Author Topic: FI vs FIRE - Does being less frugal work, too?  (Read 1522 times)

lifeplus

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FI vs FIRE - Does being less frugal work, too?
« on: January 29, 2019, 09:18:48 PM »
My wife and I are high income earners. We save about 20% of our income and plan to do more now that we're thinking FI. However, the idea of FIRE seems like it might not be in alignment with what we're shooting for. I've come to understand that in order to maximize the tax benefits of FIRE one needs to have expenses down to no more than $50kish annually. That's hard for me to fathom at the moment, but I'm trying.

I own two businesses and make great cashflow from them. I work from home Mon - Thursday 9am - 2:45pm. I walk my daughter to school every day. I pick her up and get to spend the afternoons with her non stop (she's 7). I have unlimited paid time off and can work from anywhere (remote 99% of the time). I feel like I have the freedom, but not the independence to fully unplug for more than a few weeks at a time.

Questions:
1. Does the 4% rule work for high income earners? Say I have $3MM in VTSAX and pull 3.5 - 4% a year from it, would that work the same way I hear explained here or would that not work?
2. Can one utilize the Roth conversion ladder going from high income to retirement? Or would I have to wait until I'm 59 1/2 to access those funds?

Thanks in advance.

terran

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #1 on: January 29, 2019, 09:55:14 PM »
This site and mustachianism definitely has a frugal element to it. The founder of the site makes no secret of the fact that he's on a "secret" environmental mission. Basically, many around here, including myself, believe that removing oneself from the hedonistic consumer treadmill is not a sacrifice to reach a better life through FIRE, but is rather a way to a better life in its own right with FIRE being a happy added bonus.

That said, there's nothing about FIRE itself that requires a certain level of spending or frugality. It's all about the difference between what you spend and what you earn. A 20% savings rate is pretty anemic around here though. You'll have to up your game (lower spending, higher earning, or both) if you hope for anything better than standard age retirement.

The 4% (or whatever percent you're comfortable with) rule doesn't change with taxes because you need to include taxes as part of your spending. If you have higher spending requirements you'll have to withdraw more from tax deferred accounts and realize more capital gains so the tax portion of your spending will also be higher. Your withdrawal rate still applies though.

The Roth conversion ladder works at any income level. You'll need more available outside of tax deferred (either Roth contributions or taxable) to pay the higher taxes on the larger conversions to avoid penalties, and to live off of during the first five years while you get the ladder going. Unless you have an unusually large amount of tax deferred space, you'll need to be saving much more than the limits to retire early with a large spend, so that will need to go in taxable which can be accessed any time without restrictions. Self employed retirement plans for both spouses could qualify as an unusually large amount of tax deferred space if you make enough to be allowed to fully max them out at $56k each. 

Fat FIRE is the term you're looking for. Here's a Reddit board about it: https://www.reddit.com/r/fatFIRE


lifeplus

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #2 on: January 29, 2019, 10:11:41 PM »
Thanks @terran I appreciate the response.

I could do the frugal no problem. My wife, on the other hand... I'm waiting for the "Playing with FIRE" doc to launch. I just finished the book and think she'll get a lot out of seeing that. I've sent her some ChooseFI podcasts as well, and she's warming up, but does NOT want to move to a smaller place, or a cheaper area (We live in the SF Bay Area).

I didn't realize that the expenses X 25 included taxes. That's a different game all together. That'll definitely require changing tacks in a good way.

Are there resources/coaches that work in the FI space that are recommended to help people dig in a little better? I get the basics, but think I'd like to get more specific.


terran

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #3 on: January 29, 2019, 10:41:54 PM »
I didn't realize that the expenses X 25 included taxes. That's a different game all together. That'll definitely require changing tacks in a good way.

To be very clear, 25x does NOT include taxes, you need to include taxes as an expense. Figure out how much you want to be able to spend, then figure out how much you need before taxes to be able to pay your taxes and spend that amount. That's the amount you multiply by 25 (or whatever withdrawal rate you're comfortable with).

Malkynn

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #4 on: January 30, 2019, 06:21:36 AM »
Thanks @terran I appreciate the response.

I could do the frugal no problem. My wife, on the other hand... I'm waiting for the "Playing with FIRE" doc to launch. I just finished the book and think she'll get a lot out of seeing that. I've sent her some ChooseFI podcasts as well, and she's warming up, but does NOT want to move to a smaller place, or a cheaper area (We live in the SF Bay Area).

I didn't realize that the expenses X 25 included taxes. That's a different game all together. That'll definitely require changing tacks in a good way.

Are there resources/coaches that work in the FI space that are recommended to help people dig in a little better? I get the basics, but think I'd like to get more specific.

Um....you're here. This *is* your best resource.

Ask your questions and the extremely informed members here will give you incredibly valuable information.

Be prepared to be scrutinized/criticized/face punched and if you don't take it personally or get offended by the opinions of strangers on the internet, then you will learn everything you need to know with remarkable efficiency because almost every reply will have years of research behind it. The replies that don't will quickly get ripped to shreds by those who know better.

You honestly cannot ask for a better resource than this place. So grab your pull-ups and be a big kid now and brace yourself because getting yelled at here is the best personal finance education you will ever get.

Also, yes, obviously this whole thing works with being less frugal, that's called normal retirement. The less you save, the later you retire, the more you save, the quicker you retire. The concepts behind how you retire though don't change, just the timeline does.

And yes, of course you have to account for taxes. Everyone does.

Vertical Mode

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #5 on: January 30, 2019, 06:46:06 AM »
Thanks @terran I appreciate the response.

I could do the frugal no problem. My wife, on the other hand... I'm waiting for the "Playing with FIRE" doc to launch. I just finished the book and think she'll get a lot out of seeing that. I've sent her some ChooseFI podcasts as well, and she's warming up, but does NOT want to move to a smaller place, or a cheaper area (We live in the SF Bay Area).

I didn't realize that the expenses X 25 included taxes. That's a different game all together. That'll definitely require changing tacks in a good way.

Are there resources/coaches that work in the FI space that are recommended to help people dig in a little better? I get the basics, but think I'd like to get more specific.

Um....you're here. This *is* your best resource.

Ask your questions and the extremely informed members here will give you incredibly valuable information.

Be prepared to be scrutinized/criticized/face punched and if you don't take it personally or get offended by the opinions of strangers on the internet, then you will learn everything you need to know with remarkable efficiency because almost every reply will have years of research behind it. The replies that don't will quickly get ripped to shreds by those who know better.

You honestly cannot ask for a better resource than this place. So grab your pull-ups and be a big kid now and brace yourself because getting yelled at here is the best personal finance education you will ever get.

Also, yes, obviously this whole thing works with being less frugal, that's called normal retirement. The less you save, the later you retire, the more you save, the quicker you retire. The concepts behind how you retire though don't change, just the timeline does.

And yes, of course you have to account for taxes. Everyone does.

RE: the bolded part - I agree with Malkynn that this is probably the best *free* resource out there. Lot of people around here that really know this stuff inside and out. If you do decide you'd like 1 on 1 consulting above and beyond what can be found here, I think Justin from Root of Good does some sort of financial consulting as a side project (also, his blog is pretty interesting if you have a chance to read it). The other idea could be to submit a case study, either here on this forum or to another PF blog, and have the readership at-large mull things over with you a bit.

The other blog I'd recommend if you haven't already found it is Our Next Life. Tanja and Mark don't really identify as "frugal" per se, and they made it to FIRE as high earners starting from a situation that sounds in some ways a lot like yours. Might be some inspiration to be found there even if they're not quite your flavor, but also Tanja has a knack for identifying potential weakpoints of a plan and tempering optimism with reality where needed.

In any case, it sounds like you're on the right track and are asking the right kind of questions. Good luck to you!

Laura33

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #6 on: January 30, 2019, 08:42:54 AM »
Hi and welcome.  We are you, probably a few decades down the road -- high-earners, decent-but-never-truly-Mustachian savings rates, and jobs we pretty much enjoy and so don't feel compelled to quit.  We are early 50s now and FI but plan to keep working until both kids are off to college.  Oh, and I am much more frugal than DH, although he has spent a lot of years training that out of me.  Even so, there are certain things I do not ever want to give up, because I grew up poor and worked hard specifically so I never had to do those things again.  Things like clean the damn toilets.  90%+ of the people here roll their eyes at the thought of hiring a housecleaner, but they haven't kicked me out yet.   

Here's the thing:  this is the best site on the web, even for people like us.  Because it forces you to challenge your assumptions all. the. time.  It teaches you to reframe everything as a tradeoff of money vs. time, to really think hard about what you "need" and what makes you happy and what's worth it.  So, for ex., I've done the math to figure out how much longer I'd need to work to fund a cleaning service forever, and I am 100% happy to work those few extra months to cover that (in fact, I already have).  So no one gives me shit about it, because it is a conscious, planned decision.  I also drive a StupidCar, which is completely anti the ethos here.  But I just fucking love driving, and I waited and saved until I was FI and had retirement and college and everything else covered and could write a check for it.  Honestly, people should give me more shit about that than they do.  But they seem to recognize that it is important to me and actually makes me happyhappyhappy every time I drive it vs. mindless hedonic-treadmill consumption, and they seem to accept that that is my choice, even if they think it is the stupidest possible thing in the world to spend money on.* 

You know why this is the best site on the web for high-earners?  Because we have the means to get really, super lazy and to throw money at every problem and generally fritter away our lives in sloth and mindless consumption.  But there is power in doing for yourself.  There is power in knowing that you are capable of planting a garden, or repairing a broken door, or making jam, or changing your oil, or mowing your own yard, or lifting a heavier weight than you thought possible at your age, or whatever.  There is power in challenging your brain and your body to try new things that you didn't think you could do. 

And there is value in choosing to live in a neighborhood and home and follow a lifestyle that is consistent with your values -- which means you have to pay attention to what those values are.  This place makes you think about that kind of stuff on a regular basis and challenge yourself to consider whether you actually enjoy something or are just doing it because it is easier, blingier, whatev-ier.  And just that process -- the process of living intentionally -- automatically makes your life better no matter what choice you end up making.

*Which I freely admit it is.  But I'm still not giving it up.  Ever.** 

**Or at least until I physically cannot drive a stick any more.

lifeplus

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #7 on: January 30, 2019, 09:52:13 AM »
@terran - isn't that basically expenses + tax on that amount X 25= FI?

@Malkynn - Big-boy pullups on! Thanks for the caveat. So far things have been supper supportive here, but I am accustomed to the occasional flame and can see the silver lining in any feedback/input.

@Vertical Mode - Thanks a ton for that. It's great to read that I am in the right spot. I can feel there's a lot of psychology behind retirement that I'm happy to be thinking about now in my life. It's the topic of conversation with my wife and I, too and it's great to be slowly working towards alignment in our vision for our future. I'll simply keep asking lots of questions as you noted. Also, thank you for the great resources. I'm checking them out now.

@Laura33 - Thanks for being open and honest. That definitely makes it feel like I AM in the right place here. I love your notion of being here is, "being reminded" of what truly makes one happy. I'm a very values based person, always have been.

Silly question: What does "DH" stand for? I've read that on many posts now.

The thing with my businesses that is always on my mind is how long they will/can last. My first has been going for 14 years. It's been great, but it's not a guarantee that it will be here in another 5, 10, 14+ so I'm making sure I'm not leaning on either of my companies to be my "golden ticket" to FI. They easily could be, but I want a plan that doesn't put so much of my future to chance.



Laura33

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #8 on: January 30, 2019, 09:57:13 AM »
DH = "dear husband."  Or, you know, "damn husband" depending on the day/mood.  ;-)

terran

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #9 on: January 30, 2019, 10:06:51 AM »
@terran - isn't that basically expenses + tax on that amount X 25= FI?

Yes, if that's what you meant I'm sorry for correcting you.

Well, I guess technically it's (expenses + tax on that amount) X 25= FI to get the order of operations right :-)

I've seen people think they need to save 25x their spending without considering taxes since they don't really see them coming out of their paycheck. This is only true for those who spend little enough that their withdrawals won't be taxed. Of course, this can still be a crap ton of money if it's coming from the right sources ($24k from traditional, any amount from Roth, and whatever amount comes from taxable such that the gains don't go over around $78k and a married couple won't pay any federal tax).

Malkynn

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #10 on: January 30, 2019, 10:09:38 AM »
@terran - isn't that basically expenses + tax on that amount X 25= FI?

Yes, if that's what you meant I'm sorry for correcting you.

Well, I guess technically it's (expenses + tax on that amount) X 25= FI to get the order of operations right :-)

I've seen people think they need to save 25x their spending without considering taxes since they don't really see them coming out of their paycheck. This is only true for those who spend little enough that their withdrawals won't be taxed. Of course, this can still be a crap ton of money if it's coming from the right sources ($24k from traditional, any amount from Roth, and whatever amount comes from taxable such that the gains don't go over around $78k and a married couple won't pay any federal tax).

Yeah, I've seen this too where people just ignored taxes in their retirement savings goal, and I'm like "what kind of delusional magical thinking bullshit is this??"

chasesfish

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #11 on: January 30, 2019, 10:14:23 AM »
The short answer to your question is yes!  The longer answer is you're probably looking for the group/cult(ha!) known as fatFIRE.  Lief over at Physician on FIRE is probably the leader of said cult.

https://www.physicianonfire.com/fatfire/

I probably sit somewhere between the mustachians and the fatFIRE folks, we hit our FI number and I chose to use the flexibility to take a huge corporate promotion and try my skills out on the corporate jungle gym.  After a couple of years, I decided this wasn't my thing but have stayed on the company payroll while working through some health issues for my better half and backed into the fatFIRE cult.

terran

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #12 on: January 30, 2019, 10:24:37 AM »
@terran - isn't that basically expenses + tax on that amount X 25= FI?

Yes, if that's what you meant I'm sorry for correcting you.

Well, I guess technically it's (expenses + tax on that amount) X 25= FI to get the order of operations right :-)

I've seen people think they need to save 25x their spending without considering taxes since they don't really see them coming out of their paycheck. This is only true for those who spend little enough that their withdrawals won't be taxed. Of course, this can still be a crap ton of money if it's coming from the right sources ($24k from traditional, any amount from Roth, and whatever amount comes from taxable such that the gains don't go over around $78k and a married couple won't pay any federal tax).

Yeah, I've seen this too where people just ignored taxes in their retirement savings goal, and I'm like "what kind of delusional magical thinking bullshit is this??"

Lol, yes. Although, like I said for the low spenders on the forum paying little or no tax in retirement really isn't that hard.

How do you only have 77 posts? I feel like I see you posting all the time. Maybe I'm thinking of someone else with an M username.

Malkynn

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #13 on: January 30, 2019, 10:35:23 AM »
@terran - isn't that basically expenses + tax on that amount X 25= FI?

Yes, if that's what you meant I'm sorry for correcting you.

Well, I guess technically it's (expenses + tax on that amount) X 25= FI to get the order of operations right :-)

I've seen people think they need to save 25x their spending without considering taxes since they don't really see them coming out of their paycheck. This is only true for those who spend little enough that their withdrawals won't be taxed. Of course, this can still be a crap ton of money if it's coming from the right sources ($24k from traditional, any amount from Roth, and whatever amount comes from taxable such that the gains don't go over around $78k and a married couple won't pay any federal tax).

Yeah, I've seen this too where people just ignored taxes in their retirement savings goal, and I'm like "what kind of delusional magical thinking bullshit is this??"

Lol, yes. Although, like I said for the low spenders on the forum paying little or no tax in retirement really isn't that hard.

How do you only have 77 posts? I feel like I see you posting all the time. Maybe I'm thinking of someone else with an M username.

I had my entire post history deleted and took a break, but I'm back now.

As for the no tax thing, I'm in Canada where it's very different and yet I still see people here forgetting about taxes.

terran

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #14 on: January 30, 2019, 10:43:57 AM »
I had my entire post history deleted and took a break, but I'm back now.

Ah, that explains that then.

Laura33

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #15 on: January 30, 2019, 11:19:10 AM »
I should also mention that the 4% rule is probably more apt for FatFIRE folks than others, because things like SS will make up a lower percent of our future planned income.  For "traditional" Mustachians, the 4% rule is overly conservative, because they only have to make it to 62 or 67 or 70 or whatever, and then SS will likely cover at least a significant portion of their income needs.  So say you want to FIRE at 45 and will be eligible for $25K in SS at 65.  If your living expenses are $30K, your 'stache needs to cover $30K/yr for 20 years, and then only $5K/yr for the rest of your life.  In this case, the 4% rule significantly overstates what size 'stache you need, because it assumes that you need to provide $30K forever, when in reality 5/6ths of that will be covered by SS for the last half of your life.

OTOH, if your living expenses are $100K, you need to cover $100K/yr for 20 years and then $75K/yr for the rest of your life.  SS will help, but you are still responseible for 75% of your living expenses forever.  In that case, the 4% rule is still conservative, but it is closer to your reality.

bluebelle

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #16 on: January 30, 2019, 02:56:51 PM »
Welcome.....I think you've come to the right place, even if you end up with a FAT FIRE.....I'm 1.5 years off pulling the plug at 56, so I know I'm not retiring early (RE) by this communities definition, but I am by society's definition.   I didn’t discover this sight until a few years ago but I’ve always lived beneath my means (LBYM).  What I’ve really gotten from this site is confirmation and reminders about how important it is to be mindful of spending and ensure that money spent brings joy or fulfillment to your life.   
Many people on this forum can give you great feedback.  I’m not a big face puncher because how you spend your money is your decision…..as long as it’s a conscious decision.
The best advice I can give you is start tracking your spending and putting it into buckets…..that’s how you will truly know how much you need.  We do almost all of our spending on a credit card, so once a month I download the transactions and put them into a rough set of buckets (if I bought it at the grocery store, it’s ‘groceries’ even if I bought tide, if I bought it at walmart it’s ‘home’, even if I bought some food)….we’re high-ish income earners, so without 5 years of spending trends, I’d have never convinced hubby that we can live off less than a third of our gross income…..since you know the ‘experts’ say you need 60-70% of your pre-retirement income to live.  And much like counting calories, once you start tracking your spending, somehow you spend less.  I am not advocating tracking to the penny; you’re not in a hair on fire debt situation.  In my case, if $200 gets pulled out at the ATM, it gets added to the money tracking as ‘cash’, if there was more than 1 of those every month or two, I’d track it closer.
I also track my saving against my net income rather than gross income…..as higher income earner, my government has their hand in my pocket.  Free Canadian healthcare costs me a lot in taxes.  I know my tax rate will be much lower in retirement.  So while you need to include taxes in your retirement expenses, pick the correct tax rate.
Good Luck – and again, Welcome.
If you really want a deep dive and serious help (and probably face punches), submit a case study.  Lots of folks will be happy to tell you how you should be spending your money.

Zikoris

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #17 on: January 30, 2019, 05:18:10 PM »
@terran - isn't that basically expenses + tax on that amount X 25= FI?

Yes, if that's what you meant I'm sorry for correcting you.

Well, I guess technically it's (expenses + tax on that amount) X 25= FI to get the order of operations right :-)

I've seen people think they need to save 25x their spending without considering taxes since they don't really see them coming out of their paycheck. This is only true for those who spend little enough that their withdrawals won't be taxed. Of course, this can still be a crap ton of money if it's coming from the right sources ($24k from traditional, any amount from Roth, and whatever amount comes from taxable such that the gains don't go over around $78k and a married couple won't pay any federal tax).

Yeah, I've seen this too where people just ignored taxes in their retirement savings goal, and I'm like "what kind of delusional magical thinking bullshit is this??"

Lol, yes. Although, like I said for the low spenders on the forum paying little or no tax in retirement really isn't that hard.

How do you only have 77 posts? I feel like I see you posting all the time. Maybe I'm thinking of someone else with an M username.

I had my entire post history deleted and took a break, but I'm back now.

As for the no tax thing, I'm in Canada where it's very different and yet I still see people here forgetting about taxes.

Even in Canada, if you're a very low spender in retirement, you would pay basically no taxes. Run some numbers on a couple where each person is withdrawing maybe 12K/year from investments and you'll see what I mean.

lifeplus

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #18 on: January 30, 2019, 08:46:55 PM »
@bluebelle - thanks for sharing. Indeed, I've been tracking expenses the last 3 months and got real serious about it this month. I'm using Mint and dig it. I have everything in buckets, perhaps too many, but it's working so far. Sitting down tomorrow with my wife (DW) to go over everything. It's quite shocking indeed. I log in once a week to reconcile everything and have noticed I've been spending much less as a result of simply being aware.

I'll get my case study in order before posting, but love that idea. Thanks for that and congrats on the progress. Sounds like you're close.

Malkynn

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Re: FI vs FIRE - Does being less frugal work, too?
« Reply #19 on: January 31, 2019, 04:27:18 AM »
@terran - isn't that basically expenses + tax on that amount X 25= FI?

Yes, if that's what you meant I'm sorry for correcting you.

Well, I guess technically it's (expenses + tax on that amount) X 25= FI to get the order of operations right :-)

I've seen people think they need to save 25x their spending without considering taxes since they don't really see them coming out of their paycheck. This is only true for those who spend little enough that their withdrawals won't be taxed. Of course, this can still be a crap ton of money if it's coming from the right sources ($24k from traditional, any amount from Roth, and whatever amount comes from taxable such that the gains don't go over around $78k and a married couple won't pay any federal tax).

Yeah, I've seen this too where people just ignored taxes in their retirement savings goal, and I'm like "what kind of delusional magical thinking bullshit is this??"

Lol, yes. Although, like I said for the low spenders on the forum paying little or no tax in retirement really isn't that hard.

How do you only have 77 posts? I feel like I see you posting all the time. Maybe I'm thinking of someone else with an M username.

I had my entire post history deleted and took a break, but I'm back now.

As for the no tax thing, I'm in Canada where it's very different and yet I still see people here forgetting about taxes.

Even in Canada, if you're a very low spender in retirement, you would pay basically no taxes. Run some numbers on a couple where each person is withdrawing maybe 12K/year from investments and you'll see what I mean.

Yes, but the people I'm talking about who forgot to factor in taxes into their savings goals are NOT very low spenders.