income for predicting FI amount needed.
Plus if you are looking at gross income, taxes come into play a big time - which could be drastically different in retirement
I have a private school tuition bill and a child who is talking about college who might disagree... :moneybag Hope the incomes keep pace! BTW I am 46.

EddyB
Posts: 346
Joined: Fri May 24, 2013 3:43 pm

Re: Let's talk about your FI # and family income

Post by EddyB » Fri Sep 15, 2017 2:42 pm

Grt2bOutdoors wrote:
Fri Sep 15, 2017 2:20 pm
EddyB wrote:
Fri Sep 15, 2017 1:34 pm
Grt2bOutdoors wrote:
Fri Sep 15, 2017 1:21 pm

3.5% at age 30? I'd think 2.5% if you wanted to be close to bulletproof.
You may be interested in listening to, to reading the transcript of, the interview with Michael Kitces here: http://www.madfientist.com/michael-kitces-interview/
When Kitces provides a guarantee backing the claim, maybe I'll buy it. Until then, take everything with a big grain of salt, because when/if the Black Swan appears, I can guarantee you the "experts" will either be long gone or saying "how was I supposed to know". The easiest way to ensure your portfolio and by extension your income lasts as long as you would like is to discount the rate (you select the percentage). Of course, that may mean saving more or possibly ending up with money at the end of your life but it sure beats the alternative.
I take the part in bold with a big grain of salt, too, which is why the related decisions are so difficult.

HornedToad
Posts: 674
Joined: Wed May 21, 2008 12:36 am

Re: Let's talk about your FI # and family income

Post by HornedToad » Fri Sep 15, 2017 2:44 pm

Admiral wrote:
Fri Sep 15, 2017 11:49 am
rkhusky wrote:
Fri Sep 15, 2017 11:47 am
What's included in your definition of income? See viewtopic.php?t=156155 for Livesoft Adjusted Income, which includes things like employer 401k match, health insurance contributions, etc.
Not adjusted gross. You and your partner's salaries, not including free money like company match. How much you are paid for your job. How's that?
Bonus? RSU's? I'm assuming they count since cash. Effectively W2 income?

Grt2bOutdoors
Posts: 17146
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Let's talk about your FI # and family income

Post by Grt2bOutdoors » Fri Sep 15, 2017 2:44 pm

^^ @Eddy - Read my post that was edited as you were posting". You may need a whole can of salt for taking what blogs post.
Last edited by Grt2bOutdoors on Fri Sep 15, 2017 2:45 pm, edited 1 time in total.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

EddyB
Posts: 346
Joined: Fri May 24, 2013 3:43 pm

Re: Let's talk about your FI # and family income

Post by EddyB » Fri Sep 15, 2017 2:44 pm

HornedToad wrote:
Fri Sep 15, 2017 2:44 pm
Admiral wrote:
Fri Sep 15, 2017 11:49 am
rkhusky wrote:
Fri Sep 15, 2017 11:47 am
What's included in your definition of income? See viewtopic.php?t=156155 for Livesoft Adjusted Income, which includes things like employer 401k match, health insurance contributions, etc.
Not adjusted gross. You and your partner's salaries, not including free money like company match. How much you are paid for your job. How's that?
Bonus? RSU's? I'm assuming they count since cash. Effectively W2 income?
What about my rental duplex?

Grt2bOutdoors
Posts: 17146
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Let's talk about your FI # and family income

Post by Grt2bOutdoors » Fri Sep 15, 2017 2:46 pm

EddyB wrote:
Fri Sep 15, 2017 2:44 pm
HornedToad wrote:
Fri Sep 15, 2017 2:44 pm
Admiral wrote:
Fri Sep 15, 2017 11:49 am
rkhusky wrote:
Fri Sep 15, 2017 11:47 am
What's included in your definition of income? See viewtopic.php?t=156155 for Livesoft Adjusted Income, which includes things like employer 401k match, health insurance contributions, etc.
Not adjusted gross. You and your partner's salaries, not including free money like company match. How much you are paid for your job. How's that?
Bonus? RSU's? I'm assuming they count since cash. Effectively W2 income?
What about my rental duplex?
It only earns, if you have active renters. If it's vacant, now you have an expense until you find renters.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

DVMResident
Posts: 1109
Joined: Mon Aug 01, 2011 8:15 pm

Re: Let's talk about your FI # and family income

Post by DVMResident » Fri Sep 15, 2017 2:53 pm

Grt2bOutdoors wrote:
Fri Sep 15, 2017 2:20 pm
EddyB wrote:
Fri Sep 15, 2017 1:34 pm
Grt2bOutdoors wrote:
Fri Sep 15, 2017 1:21 pm

3.5% at age 30? I'd think 2.5% if you wanted to be close to bulletproof.
You may be interested in listening to, to reading the transcript of, the interview with Michael Kitces here: http://www.madfientist.com/michael-kitces-interview/
When Kitces provides a guarantee backing the claim, maybe I'll buy it. Until then, take everything with a big grain of salt, because when/if the Black Swan appears, I can guarantee you the "experts" will either be long gone or saying "how was I supposed to know". The easiest way to ensure your portfolio and by extension your income lasts as long as you would like is to discount the rate (you select the percentage). Of course, that may mean saving more or possibly ending up with money at the end of your life but it sure beats the alternative.

I'm always skeptical of folks who espouse strategies that they design that will protect you or provide you with something "extra". He's a partner in that firm so he must believe in that philosophy as well and those fees seem to be much higher. http://www.pinnacleadvisory.com/investment-philosophy/
The impact of extended draw downs have been covered in other threads, but here's some high level results:
Image
Image
If you'd like to dive into more discussion on details/methods, we can start another thread (this is turning into a hackjack; sorry OP).

bigred77
Posts: 1916
Joined: Sat Jun 11, 2011 4:53 pm

Re: Let's talk about your FI # and family income

Post by bigred77 » Fri Sep 15, 2017 3:01 pm

Household income is about 185k

My goal portfolio to consider myself FI is about $2M in today's dollars. My goal portfolio to retire is about $5M in today's dollars because I want to live pretty high on the hog once I stop working. If I hit 55 and am still working, I'll retire and make due with what I've got. We'll see how the next couple of decades play out.

NYC_Guy
Posts: 165
Joined: Fri Mar 10, 2017 2:23 pm
Location: New York

Re: Let's talk about your FI # and family income

Post by NYC_Guy » Fri Sep 15, 2017 3:02 pm

Grt2bOutdoors wrote:
Fri Sep 15, 2017 2:21 pm
Admiral wrote:
Fri Sep 15, 2017 1:49 pm
livesoft wrote:
Fri Sep 15, 2017 1:23 pm
Yep, it is all about expenses and almost nothing to do with family income.

And I'll throw out another twist: I think in 2006 our investable assets were about 6X family income and we could have been considered financially independent (we know how to live well below our means). But 2008-2009 our investable assets dropped by an almost 7-figure amount to get us back to the 2006 level. I would like now to always have a million dollars more the minimum necessary to be considered financially independent.
Here's the thing, though. In GENERAL, people's expenses rise as their incomes rise. Not always, of course, but when you have more, you tend to spend more. You may also save more. But I would venture to guess that few people on this board who make $400,000 a year live on $5,000 a month. That's my guess, I'm sure some cardiologist will post about his 1987 Chevette. The point (which I make above) is that people's expenses are tied in some manner to their incomes. COULD they live on rice and beans? Of course. But many choose not to. Therefore, if we assume that spending is in some way correlated to income, then it stands to reason that savings for the future is also tied to income.
Not on the Bogleheads forum, here when you earn more, you defer more or when you can't defer, invest more. :wink:
Or not. I smile when a Boglehead assumes that being a Boglehead means having low expenses or frugality. I'm a Boglehead, but my annual expenses are not low. And I'm not frugal.

Grt2bOutdoors
Posts: 17146
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Let's talk about your FI # and family income

Post by Grt2bOutdoors » Fri Sep 15, 2017 3:07 pm

NYC_Guy wrote:
Fri Sep 15, 2017 3:02 pm
Grt2bOutdoors wrote:
Fri Sep 15, 2017 2:21 pm
Admiral wrote:
Fri Sep 15, 2017 1:49 pm
livesoft wrote:
Fri Sep 15, 2017 1:23 pm
Yep, it is all about expenses and almost nothing to do with family income.

And I'll throw out another twist: I think in 2006 our investable assets were about 6X family income and we could have been considered financially independent (we know how to live well below our means). But 2008-2009 our investable assets dropped by an almost 7-figure amount to get us back to the 2006 level. I would like now to always have a million dollars more the minimum necessary to be considered financially independent.
Here's the thing, though. In GENERAL, people's expenses rise as their incomes rise. Not always, of course, but when you have more, you tend to spend more. You may also save more. But I would venture to guess that few people on this board who make $400,000 a year live on $5,000 a month. That's my guess, I'm sure some cardiologist will post about his 1987 Chevette. The point (which I make above) is that people's expenses are tied in some manner to their incomes. COULD they live on rice and beans? Of course. But many choose not to. Therefore, if we assume that spending is in some way correlated to income, then it stands to reason that savings for the future is also tied to income.
Not on the Bogleheads forum, here when you earn more, you defer more or when you can't defer, invest more. :wink:
Or not. I smile when a Boglehead assumes that being a Boglehead means having low expenses or frugality. I'm a Boglehead, but my annual expenses are not low. And I'm not frugal.
Well, there are exceptions. We do have a few uber-spenders here as well.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Olemiss540
Posts: 188
Joined: Fri Aug 18, 2017 8:46 pm

Re: Let's talk about your FI # and family income

Post by Olemiss540 » Fri Sep 15, 2017 3:16 pm

smitcat wrote:
Fri Sep 15, 2017 1:15 pm
I have found that FI numbers have very little to do with income and everything to do about expenses.
Considering or comparing your FI goals to current income is wasteful at best and misleading at the worst.
Seems to be the most popular response at bogleheads.

OP: Hypothetical question
POSTER 2: That hypothetical question is nonsensical, you should have asked XXXX
POSTER 3: But if someone was XXX (another hypothetical situation), wouldn't they word the question as YYYY?
OP: Thanks much for humoring my original question and have a nice day!

livesoft
Posts: 56608
Joined: Thu Mar 01, 2007 8:00 pm

Re: Let's talk about your FI # and family income

Post by livesoft » Fri Sep 15, 2017 3:32 pm

NYC_Guy wrote:
Fri Sep 15, 2017 3:02 pm
livesoft wrote:
Fri Sep 15, 2017 1:23 pm
Yep, it is all about expenses and almost nothing to do with family income.
I smile when a Boglehead assumes that being a Boglehead means having low expenses or frugality. I'm a Boglehead, but my annual expenses are not low. And I'm not frugal.
You will see I did not make the assumption about the size of expenses. :) <- That's me smiling along with you. :)
This signature message sponsored by sscritic: Learn to fish.

itstoomuch
Posts: 4724
Joined: Mon Dec 15, 2014 12:17 pm
Location: midValley OR

Re: Let's talk about your FI # and family income

Post by itstoomuch » Fri Sep 15, 2017 3:43 pm

No Idea. Lots of reasons.
1. Wife and I keep separate checking accounts.
2. Variable expenses for medical and dental. I have medical issues. She has dental.
3. We have a 1 rental that does OK and held for investment for heir. We take the income but count only 75% of rents for vacancies, HOA and possible expenses. We recently acquired another condo that has a negative ROI which We liquidated Roths and Discretionary Taxable $$ for the downpayment. We will eventually use the 2nd condo and sell/rent present home. I do not yet know the depreciation for this property.
4. Deferred GLWB (redundant description) Variable and Fixed-Indexed annuities where we can start and stop income draws. I am stopping the VA draw and starting the Fixed-Index Annuity draw for RMD purposes.
5. I am resuming Discretionary IRA account trading. Entirely Discretionary funds.

Our retirement is an Income model not an Investment model. Our minimum FR>1.1.
FI and SWR have small meaning in our circumstances.
YMMV :annoyed
Last edited by itstoomuch on Fri Sep 15, 2017 3:56 pm, edited 1 time in total.
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

smitcat
Posts: 673
Joined: Mon Nov 07, 2016 10:51 am

Re: Let's talk about your FI # and family income

Post by smitcat » Fri Sep 15, 2017 3:47 pm

Olemiss540 wrote:
Fri Sep 15, 2017 3:16 pm
smitcat wrote:
Fri Sep 15, 2017 1:15 pm
I have found that FI numbers have very little to do with income and everything to do about expenses.
Considering or comparing your FI goals to current income is wasteful at best and misleading at the worst.
Seems to be the most popular response at bogleheads.

OP: Hypothetical question
POSTER 2: That hypothetical question is nonsensical, you should have asked XXXX
POSTER 3: But if someone was XXX (another hypothetical situation), wouldn't they word the question as YYYY?
OP: Thanks much for humoring my original question and have a nice day!
As I posted - the relationship between the current income and the FI number is most often not that helpful.
There are just too many variables to have it be of any real guidance. When you think about the few metrics that may really help someone with their planning or position in life - this s not one of them.
When we have been helped along in the past with our financials the income to FI number was not relative.
When we have been fortunate enough to help others that relationship has not been helpful either.
Since all of us are naturally limited in the metrics we collect, analyze and act on its best to choose wisely before spending too much time with them.

Perhaps that is why bogleheads seem to have a common answer ...

The Wizard
Posts: 11018
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Let's talk about your FI # and family income

Post by The Wizard » Fri Sep 15, 2017 4:01 pm

NYC_Guy wrote:
Fri Sep 15, 2017 3:02 pm

Or not. I smile when a Boglehead assumes that being a Boglehead means having low expenses or frugality. I'm a Boglehead, but my annual expenses are not low. And I'm not frugal.
I don't think that's the presumption here.
It's more that you are living within your means and saving a decent amount, usually 20% or more depending on age...
Attempted new signature...

retire57
Posts: 321
Joined: Fri Oct 28, 2016 3:03 pm

Re: Let's talk about your FI # and family income

Post by retire57 » Fri Sep 15, 2017 4:26 pm

Our income has varied widely over our careers while our expenses have not. It never occurred to us to determine our multiple using any number other than average annual expenditure. Doesn't make any sense.

User avatar
Tyrobi
Posts: 660
Joined: Thu Jun 04, 2009 12:29 pm
Location: Florida
Contact:

Re: Let's talk about your FI # and family income

Post by Tyrobi » Fri Sep 15, 2017 8:14 pm

Household income: $180k
Target Portfolio value for FI: $2.3m
Three-fund portfolio | "Simplicity is the master key to financial success." John C. Bogle

BanquetBeer
Posts: 137
Joined: Thu Jul 13, 2017 5:57 pm

Re: Let's talk about your FI # and family income

Post by BanquetBeer » Fri Sep 15, 2017 9:04 pm

My part of income: $165k
My half of expenses: $55k (+taxes)
My part of intended retirement goal: $3.9mm (2017 dollars)

To me retirement planning will include marriage risk. Don't want to get divorced and have to go back to work because I can't make expenses on my own. Little to no risk I would loose assets if we get divorced based on joint income and savings.

Post Reply