Simple Work life balance formula

[repoman0]

Organic boneless chicken thighs are $4.79/lb at the high end grocery store in my very high cost of living area. I also regularly buy 5 lb packs of non-organic chicken thighs for my dog for $15 or less. Skip the red meat more often which is terrible for your body and the environment anyway and you can eat really well for cheap.

 

[Scarpozzi]

Organic boneless chicken thighs are $4.79/lb at the high end grocery store in my very high cost of living area. I also regularly buy 5 lb packs of non-organic chicken thighs for my dog for $15 or less. Skip the red meat more often which is terrible for your body and the environment anyway and you can eat really well for cheap.

A lot of people are still doing grocery pickups and deliveries. If you skip the in-store pickup options around here, you can walk through the stores and often scope out the non-published specials. Just after Christmas, my local Kroger was unloading all of their canned vegetables....4 can packs for $1.35. They also had Campbell's soup for $.50/can.
Meat is always a weekly thing to see what's on sale. If you're not afraid of buying a whole chicken and cutting it up with shears or buying bone-in stuff, you can save a bunch of money. Everyone is lazy these days because off-site meat processing has limited both supply and demand within the storefronts.

Some items in the store have really gone up in price the past few years, but you can supplement your budget by doing a few tricks. Example: I tend to buy those Tikka Masala sauces when I see them discounted (because we don't have many people here eating Indian cuisine). I end up using the sauce as a starter. I toss a diced onion, chickpeas, and chicken thighs in the Instant Pot. My trick is I'll dice up a sweet potato or russet potato to add starch and make it go further. You can add a single potato to a pot like that and get a full extra serving out of it.....same for soups.

During Thanksgiving/Christmas, they tend to heavily discount Turkey and Hams...I'll often buy an extra bird or roast while they're $.49-.99/lb and toss it in the freezer for January/February. For the ham, you can get split peas or lentils and use the roast to make a hearty soup. So for $12 in ham/beans you can end up with maybe 20-25 meal portions.

Not saying you have to be super frugal all the time. It's just cool to save when you can. The more frugal we are (all of us), the more it might help bring prices back in check. If we continue to pay high prices, the market will set the prices high.

 

[nakedfrog]

Did this simple formula originate before housing prices shot up over the last few years?

 

[dullard]

Formula: cost of Basic expenses = discretionary expenses...

That formula sounds just made up out of thin air. What is the justification for that? Why shouldn't a person have more or less discretionary expenses than that?

I prefer the 85% rule. Spend 85% of your income, save 15% for retirement. The reason for that is if you get an average return on your investments and have an average lifespan, then you can retire at the same lifestyle as you had when you worked. You don't have to suddenly scrimp and save every penny once you retire. And you don't needlessly suffer with too little discretionary spending while you work.

That 15% includes Social Security (~6%) and your work's match of your 401k (or equivalent) if they apply to your situation. So, you really don't have to save too much. If your work matches up to 3%, and SS is 6%, you only need to save 6% of your income. Blow the rest on fun stuff.

 

[WilliamM2]

That formula sounds just made up out of thin air. What is the justification for that? Why shouldn't a person have more or less discretionary expenses than that?

I prefer the 85% rule. Spend 85% of your income, save 15% for retirement. The reason for that is if you get an average return on your investments and have an average lifespan, then you can retire at the same lifestyle as you had when you worked. You don't have to suddenly scrimp and save every penny once you retire. And you don't needlessly suffer with too little discretionary spending while you work.

That 15% includes Social Security (~6%) and your work's match of your 401k (or equivalent) if they apply to your situation. So, you really don't have to save too much. If your work matches up to 3%, and SS is 6%, you only need to save 6% of your income. Blow the rest on fun stuff.

That sems a bit simple too. You should be saving for more than retirement. And why spend everything else? For instance, in 2016 I needed a new HVAC system, then found out we also needed a new roof. It was done wrong previously.
So you also need regular savings for unexpected costs. We had been saving about 50% (not counting retirement fund) ever since the house was paid off, so no problem there.

 

[dullard]

That sems a bit simple too. You should be saving for more than retirement. And why spend everything else? For instance, in 2016 I needed a new HVAC system, then found out we also needed a new roof. It was done wrong previously.
So you also need regular savings for unexpected costs. We had been saving about 50% (not counting retirement fund) ever since the house was paid off, so no problem there.

Of course you have to divide that 85% into separate categories. Some of that 85% will be maintenance on your house. Some of the 85% will be savings for future expenses. That is to be expected.

Why spend it? Because otherwise you are slaving away for it simply to go to taxes and to others when you die. It just isn't a good use of your time/money. You aren't living enough now. You are working too hard, too long, and not enjoying the fruits of that labor. I've seen way, way too many people die just after retirement (friends, my-father-in-law, and neighbors), having scrimped and saved their whole life for a retirement that they never had. I've also seen the opposite: people who spend everything and have nothing once their bodies give out and they can't work any more. 15% saved is a nice balance of the two extremes. Adjust it if you want, but most likely your life will be out of balance if you adjust it too much.

 

[purbeast0]

Why spend it? Because otherwise you are slaving away for it simply to go to taxes and to others when you die. It just isn't a good use of your time/money. You aren't living enough now. You are working too hard, too long, and not enjoying the fruits of that labor. I've seen way, way too many people die just after retirement (friends, my-father-in-law, and neighbors), having scrimped and saved their whole life for a retirement that they never had. I've also seen the opposite: people who spend everything and have nothing once their bodies give out and they can't work any more. 15% saved is a nice balance of the two extremes. Adjust it if you want, but most likely your life will be out of balance if you adjust it too much.

This is EXACTLY why I travel as much as I can now.

My dad never made it to retirement and died at the age of 57.

I'm 42 now and when I travel I love to chill and relax on the beach but I also like to be active and dive/snorkel. In 20 years, my body isn't going to be the same as it is now and doing those things may not be as simple as it is right now physically. I plan to stay active and fit my entire life, but aging is a real thing and your body breaks down as you get older.

 

[repoman0]

Of course you have to divide that 85% into separate categories. Some of that 85% will be maintenance on your house. Some of the 85% will be savings for future expenses. That is to be expected.

Why spend it? Because otherwise you are slaving away for it simply to go to taxes and to others when you die. It just isn't a good use of your time/money. You aren't living enough now. You are working too hard, too long, and not enjoying the fruits of that labor. I've seen way, way too many people die just after retirement (friends, my-father-in-law, and neighbors), having scrimped and saved their whole life for a retirement that they never had. I've also seen the opposite: people who spend everything and have nothing once their bodies give out and they can't work any more. 15% saved is a nice balance of the two extremes. Adjust it if you want, but most likely your life will be out of balance if you adjust it too much.

You don’t have to keep slaving away. My wife and I save the majority of our income so that we can fuck off and quit by 40-45. We still take nice trips and buy occasional nice things and don’t worry too much but I think 45 year old me will be happy to be able to quit and volunteer my time or plant trees or something instead rather than look back on more trinkets or cars or whatever.

 

[JEDI]

That sems a bit simple too. You should be saving for more than retirement. And why spend everything else?
For instance, in 2016 I needed a new HVAC system, then found out we also needed a new roof. It was done wrong previously.
So you also need regular savings for unexpected costs. We had been saving about 50% (not counting retirement fund) ever since the house was paid off, so no problem there.

I'm relying totally on 401k/roth/pension for my retirement.
But I'm not calculating social security.

For the big 1 time items (hvac, roof, another car, etc), i'll make up that $ with social security later in life

 

[JEDI]

Why spend it? Because otherwise you are slaving away for it simply to go to taxes and to others when you die. It just isn't a good use of your time/money. You aren't living enough now. You are working too hard, too long, and not enjoying the fruits of that labor.

I've seen way, way too many people die just after retirement (friends, my-father-in-law, and neighbors), having scrimped and saved their whole life for a retirement that they never had. I've also seen the opposite: people who spend everything and have nothing once their bodies give out and they can't work any more. 15% saved is a nice balance of the two extremes. Adjust it if you want, but most likely your life will be out of balance if you adjust it too much.

Hence my simple formula Basic expenses = discretionary expenses.
Forces people to spend some $ on fun instead of over saving when they're young.

It's simple and easy to understand thus more likely they'll do it.
You work hard to pay for these expenses. Play hard as well at an equal amount.

Where did you get 15% as the savings mark to aim for?

hm.. if the employer gives a 6% match, then you only need to put 9% into your 401k for that 15%.
I don't count social security. That's my reserve $ incase i need it.

 

[WilliamM2]

I'm relying totally on 401k/roth/pension for my retirement.
But I'm not calculating social security.

For the big 1 time items (hvac, roof, another car, etc), i'll make up that $ with social security later in life

But expenses like that don't come "later in life". They come unexpectedly. Could be tomorrow.
Two years before that is was a new drainfield AND well. Big expenses never really end. They do take an occasional break...knock on wood.

I'm glad I didn't rely on 401k entirely for retirement. My employer closed up shop last year (2022). So savings enabled me to retire early if I want. I am not old enough to get SS, and can't touch my rollover IRA quite yet, without penalty. Haven't decided if I retired yet, but I probably have.

 

[Muse]

I'm not always in a situation where I can properly predict that I'm going to have beans at x time tomorrow so I can start soaking them today, so cans work find. Even with the increased cost, the $.50/lb or whatever difference isn't what's breaking the bank, it's everything else.

The fact that even stew meat is $6/lb is pretty ghastly.

If it's real lean, I'm 100% AOK with it. Cook beef long enough and it's tender, doesn't matter what cut it is. And stew meat makes the best ground beef: a tip from my lifetime butcher uncle. He said just pick it out at the market and ask the butcher to grind it for you (free!). Maybe I could, but I get mine at Costco and have never bothered to ask them to grind it for me, I grind it myself if I want ground beef. Mostly, I make a great stew with it.

 

[dave_the_nerd]

And hopefully free nursing home care

My dad and grandpa both have state guaranteed-benefit pensions. (Public school teacher and college prof.) That money should be sufficient to pay for a decent care facility. (My grandpa is in one now and between the pension and SS, he's more or less breaking even.)

My grandpa is 90. He tried to be a good husband and take care of my grandma when her health started to fail. It was hard. It was a lot harder than it needed to be and her health suffered as a result. When she had a heart attack he called the EMTs and they called social services because of... reasons.

Getting them into the nursing facility where her medication could be monitored/adjusted and she could be taken care of by trained professionals when she had problems, made her last few months a lot more dignified, and it was a lot off my grandpa's plate.

So anyway, my dad is 65. No need yet, and he's rural so even odds he'll stroke out while shoveling snow or something anyway. But if/when I need to, I'm not going to be shy about getting him into a retirement village type place - there's a bunch of nice ones around here. Excellent reviews. And whenever some Alzheimer's patient wanders off, the whole city pull out all the stops searching for them. (Helicopters, the whole bit. It gets cold here and the cops don't fuck around.)

 

[JEDI]

My dad and grandpa both have state guaranteed-benefit pensions. (Public school teacher and college prof.)
That money should be sufficient to pay for a decent care facility. (My grandpa is in one now and between the pension and SS, he's more or less breaking even.)

pension + ss will pay for a decent nursing home?
in nyc, it costs about $100k/yr.
my mom retired from nyc board of education and i dont think her pension + ss will pay completely for a nursing home.

Fortunately, she doesnt need it yet but she's close to going to assisted living, which her pension + ss will cover.

 

[WilliamM2]

pension + ss will pay for a decent nursing home?
in nyc, it costs about $100k/yr.
my mom retired from nyc board of education and i dont think her pension + ss will pay completely for a nursing home.

Fortunately, she doesnt need it yet but she's close to going to assisted living, which her pension + ss will cover.

I agree. Here in Northern Michigan it was almost $6k a month for a care facility in 2010 for my Mom, over $7k when she passed in 2019. It was not a very nice facility either, AND had a waiting list.

 

[dullard]

Hence my simple formula Basic expenses = discretionary expenses.
Forces people to spend some $ on fun instead of over saving when they're young.

It's simple and easy to understand thus more likely they'll do it.
You work hard to pay for these expenses. Play hard as well at an equal amount.

Your formula has a decent goal: to balance fun and savings. But I still don't see it working for very many people.

1) The poor or those who live in expensive areas (or both) live paycheck to paycheck. They can barely pay for their basic expenses. I really can't see them coming up with any possible way to cut their minimal basic expenses in half to have that much discretionary spending. That just isn't possible.

2) The wealthy or those who are closer to retirement can actually have small basic expenses. Think about when the house and cars are paid off. The basic expenses are tiny once you reach that point. Your formula says these people should only have tiny discretionary expenses. That just doesn't make sense.

Take me for example. I'm a DINK. Dual income, no kids. I have my house paid off and my cars paid off. I installed solar power, so my utilities are negligible. I have a garden that covers a lot (but certainly not all) of my food. Your formula says since my basic expenses are nearly $0, that I should spend nearly $0 on fun stuff despite my and my wife's income.

 

[dullard]

Where did you get 15% as the savings mark to aim for?

It is just a simple rule-of-thumb that I came up with. It just relies on the concept that you want to retire with roughly the same available yearly money as you had before retirement. That you don't want to live like a king at 64 and a pauper at 65 (or visa-versa). I've been spouting it off here for well over a decade if you want to search "15%" and my name to see more discussion about it. But below is how to derive it.

1) If your wages are W, and you save R as a percent of your wages each year, then you get to live on W*(1-R) to pay for your daily expenses. For example, W=$100,000 and R=15%, then you can live on $100,000 * (1-0.15) = $85,000 a year. Then you pay for taxes, expenses, fun, etc. out of that $85,000. The other R*W = $15,000 gets invested for the future each year.

2) If you save R*W every year, then after Y years, you will have (R*W/i)*[(1+i)^(Y+1)-1] in your retirement account when you retire. Here 'i' is the geometric average of your yearly investment returns. I'll save you the gory math that gets that formula.

3) A rule-of-thumb is that you can withdraw about x=5% of your retirement account each year. Yes, there are debates if you should be extra conservative and go with 4%, or more realistically you can usually be fine at 6%. https://www.morningstar.com/news/marketwatch/20231117283/goodbye-4-rule-hello-6-rule So, you can withdraw (R*W*x/i)*[(1+i)^(Y+1)-1] each year to spend in retirement on taxes, expenses, fun, etc.

So, I put all those ideas together. What if the money you had when working was the same as when you retire? That way your standard of living is the same before and after. In that case, the amount you get to live on while working from equation (1) is equal to the amount you can withdraw after retirement from equation (3). Then solve for R, the percentage that you need to save each year for retirement. Saving you the gory math details:

R = (i / x) / [(1 + i)^(Y + 1)+(i / x) - 1]

Notice that R does not depend at all on how much you earn (W). Thus it is income independent. It works for the poor, the average bloke, and the wealthy. For the same reason, R is not dependent on inflation if you assume your wage goes up with the rate of inflation (which, yes is a big assumption, but I don't want to make this post even harder to follow).

Plug in any numbers you choose. Here is an example. Suppose someone earned an average 7.5% return (a fairly normal return to expect on investments). Suppose that person works and saves properly for Y = 30 years (not everyone can invest every year or work consistently every possible year, so 30 years of investing seems reasonable). Suppose that person withdraws x = 5% per year. Then:

R = (0.075 / 0.05) / [(1 + 0.075)^(30 + 1)+(0.075 / 0.05) - 1] = 15.1%. Google math link: https://www.google.com/search?q=(0....AQD4AQL4AQHiAwQYACBBiAYB&sclient=gws-wiz-serp

Fiddle with the numbers, i, x, and Y all you want. The end result will change a bit, but not much. Unless you only save for a very short time (like @repoman0 explained) or expect unusual investment returns, the end result is usually in the 10% to 20% range, with ~15% being the result in many cases.

 

[dave_the_nerd]

pension + ss will pay for a decent nursing home?
in nyc, it costs about $100k/yr.
my mom retired from nyc board of education and i dont think her pension + ss will pay completely for a nursing home.

Fortunately, she doesnt need it yet but she's close to going to assisted living, which her pension + ss will cover.

He's in a place in a suburb just north of Chicago; it's about $6/month, which is about what his pension and SS combine to give him. His level of care is like a 2 out of 5 or something, so it could be cheaper (if he wasn't losing his memory) but he could also be a lot worse off and need a lot more help (which would be more expensive.)

It's a pretty nice place. Came highly recommended by several people.

 

[Lost_in_the_HTTP]

These holding facilities/waiting rooms should never get a dime more than the insurance covers.

 

[JEDI]

3) A rule-of-thumb is that you can withdraw about x=5% of your retirement account each year. Yes, there are debates if you should be extra conservative and go with 4%, or more realistically you can usually be fine at 6%. https://www.morningstar.com/news/marketwatch/20231117283/goodbye-4-rule-hello-6-rule So, you can withdraw (R*W*x/i)*[(1+i)^(Y+1)-1] each year to spend in retirement on taxes, expenses, fun, etc.

So, I put all those ideas together. What if the money you had when working was the same as when you retire? That way your standard of living is the same before and after. In that case, the amount you get to live on while working from equation (1) is equal to the amount you can withdraw after retirement from equation (3). Then solve for R, the percentage that you need to save each year for retirement. Saving you the gory math details:

R = (i / x) / [(1 + i)^(Y + 1)+(i / x) - 1]

Notice that R does not depend at all on how much you earn (W). Thus it is income independent. It works for the poor, the average bloke, and the wealthy. For the same reason, R is not dependent on inflation if you assume your wage goes up with the rate of inflation (which, yes is a big assumption, but I don't want to make this post even harder to follow).

Plug in any numbers you choose. Here is an example. Suppose someone earned an average 7.5% return (a fairly normal return to expect on investments). Suppose that person works and saves properly for Y = 30 years (not everyone can invest every year or work consistently every possible year, so 30 years of investing seems reasonable). Suppose that person withdraws x = 5% per year. Then:

R = (0.075 / 0.05) / [(1 + 0.075)^(30 + 1)+(0.075 / 0.05) - 1] = 15.1%. Google math link: https://www.google.com/search?q=(0.075+/+0.05)+/+[(1+++0.075)^(30+++1)+(0.075+/+0.05)+-+1]+&sca_esv=595552587&sxsrf=AM9HkKml2Khu_tiVvoja1zqW2ikH3jmoLA:1704338434315&ei=AiSWZbbeEsimqtsPw5idwAc&ved=0ahUKEwi259C348KDAxVIk2oFHUNMB3gQ4dUDCBA&uact=5&oq=(0.075+/+0.05)+/+[(1+++0.075)^(30+++1)+(0.075+/+0.05)+-+1]+&gs_lp=Egxnd3Mtd2l6LXNlcnAiOygwLjA3NSAvIDAuMDUpIC8gWygxICsgMC4wNzUpXigzMCArIDEpKygwLjA3NSAvIDAuMDUpIC0gMV0gMgUQIRirAkjkA1AAWABwAHgBkAEAmAGbAaABmwGqAQMwLjG4AQPIAQD4AQL4AQHiAwQYACBBiAYB&sclient=gws-wiz-serp

Fiddle with the numbers, i, x, and Y all you want. The end result will change a bit, but not much. Unless you only save for a very short time (like @repoman0 explained) or expect unusual investment returns, the end result is usually in the 10% to 20% range, with ~15% being the result in many cases.

So 5% safe withdraw rate, with a slight chance you might run out of $ before you die if you live 30yrs past retirement.

with a 4% safe withdraw rate, you should die with about the same amount of $ you entered retirement with, minus the buying power from inflation.
ie: You will never run out of $.
(No back testing of any 30yr period has ever run out of $ at swr = 4%)

I'll take your word on the math about saving 15% of your salary pretax is optimum.

Where did you come up with social security is 9% of that? Social security and medicare tax is 12% (your share employer's share combined)

edit:
How about this?
Save 15% pretax and spend the rest with amount $ expenses ≤ amount $ for discretionary

 

[Lost_in_the_HTTP]

That's probably close to what I did while still working and paying taxes.

 

[dullard]

So 5% safe withdraw rate, with a slight chance you might run out of $ before you die if you live 30yrs past retirement.

with a 4% safe withdraw rate, you should die with about the same amount of $ you entered retirement with, minus the buying power from inflation.
ie: You will never run out of $.
(No back testing of any 30yr period has ever run out of $ at swr = 4%)

I'll take your word on the math about saving 15% of your salary pretax is optimum.

Where did you come up with social security is 9% of that? Social security and medicare tax is 12% (your share employer's share combined)

edit:
How about this?
Save 15% pretax and spend the rest with amount $ expenses ≤ amount $ for discretionary

The x=5% is a variable in my math. You can set it to 4% if you wish. But that in almost all cases means you die with lots of leftover money. Same formula with a 4% withdraw gets 18% to save for 30 years. 18% is not that much different from 15%. Google math

Alternately, you can withdraw at 4% and save 15%, but you just need to invest fully for 33 years instead of 30. 33 year math

I never said SS is 9%. I said 6% which is roughly half of the amount withheld for payroll taxes, the other half is Medicare. You will have to come up with a way to save the other 9% through some combination of your own money and/or your employer's match.

 

[JEDI]

The x=5% is a variable in my math. You can set it to 4% if you wish. But that in almost all cases means you die with lots of leftover money. Same formula with a 4% withdraw gets 18% to save for 30 years. 18% is not that much different from 15%. Google math

Alternately, you can withdraw at 4% and save 15%, but you just need to invest fully for 33 years instead of 30. 33 year math

die with lots of $ left over @ swr = 4%?

hm.. lets say your expenses are $30k/yr.
4% swr = $750k.

so yeah if 4% swr, then you will die with your starting balance of at least mid 6 figures after 30yrs.
Depends on your risk tolerance.
I'd rather die with $750k than running out of $ after 30yrs.

On the other hand, i can see (lots of) people thinking it's a low probability that you're going to run out of $ and chances are you're not going to live long enough for 30yrs in retirement.

 

[JEDI]

I never said SS is 9%. I said 6% which is roughly half of the amount withheld for payroll taxes, the other half is Medicare. You will have to come up with a way to save the other 9% through some combination of your own money and/or your employer's match.

Ahh.. sorry.. 6% for SS instead of 9%.
but it's only ~1.5% Medicare. And employer also contributes 6% ss and 1.5% medicare So 12% SS.

From your 15% savings formula, you already have 12% from SS.
hm.. but that's assuming you take SS at full retirement age of 67.
it'll be 30% lower at age 62 so 12% x .7 = 8%.

A little 401k with employer match would get you to the 15% if drawing at age 62 and icing on the cake at age 67?

 

[dullard]

die with lots of $ left over @ swr = 4%?

hm.. lets say your expenses are $30k/yr.
4% swr = $750k.

so yeah if 4% swr, then you will die with your starting balance of at least mid 6 figures after 30yrs.
Depends on your risk tolerance.
I'd rather die with $750k than running out of $ after 30yrs.

On the other hand, i can see (lots of) people thinking it's a low probability that you're going to run out of $ and chances are you're not going to live long enough for 30yrs in retirement.

The safe withdrawal rate has been 4.0% to 6.5% for every period studied for retiring from 1970 onwards. That assumes a 30 year time horizon and 90% chance of success. And it isn't like it is as bleak as your $750k leftover vs running out statement makes it out to be. If your investments suck or you have bad luck, just lower your withdrawal rate a bit. You'll have ~30 years to adjust your withdrawals to avoid either extreme.

I guess that I'm just not that worried about retiring at 67 and a 10% chance of running out of investments at age 97. I'd still have SS and Medicaid to fall back on. And that 10% chance is only if I blindly spend for those 30 years without any reactions to the actual conditions around me.

But, hey, if 4% scares you, just save 15% per year for 37 years instead (age 30 to 67) and withdraw at a 3% rate.