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How to Retire Solo & Smart: Retirement Planning for Single Millennials, Gen-X, and Baby Boomers

hello and welcome I'm Catherine Bowie from Pure financial advisors and thank you for joining us for this webinar on navigating retirement solo with Allison alley cfp professional Allison how are you I'm great Catherine how are you I'm doing really well and thank you for doing this for us of course well let's get into navigating a solo retirement all right we're going to talk about a few things today but first and foremost frankly whether you're single or not right planning for retirement um is important right and do you know what you would do if you were trying to build your wealth alone more people than effort more people than ever are navigating getting to retirement on their own so let's talk about what that entails first things first how do you plan to spend your retirement right you have to look and say do I have enough savings is and then is your plan on track currently 56 of single workers are confident that they're going to be able to retire comfortably have you thought about when to collect your Social Security did you remember that you might have to pay for Private health care insurance right even if you reach Medicare age there's usually additional costs associated with that have you built that into your planning to get you ready for retirement um the the numbers are actually pretty pretty staggering but a single retiree could pay anywhere close to two hundred thousand dollars over three decades in retirement for health care costs right so it can be a big expense if you aren't ready for it and have you thought about your emergency funds and your estate planning right all aspects that factor into getting ready for retirement fifty percent of U.S adults are actually single I think that's probably higher than a lot of people realize so there's a lot of people out there planning for retirement by themselves and that can have an impact on your ability to put away money for retirement sixty percent of people that have never been married actually have no retirement savings at all or any savings um 35 of people that have been married at least once have no savings so they're a little bit better off right that's still a large number of people with no savings but right people that have never been married there's a larger percentage of those so it's something to really want to you really want to factor in let's talk about retirement accounts right given the inability to save it's not that surprising that a lot of people aren't on course for retirement when we look at the different Generations right we're going to break things down by Millennials Gen X and Baby Boomers and we look at the ownership rates by generation 50 of Millennials have retirement accounts a little bit better the little bit older you get 56 of Gen X currently ages 43 to 58 I should say Millennials are currently 27 to 42.

56 percent of Gen X has retirement accounts and a little bit better a little bit older Baby Boomers currently age 59 to 77 58 of baby boomers have retirement accounts so people are making a little bit more progress the older they get which is good but the earlier the better and we're going to talk about some strategies for that when we look at average account balances by ages people currently 65 plus the average retirement account balance is approximately 87 000. ages 56 to 64. it's actually a little bit better 89 000 is the average retirement account balance but then it starts to drop off right currently people aged 45 to 54 retirement account balance on average of a little over sixty one thousand people 35 to 44 current retirement account balance is only about thirty six thousand and then 25 to 34 only about fourteen thousand dollars in on average in retirement accounts and people currently age 25 and under or under 25 I should say a very minimal amount right less than less than a couple thousand dollars so lots of work to be done here for everybody and let's get into that let's start off with Millennials so again Millennials are currently age 27 to 42 and most people in this age range are still kind of in that gearing up maybe a little bit past quite starting out but building right so there's some kind of initial things you want to pay attention to first and foremost putting a budget in place right a Target is to have savings built up of at least three times your salary and maybe not at 27 but as you get through that next decade of your 30s that being the target to get to a level where your savings is at least three times salary you want a man to make sure you're managing debt and also start to focus more heavily on retirement account funding creating a budget first and foremost right so things are kind of broken out here into needs and wants right and this is looking at a 50 30 20 strategy fifty percent of your budget focusing on those needs right housing food utilities the must pay for items right so ideally you're looking at spending no more than fifty percent of your budget on those items I'm going to skip over here to the the far right hand side because this is frankly the next most important thing um 20 of your budget going towards building emergency funds starting to build towards retirement and build towards other goals that might be a home purchase or something like that right and then that leaves the remaining 30 percent for those wants clothing dining out vacations Etc and even though that we've got this 30 in the middle right that 50 and 20 those are those are your needs right that's those are the priorities if you were to allocate 30 sent to this middle section first you probably find yourself without the excess to start funding these things right so needs first wants seconds to really get you along the right path let's talk student loans right Millennials have a lot of student loan debt um 15 million Millennials have student loan debt into I should say 15 million dollars in student loan debt by Millennials the average student loan balance is about thirty three thousand dollars so getting starting to get that reined in is going to help you start to fund retirement fund goals emergency funds Etc if you have 33 000 in loans at currently five percent if you were paying two 350 a month it's going to take you 10 years to pay off that student loan debt and the interest associated with that is going to create your total payback being 42 000 if you could accelerate that somewhat and instead of making 350 a month just bump that to 418 a month it's going to do a couple of things number one it's going to cut two years off your payback it's going to take it from 10 years to eight years and the total amount is going to be forty thousand one hundred So You're Gonna Save about two thousand dollars in interest just by accelerating those student loan payments then what you could do with that money right if you're finished paying off your student loans and you could then take that same amount 418 a month and start putting it away towards retirement towards goals Etc and you were to earn an average of six percent rate of return on those dollars over 30 years that what was a student loan payment could turn into four hundred and twenty two thousand dollars right so it's really looking at the opportunity that's lost by not trying to get those debts paid down as quickly as possible because you can turn that monthly payment into a significant Nest Egg for the future in addition there is the ability from some employers a one a new rule was passed allowing employers to give a matching contribution to your 401k based on you making student loan payments so if you were putting at least two percent of your annual salary towards student loan payments employers are now allowed to make a contribution worth up to five percent of your salary towards your 401k basically the equivalent of a company matching contribution but it doesn't even require you making 401K contributions it's based on you making student loan payments so this is a great opportunity if you are in a situation where you have student loan debt if you're making your payments and your employer offers this option it would be great to take advantage of it right because you're paying down debt but still getting funding into your 401k by your employer as one of the benefits that some employees are now able to offer so it's worth looking into see if your employer plan offers this choice in addition to that just knowing the funding limits for various retirement accounts is important right if you are working and you have an employer sponsored 401K the employee contribution limit for 2023 is 22 500.

In addition if you have the cash flow to fund an IRA or a Roth IRA the current contribution limit for 2023 was bumped up this year to sixty five hundred dollars so initial ways to start getting money set aside for retirement all right let's transition into Gen X right a little bit older Gen X workers are currently age 43 to 58 and slightly higher savings targets now right so goal being that you've got your retirement savings up to at least six percent of your current excuse me six times your current salary and again maybe not at 43 but as you're transitioning through your 40s and your 50s that being the goal of getting that savings balance up to six times you're in your annual salary you also really want to be paying attention to your emergency fund right if you haven't already built that assessing where you're at compared to your ongoing expenses you want to be really trying to focus on maxing out 401K contributions as well as trying to get as much of your employer match as they're willing to give you and then taking a look at your retirement plans and making sure that you're you're utilizing options available when we talk about emergency savings right general rule of thumb is a goal of six to 12 months of your ongoing living expenses set aside in emergency funds more than half of people don't even have three months of their expenses set aside in emergency funds right 53 percent of Gen X has less than three percent excuse me three months of their expenses set aside um and that's low right you want to be able to withstand unexpected things right if there's expenses that come up or you were to get laid off or any number of other things that might cause you to need additional funds right that's the benefit of the emergency fund so that you're not in a situation where you have no choice but to tap retirement accounts that might have a penalty associated with it things like that right that's the value of the emerge of emergency funds if you aren't in a position where you've built up adequate emergency funds different ways to do it right if you just start setting a little bit aside here's kind of what that could look like in a couple of short years if you're able to put 25 a week away you could build that up to twenty six hundred dollars over two years if you're able to do a little bit more and if you if you could get fifty dollars set aside on a weekly basis right you'd have a little over five thousand dollars in just two years you could do 75 dollars a month right you could have close to eight thousand dollars in a couple of years so little by little is going to get you to where you want to go it's just chipping away at those goals in a manageable manner all right retirement account limits so the base limits are the same but now Gen X is approaching 50 if not over 50 so there's catch-up contributions involved so same base limit on a 401K of 22 500 but people 50 and over can do an additional 7 500.

So for 2023 30 000 is the maximum 401k contribution amount Roth Ira's traditional IRAs also have an additional ketchup amount involved so again that base contribution amount is 6 500 but if you're over 50 or over you can add an additional thousand with Roth IRAs and traditional IRAs there are Income limitations involved so you want to check what you're eligible for but if you're eligible and 50 and up 7 500 for 2023 is what you could put aside into a Roth or a traditional IRA in addition you really want to pay attention to your available employer match so in this example somebody's salary here is eighty thousand dollars and their employer is willing to match 50 of their 401K contributions up to six percent of their salary which means if you were to put in six percent your employer is going to match three percent and it makes sense to try to put in at least the amount into your 401k that is going to give you the maximum match that your employer is willing to give you but here's a few examples so in the top example the employee making 80 000 is putting away four percent so that's thirty two hundred dollars annually into their 401K fifty percent is two right so the employer is going to match two percent or sixteen hundred dollars so this person's getting forty eight hundred dollars a year into their 401K keep in mind if they're 50 and over they're allowed to put up to thirty thousand of personal contributions so this is obviously well below that but at least they're getting a little bit of the company match next example this person's putting away five percent so five percent of their eighty thousand dollar salary four thousand dollar annual contribution half of that that the employer is willing to match two and a half percent gives them an additional two thousand dollars so six thousand dollars a year is going into their 401k last example down here this is how they get the maximum amount right so this person's doing six percent or forty eight hundred dollars into their 401K the employer is giving their maximum allowed match of three percent so a total of seventy two hundred dollars is what this person's getting into the 401K so again the more you're willing to do the more matching you're going to get um all of these examples are still obviously well below the maximum allowable but at a minimum you want to put into your 401k what's going to get you the maximum amount that your employer is willing to give you into the account as well otherwise you're just missing out on free money so you want to get those up um if you're finding yourself off course let's go through a little bit of math all right so in this example this person's 47 years old planning to retire in 20 years at 67.

They are anticipating that in retirement they'll have fixed income of about 55 000 so that might be their social security income or some pension income or a combination of both but they're currently spending about eighty thousand dollars so 47 today want to retire in 20 years spending 80 000 today do you have to factor in inflation to see what you're going to need in retirement 20 years from now right so in this example we took that eighty thousand dollars inflated it at three percent annual inflation assumption over 20 years and that brings the spending need at age 67 to 144 000 which means if they want to be able to spend 144 000 and they're going to have fifty five thousand dollars coming in from pension or social security or whatever the shortfall is eighty nine thousand so that's your starting point right now you can figure out well what do I need to accumulate by the time I get to age 67 so that I can comfortably withdraw this shortfall from your assets that you've accumulated okay so here's a couple scenarios scenario one this person that's 47 has already accumulated about three hundred thousand dollars in their retirement accounts but they need to get to the amount that's going to be able to provide for this shortfall in order to figure out what that is you there's something called the the rule of four percent right a safe distribution rate is widely assumed to be about four percent what that means is that if you could keep what you're pulling from your own assets to four percent of those assets or less you could be fairly confident that with a globally Diversified portfolio a reasonable rate of return over time those assets will then last you 25 to 30 years so once you've calculated your shortfall you just take that number and divide it by four percent or multiply it by 25 the math is the same so in this example this person's Target would be 2.2 million dollars by the time they're age 67.

So that's what they would need to accumulate to then be able to sustain withdrawals of 89 000 when added to their fixed income would give them the amount of income they want to live on so again back to our examples the target is 2.2 scenario one this person's got three hundred thousand dollars but they've got 20 more years to get the to the 2.2 so what they would need to start saving to get there is thirty four thousand dollars a year right so that's a big number but if you break it down it might be manageable this again is assuming a a reasonable rate of return in a diversified portfolio over time scenario number two assumes that this person also 47 20 years to retirement but they've already accumulated six hundred thousand dollars towards that goal so their savings need is significantly less eight thousand dollars a year for the next 20 years to get them to that same 2.2 and this just reinforces the benefit of starting earlier right the earlier you start the more you can put away the more manageable those savings goals become over time so again pretty straightforward example but the goal is to say hey here's how old I am here's my years to retirement map out what you're spending now what's going to be coming in so that you can calculate your shortfall again multiply that by 25 or divide by four percent same thing gives you that accumulation goal and then you can back into your additional savings need on an annual basis between now and then to get you to that targeted goal all right let's yeah I was just gonna say Catherine do we have now that it was before we move on to Baby questions I'm not that I'd give you just a couple so the first one is just when you're referring to saving a percentage of your salary are you referring to gross salary or net salary after taxes and retirement contributions gross salary and then also uh you might be getting into this in the next section section but someone has asked about uh can you talk about the death of a spouse so that's why someone is uh unfortunately single now and so resulting in a change in tax brackets and you know what affects their Roth conversion strategies yeah absolutely and we will talk a little bit about it in the baby boomer section but um yeah if you are if you were married and your spouse passed away there are a bunch of things that change right like for example the tax brackets they basically get cut in half so you hit higher tax brackets at essentially half the amount of income so the sooner you can build retirement accounts especially things like tax-free Roth accounts right once you get into retirement you'll have more flexibility on where to pull income from because if you're going to have social security income and you've built you know 401K funds you're going to be paying tax on those income streams so if you could then supplement by pulling from roths which then don't continue to increase your tax situation that's just going to give you more flexibility and choice so yeah and in addition to Social Security strategies which we will talk about in the next section um you know whether you were married and are divorced or are widowed that will also have an impact on your choices when it comes to Social Security income okay we have a couple more questions but I'm going to let you go through the next section and then we'll you'll probably answer some of them okay perfect um so next Generation Baby Boomers So currently um well and here's a quick one before we get into the ages right so one thing to do and this does sort of relate to what Catherine what you were just asking about um but whether you were always single or were married and are divorced or your spouse passed away you want to make sure that you're updating various accounts right so if you have insurance policies and retirement accounts updating beneficiaries to whoever right whether it's children or other family members or friends or whatever it may be if you did if you do have a spouse that passed away that's key to make sure that something happens to you your assets go where you want them to go I've um in addition if you were married and and are now divorced removing former spouses from bank accounts again investment accounts retirement accounts Etc and then um you know closing or updating any joint accounts that were titled whether it was jointly or community property or whatever the case may have been to your individual registration in addition we don't really talk too much about Estate Planning in this today but estate planning things like You're updating your trust updating your will right should you get divorced or have a spouse pass making sure that those documents now reflect the change in your situation and your current wishes big big things to make sure you follow up on okay so baby boomers are currently age 59 to 77 and lots of these people are either very close to retirement or obviously already in retirement and so that savings goal is even higher right 10 percent 10 10 10 times your annual salary is that Target savings goal so that you and are sure that you've got the assets needed to sustain you into retirement you are going to start paying attention to Social Security strategies really paying attention to those catch-up contributions on 401ks and IRAs that we were talking about previously as well as paying attention to your overall Investment Portfolio and your asset allocation let's talk Social Security so most people's full retirement age currently is somewhere between age 66 and 67 but you can take Social Security as early as 62 or you could delay it as late as age 70.

There's trade-offs to all of this right the longer you wait to take it the more you get but the longer you go without taking your social security income and the more dependent you might be on your own assets depending on your retirement situation in this situation or in this example delaying from taking it early at 62 to 70 gives you a 77 percent increase in your benefit right so in this example this person's full retirement age is 67 and they are entitled to a thousand dollars a month of social security income if they were to start taking it at age 62 they would only get 700 a month right so that benefit gets reduced if they were to wait all the way from 67 to 70 that benefit would go from a thousand dollars to one thousand two hundred forty dollars so it's a pretty big increase and if you look at that entire eight year waiting period it's a 77 increase um so this is something that you want to factor in to that retirement planning right looking at well what other income sources do you have what's your asset level built to and when does it make the most sense for you to take social security income and it's going to be different for everybody in addition whether you were married before and are divorced or widowed there are some options here as well so Everyone's entitled to the higher of their own Social Security based on their own earnings record or 50 percent of their spouses whichever is higher that applies even if you get divorced as long as you were married at least 10 years you are at least 62 or older you're currently unmarried and your former spouse is entitled to Social Security if you have multiple ex spouses you would collect on again either your own benefit or the highest of your ex-spouses whichever of those amounts would be higher is what you'd be entitled to on the other side here if you are a Survivor so if your spouse passed away you're actually entitled to a hundred percent of their benefit if it's higher than your own benefit um but you have to either be not remarried or you remarried post age 60.

um you have to be at least 60 because survivor benefits can actually start as early as 60 whereas spousal benefits and your own benefits can't start any earlier than 62. this over here it's or it's 50 if you are disabled and you have to be entitled to your own benefits but again if they're less than your former spouse then you'd get the higher of those two benefits here's an example of Dave who's 62 and a widow so his wife passed away his spouse passed away and couple different strategies right he could start as early as 62 and just claim those survivor benefits now and in this example he would be entitled to 1237 a month the second strategy though is that he would take those survivor benefits now until age 70 and still get that same 12 37 a month but then at his age 70 he could switch to his own benefit which had the benefit of waiting those years to get that higher amount and at age 70 his own benefit would have grown to eighteen hundred dollars a month right so just by strategizing what's available to you he's increased his monthly benefits by 50 and a 35 percent increase over his lifetime just by strategizing and understanding that he's got a couple of options here right so that's important to pay attention to okay let's talk let's talk catch-up contributions we're already talking about how how people ages 50 and up can have additional contributions to their 401K plans however there's a few additional catch-ups for people even older than that and this is a new rule so that same 7 500 catch up on the 401K applies for people 50 and above and again from ages 59 58 to 59 however there's a change now an additional allowance that was put out there starting in year 2025 people ages 60 61 62 and 63 can actually make a ten thousand dollar catch-up contribution so again you've got that base level 22.5 that you can put into your 401k if you're 50 and above you can add the additional 7 500 to give you a total of 30 000 but starting in 2025 if your age is 60 to 63 that ketchup can actually be an additional ten thousand dollars so that would make your total 401K contributions for those four years as much much as thirty two thousand five hundred and then ages 64 to 70 it goes back to that 7 500.

So if you were if you if you're finding yourself behind right in your retirement plan in your accumulation goals and you get to these ages and you were able to Max Fund not only the basic amount but these catch-up contributions in all of these different age ranges right in these first couple of years that would be sixty thousand going into your 401k the next four years that would be 130 000 going into their your 401k and then these subsequent handful of years that would be an additional 210 000 going into your 401k add all that up that's getting a reasonable rate of return we're assuming six percent those contributions over that span of time would actually equate to almost six hundred and twenty thousand dollars of additional retirement account balances right so they they're basically giving people a way to kind of really jump start or accelerate kind of in these years as people are getting closer and closer to retirement to make a much larger impact on what they're able to put away towards retirement accounts all right last thing I want to talk about is making sure that you're paying attention to your asset allocation right as you're getting older as you're getting closer to needing the money from your retirement account you really want to make sure that you've built a portfolio that can withstand Market volatility it can withstand downturns a lot of people find and in fact the studies have been done in approximately 59 of baby boomers are actually over allocated to equities or stocks right and we've kind of got this little map here showing the different kind of rates of return versus risk levels when we compare various asset class right government treasuries so t-bills t-bonds Etc are going to be the lowest risk but also the lowest return and then these things just kind of Step Up corporate bonds still fairly low risk fairly low return but a little bit higher on that risk turn scale then we get into stocks right large companies mid-sized companies small size companies the risk level goes up so does the Target so does the projected returns but if you're in close to retirement in retirement right the volatility the potential for larger downturns is going to have a bigger impact on your ability to ensure that your assets are still sustainable and that you can still have the amount you need to last for your entire retirement so again it's you always want to pay attention to your asset allocation but it becomes even more important and more vital the closer you are to needing to start withdrawing from your funds right you want to ensure you've built a portfolio that can sustain those Market downturns I think Catherine's going to tell us about our free assessment but I'll also and let me know if there's any other questions at this point just had a couple that some are kind of detailed we've gotten several questions but some are very detailed so we might have to do those offline but um one is and I believe you you talked about it I just wanted to let Elaine know that um she asked if her husband and she just split up they're 64 and 58 respectively they've been married over 10 years they're both still working he's the higher income earner and will she be able to collect his social security benefits when she turns 62.

You talked about it yeah so since they were married at least 10 years once they are divorced yes she would be entitled to frankly the same as if they were still married her own benefit or 50 of his whichever one's higher right and then uh there's another one that says they're in a long-term relationship they keep their finances separate they're 38 and 37 and they have no intention of ever getting married does this change how we should each invest for retirement uh that's definitely pretty specific so I don't know how much I could really uh give on that but I mean it sort of depends right even if they're Finance if they're never gonna get married and their finances are always going to be completely separate but do they like pay for joint goals together or like it's literally every single thing separate then you were just going to want to map out your goals individually to try to Target accumulating for those goals so it kind of depends on how separate it is right or if there's joint goals that they're accumulating towards together right that would probably have an impact also and then there was an uh one other question that I think we can get there's other questions but we'll probably have to get back to them but one was saying that in their in our slides it says that uh additional savings per year when we say additional savings per year and the name of the slide was getting off course are you talking about savings or investment savings like Investments it should be clear yeah like retirement savings so whether that's in your 401k or IRA your Roth a combination retirement savings exactly okay if you have more questions please schedule your free financial assessment with one of the experienced professionals here at pure financial advisors and they'll take a deep dive into your entire Financial picture and stress test your retirement portfolio you'll not only learn how to choose a retirement distribution plan that's right for you minimize risk and maximize return legally reduce taxes now and in retirement and maximize your Social Security you'll also learn how to protect yourself against Market volatility Rising inflation and Rising health care costs remember there's no cost no obligation this is a one-on-one comprehensive Financial assessment that's tailored especially for you to get your questions answered we would just like to thank you so much for being here thank you Allison I know there's so much information to get to so it's difficult but this is our you know we try to do these every month so that we can get specific topics and if you have other topics that you'd like to hear about please let us know that as well

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