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Mrs. Groovy and I have a very comfortable life. In addition to having a beautiful home sitting on three and a half acres, we also have great family and friends, want for nothing, and give and travel extensively.
Yep, it’s good to be the Groovies right now. And the remarkable thing about our comfortable life is that it doesn’t take a princely sum to bankroll.
In our first four years of retirement, our average annual spending has amounted to $41,734. And of that sum, only $16,281 on average has gone to basic life necessities—defined here as food, shelter, transportation, utilities, insurance, taxes, and a little fun money for dining out and entertainment. In our typical year of retirement, then, we’ve had $25,453 to spend on hobbies, travel, giving, and whatever oopsie comes up.
Part of the reason our income goes so far is that we live in a moderately taxed state. Property taxes on Groovy Ranch are $1,834 annually. But the main reason our income goes so far is that we have no debt. Our house and car are paid off, our student loans were vanquished years ago, and we pay off our credit cards in full every month.
But what if Mrs. Groovy and I weren’t weird? What if we had a mortgage, car loans, and student loans? How much income would we need to spend $42,000 annually on things other than debt?
To find out, I came up with the following comparison couple:
- College-educated husband and wife living outside of Raleigh, North Carolina
- They have a monthly mortgage payment equal to the North Carolina average ($1,290)
- They both have car payments equal to the average car payment for a used car ($397)
- They both have monthly student loan payments equal to the North Carolina average ($282)
- And they both have W2 jobs and take home 70 percent of their gross salaries
The following chart shows what our comparison couple would need to make in order to have the same non-debt purchasing power as me and Mrs. Groovy. The chart also shows what our comparison couple would need to make if they wanted to save ten percent of their income for retirement.
| Couple | Annual Spending Less Spending on Debt | Annual Mortgage Payments | Annual Car Payments | Annual Student Loan Payments | 401K Contributions (10 Percent of Income) | Total Annual Spending | Income Needed for Total Annual Spending |
|---|---|---|---|---|---|---|---|
| The Groovies | $42,000 | $0.00 | $0.00 | $0.00 | $0.00 | $42,000 | $42,000 |
| Comparison Couple | $42,000 | $15,480 | $9,528 | $6,768 | $0.00 | $73,776 | $105,394 |
| Comparison Couple Saving for Retirement | $42,000 | $15,480 | $9,528 | $6,768 | $11,800 | $85,566 | $117,194 |
Mrs. Groovy and I have a built-in advantage because our pension and dividends aren’t subject to FICA taxes. They are subject to federal and state income taxes and we pay those taxes four times a year via estimated tax payments. So for us to spend $42,000 annually, our pension and dividends need to equal $42,000.
Our comparison couple isn’t so fortunate. Whatever they spend comes from paychecks that have been diluted by income and FICA taxes. So for them to spend $42,000 annually on things other than debt, their combined W2 salaries would need to equal $60,000.
But, sadly, our comparison couple isn’t debt-free. For them to spend what we spend annually, and pay for their mortgage, car loans, and student loans, their combined W2 salaries would need to equal $105,394. And if they wanted to put ten percent of their household income toward retirement, their combined W2 salaries would need to equal $117,194.
Living Above Your Means the Right Way
My fellow FIRE enthusiasts are very adamant that people should live below their means. But I think that’s hogwash. The goal of every FIRE enthusiast should actually be to live above his or her means—but in a fiscally responsible way, of course.
And how does one live above one’s means in a fiscally responsible way?
Vanquish debt. You vanquish debt and your dollars are able to do amazing things. As the above exercise demonstrates, our $42,000 has the same purchasing power as another couple’s $105,394.
I routinely pinch myself when I consider some of the things Mrs. Groovy and I have purchased thus far in retirement. Eleven thousand dollars for a concrete driveway? No problem. Over $10,000 for a month’s vacation in Australia? No worries, mate. Six thousand dollars for a couple of crowns and a root canal? Oh, well. And $2,000 for a frivolous welding hobby? Why not?
Mrs. Groovy and I have a lower-middle-class income at best, and, yet, we can comfortably afford an upper-middle-class lifestyle. That’s the dollar-stretching power of having no debt.
Final Thoughts
Okay, groovy freedomist, that’s all I got. What say you? Should “live above your means” be the new rallying cry of the FIRE community? Or should “live below your means” remain our bread-and-butter mantra? Let me know what you think when you get a chance. Peace.
Enjoyed this one.
I have no debt and just made the last payment to my tiler on a 21K remodelling of my ensuite (for aesthetics) and boys’ bathroom (for water damage).
Touch wood, this is the last major remodelling job to get my house ‘retirement-ready.’
Having no debt payments going out enables me to get things like this done without stressing about it.
Now I’m off to take the dogs for a morning walk on the beach. Loving retirement!
Well said, Mr Groovy. Debt eats at your wealth like termites would destroy your deck. Way too often consumers fall into the trap of “if we can afford the monthly payments, we must be OK”.
Well put. I think “live above your means” is good in some regards. Like anything worth having in life, there are compromises and tradeoffs and you live lean in other areas.
Being able to afford the upfront cost for a concrete driveway means you don’t have to constantly pay for gravel or deal with blacktop.
The welding hobby and going to weddings, keeps you physically active which can have benefits down the road.
Debt is a “silent killer” along with monthly insurance payments. If you can keep those two costs to a minimum, it’s easy to save and enjoy life.
We’re still trying to find that balance ourselves.
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Great illustration. You left of credit card debt from your chart which further erodes spending power of the typical family.
We also have no debt but our basic living expenses are much higher than yours; granted we live in Texas and our real estate tax is more than 3X yours, but WOW not sure how you guys do it. I’d be curious to see a rough breakdown of your living expenses. Enjoyed your post and look forward to reading more. Thanks
I’ve never thought if it this way, but once again you’ve taken a widely held assumption and turned it on its ear. We’re living at a spending rate comparable to yours, a little higher due to the cost of living here in Oregon, but in the ballpark. My pension didn’t cover it, so we take the rest from our Vanguard taxable account, as we have for the 3 years we’ve been retired. And, even though we are living above our means, by some magic our portfolio balance just keps increasing! We recently bought a house and, after deliberating on whether to pay cash or not, we decided to try an experiment we read about on Mad Fientist where we have an “offset fund” equal to the mortgage amount. Just for kicks.
Man, I’d hate to be that comparison couple you mentioned….
Great insight, Mr. G.
This term “living with one’s means” is a slippery one b/c it does not account for people’s wise or foolish buying decisions. If I buy groceries at the quickie mart vs Walmart I’m paying more for less. If I buy a house or education on debt, I’m paying up to 3x more than the other guy paying cash.
Debt can be modeled as paying premium added to the price negotiated for the good or service. And it’s a premium based on the term of the loan. When you accelerate repayment you can reduce the interest paid. But it’s not as dramatic a savings as when you pay cash.
How the debt is incurred is important. If it’s for an appreciating asset, you can argue that the increased value of the asset offsets the cost of interest.
Not a lot of debt is used to acquire these things. More debt is for declining assets. How much is that fairy-tale wedding worth 7 years hence? Or that degree in post-colonial gender-normalized grievance studies?
Even STEM degrees are of declining value given the fact nobody’s writing Pascal or Fortran these days.
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“And $2,000 for a frivolous welding hobby? Why not?”
Woah, woah, woah! What if Becky Sue heard you talking like that? Welded bisons, much like fostered puppies, help to keep the body and mind invigorated. A crucial cornerstone for all good FIRE plans.
“My fellow FIRE enthusiasts are very adamant that people should live below their means. But I think that’s hogwash. The goal of every FIRE enthusiast should actually be to live above his or her means—but in a fiscally responsible way, of course.”
Just quoting this here in case anyone missed it 😀
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We have no debt, even lower property taxes but more expensive hobbies. Country club membership and lots of road trips for team tennis, bush whacking, hiking, fishing, marathons and off roading. Lots of hotels, cabins, air bnb’s and lots of car mileage and fuel. We spend more but we are having fun doing it and we still spend much less than we could afford.
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