Tag: 401k
401K Explained in தமிழ் (US Retirement Series – 1)
Jason 0 Comments Retire Wealthy Retirement Planning
This episode and next few episodes are going to be US specific episodes. All these US specific episodes will have US flag in their thumbnails. Indian audience, feel free to skip these episodes and save your time. US folks, there are 2 main retirement plans in USA. 1. 401K and 2. IRA. We will cover more in detail about IRA in another episode. In this episode, we will cover 401K in detail. Hi. My name is Vijay Mohan. You are watching – Investment Insights. 401K is a retirement plan offered thru employer. We will not be able to open a 401K account just by ourself like a brokerage account. We can contribute to a 401K, only if it is offered through our employer. Almost all employers offer 401K plan. Very few small companies do not offer 401K. How much can we contribute to a 401K? Each employee can save up to $20,500 per year.
If husband and wife both are working, both can contribute $20,500 each. People older than 50 can contribute more – $27,000/year. That is called as "Catch up contribution". Other than our contribution to 401K, many employers match up our contribution up to certain percentage. Let's say that an employer is matching up to 7%. If our salary is $100K, 7% of that would be $7,000. Let's say that we are contributing $20,500 to our 401k and maxing it out. Employer would have matched up the first $7,000 of that $20,500 and would have contributed that $7,000 to our 401K. So in total, our contribution $20,500 + employer match up contribution $7,000 = $27,500 would have gone into our 401K account. Employer match of $7,000 would not come under the contribution limit of $20,500. This match is over that contribution limit.
In this employer match, each employer has a catch called "Vesting Schedule". This vesting schedule defines when that extra amount matched up by the employer is going to actually credit in our account. Let's say that an employer has a vesting schedule of 2 years, then in that 2 years, the match up amount contributed by the employer will be in our account, but not vested. That means, if we leave the job within the 2 years of joining, then we will not get that matched up amount. But after 2 years, that matched up amount will be ours totally, even if we leave the job. Also, after that vesting period of 2 years, all money matched up by the employer will be vested (available) to us immediately. That means, there will not be any restriction over the matched up money after passing 2 years. The 2 years I am referring here is just an example. It will be different for every employer. So what is the advantage to us from this 401K? The advantage is, we do not have to pay the tax on the amount we are contributing to 401K.
But we should pay tax on withdrawal after retirement. What? No tax for the contributed money, but taxed on withdrawal? What benefit does that offer to us? Good question. To understand that, we should know about our tax bracket. What we are seeing here is 2022 Married Filing Jointly tax bracket. Let's say that our family income is $120,000. We will come under 22% tax bracket. That does not mean that we will be paying 22% tax for the whole $120,000 we earned. First 20,000 of $120,000 will be taxed at 10%. Next 63,000 will be taxed at 12%. Money earned over that will be taxed at 22% tax. So the 22% tax is charged for the top most dollar we made in that year. This is called as Marginal Tax rate. If we add up all the taxes for individual brackets of 10%, 12% and 22%, that comes out to $17,634. This is 14.7% of our total income $120,000. So actually we are paying only 14.7% of our income as tax. This 14.7% is called "Effective Tax Rate". May confuse between marginal tax rate and effective tax rate. Hope it is clear now. So when we contribute $20,500 to our 401K, it comes out of our top most tax bracket.
That means, the tax we saved from the contribution of $20,500 is 22%. $4510. If we withdraw the same $20,500 after our retirement, the tax rate for that would be 10%. Tax saved for contribution is 22%, while money coming out is taxed at 10%. The difference is 12% in our favor. Or in other words, we save tax in marginal tax rate for contribution and we pay effective tax rate while withdrawal. We all know that effective tax rate will be always lower than the marginal tax rate.
This is first advantage. Let's check out a sample calculation to understand the next advantage. Let's say that our family income is $120,000. Then federal marginal tax rate is 22%. Let's use Illinois state tax rate – 5%. For 401K contribution, not just the federal tax, we don't have to pay the state tax as well. Let's assume that our 401K will be growing at 8% growth rate. We are maxing out our 401K contribution every year by contributing 20,500/year. Tax savings from this contribution is 27%. $5535. We are continuing to do this till our retirement for 25 years. By the end of 25 years, our 401K balance would have reached 1 million 600,000 dollars. The $5535 that we saved every year in tax alone would have grown into $437,000. The absolute tax saved is 5355 * 25 = $138,000. The growth from that savings is approximately $300,000. Or in other words, just because we did not pay (deferred) the tax of $138,000, the extra growth we got from that is $300,000.
The growth of money by deferring (not paying the tax now) the taxes to pay later is called as "Tax deferred Compounding". This tax deferred compounding is 401K's second advantage. For these 2 advantages, we can contribute to 401K. We should. So far we have seen a regular pretax 401K. There are other flavors of 401K like Roth 401K and After tax 401K. We will dig deeper into that in the next episode. Thank You.
Read MoreRetirement: I’m 60 Years Old with $900K in Savings. Can I Retire Now? What is My Risk Capacity?
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Hey simply a short Disturbance right here to ask you to subscribe to the channel now what that does for you is that places us Oak Harvest Financial Team and also all the material we produce in your little TV Overview so you have a much simpler means to come back and find it later share this video with a good friend or family participant and likewise comment down below I enjoy to respond to the comments now if you have any concerns concerning your particular circumstance or you'' d like to consider ending up being a client of Oak Harvest really feel complimentary to get to out to us there'' s a link in the summary listed below however you can always reach out to us and also provide us a call and have a discussion to see if we may be a great fit for each various other James informs us that given that he desires to retire as quickly as feasible he he thinks it makes sense to take Social Protection the very first time readily available so declaring at 62 a little even more than two thousand dollars a month at twenty five thousand dollars per year he additionally has that nine hundred thousand bucks damaged out to 4 401K money of 700 Grand after that 200 000 in a taxable account or what we call non-qualified outside of the retired life account extremely vital to aim out below that the tax characteristic of these two accounts and the Investments inside them as well as the rate of interest and also dividends as well as the withdrawals from them are taxed in different ways so that'' s component of a total tax obligation plan currently James also has a residence that ' s totally paid for and also worth six hundred thousand dollars yet he'' s told me that I put on'' t desire to utilize this to fund any of my retirement goals I'' ve lived in this residence for a long time I desire to remain in the residence however we understand from a preparation point of view that we do have that in our back pocket if it'' s needed down the roadway so James'' s overall web worth right here is about 1.5 million looking at the paid off house of 6 hundred thousand the 700 Grand inside the 401K and the 200 000 of non-qualified or taxable account properties currently as part of the process to comprehend where somebody is and where they'' re attempting to get to we have to understand just how is the profile currently alloted so James informs us that Troy I understand I'' ve wanted to retire so I'' ve been spending boldy and attempting to get in advance of the game yet here we are in 2022 as well as the markets have actually pulled back some so that double-edged sword is starting to kind of back its back its head yet we see James'' s 93 supply so one of the concerns that we have from an inner planning perspective is if we maintain this very same degree of threat while we retire and begin taking revenue out of the profile what does that do for what we call the risk capacity or the profile'' s ability to take on danger while Distributing revenue in the retired life phase so we have to look at the guard rails as well as guard rails are essentially an analytical calculation of likelihoods of the portfolio returning this much on the high side and also a great year and also this much on the drawback in a poor year if these guard rails are as well far apart and also we'' re taking in income out if we run right into a bad pair of years that bump up against that bottom guardrail however we dramatically raise the risk of running out of cash so part of the analysis of the planning is is this a proper guard rail for this kind of profile given the preferred revenue level so with every little thing we'' ve looked at so much the question is if James continues doing what he'' s presently doing and also retires with the desired investing degree the possessions that he'' s gathered living until age 90 what is the likelihood that he has success well it comes in at regarding 61 so that'' s possibly not a great retirement number it'' s something we want to see if we can function to boost so I ' m going to pull up the what if evaluation here as well as start to look at some of these different decisions that we might make and also see if we can obtain this probability to enhance all right so currently we have the what if evaluation where we have 2 different columns up right here on the board right currently they'' re similar we ' re going to maintain this one the same as the base situation every little thing that we simply went via however now we'' re going to begin to change some of these variables to see what the impact those choices have on the total retired life strategy and this is much even more of an art at this phase than it is a scientific research due to the fact that we want to begin to check out different situations and also then see what is most comfortable for you once you comprehend the effect of these various decisions you can take some time to kind of method assume about them evaluate the the pros and disadvantages and also now we'' re beginning to work with each other to craft you a retired life plan that provides us boosted likelihoods of success however also something that you feel really really comfy with so the first couple of choices we have which are the most easy as well as typically have the biggest effect on the strategy is that we can either function longer or invest much less so James states no I wear'' t desire to spend less I have a specific plan I desire to get my Recreational vehicle I desire to travel the nation I want to play some golf I'' ve done my spending plan I need to invest that 70 000 for the first 10 years so the initial thing we'' ll appearance at is the influence of functioning another couple of years so I'' ve altered the age right here to 63 as much as Retirement the only variable we'' re going to alter at this time I don'' t want to transform as well lots of variables at once I want to see the influence of different choices exactly how they affect the general plan alright so that gives us a little bit of an increase however the following point I desire to look at right here is social safety and security so Social Safety is a really beneficial resource of guaranteed lifetime earnings initially it'' s a raising stream of earnings it increases with rising cost of living but two no matter what takes place with the stock market that earnings is always going to be coming in so rather of taking the 62 and also having a substantial decrease in the life time income that we receive due to the fact that I don'' t want to transform investing we still have the 50 and also 20 in below I desire to transform the Social Safety and security from taking it a 62 to taking it at full retired life age all right so altering the Social Security election day gets us up to 76 we'' re certainly moving in the best instructions right here after a discussion with James as well as he understanding that you recognize what I do feel truly safe and secure with that enhanced social security revenue due to the fact that if the market doesn'' t comply I'recognize I ' m still going to have that a lot greater revenue later on in life so that would certainly lead us down the roadway to say fine let'' s look at adding extra guaranteed lifetime earnings if we can obtain your Baseline income to cover a majority of your spending requires after that we put on'' t require the market to carry out necessarily as well later in life so now we desire to look at the effect of adding more surefire earnings to the strategy which has the effect of providing even more safety later on in life because if the markets put on'' t coordinate we know we have a specific level of revenue being deposited every single month no matter exactly how long we live so if you go to our web site here it'' s Oak harvestfinancialgroup.com com we have up leading an income author quote where this is continuously looking for the highest possible amounts of assured life time earnings that are available in the industry simply input the variables here so in Texas age 60 Individual retirement account money income starts we ' re going to start looking at seven years below and I recognize the buck quantity I would certainly desire to place in 300 000. I want to look at one more variable right here since you may want to get a part-time job James might want to be a starter at a golf course perhaps he wants to work in the church and he can get ten thousand or fifteen thousand dollars a year maybe just desires to function 2 3 months out of the year so the next point I want to look at is if we ' ve done all this now what occurs if throughout this very first 10 years of retirement he chooses he desires to function 3 months out of the year or maybe simply a part-time work as well as work one or 2 days a week so instead of needing twenty thousand dollars per year we simply need another 10 thousand allowed ' s say from the profile so actually that ' s just gaining ten thousand bucks extra in retired life income you might do that driving Uber many various selections there you understand what I ' m just going to reduce this no I ' ll leave it there now with James deciding to perhaps work part-time right here to reduce that investing demand in the initial 10 years allow ' s see if we can likewise get them retired at 61. We'' re going to transform this back to his original objective 61 determine all situations as well as now this gets us up to 94 so we started at 61 if where James was originally at whenever he came in if he maintained doing whatever he was currently doing we obtained him up to 94 percent below alright I desire to take a minute before we finish the last Concept in this video clip to discuss some of the modifications we ' ve made so much to get James from 61 to 94 so initial and also primary we readjusted the Social Safety and security election strategy second of all we included that deferred earnings annuity thirdly James has chosen to work part-time to produce ten thousand dollars per year in those beginning years to help reduce the concern of taking out an extra twenty thousand dollars of retired life revenue and after that finally we ' ve brought the guardrails in on the Financial investment Portfolio which helps to remove extremely bad end results that might happen with his initial 93 allotment to supplies we haven ' t entirely went to bonds or cash we ' ve simply brought those guard rails in by decreasing our Equity direct exposure in the starting years of retirement we can constantly change that later on currently last thing I want to do is look at what we call the mixed information all of these things with each other in a spread sheet just so we'can see just how these different pieces are working with each other as well as after that look at what we call different Monte Carlo analyzes so currently I want to share with you some of the specific test evaluation that we run simply like we would certainly for a typical customer to assist recognize not only where the weak areas are in the profile however just how these different decisions that we ' re making impact the overall client equilibrium and it ' s not just looking at what we call a typical price of return it ' s looking at a thousand different simulations we ' re going to look at a pair right here and also the Order of the return so inspect out the video if you want to recognize even more'regarding this principle you can click the web link up above and also the title of the video clip is how eleven percent average returns could destroy your retirement as well as that ' ll really get home that idea of it ' s not about what you balance yet it ' s regarding the order in which you recognize returns over the course of your retired life during the day distribution phase so here we have this private test and also we ' re gon na it ' s the average circumstance out of a thousand different situations so I simply want to go'with this rather swiftly with you as well as based on some of the adjustments to the portfolio we see the financial investment return column below so all of this I think balanced out to I think it was concerning 4 and also a half percent gross returns I can go'back and also double check that in a 2nd yet you see it ' s it ' s never ever 4 4 4 four four 4 4 4 or 6 six 6 six this is what it looks like in the actual globe so James retires essentially the start of 2023 we have the Deferred income annuity clicking on right here we ' ve altered Social Protection to click on below so if we include these two with each other come hell or high water there'will certainly'be minimally 74 000 nearly 75 000 transferred into his bank account every solitary year currently if we look at the retirement require it ' s about sixty one thousand bucks plus the discretionary Go-Go investing is concerning twelve thousand two ninety nine so about seventy three thousand dollars yet what this does is due to the fact that we ' re getting so a lot from these 2 sources it really minimizes the need for the profile to do and if we kind of go out go on out via retired life you see Social Security isn ' t boosting revenue so later on in life currently we ' re up to regarding 89 practically 90 000 of earnings as well as our ninety thousand dollars inflation adjusted retirement revenue requirement is covered by the amount of assured life time revenue that we have in the profile which then allows our profile equilibriums to support because we ' re not needing it to sustain our way of life later on in life so this is just one instance right here however we see the ending profile worth also though it spends down a little bit in the beginning years fine it begins to support since the revenue provided from the choices that we ' ve made placed us in a situation where we put on ' t have to take out so a lot from the profile Okay so now I want to look at a different test as well as simply to validate below the 500th situation was a standard of 4.6 but you saw the various order of those returns and exactly how we really obtained to 4.6 all right so if we move this up here allow ' s think it ' s a rather negative scenario this is going to let me alter it here find a worse return all right so this brings the average down to 3.05 and also we still see in bar chart kind below that the portfolio value still is stabilized and it ' s mainly because that adjustment in the Social Safety decision as well as adding the Deferred earnings annuity it still places us into that position to where if the market doesn ' t execute we have sufficient revenue from assured sources'that we ' re not reliant on the stock market to offer us income in retirement specifically later on in life when we generally are much more conventional as well as a lot of individuals that I ' ve worked with put on ' t have the same stomach at 80 or 82 to remain spent in Big Market pullbacks as they did when they were 52 or 62.
Investing For Retirement – 4 Tips (I Learned Over 30 Years As A Financial Advisor)
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
are you bothered with exactly how you'' re mosting likely to pay for retirement you ' re not the only one lots of people are concerned about their retirement financial savings specifically with the volatility in the stock exchange in recent times in this video I'' m going to show you 4 pointers that can help you to invest for retirement these tips are based on my 30 years experience as a financial advisor and I function with hundreds of customers tip top make the most of your employer'' s retirement match several employers provide a retirement with a coordinating payment for instance if your company offers a 50 pair up to 6 percent of your salary as well as you gain fifty thousand dollars per year you must contribute at the very least three thousand dollars to your retirement your company will certainly then match your contribution with fifteen hundred bucks for a total amount of forty 5 hundred bucks in your pension not benefiting from your company'' s matches leaving cash on the table so make sure you contribute a minimum of adequate to your retirement plan to maximize your employer'' s match idea two purchase a diversified portfolio this implies investing in a selection of Investments like supplies and also bonds this should aid you to lower your threat and enhance your opportunities of reaching your retired life goals tip 3 rebalance your profile periodically to make certain that it remains in line with your risk profile if you'' re a person that suches as to handle your profile yourself even more power to you as well as sign up for our network to maintain learning if you'' re the sort of individual who likes assistance selecting and also managing your profile well that'' s the service we provide to our clients I'' ll leave a link in the summary you can click if you'' d like to establish a time to talk to us now on to our following pointer idea 4 Don'' t Panic sell the stock market will certainly fluctuate yet it'' s important to remain tranquil as well as not offer your Investments when the markets take a slump panic marketing can cost you a great deal of cash in the future if you'' re concerned regarding the marketplaces being down when you retire enjoy this video following [Songs]
Your Tell-All Guide to Saving for Retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
I'' m Britt, the founder of Dow Janes, and also.
every solitary week I have a person asked me exactly how they can start conserving for retired life.
or just how much they need or if it'' s also late to begin conserving.'Today, I ' m going to share my. top ideas for beginning to save for retired life. As well as wear'' t worry; it ' s simpler than you think. If you desire much more suggestions for saving, investing, and making the most of your money,.
put on'' t forget to hit the subscribe button and the bell so you put on'' t miss any brand-new.
videos. As well as if you liked this video clip, certainly offer it a thumbs up. All. So, there are some misunderstandings about retirement conserving that I wish to deal with.. One point individuals typically ask us is exactly how much do I need for retirement? What'' s the magic number?.
And the truth is it differs widely.It depends
on where you want to live or what way of living you.
wish to have or when you wish to retire. Are you trying to retire at 40 or at 70? 0. If you take anything far from today, I want you to simply start saving 20% of your pre-tax.
To learn more though, keep listening. Just how do you begin conserving for retired life?
steps. You make certain you'' re doing things in the right order.So we have
a whole nother video clip.
on the roadmap steps, yet just to evaluate, the very first point you want to do is make certain.
you'' re costs less than you make each month.
The second thing is to settle any type of.
high-interest rate financial debt you have, which is anything with a rate of interest price over 7%, then.
you want to develop an emergency situation fund. And also after that when you have those three points in position,.
you'' re all set to begin conserving for retired life. So, to do that, you'' re mosting likely to find your monthly.
cost savings number. You can use a simple retired life calculator to determine exactly how much you wish to have.
in retirement. I'' ll link to one in the summary listed below. What you'' ll do is you ' ll include your. existing financial savings, anything you ' ve already conserved for retired life already, anything you anticipate to obtain.
from social safety, and after that you'' ll change the cost savings quantity to see exactly just how much you need.
to conserve each month to be on course, to meet your retirement goals.It ' s
an extremely easy calculator,.
you simply go into the numbers. It'' ll spit out specifically what you need to do, and that number, that financial savings.
quantity, that'' s going to be your month-to-month objective.
So, if you don'' t already have an account,
. you ' ll open up a retirement account, which'' s where you ' ll begin to transfer that.
cost savings total up to that account monthly.
Where should you conserve your cash? There are.
INDIVIDUAL RETIREMENT ACCOUNT. So for the Roth standard or SEP IRAs, you can open those at any broker agent places.
like Lead, Charles Schwab, Integrity, or with a robo-advisor like Wealthfront or.
Betterment.Any of those areas supply retirement accounts. What is 401( k) matching? It ' s when you conserve cash for your retirement and also your business.
They ' ll frequently match up to a particular amount. or a'particular percentage of your wage.
If your business matches 4 %of your.
salary as well as you make$ 5,000 each month, you can add $200 monthly in the direction of your. retirement, as well as your firm would certainly add an added$ 200 per month. So you basically obtain. $200 in retired life cash free of cost each month
. It ' s a way for firms to incentivize. their staff members to conserve for retirement. So, if your company offers this, definitely take. advantage of it.
It ' s the easiest totally free money out there. And also make certain you ' re contributing the.
you want to do is max out your contribution to your Roth or your typical IRA.So, every year,.
the IRS restricts the amount that you'' re permitted to contribute. In 2021, the amount is $6,000. If you'' re over 50, you have an additional bonus offer. You can add $7,000. So, attempt to add the.
maximum total up to those accounts every year. max out your 401( k) to where your company matches.
max out your Roth or your standard individual retirement account. If you'' re self-employed, you could also contribute to.
If you'' re an excellent saver as well as you'' re saving a lot more than those amounts, you can open up. A non-retirement account, and also save the cash there.
that money for whatever you want, yet you can know that you'' re conserving that for retirement. As soon as you ' ve saved the cash in those accounts, what you'' re mosting likely to do is spend that financial savings. .
for the easiest and also simplest way to get spent, you'' ll buy time frame funds.These.
are pre-made portfolios that assign your money to a mix of stocks and bonds that.
are ideal based on your age.
If you wish to buy index funds on your own,.
or if you'' re choosing a fund that your company provides, after that you can make use of these rules of thumb..
Generally, you want your portfolio to be spent in the portion of stocks that amounts to.
120 minus your age. If you'' re 20 or more youthful, you desire to have 100% of your portfolio.
in stocks. If you'' re 30, you desire 90% in supplies. And just a fast.
note that if you purchase time frame funds, that will certainly do that for you. The allowance.
You can leave it invested while you'' re in.
than you think for your cash to expand.
So, hopefully that provides you some peace of mind..
If you'' re starting later on in the game, if you'' re wondering just how much you ought to be.
saving in retired life savings each month, we have a couple of guidelines for you.And.
the lower line is the faster you start conserving for retired life, the much less you actually have to save,.
due to the fact that if you start sooner and you invest that money, it will expand and it will certainly grow over a longer.
duration of time. If you'' re starting later on in life, you have to save more because it has much less.
time to expand. If you'' re in your twenties, you can conserve 15% of your pre-tax revenue each.
month and also you'' ll be established. If you'' re starting in your thirties, you desire to conserve 20% of your.
pre-tax earnings. If you put on'' t have actually anything conserved and also you'' re simply starting to save for retirement in.
your forties or your fifties, you'' ll need to conserve much more considering that you'' re starting later on and also your.
cash has less time to grow.If this is you, see out for our following video on how to start conserving.
for retired life if you'' re in your fifties.
All right, the faster you begin conserving for.
retired life, the much easier it is. So, here'' s a recap of the actions: One, follow our riches structure.
roadmap, so you recognize what to do in what order. Two, locate your monthly financial savings. Number 3, open.
a pension. Four, make the most of free money. 5, max out your contributions. Six,.
spend your retirement financial savings, and also 7, add to your retirement financial savings each.
month. If you intend to discover even more about exactly how to develop your wealth and also invest your retirement.
cost savings, after that absolutely look into our webinar, Assume Like an Investor. The web link'' s in the remark.
listed below. All right. Many thanks for seeing.
And wear'' t concern; it ' s less complicated than you think. What you'' ll do is you ' ll include in your. It ' s when you conserve money for your retirement and also your firm. If you'' re over 50, you have an extra benefit. Once you ' ve saved the money in those accounts, what you'' re going to do is spend that cost savings.
Read More9 Ways SECURE 2 0 Will Change Retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
hi my name is Jim as well as I was retired I'' m back. from a week down in Florida and I was able to load some sunshine in my overhead bags I.
brought it back for a Super Bowl weekend break go Eagles I'' ve read a whole lot about.
secure 2.0 that massive retirement costs that was consisted of in the Omnibus Bill passed.
at the last moments of the last Congress in this video clip I'' m mosting likely to examine nine means safe and secure.
2.0 will certainly transform your retired life as well as I'' m going to consist of three for individuals that are currently.
saving for retirement three for those coming close to retirement as well as 3 more for those like me.
who are in retirement stay tuned hi there before I begin will certainly you please like And also sign up for this.
network the a lot more suches as the more memberships the higher this will be in the search results as well as I.
intend to share several of the Instructions Found out in my very early retirement I'' m currently in year seven and also I'' m. a DIY retiree I'' m not marketing a book or trying to market you a strategy I'' m simply sharing advice so.
please like And subscribe thanks currently allow'' s begin with 3 changes that influence those.
who are currently in the workforce saving for retired life now these will certainly phase in over time.
as the regulation enters into effect and as plans transform now starting in 2025 employers need to include.
an automated enrollment for new employees in their retired life financial savings plans those are the.
401ks or 403bs it made use of to be when I was young you had to go as well as proactively sign up.
in those plans when you are eligible then they made it less complicated some plans to enroll and.
by 2025 plans should include this option this is the exemption for federal government strategies to stage in after.
that but mainly even more individuals will have an automated enrollment beginning at three percent as well as working.
its way up to 10 percent currently you can always unelect and also withdraw from the registration.
Beginning out staff members will certainly have to be immediately registered in the plans and also that.
suggests more individuals will certainly be saving for retirement the 2nd major adjustment for existing employees is.
there are lots of more Roth alternatives now 401K is a pre-tax dollars and you obtain a tax deduction if you.
satisfy particular limits Roth you pay tax obligations today for the guarantee of tax-free passion and also.
withdrawals later in life it'' s one of the ideal creations from a Delaware Legislator ever look him.
up Roth Last excellent Senator Delaware probably had so even more Roth options are embracing.
current workers those workers of little companies who are independent people.
will have simple and also SCP Roth choices additionally a lot more 401ks have Roth elements and also employees.
can choose either tire totally free Roth in the future by paying tax obligations currently or 401K pre-tax dollars it used.
to be that company payments the pair up to 3 percent in many cases would certainly enter into.
the pre-tax dollars and the brand-new legislation will certainly currently allow employers as well as employees to choose to have.
those contributions the suit payments from the company go into Roth accounts which.
suggests even more Roth dollars for your retired life and it lastly one modification for those.
that are still settling a trainee car loan companies will be allowed to match student.
funding payments by recognizing those as optional deferments into their plans currently once again.
that'' s as much as the employer as well as right currently trainee loan repayments are stopped by the governmental.
uh exec order as well as a court challenge so it might function out that in the future if you'' re paying.
back a pupil funding your company will match it right into your retirement financial savings speaking of those.
student finances and also university tuitions there'' s one various other modification right here in the new law and also it connects.
to 529 funds the brand-new law enables you to take those excess 529 funds as well as transfer them with restrictions.
into a Roth individual retirement account for the exact same beneficiary now the 529 must remain in presence for a minimum of 15 years.
contributions from the last five years are not qualified and the conversions are actually subject.
to the Roth contribution limitations so they'' re minimal every year as well as there'' s an optimum life time limit.
of thirty 5 thousand dollars yet once again it'' s a little method of moving anything that'' s parked into a.
529 right into your retirement Cost savings in a Roth account currently there'' s one more modification for current.
employees I intend to caution you regarding that I'' m not mosting likely to highlight as one of the.
great ways this legislation is altering which is you'' ll have the ability to take out from your retired life.
plan without a 10 charge for more reasons it used to be that you had to maintain it there.
up until you were age 59 and also a fifty percent and also there were a couple of exceptions yet that was it if you withdrew.
earlier you got a 10 fine and now there are extra factors for national all-natural calamities.
wellness issues terminal ailment domestic misuse individual economic emergency situations as much as a particular.
level currently you'' re allowed to take out all the money without the 10 charge for these cases however.
you'' ll still have to pay regular earnings tax obligations on those quantities a much better strategy is to build.
up a reserve of your very own and also put on'' t touch the retired life bucks for these emergencies.
now allow'' s proceed to 3 changes for those that are approaching retired life as well as there allow.
changes for these employees number 4 in the 9 ways is capture up payments for those age.
50 and also above will certainly now be indexed with rising cost of living starting in 2024 they were always raised.
ever so sporadically by Congress as well as if you consider a video clip that I made early in my channel I.
highlighted the payment quantities since I'' ve always thought that including in those payment.
degrees with catch-up contributions after your age 50 is really crucial pay down debt build up a cash.
pillow and max out retirement savings well currently that'' ll be simpler to do due to the fact that those contribution. restrictions for catch-up will certainly be indexed to inflation now for example a thousand dollar catch-up.
contribution is allowed on Individual retirement accounts which dollar figure will go up gradually in a 401k.
the catch-up payment is 7 500 as well as once again that will increase gradually to make sure that'' s a large plus for. those that are approaching retired life and also intend to max out their retired life financial savings currently starting.
in 2025 there will be an added layer of catch-up contribution for those that are in ages.
60 through 63 wear'' t ask me why those numbers in that 64 65 and 66 too however for those people in that.
brace they will be permitted to add with a catch-up contribution of ten thousand bucks or.
150 percent of the age 50 catch-up restriction as that rises with the index now there'' s a caution. right here and that ' s number 6 on the big modifications there'' s a requirement that the catch-up.
payments have to enter into a Roth account if your salary is more than 145 000 so you and also your.
tax consultant will certainly need to determine when those capture up payments make good sense and finally allow.
me highlight 3 final reasons of the nine why protected 2.0 will certainly alter your retired life and also these.
use to those people who are presently retired and also number 7 is that we will certainly see later rmd.
ages currently safeguard the original act in 2019 elevated the rmd age from 70 as well as a fifty percent to 72.
Well safe.
2.0 currently increases it further based on exactly how old you are for those of us birthed in the 50s the rmd age.
will certainly be 73. if you'' re birthed in 1960 or after the rmd age will be 75. to ensure that indicates.
there'' ll be much more wiggle room for intending Roth conversions and tax obligation preparation in between.
retired life and those rmd dates the rmds exist because it'' s Uncle Sam ' s means of making. sure tax obligation deferred bucks at some point obtain tired there'' s an additional little peculiarity in below around.
acquiring a pension from your spouse it used to be that if you had actually acquired an individual retirement account.
for circumstances from your partner it was rolled right into yours as well as now with these different rmd ages they.
added a little wrinkle if the more youthful partner passes away for instance as well as she had a r d age of 75 the.
older partner might choose to rather of rolling it into his Ira treat it as if the partner were.
still alive as well as start taking rmds at the age the partner would certainly have been 75.
It'' s a little Quirk and also.
I wear'' t know that stuck that in a costs but oh well number 8 on the changes is a lessening of.
the charge for missing an rmd it utilized to be if you forgot to make an rmd you were tired at 50.
percent of that rmd level and also it went to Uncle Sam since charge that excise tax on.
a missed out on rmd will go to 25 percent or 10 if you remedy it in a prompt way there'' s. still some regulations to specify what timely methods however total that means much less possibility of a very.
pricey error with your rmds even a 10 fine is not worth it just plan to take your rmds if.
they'' re required ultimately number 9 safe 2.0 eliminates rmds for Roth 401ks there was a.
trait in the old tax obligation code that an a Roth IRA had no rmds but a Roth 401k did now the majority of people is.
simply rolled over the Roth 401k right into a Roth IRA before that rmdh which'' s what I was preparing.
to do this regulation simply makes that unnecessary I'' ll most likely go in advance and do it anyway to simplify my.
accounting note that that change on Roth 401ks will certainly take place in 2024.
If you'' re due to. take an rmd for a Roth 401k this year you should probably roll it over before that rmd.
age so those are my nine manner ins which the safe 2.0 will transform your retired life currently there are.
a lots of various other changes in fact my eyes were going blurred attempting to read all of these points.
in the last month I think it'' s called safe because it'' s going to safeguard the tasks of.
economic coordinators tax accounting professionals and IRS agents for quite a long time yet I'' ll close with.
my conventional warning I am not a monetary coordinator I'' m simply a do it yourself retiree so please take these as.
enjoyable ideas from one educated customer to one more always do your own due persistance and also.
seek an expert if you need one many thanks.
Retirement Planning for Singles
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
The very first step is to figure out what type of income you ' re going to need, and I ' ve got other video clips on that, I ' ll placed web links in the summary to get you some even more info, but you can look at replacing a part of your revenue, or you can just claim, I desire X amount of dollars per year, or you can go with various other techniques, however first we need to recognize just how much revenue you are wishing for. Or if you put on ' t like that, make it the 3%rule to be safer, or take out more if you assume that ' s not enough and also you ' re marketing on your own short.Ultimately, there are a number of means to approach this, so you just pick one that functions well for you, and also again, I can aim you to some sources on figuring that out. You will certainly desire to look at taxes and rising cost of living, so throughout your retired life years, it ' s practical to think that prices might enhance on numerous of the things you purchase, so we desire your revenue to be able to boost as well, Social Safety and security commonly does climb, however maybe not at the exact same rate as the things you ' re acquiring, so your withdrawals may require to account for that.Plus we ' ve got tax obligations.
One quarter of people over age 60 are living alone in their family, and that number is a little greater for ladies, as well as that'' s, of training course, due to females ' s long life. We'' ll go over some averages to offer you a harsh idea of what the landscape looks like for solitary individuals, after that we'' ll obtain into exactly how much money you could need as you go into retirement, after that we'' ll talk concerning some pointers that can help improve the chances of retiring comfortably.Let ' s start with the ordinary retirement revenue for single people. The very first step is to figure out what type of income you ' re going to need, and also I ' ve obtained various other video clips on that, I ' ll put links in the description to get you some even more details, yet you can look at changing a part of your revenue, or you can simply claim, I desire X amount of dollars per year, or you can go with other strategies, yet initially we need to know exactly how much revenue you are wishing for. Or if you put on ' t like that, make it the 3%rule to be much safer, or take out more if you think that ' s not sufficient and you ' re marketing on your own short.Ultimately, there are a number of methods to approach this, so you just choose one that works well for you, and also once again, I can direct you to some resources on figuring that out. You will want to look at taxes as well as inflation, so throughout your retired life years, it ' s sensible to presume that costs may enhance on many of the things you acquire, so we want your revenue to be able to increase as well, Social Security typically does rise, but maybe not at the exact same rate as the things you ' re acquiring, so your withdrawals might require to account for that.Plus we ' ve obtained tax obligations.
Retire Rich: 2023 Ultimate Planning Guide (Step-by-Step)
Jason 0 Comments Career after Retirement Retire Wealthy
– What's going on you guys. Welcome back to the channel. So in this video today, we're gonna be going over a ultimate guide to retirement planning in 2021. You already know I got my seltzer here. I gonna go ahead and
crack this bad boy open. And we're gonna get this
video started shortly. So at the end of the day, most
people do not want to spend the rest of their life working. And since your expenses don't
just magically disappear, when you turn 60 or 65 or
whatever that retirement age is you have to do things in order
to plan for your retirement. And so in this video, I'm
gonna go through exactly what you need to know to
start off this process of planning for retirement. This is going to include a
number of different topics. We're gonna talk about, how to tell when you can retire based on your level of income. We're gonna cover three primary ways that people derive
income during retirement, when to start saving for retirement, which is as soon as possible obviously, where to save for retirement? And we're also going to cover, how to make your retirement money last? Now real quick here, guys I just want to say thank
you to today's video sponsor which is T-Mobile.
We're gonna talk about
that more later on guys but I just wanna mention
here that T-Mobile offers their Essentials Unlimited 55 and up plan which is going to be
offering unlimited talk, text and data on two lines
at just $27.50 per line. It is a great option for people who are approaching retirement
age, who are looking to minimize those monthly recurring expenses. Compared to Verizon and AT&T
you can often save around 50% with T-Mobile. Not to mention guys, T-Mobile is the only wireless
company that offers a discount on the 55 and up plans regardless of what state you live in. Other companies like Verizon and AT&T only offer those discounted
plans in Florida. So you may wanna check that out. In addition, if you're thinking
about upgrading your phone and getting the latest 5G technology, 5G is included at no
extra cost with this plan. But more on that later. Now I'm definitely not looking
to waste your time here with this video guys. So I wanna go ahead and
identify who this video is for.
Well, mainly this video is geared towards people who are
approaching retirement age. You're probably not ready to retire but it's something that's on the horizon in the next 5 to 10 years. And you're wondering what things should you be aware of right now, and how can you get your ducks in a row for when you do approach
that retirement age. This video is also helpful
for those who are just looking to prepare for
retirement early on.
Even if you're in your
20s like me or your 30s, there's things you can start doing today that are gonna be relatively painless. And trust me, you're gonna
thank yourself later, when you have a lot of money set aside for your golden years. Now, many hours of research
did go into this video. So I just have three small
favors to ask you here, guys. First of all, if you are sitting there and watching this on your computer, go ahead and put your phone on silence and put it away for a little bit, because you wanna focus
all of your attention on this video, and not be distracted with all those social media apps, you can go back to those shortly. Also guys, make sure you pause the video and grab a pen and paper.
And if you need one, go ahead
and grab a beverage as well. We are gonna be here for a little bit but I promise to you that I'm gonna answer probably
every question you have about retirement planning in this video. So you're not gonna have to jump to like 10 different videos to get all
of your questions answered. Lastly guys, if you enjoy this video just go ahead and drop a like, it shows me that this
information was helpful and I'm not asking you
to like the video now but at some point, if you're
watching it and you say, "Hey, this was pretty helpful." That little thumbs up button
certainly does help out. Lastly, a few quick disclaimers
I have to make here.
I am not a financial advisor. This is not financial advice. You need to do your own research before investing in anything out there. Don't do what some guy on the
internet just tells you to do. I'm not here to sell you any products. I'm not selling any courses
or anything like that. And lastly, I have been
getting a lot of scam comments down below where people
are impersonating me. They're trying to get
people to send money. That is not me. I wanna put up two comments
on the screen here. This is a comment that's from me. And you can see the check mark and the different way that it looks versus this scam comment that
doesn't have those things. So if you're communicating with
someone down in the comments and it's me, make sure I
have that check mark in place otherwise you better
bet that is a scammer, and they're trying to take your money.
Hopefully YouTube does a
better job at policing this but for the time being, it
is utterly out of control. And I don't really know what else to do other than make this disclaimer
in every single video. That being said, guys,
let's get right into it and start off with when can you retire? And to be honest with you guys,
it's a pretty simple answer but the way of figuring this out is a little bit more complicated and we're going to cover that later.
But the truth is when
you're able to retire is when you no longer need
to rely on active income to pay for your expenses. So most people out there have a mortgage, they have car payments, they have different monthly expenses. And so in order to retire, you have to make sure that all
of those expenses added up, and even those unforeseen
expenses that you can plan for. Well, your level of income derived from your different investments needs to be enough to
cover those expenses. Otherwise you may have to go out there and get a different job to supplement your retirement income. And so for most people that may not be the ideal retirement scenario. So short answer here, guys, you can retire when your passive investment
income exceeds your expenses, but the longer answer is there's a calculation we're
gonna use to figure this out, that we'll discuss later in the video.
So next up, what are your different
options for retirement income? Well, this pretty much comes down to anything out there that
can make you money, but there's pretty much three main areas where people derive retirement income. The first one is your personal savings and your personal investments. So maybe you're somebody
who's worked a job for your entire life and you've been slowly
contributing to that 401(k). And then maybe you also
have some IRA accounts. Maybe you have a Roth
IRA or a traditional IRA.
And then beyond that, you might have a nest
egg with your savings. Maybe you have the taxable
brokerage account as well. And the goal is for
eventually all these things to be able to provide income for you to not have to work in
order to pay for your bills. Now, the second area
where people derive income for retirement is social security. However, we've certainly
heard a lot about this in recent years, and I don't
think it's such a safe thing especially for young people
to be reliant on that in the future because
social security is kind of in shambles right now
where we don't know how long it's going to last. However, if you are
approaching retirement age, that may be something you can count on for the time being is deriving income from social security. However, social security
alone, 90% of the time is not going to be enough
money to pay for your expenses unless you're living in like the smallest apartment in your entire city and you pinch every penny. And at least for me that's not my idea of a good retirement.
And just a couple of statistics I wanna share with you guys
here about social security, 40% of those who are 60
and above are 100% reliant on social security as a means of income. And so, like we said, here,
there's three different ways people typically derive income, but most people are just fully
reliant on social security which is something to be worried about. And if you're a younger
person watching this video, you don't want to put
yourself in that situation. Another surprising statistic here is that the social security trust fund based on the current rates is likely going to run out around 2035.
Now, are they gonna let
it run out entirely? Probably not. What they're gonna do is probably decrease payouts over time, which means that those who are reliant on that as income are gonna start making less and less money if they have to decrease those payouts. So that is why you really
don't wanna be in the situation where your reliant on this
social security income as a means to sustain yourself. And then lastly, the third source of retirement income for most people that's becoming less and less common is something called a pension.
Now pensions vary from company to company. In the past, it was
typically a percentage of your highest earning year
basically paid to you in perpetuity until you are passed away. But what they found is that these things are not very
profitable for companies. And it's very rare to
find any companies today that still offer this pension. But if you're an older
person watching this nearing retirement age, you may still have a pension plan to derive income during retirement.
So your best case scenario
here for retirement is that you're deriving income from these three different sources. Number one, personal savings
and personal investments. Number two, social security,
number three, your pension. That's like the perfect
scenario for retirement. However, unfortunately
only about 6.8% of people over age 60 are deriving retirement income from all three of those sources. So the vast majority of people
probably don't have pensions and some unfortunately don't
have any personal savings or personal investments. So that's the big picture right now. And that's why it's very
important to have your ducks in a row and start thinking
about this early on and planning that way. You can try to have a a
three-legged stool here where you're able to derive
income from multiple sources.
You don't want to be fully reliant on social security or fully
reliant on pension income or personal investments, personal savings. You wanna have different
things that are able to generate income for you
that way you're diversified. Because basically people
who are deriving income from one source are balancing
on a one-legged stool. It's not very stable. You wanna have multiple legs
to that stool, ideally three. And of course in that personal investments and personal savings
category, there's a lot of different things that
fit under this category. For most people, it's stocks and bonds but a lot of people also invest in things like real
estate or precious metals. And there's a lot of people who literally will
just put all their money in real estate, build up, you know a portfolio of 30 or 40 units. And then they live off of
that rental income cashflow. So there's many different
ways to skin a cat here, guys but just understand that
your goal here should be to derive money from
multiple different sources and have three legs to that stool. So next up here, guys, let's
answer the question of, when should you start
saving for retirement? Well, short answer as
soon as humanly possible.
Now, what I mean by this is when you're younger and
your expenses are lower. Let's say you're in
your 20s and early 30s. Maybe you don't have kids yet. Maybe you're still
living with your parents. This is your prime opportunity
to put as much money as you can into your 401(k), maxing out Roth IRA contributions, and basically holding onto
as much money as you can and putting it in
something that grows value. Because the main factor in how much money you have in retirement isn't based on how much
money that you invest.
It's how much time you
allow that money to grow. So even if you're in your
20s or 30s watching this, and you're thinking, "I don't really have a ton that I could set aside right now." It doesn't matter how much you put aside, the main factor is the amount of time that you allow that money to grow. So just for an example here, guys if you're looking to have $1
million in your retirement let's say your 401(k) for example you could invest just $300 per
month, over a 40 year period earning the average return
from the stock market. Or if you wanted to do it in 20 years, you would have to invest $1,750 per month. That's almost six times
more money to get you to the same result. So you can either invest
a smaller amount of money for a much longer time or you're going to have
to invest a lot of money for a shorter window of time. So the sooner you start,
the better off you are. And I highly encourage you to check out a compound interest calculator and play around with some of those numbers if you are a young person
watching this video.
If you're already close to retirement age and you didn't do these
things, don't worry. I still have more options for you that we're going
to discuss in a little bit. And again, it's important
to understand that truly it's never too late to start saving and investing for retirement. So even if you are in your
50 and you have no assets, you should still do something. You know, doing something is
better than doing nothing. It's gonna be a lot harder because you don't have that much
time to let your money grow, but it's never too late.
It's just important to
understand the sooner you start the better off you are. So now, let's talk about where you should be saving
money for retirement. And there's a pretty simple
process to follow here that most financial experts agree on and I'm going to teach
it to you right now. So the very first thing you should do before investing your
money in the stock market and opening up different
investment accounts is to set up an emergency fund. And this is just simply a liquid account. It sits there in a online savings account or a savings account at your bank or maybe a certificate of deposit. And so what you want
here is a rainy day fund. So what most experts
recommend is setting aside three to six months of
all of your expenses. So what you wanna do is sit
down on a piece of paper write down every one of your expenses, your car payment, your mortgage,
groceries, utility bills and come up with that figure. Let's say for most people maybe it's $3,000 per month
is their monthly expenses.
Well, I would encourage you to save up six times that expense
in a liquid emergency fund. So your very first step is to have let's say anywhere from
10,000 to $20,000 parked in a savings account
where it just sits there in case of emergency. And then you're not going
to invest that money. You just leave it sitting there. And if you end up taking
money out for an emergency like a car repair or a medical expense, you replenish that fund and
you keep that amount there. And of course, if your monthly expenses
are going up over time, you're going to want to
adjust your emergency fund accordingly to make sure you
keep enough money in there. So that's your very first
step is, begin saving up money for an emergency fund and
aim have three to six months of expenses sitting in a liquid account. The very next thing you should do after you have your emergency fund in place is to take advantage of any employer match with the 401(k).
So if you're not familiar, the 401(k) is an employer
sponsored retirement plan which allows you to take money pre-tax and put it away for retirement. And it also gives you
a pretty nice write-off on your tax return, which is
something else to consider. Now, I don't recommend
putting all of your money into the 401(k) because
it's hard to access it and you'd have to pay taxes and penalties to get that money out. However, if your employer
is offering a company match, you should maximize whatever
they're offering you because that's literally free money. So back before I was a
full-time YouTuber guys, I used to work for a utility company and they didn't have a
pension or anything like that, but they did have a employer match. So every dollar I would put in, they would match me with an
additional 50 cents up to 6%. So what I would do is I put 6% of my paycheck into my 401(k)
and then they matched me 50%. So I got another 3% for free. So, effectively 9% of my total pay was going into my 401(k) every
single week automatically.
So after you have your
emergency fund established, or at least started. You don't have to have
all that money there before you move to step two. You just want to kind of start that and begin putting a little bit over there every single week to build up that fund. The next thing is to take advantage of those employer 401(k) matches. After that, if you have any
high-interest debt, you know like personal loans, credit
card debt, things like that. You wanna pay that debt off next, because the average
return you're gonna see from the stock market is somewhere
around 8 to 10% per year. And so if you have high-interest debt, like let's say you have a
credit card with 25% interest, the most wise move you can
make financially is to pay off that debt because you're
paying way more in interest than you're gonna earn as a return. If you had $1000 invested and you're gonna make 10% in one year, you're going to make $100.
If you have a $1000 on a credit card at 25% interest over
the course of one year you'd pay like 250 in interest. So even though you could invest
that $1,000 and make $100 you're still paying 250 in interest. So overall it's a net loss. So if you have high-interest debt, you got to get that paid down first before you begin investing in other stuff, just because that's your
wisest move financially. So after you have your
emergency fund in place and after you maximize your employer match and then you pay off your
high-interest debt, if applicable the next thing to consider is an IRA.
And in particular, I like the Roth IRA. Assuming you're able to contribute to this based on your level of income. Now I'm not gonna get into
a whole thing here guys on Roth IRA versus traditional IRA. I could probably spend 30 minutes on an entire video talking about that. So for now, we're just gonna
cover some very basic stuff about the Roth IRA. With your 401(k) as mentioned, you're contributing pre-tax income and you get the write-off. However, down the line when
you draw out of that account that is when you pay taxes. With the Roth IRA, you're actually contributing
post tax income. So you've already paid taxes on it, meaning you don't get any write-off. However, if you follow
the rules and you know you start drawing from
that by a certain age you don't actually have to pay taxes on the growth of your money.
So it's a very powerful account and it allows you to grow
your wealth tax free. The other advantage of the Roth IRA is you can pull out your
contributions at any time. So if you were putting a $2,000
per year of contributions into that Roth IRA, every single year, you can pull out those
contributions at any time, tax free, penalty free. You just can't touch the earnings or the growth of your money. So let's say you're putting
money into a Roth IRA. And then 10 years later, you decide that you want to invest in a
business or something. You can pull that money out
and pull your contributions out and not have to worry
about penalties and taxes.
So I liked the Roth because it's flexible, you can choose where you put that money. You can put it in stocks,
bonds, precious metals there's all kinds of different Roth IRAs. And you have access to that money where you can take out your contributions, if you do need to access it. So now assuming that you have
the emergency fund in place, you're maxing out your 401(k), you've paid off high-interest debt, you've maxed out Roth IRA
contributions for the year. After that, that's when
I would put that money into a taxable brokerage account where you're able to invest that money, you're able to touch it
you're able to access it.
The only thing is you pay
taxes on your dividends and taxes on those capital gains. But for the most part, that is the generally agreed upon plan for where you should save
money for retirement, is in these different things
that you have control of. And this is all within that category of your personal savings
and personal investments. As far as your pension goes that's all based on your employer, most of them are not
offering any pensions today. However, if they offer it and it's something you
have to contribute towards, if you expect to stay with
that employer for a long time and make a career out of it,
that is definitely a wise move.
And then you automatically pay into social security if
you are a W2 employee. So that's not really something
you have any choice over. So now let's go ahead
and cover how much money that you're going to
need in order to retire. Well, it's kind of a moving target and it's going to change
based on your lifestyle. I mean, are you looking to live in a one bedroom apartment and
drive a ten-year-old vehicle and you know, eat canned
beans for a living? Or do you want to retire
on a beach in Miami? So it all depends based on your lifestyle.
But there is again, another
generally accepted calculation that financial experts use, to calculate necessary retirement income. And it's something called the 4% rule that I'm gonna teach you right now. Also guys, just a quick reminder, I know I mentioned this earlier, but if you have found any
value in this video so far, a like would certainly be appreciated. It helps this video to be
shared with more people. And if you have any thoughts or questions leave me a comment down below. But anyways let's talk
about this 4% rule now.
Now, as far as the math behind this goes, I'm not going to get into it. If you wanna watch,
there's plenty of videos about the 4% rule that we'll
go into a lot more detail but essentially it's a
very simple calculation. What you're going to do,
is you're going to multiply your desired retirement income by 25. So let's say for example you wanna have $40,000 per
year of income in retirement. If that's how much money you want, you want to multiply that by 25. And that will tell you a rough idea of how much money you should have in your savings and your investments in your personal investment
and savings accounts. So for example, if you
wanted $40,000 per year, you would multiply that by 25 and you would come to the conclusion that you're going to want
to have $1 million saved and invested in these different accounts in order to sustainably derive $40,000 per year from that account
without running out of money.
Now, if you wanna be a
little bit more conservative, there is the 3% rule which
is going to be a multiple of around 33, but anywhere
between 25 to 33 times, your desired annual retirement income is how much money you
should have set aside saved and invested for retirement. So obviously guys, the main thing here is the
less money that you need per month based on your lifestyle, the less money you need saved and invested and the sooner you can retire. That's where that whole
FIRE movement comes from or Financially Independent Retire Early, that's people who live off of
as little money as possible. They save as much as possible and they aim to be retired in their 30s. And they're able to accomplish that by living off of as
little money as possible. I did a whole video on this
called how to retire by 30. If you guys wanna check it out at the end I will include a link down below. So now what I want to
cover here is what to do, if you're somebody who
doesn't have 25 to 33 times their desired annual income in a savings or retirement account.
Maybe you're already in
your 50s or early 60s. And you're saying, "What am I gonna do? I don't have money that's just going to fall out of thin air to put in this account,
what options do I have?" Well, let's cover those right now. The main things that you can do are surrounded by things
that you can control. And the main thing you can
control is how much money you're actually spending
during your retirement. So essentially you have two options.
You can try to make more money or you can try to spend less money. Now I'm more of a fan of
the offensive approach here which is figuring out
how to make more money. And so let's talk about that now. The first thing you could
do is figure out some kind of side hustle that you wanna
start maybe in retirement or maybe you wanna do this
before retirement and save up extra money and take all
that money and invest it. I've done a lot of videos
about side hustles. We're not going to get into them here but just understand that
this right here, this laptop this provides a lot of
opportunities to make money.
And it's certainly not rocket science, and I know a lot of people who in their later years have started
YouTube channels and blogs and these different things that allow them to make extra money on the side. So the first thing you wanna consider is, "Hey, let me look into
starting a side hustle." Second of all, pretty simple, spend less money now, pre-retirement. That way you can save
more money to invest. So if you're in your 40s
or 50s, and let's say for example, you're driving
a brand new luxury car and you're watching this
video and you're realizing, "Oh crap, I'm not
preparing for retirement." Maybe you make some
small sacrifices today, that allow you to save
and invest more money. So maybe you trade that car in and you get an economy vehicle and you take that difference
in your monthly payment, and you put that into your
Roth or your 401(k) instead. Another option, pretty simple, spend less money in retirement. We're gonna cover that
more in a little bit. I'm gonna give you guys some
tips on how you can do that.
And then lastly, option number four not the best one, which
is delaying retirement. Maybe you wanna push it
until age 70, age 75, which will allow you
to stay working longer. It will allow you to contribute money towards retirement accounts
and investment accounts longer and allow that money to
have more time to grow before you have to start drawing. So now what I wanna cover
here is a rough idea of how long your retirement
money is going to last. And I don't wanna sound morbid here guys but the truth is, you want
your retirement money to last until you pass away. And then you also wanna make
sure you have enough money sitting there to cover medical bills, funeral costs, and things like that because most people just
don't wanna be a burden on their family when they pass away.
Where they're out of
assets, they're in debt and then their family
has to scrape together 10 or 20 grand for a funeral. So it's not something that
we like to think about or really talk about but it is something that's important to prepare for. And so your goal here should
be to have enough money that you can have your money outlive you and cover some of those costs and maybe have a little
bit of money to pass on to your family as well,
maybe towards, you know college expenses or things like that. But anyway, let me give you
a couple of pointers here on, how long that money will last in a couple of different
factors to consider. Well, first of all how
long your money will last is going to largely depend
on your investments. Some of them are lower risk and some of them are higher risk. And so if you're investing
in higher risk assets, they may be more volatile but you may also see greater returns. On the other hand, if
you're super conservative and let's say you only put your money in fixed income assets, you may find that you're not taking on enough
risk, and you could find that your money doesn't last
as long as you need it to.
So, one of the main things
you have to understand with retirement is that asset mix. And for most people, it's a
split between stocks and bonds. And so that's the main
thing you wanna focus on is that allocation. If you'll have too much money in stocks and not enough in bonds, you might be taking on too much risk and your portfolio could be very volatile, going up and down in value all
the time, stressing you out. If you're too low-risk you might not be growing
your money fast enough and it might run out too soon. So figuring out that asset
mix is very important. Now as far as that number goes, there's a couple of different
rules of thumb out there, but one that most people agree upon is the 110 or the 120 rule. And it's based on your life expectancy. So, I actually am a fan of the 120 rule, which basically means
you take your current age and subtract it from 120. And that tells you how
much money you should have in stocks and the rest should be in bonds.
So for example, I am 25 years old, I would take 120 minus 25,
and that leaves me with 95. That tells me that 95% of my money should be in stocks and
only 5% should be in bonds. Whereas if we take a 70
year old, for example we would take 120 minus 70,
and that leaves us with 50. And that tells us that
50% should be in stocks, 50% should be in bonds. Now, of course, guys that
is a very basic example and it doesn't take into account your unique personal situation. So for exact numbers I
would actually recommend speaking with a financial
advisor and you don't necessarily have to have them manage your money, you can pay them for a
one-time consultation where you're basically saying,
"Hey I want you to tell me what my allocation should be, and help me understand how
that changes over time." But by far that's one of
the most important factors to consider is your asset
mix or asset allocation? Now in general guys, that 4%
rule that we discussed earlier has been pretty successful,
and most people have found that it lasts them around 30 years, which is a pretty long retirement.
That's about how long most
people expect to be around once they retire. However, the success of that
4% rule is largely dependent on that asset allocation we discussed. Because if you're not
taking on enough risk, and you're only earning
a very small return, you're going to dwindle
that money a lot sooner. Another important factor
to consider is taxation. And this varies based on the types of accounts that you have. As mentioned earlier, the Roth IRA is an account
where you put your money in and you pay taxes on the way in. But when you draw from that account you don't pay any taxes. Whereas with the 401(k)
it's tax-free going in but when you come out, you're
actually going to pay taxes.
So this tax situation
is largely dependent on your own investment accounts. Maybe one person has all
of their money in a Roth and somebody else has all
of their money in a 401(k). Those are vastly different tax situations. And this is a scenario again
where a financial advisor can look at this for you, and help you with some tax planning. And you can understand what
are the tax implications associated with your
different investments. So now that you have a
general idea of the factors that will tell you how
long your money will last, let's talk about some different ways to make your retirement money last longer. So the first thing you can do to make your money last longer, which is getting more and more popular is something called downsizing. So most people end up having a home where they raise their kids. And let's say that you're still
together with your spouse. You may now be in this situation where you have this three or four bedroom house, you're paying to heat all those bedrooms.
And you're maintaining this big house, when you're only utilizing
like 25% of that space. Even if your mortgage is paid off, you're still paying for
utilities and landscaping and things that on a much
larger property than you need. So you could downsize into an apartment or downsize into a smaller house. That's becoming more and more popular with the goal of reducing
your fixed monthly expenses. Another option, going back
to the side hustle idea, maybe you Airbnb, a part of your home or you do one of your bedrooms
or something like that, to figure out how to generate
income from that unused space.
But downsizing is a very popular option. Another one is reducing
your fixed expenses like your car payment, as
well as things like your utility payment and things
like your phone bill. So this is where I wanna
talk more about our sponsor for today's video, which is T-Mobile, because they have specific wireless plans designed for people in
retirement to save you money on those fixed monthly costs. So, 55 and up customers who live anywhere in the United States, not just Florida are able to get two lines
of unlimited talk, text and data on T-Mobile's network,
starting at under $30 each.
Which if you have an existing phone plan you have a general idea
of what you're paying, and I can tell you guys right now I'm paying a heck of a lot
more than $30 per line. Now you might be wondering if you're getting some really
cheap plan in the process and the answer is no. In fact, it comes with a lot
of different bells and whistles and extra perks. For example, it comes with the industry's best scam protection, unlimited
3G mobile hotspot data, international texting, no
annual service contracts, your very own dedicated
customer service team, as well as additional
free items here and there and discounts every single
week through T-Mobile Tuesdays. So oftentimes if you
switch from a carrier like, AT&T or Verizon, over to
T-Mobile with this plan, you could save upwards of
50% every single month. And while it may not sound
like a lot of money upfront when you factor in that cost
over the next 20 or 30 years, these little things you
can do to save money on those monthly expenses
really are going to add up. So if you are interested
in those 55 plus plans through T-Mobile, switching
carriers is very easy.
If you're ready to make the switch, you just have to stop
into a T-Mobile store, or you can call 1800 T-Mobile or visit T-mobile.com/55, and I'll go ahead and
include links to all of that as well as the phone number down below, if you guys wanna go
ahead and take advantage of those discounted plans. Now another thing you can do
to make your retirement money last longer is falling
into that category of delaying your retirement. You can also delay taking social security, and this can lead to you having
a larger monthly benefit. So for every year that you wait, you're going to get an
additional 8% in social security, every single month. And if you wait until age 70
to start taking social security you can get up to 24%
more every single month. So if you can delay retirement, and delay taking your
social security benefit, that can result in
additional monthly income. Another great strategy is exactly what we're talking about here, which is having a retirement spending plan before you stop working.
So you do things in advance
to get your ducks in a row. You cut down on recurring monthly expenses like your phone bill,
maybe you take advantage of something like
T-Mobile's 55 and up plans. Maybe you downsize, or you
decide to Airbnb a spare room as us as a side hustle. You just start planning early on before you hit retirement
age, and then you think, "Okay, I haven't planned for this at all. Let's get something going." You're better off to plan in the beginning and get your ducks in the row early. Another suggestion that I have is utilizing credit card reward
points, because a lot of people in their later years want
to travel during retirement. We're in a unique situation right now with the global pandemic,
but once it's safe to travel, that's a popular thing
in your retirement age is seeing the world.
Well, if you're able to
effectively use credit cards and get free points for
travel or free miles, that's another way to get
more bang for your buck. And as long as you're not paying interest on those credit cards and you're paying them
off every single month, I would highly recommend utilizing
credit card reward points and bonuses for travel. Lastly, one of the
things that you can do is make investments in your health to make sure that you're
not having a lot of medical stuff coming up in retirement.
Hopefully you have some
plan for health insurance. So let's say now that worst case scenario, you're somebody who is
in retirement right now and you're slowly realizing that you're going to run out of money. You don't have enough for that 4% rule and maybe you only have
one leg to your stool, which is social security. What options do you have available to you, if you know, you're going to fall short? First of all, as covered
earlier, you can reduce expenses or pick up a part-time job or side hustle.
A lot of people in
retirement end up working 10 or 15 hours per week on the side. Number one for something to do, and number two, just to
have extra spending money. Another option is to tap
into the value of your home with a home equity line of
credit or a reverse mortgage. That's pretty complicated, not gonna get into that
too much in this video, but if you want to hear more about that leave me a comment down below, and maybe I'll do a whole video talking about the reverse mortgage. Another option that you may explore is, if you have a life insurance policy, you may be able to tap into the value of your life insurance policy and get something called the cash value, if you draw on that early. Again, complicated subject
maybe a topic for another video but if you have a life insurance policy, you should sit down
with a financial planner or financial advisor and ask
them about those options.
And one thing I want to mention here is, if you're somebody who's in retirement and you know that your
money supplies dwindling, don't ignore this problem. There are things that you can do. The longer you wait the
worst it's going to be. So I would start addressing
these issues now. So just to wrap up here guys, one of the main things
that I want to recommend as a call to action is it
may be worthwhile to sit down with a fee only certified
financial planner.
It's gonna cost you a couple
of $100 out of pocket, but they're going to be
able to help you answer a lot of questions you may have, such as asset mix, asset allocation. There'll be able to look at your different retirement accounts
and help you understand the tax implications,
because on the surface retirement planning is pretty simple. It comes down to your
expenses, your income, your lifestyle needs, and basically what you're looking to get
out of your retirement. But when you look into
the individual details that each person has with
their different accounts, that's where it becomes more personalized and more complicated. So I think you're going
to get a lot of value out of a fee only
certified financial planner that you pay an hourly rate to, that way you can get unique information about your personal financial situation. At the end of the day here guys, if you fail to plan, you're
essentially planning to fail.
And I want to discourage
you from doing that. This isn't the most exciting topic and it's certainly not on
the top of my to-do list but retirement planning is very important. So I encourage you to take
action on this advice today. I thank you so much for
watching this video. I hope you've got a
lot of value out of it.
Let me know down in the
comment section below what your thoughts are on this. And if you made it to the
very end, let me know too because I'm always curious
how many people stick around for full videos. Lastly, one last, thank
you here to T-Mobile for sponsoring this video. I have a link down below, if you wanna check out
T-Mobile's essentials, 55 and up plan, which is a great option to minimize your monthly recurring
expenses in retirement, to make sure that money lasts longer. If this is your first time
seeing me make sure you subscribe and hit that bell for
future notifications, and on that I hope to see
you in the next video.
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