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Retirement Planning for Singles
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Retirement is a big deal for anybody, and that's especially true for single people who may be retiring with just one income and who may have built up a nest egg solely off their own savings. So, we know that single people can and do retire comfortably. In fact, one quarter of people over age 60 are living alone in their household, and that number is slightly higher for women, and that's, of course, due to women's longevity. So what we're going to talk about here is retirement for single people. First, we'll go over some averages to give you a rough idea of what the landscape looks like for single people, then we'll get into how much money you might need as you go into retirement, then we'll talk about some tips that can help improve the chances of retiring comfortably.
Let's start with the average retirement income for single people. So it's $42,000 on average for an individual in retirement, and that comes from the US Census Bureau. The median is a little bit lower at $27,000. So a friendly reminder of how this works: The median is the middle, so if you line up all of the survey results, people telling you what their income is, for example, that arrow points at the middle observation, which would give us the median down at the bottom. But if we go to the average, that is going to get skewed by, in this case, wealthy people, for example, they have a very high income. When it comes to Social Security, the average is about $1,500 a month or $18,000 per year.Your level depends, of course on your earnings, if you had higher earnings during your working years, then you tend to potentially have a bigger benefit than that, and it could be lower, and then of course, your claiming age is also an important thing.
If you claim early at age 62, you get a reduced benefit. That's likely to bring down the amount you get. Next, we have pensions, some people get an income from a job they worked at. That might be in the public sector as a teacher, a firefighter, that sort of thing, or even in the private sector, you could have a pension from your job, and those incomes just are all over the board, it could be high, it could be low, but these are different sources of income that people might have in retirement.
This is just a friendly reminder that this is just one video and it may cover some interesting information, but it's not specific to you so I hope you'll do a lot more research, hopefully check with some professionals and get some individualized advice, and that way you can improve the chances of things going well for you. So now let's talk about how much you might need as you go into retirement. Unfortunately, there's no single answer on what you need because it depends. So the first step is to figure out what sort of income you're going to need, and I've got other videos on that, I'll put links in the description to get you some more information, but you can look at replacing a portion of your income, or you can just say, I want X amount of dollars per year, or you can go with other approaches, but first we need to know how much income you are hoping for. Next, we tally up your income sources, so that might be some guaranteed income that comes in from Social Security, for example, or from your pension at your workplace, but that forms a base of income and that might or might not cover what you need.
But it gives us a base and then if we need to fill that in, we can supplement withdrawals from your retirement savings, so that might be out of your IRA, your 401, 403, these accounts that you have built up over time can provide supplemental income to help fill the gap between that guaranteed income you get and the amount you actually want to spend. There are a number of ways to figure out how much to withdraw and to set up different strategies, there might be bucking strategies, there might be withdrawal strategies like the 4% rule. Or if you don't like that, make it the 3% rule to be safer, or take out more if you think that's not enough and you're selling yourself short. Ultimately, there are a number of ways to approach this, so you just pick one that works well for you, and again, I can point you to some resources on figuring that out. And finally, you will want to look at taxes and inflation, so during your retirement years, it's reasonable to assume that prices may increase on many of the things you buy, so we want your income to be able to increase as well, Social Security typically does rise, but maybe not at the same rate as the things you're buying, so your withdrawals may need to account for that.
Plus we've got taxes. You typically will owe taxes if you're taking distributions or you're taking withdrawals from pre tax retirement accounts. If you have a pension that might be taxable as well. We just want to look at all of these things and figure out what your ultimate money left over to spend each month is going to be. For an over simplified example, let's just look at Jane Doe. She's 60 years old, she's single, she wants to retire in about five years, she makes about 80,000 a year and has 700,000. A lot of people retire with less than that, a lot of people retire with more. I'm going to bring up my financial planning software that I use with clients, and we'll just go over kind of why there's no single answer on how much you need. Now, if you can tell me exactly how long you'll live and what the markets will do and what inflation will look like, we can tell you exactly what you'll need.
But there are a lot of unknowns, so a lot of times we start with a probability of success and I'll go over what that means, and then we look at little tweaks and how different changes might affect that probability of success, so working an extra year might bring her from… Let's say 75% to 84% likely to succeed. Now, success and failure are pretty complicated. They don't necessarily mean that you go completely broke, but you may need to make some adjustments, so let's talk about what does the success mean? We, again, cannot predict the future, so we say, Let's look back and say, You get dealt 1,000 hands.
You're playing a game of cards and you get 1,000 hands. Some of those are good and some of those are bad, so the very good ones tend to be up here, near the top. And you actually end up with a lot of money left over. Some of them are not as good and you end up running out of money early. The median is, again, that one that's right in the middle when we line them up in order for best to worst. And so you might say, you're probably not going to get the best, you're probably not going to get the worst, although anything is possible. So that's how we go with this likelihood of success. Now, maybe she doesn't want to work an extra year, so we can look at different ways of accomplishing things here. By the way, we've built in some long term care in case she does get sick and needs that at the end of life.
She's looking to spend about 4,000 a month, that's after some health care costs that are going to inflate each year, and she's saving a decent amount in some 401K and taxable accounts. Let's say she goes ahead and maxes out that Roth, is it going to make a big difference? Not really, 'cause she only has five years left. So what we do here is we start looking at all of these different variables and playing with the pieces and figuring out what does it take to make her successful at her retirement, or at least successful enough that she's comfortable making that transition. So here are some tips to improve your chances. The first is to plan for long term care. If you're living on your own, you don't have somebody in the house who can help you do things, and it's arguable if even a couple is capable of managing this on their own…
I mean, if you think about a couple, is one of the people physically able to move the other person around and do they have the skills to provide health care, and the time and the energy, frankly, to provide all that type of care? So it's important for everybody, but it's especially important for single people to plan for this care. So you can look at getting insurance, you can look at budgeting for some costs, like we showed you in the software, you might want to budget for a much bigger number if you go into memory care or something like that with 24 hour supervision, it can get really expensive quickly. And you can explore different living arrangements, maybe doing things with friends or certain communities that might be a good fit for you. Next is to avoid leaving money on the table so if you were previously married and your spouse passed away or you've been divorced, you may be eligible for benefits. That's maybe from Social Security, you can potentially get a survivor's benefit, or if you were married for at least 10 years and you've been divorced, you can potentially get spousal benefits on your ex spouse's work record.
It's just important to explore all of these to see if there are any resources available for you. Next is to make a plan, and I am of course biased as a financial planner, but I think it is really helpful to go through the process, and the main goal isn't to get a big document that tells you what your financial plan is. Instead, really, the benefit is going through that process and learning a lot about your finances as you do it, and in that process, you get an idea of what the risks are, how you're doing, you might get confidence and clarity on whether or not you can go ahead and retire, if you should do certain things or not. It's just a very valuable process for a lot of people, but I'll leave that for you to decide.
If you found this video helpful, please leave a quick thumbs up. That gives me feedback that this is something you might enjoy more of, so thanks for watching and take care..
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Retirement Planning in Your 50s and Beyond
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Your 50s are an excellent time to get serious
about retirement planning, and that's because at this point in your life, you may have figured
a couple of things out. You might have a decent idea of where you
spend money, what your preferences are, the things you don't care for so much, and you
might also have some financial advantages at this point in life. Perhaps you've paid off a lot of debt maybe. If you had kids, they're out of the house
or almost independent. And you might be in your peak earnings years
because you have gained some expertise and some knowledge in whatever it is you do for
a living, and one big reason to get serious is you might have more money than you've ever
had before saved up so now it really counts. A 10 % loss in the markets, for example, hurts
a lot more than it did when you were 22 years old.
But whether you're just getting started saving
for retirement or you've been doing it for decades there are some important things that
come up in your 50s that can help you pave the way to a smoother retirement down the
road. The first thing to watch for is catch-up contributions,
and this is not the condiment, this is a catch-up contribution that allows you to put extra
into your retirement accounts each year once you reach age 50. The IRS sets maximum limits on how much you
can contribute to those accounts, but at 50, you can do a little bit extra and that helps
to boost what goes into those accounts each year for example in your 401k or 403 b or
governmental 457 you can put in an extra six thousand six hundred dollars per year as a
catch-up contribution on top of the max that you had back when you were 49 years old and
your knees didn't hurt as much.
For traditional and Roth IRAs, for 2022 that
number is a thousand dollars of extra catch-up contributions. Of course, this is assuming that you have
the cash flow to make the maximum contribution and put the catch-up contribution on top of
that, and if you don't, that's okay, it's not feasible for everybody, just do what you
can. But if you are really trying to maximize your
account balances at retirement, those catch ups are a powerful tool. The next thing to do is to look at your Social
Security and pension benefits. It's a good time to start getting a realistic
expectation of what you might get, and that's because you might assume that you're going
to get a lot more or a lot less, but it's really helpful to start figuring out how those
systems work and how much you can expect each month. If you're eligible for Social Security, you'll
want to go through your earnings history and make sure that that is accurate because if
any years are missing you may end up with a smaller monthly retirement benefit.
Your benefit is based on your 35 highest earnings
years, so you want to make sure that those good earning years are in there and that you
don't have any unnecessary zeros in your history. Keep in mind that you may be able to get some
retirement benefits from a former spouse or your current spouse, so if you're widowed
or divorced, for example, you want to research those potential benefits and you might also
be able to get income on your spouse's earnings record if you are still married and there,
are some strategies you'll want to look at as you go through that process. By the way, I'm Justin Pritchard, and i help
people plan for retirement and invest for the future. So, there will be some resources down in the
description below that cover this in more detail and give you some other pointers.
Another smart move is to manage your debts
or make a strategy for them. So, if you have consumer debts like credit
cards for example, you definitely want to plan to eliminate those debts and make sure
that your spending stays within your income limits so that you're not digging yourself
a hole during retirement or as you head towards retirement. But what about so-called "good debts" in retirement? For example, a mortgage. There's a lot of benefit to being debt-free
and not having a mortgage payment when you're in retirement a lot of people really focus
on getting rid of that loan before their retirement date but it's not necessarily the end of the
world to have a mortgage in retirement, and paying it off quickly out of your retirement
funds can cause some problems. As long as you can fit that monthly payment
into your income maybe that's your Social Security, pensions, and some withdrawals from
savings accounts, and you can manage that debt comfortably, then again, it's not the
end of the world, and remember that that loan payment will eventually go away someday which
frees up cash flow for other expenses maybe health care expenses later in life.
Speaking of expenses, how much are you going
to need to spend? Well, that's something to start figuring out
and there are a couple of different ways to do that this video that's going to pop up
above will give you some pointers on that but basically you can look at your spending
today and maybe adjust that for inflation or you might look at an income replacement
ratio and say maybe I just need 80 percent of what I'm earning now that might or might
not be right for you or you can target a certain level of spending such as $50 or $100,000
whatever the case may be, and with those numbers you can set a goal to start heading for once
you have an idea of your spending and your retirement income sources and your assets
then you can run some calculations and again we're setting your expectations so that you
know if you're on track or not and this can alert you to some potential shortfalls or
maybe let you know if you could retire earlier than maybe you expected there are a lot of
helpful online calculators out there they can do a decent job of getting you in the
ballpark but make sure you understand what their limitations might be so they don't necessarily
get super detailed and you might not be able to adjust all of the assumptions but again
you can get some basic ideas of if you're sort of close or if you're way off on what
you expected another good move in your 50s is to refine your investment strategy so up
to this point you may have been doing some great things to get you to the point where
you are you've built up some nice assets but if you've been using high risk strategies
maybe speculating maybe day trading that sort of thing it's time to ask yourself if that's
something that you want to continue doing at this stage in life it is difficult to consistently
get good results with those high risk approaches and you might have more to lose now than you
did previously.
I'm not saying you can't do it or definitely
don't do it but I would say proceed with extreme caution and maybe just say hey I've done a
good job up to this point maybe I'll reevaluate what I'm going to do going forward. At 50 it's time to start thinking about long-term
care if you haven't already been thinking about it there's a 70 percent chance that
you might need some type of long-term care and that might include everything from somebody
helping you out at home maybe this is a loved one assuming you have somebody at home who
is willing and able and remember it could be physically and emotionally difficult and
it might require expertise but it could include somebody helping you out at home who you know
or you going into a skilled nursing facility and paying those higher costs that are associated
with that higher level of care there are several ways to deal with the costs and that might
include a long-term care insurance policy but those are kind of problematic so definitely
look into them but consider some other alternatives as well maybe instead of maybe to supplement
or maybe you just go with insurance but some other options include saving up assets and
earmarking those for a long-term care event or maybe looking at your home equity as a
safety net to cover some of those big expenses that's not necessarily a fun way to spend
your time so one of the other things you can do is envision how you want your retirement
to unfold and this is a really important step that a lot of people skip it's important to
have something to do with yourself once you stop working you might have gotten a lot of
your social engagement a lot of your meaning and some of your identity out of your work
and you might want to not necessarily admit that but for a lot of people that's the case
it's easy to say that the main thing you're looking forward to in retirement is not going
to work but you probably want to have some ideas on how you're going to fill your time
and that way you're going to number one enjoy it more and number two there might be some
real benefits in terms of your mental and physical health if you are retiring to something
as opposed to just retiring from work, so ask yourself how will you fill your days? What are you most excited about and interested
in? What can you do to find some meaning and some
purpose during that time? And who might you spend time with, and what
are your plans for keeping your physical health as good as you can possibly keep it? So, I hope you found that helpful.
If you did, please leave a quick thumbs up,
thank you, and take care..
2 Ways to Estimate Retirement Spending
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
When you're planning for retirement, your spending level is one of the most important pieces of the puzzle, so how much should you plan to spend each year? That's going to dictate what we are withdrawing from your investments and how that needs to supplement your Social Security, pensions, and that sort of thing. So we're going to go over two methods that you can use to fairly easily figure out what your spending might look like in retirement. As you go through this exercise, it's important to remember that no method is perfect and it's impossible to predict the future, so we don't know what your grocery bill is going to be in 14 years, or how much you'll spend on electricity in 12 years, but what we can do is make some reasonable guesses and estimates and take action based on that, take a step forward and then learn a few things and then adjust if adjustments need to be made. So the two ways of figuring out your budget I want to talk about today are the top down and the bottom up approach, and there are a couple of other ways to estimate your retirement spending need as well.
So the replacement ratio is a pretty popular one, and that's where you say, I might need, let's say, 80% or some other percentage of my current income to spend in retirement, hopefully it's a relatively high number, but there… You're just basically saying, Well, I'm not going to save for retirement anymore, I'm not going to be paying payroll taxes, so maybe 80 90 or some other percentage is an appropriate amount, but we're going to go over again, top down and Bottom up, so starting with top down, the top down strategy focuses on the amount you spend and is not as concerned with the destination of those dollars or the specific costs that you pay, all that that information is important, and we're probably going to want it, but when we look at a top down approach, we say, What is all of the income minus the savings you do? And the answer is your costs or your total spending, so we don't know necessarily exactly where that money went, but it went somewhere…
Okay, so you had income, you save some money in some different places, the rest of it went away and it's not your money anymore, so that's the top down approach, so how do we figure out the income? The best place or the very top is to start with your pay stubs or your income tax returns, so those are going to capture even dollars that never hit your bank account, so for example, you can say, my total income is X, but I put money into my workplace plan, my 401k, that money is never going to show up in your bank account, you're not going to see it as a line item in your transactions where you saved money, but you did indeed save that money, you didn't spend it on something else, you can spend it later, so if we start with the income sources from a very high level, we're talking about your pay stubs and your tax returns, then we look at the savings, so this is going to be all of the additions you make to various accounts, so that's going to be your 401K, 403B, any bank savings accounts, HSAs, IRAS, any place that you're saving money for the future, this is going to get subtracted from that income number we came up with, so we have our income at a high level, we have the savings that we did, we subtract that, then the result is the total spending, and again, we're not totally concerned with exactly where the money went.
Although if there is a problem, a spending issue or something like that, then we definitely want to look closer. Naturally, there are pros and cons of any approach, so the advantages of this top down strategy are going to be that it's really easy and it gives you a big picture view, and it captures really pretty much everything, it might capture too much, so we'll talk about that in a second, but if you are not sure exactly where your money goes, but you're doing okay budget wise, and you want to keep the same lifestyle basically that you currently have, then this can be a decent way to estimate how much you might spend later in life, so we don't know how much of it went on vacation versus dining versus whatever, but you did spend the money somewhere, and that's really what we need to know is how much do you spend…
But this could capture some costs that you aren't going to have in retirement, so for example, your payroll taxes are going to be something that we want to think about if we're using this top down approach, because when you stop working, you'll no longer have those payroll taxes. Likewise, if you have a mortgage and you're doing monthly mortgage payments at some point that loan might go away and that won't be an expense for you in retirement, you would generally still have taxes and insurance, but you wouldn't have the principal and interest portion of your mortgage payment at some point down the road, hopefully.
So again, with top down, we start with this big picture view, income minus savings equals expenses, and then maybe we want to make some adjustments for certain things that are going to change over time, so here's a little example of how it looks visually, you've got your income of 100,000 you're over age 50, you're doing 27,000 into your 401K, you've got an IRA as well, there's another 7,000 that you're saving. And so your actual spending is no more than 66,000, and it's probably even less than that when we think about payroll taxes and maybe a couple of other things, so think about this as you evaluate what your costs might be, sometimes people think I make 100,000 right now, so I'm going to need a 100000 of income every year in retirement, and that's often not the case, and this is another way to illustrate that point, in fact, those are the types of exercises I often go through with clients, by the way, I'm Justin.
Pritchard, and I help people plan for retirement and invest for the future, so in the description below, there's going to be more on this topic, on your spending and just some other general retirement planning type resources that I think will be really helpful for you. So please check those out, and it's also a good time for a friendly reminder that this is just general information, it's a short video that can't possibly cover everything, so please check with some experts before you make some important decisions. Next, we have the bottom up approach, and so this is going to be what you might be more familiar with as just budgeting, so that's looking at every single expense and transaction and categorizing those costs and figuring out where exactly your money goes.
So you're really looking closely at the destination of each dollar that leaves your household, so you have a detailed view of what's happening, you can get this information from places like your credit card statement, so every time you spend money, there's an electronic record of it. You can categorize that and track it, your bank account is also probably a good place to look, so if you have those electronic automatic payments that go out of your bank account, maybe your mortgage or your insurance payments, that kind of thing… Those are going to be important to know about and include in your budget. Even a check register. So you might only write one or two checks a year these days, but they're probably big ones and they're probably important to know about, so make sure you're tracking that if it's a charitable contributions, or maybe you pay your property taxes once a year by check, that sort of thing, we need to know about those so that you can continue that type of spending.
This technique really relies on you being able to track and find and categorize that information, so it's probably a decent idea to just cross check this with a top down approach, so say, Well, here's what I think I spend based on my budget, based on all the things I tracked and looked at, but let's just see if that more or less adds up based on my income versus how much I put into different accounts, and are we in the ballpark? Just like with the top down approach, it's important to pay attention to any costs that might change over time. So if you are making mortgage payments again and you're going to have that loan paid off at some point, want to look at what's the principal and interest portion of that payment, and what's the taxes and insurance portion, and keep those separated, you know that you'll continue to pay taxes and insurance, but not the principal and interest at some point down the road.
Again, there are pros and cons to this, just like everything else, it's probably a decent way to go if you are very close to retirement because you're going to be spending in a similar way next year or two years from now, as you are today, so your current budget might be a nice reflection of what the next couple of years budget could look like, one of the drawbacks though, is that this can give you a false sense of precision, so you've got your list and your spreadsheet and you've got you exactly how much you paid for a bagel eight months ago, and you know exactly where your money is going, but you might be missing something, that's really the main risk is that you could be missing some important expenses, so that if you base your spending off of your spreadsheet or your list, it might not be nearly as accurate as you think it is.
So I hope you found that helpful. If you did, please leave a quick thumbs up. Thank you and take care..
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Retirement Planning for Singles
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Retirement is a big deal for anybody, and that's especially true for single people who may be retiring with just one income and who may have built up a nest egg solely off their own savings. So, we know that single people can and do retire comfortably. In fact, one quarter of people over age 60 are living alone in their household, and that number is slightly higher for women, and that's, of course, due to women's longevity. So what we're going to talk about here is retirement for single people. First, we'll go over some averages to give you a rough idea of what the landscape looks like for single people, then we'll get into how much money you might need as you go into retirement, then we'll talk about some tips that can help improve the chances of retiring comfortably.
Let's start with the average retirement income for single people. So it's $42,000 on average for an individual in retirement, and that comes from the US Census Bureau. The median is a little bit lower at $27,000. So a friendly reminder of how this works: The median is the middle, so if you line up all of the survey results, people telling you what their income is, for example, that arrow points at the middle observation, which would give us the median down at the bottom.
But if we go to the average, that is going to get skewed by, in this case, wealthy people, for example, they have a very high income. When it comes to Social Security, the average is about $1,500 a month or $18,000 per year.Your level depends, of course on your earnings, if you had higher earnings during your working years, then you tend to potentially have a bigger benefit than that, and it could be lower, and then of course, your claiming age is also an important thing. If you claim early at age 62, you get a reduced benefit. That's likely to bring down the amount you get. Next, we have pensions, some people get an income from a job they worked at. That might be in the public sector as a teacher, a firefighter, that sort of thing, or even in the private sector, you could have a pension from your job, and those incomes just are all over the board, it could be high, it could be low, but these are different sources of income that people might have in retirement.
This is just a friendly reminder that this is just one video and it may cover some interesting information, but it's not specific to you so I hope you'll do a lot more research, hopefully check with some professionals and get some individualized advice, and that way you can improve the chances of things going well for you. So now let's talk about how much you might need as you go into retirement. Unfortunately, there's no single answer on what you need because it depends.
So the first step is to figure out what sort of income you're going to need, and I've got other videos on that, I'll put links in the description to get you some more information, but you can look at replacing a portion of your income, or you can just say, I want X amount of dollars per year, or you can go with other approaches, but first we need to know how much income you are hoping for. Next, we tally up your income sources, so that might be some guaranteed income that comes in from Social Security, for example, or from your pension at your workplace, but that forms a base of income and that might or might not cover what you need. But it gives us a base and then if we need to fill that in, we can supplement withdrawals from your retirement savings, so that might be out of your IRA, your 401, 403, these accounts that you have built up over time can provide supplemental income to help fill the gap between that guaranteed income you get and the amount you actually want to spend. There are a number of ways to figure out how much to withdraw and to set up different strategies, there might be bucking strategies, there might be withdrawal strategies like the 4% rule.
Or if you don't like that, make it the 3% rule to be safer, or take out more if you think that's not enough and you're selling yourself short. Ultimately, there are a number of ways to approach this, so you just pick one that works well for you, and again, I can point you to some resources on figuring that out. And finally, you will want to look at taxes and inflation, so during your retirement years, it's reasonable to assume that prices may increase on many of the things you buy, so we want your income to be able to increase as well, Social Security typically does rise, but maybe not at the same rate as the things you're buying, so your withdrawals may need to account for that. Plus we've got taxes. You typically will owe taxes if you're taking distributions or you're taking withdrawals from pre tax retirement accounts. If you have a pension that might be taxable as well. We just want to look at all of these things and figure out what your ultimate money left over to spend each month is going to be.
For an over simplified example, let's just look at Jane Doe. She's 60 years old, she's single, she wants to retire in about five years, she makes about 80,000 a year and has 700,000. A lot of people retire with less than that, a lot of people retire with more. I'm going to bring up my financial planning software that I use with clients, and we'll just go over kind of why there's no single answer on how much you need. Now, if you can tell me exactly how long you'll live and what the markets will do and what inflation will look like, we can tell you exactly what you'll need. But there are a lot of unknowns, so a lot of times we start with a probability of success and I'll go over what that means, and then we look at little tweaks and how different changes might affect that probability of success, so working an extra year might bring her from…
Let's say 75% to 84% likely to succeed. Now, success and failure are pretty complicated. They don't necessarily mean that you go completely broke, but you may need to make some adjustments, so let's talk about what does the success mean? We, again, cannot predict the future, so we say, Let's look back and say, You get dealt 1,000 hands. You're playing a game of cards and you get 1,000 hands. Some of those are good and some of those are bad, so the very good ones tend to be up here, near the top. And you actually end up with a lot of money left over. Some of them are not as good and you end up running out of money early. The median is, again, that one that's right in the middle when we line them up in order for best to worst. And so you might say, you're probably not going to get the best, you're probably not going to get the worst, although anything is possible.
So that's how we go with this likelihood of success. Now, maybe she doesn't want to work an extra year, so we can look at different ways of accomplishing things here. By the way, we've built in some long term care in case she does get sick and needs that at the end of life. She's looking to spend about 4,000 a month, that's after some health care costs that are going to inflate each year, and she's saving a decent amount in some 401K and taxable accounts.
Let's say she goes ahead and maxes out that Roth, is it going to make a big difference? Not really, 'cause she only has five years left. So what we do here is we start looking at all of these different variables and playing with the pieces and figuring out what does it take to make her successful at her retirement, or at least successful enough that she's comfortable making that transition. So here are some tips to improve your chances.
The first is to plan for long term care. If you're living on your own, you don't have somebody in the house who can help you do things, and it's arguable if even a couple is capable of managing this on their own… I mean, if you think about a couple, is one of the people physically able to move the other person around and do they have the skills to provide health care, and the time and the energy, frankly, to provide all that type of care? So it's important for everybody, but it's especially important for single people to plan for this care.
So you can look at getting insurance, you can look at budgeting for some costs, like we showed you in the software, you might want to budget for a much bigger number if you go into memory care or something like that with 24 hour supervision, it can get really expensive quickly. And you can explore different living arrangements, maybe doing things with friends or certain communities that might be a good fit for you. Next is to avoid leaving money on the table so if you were previously married and your spouse passed away or you've been divorced, you may be eligible for benefits. That's maybe from Social Security, you can potentially get a survivor's benefit, or if you were married for at least 10 years and you've been divorced, you can potentially get spousal benefits on your ex spouse's work record.
It's just important to explore all of these to see if there are any resources available for you. Next is to make a plan, and I am of course biased as a financial planner, but I think it is really helpful to go through the process, and the main goal isn't to get a big document that tells you what your financial plan is. Instead, really, the benefit is going through that process and learning a lot about your finances as you do it, and in that process, you get an idea of what the risks are, how you're doing, you might get confidence and clarity on whether or not you can go ahead and retire, if you should do certain things or not.
It's just a very valuable process for a lot of people, but I'll leave that for you to decide. If you found this video helpful, please leave a quick thumbs up. That gives me feedback that this is something you might enjoy more of, so thanks for watching and take care..
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Retirement Planning for Singles
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Retirement is a big deal for anybody, and that's especially true for single people who may be retiring with just one income and who may have built up a nest egg solely off their own savings. So, we know that single people can and do retire comfortably. In fact, one quarter of people over age 60 are living alone in their household, and that number is slightly higher for women, and that's, of course, due to women's longevity. So what we're going to talk about here is retirement for single people. First, we'll go over some averages to give you a rough idea of what the landscape looks like for single people, then we'll get into how much money you might need as you go into retirement, then we'll talk about some tips that can help improve the chances of retiring comfortably. Let's start with the average retirement income for single people. So it's $42,000 on average for an individual in retirement, and that comes from the US Census Bureau. The median is a little bit lower at $27,000.
So a friendly reminder of how this works: The median is the middle, so if you line up all of the survey results, people telling you what their income is, for example, that arrow points at the middle observation, which would give us the median down at the bottom. But if we go to the average, that is going to get skewed by, in this case, wealthy people, for example, they have a very high income. When it comes to Social Security, the average is about $1,500 a month or $18,000 per year.Your level depends, of course on your earnings, if you had higher earnings during your working years, then you tend to potentially have a bigger benefit than that, and it could be lower, and then of course, your claiming age is also an important thing. If you claim early at age 62, you get a reduced benefit. That's likely to bring down the amount you get.
Next, we have pensions, some people get an income from a job they worked at. That might be in the public sector as a teacher, a firefighter, that sort of thing, or even in the private sector, you could have a pension from your job, and those incomes just are all over the board, it could be high, it could be low, but these are different sources of income that people might have in retirement. This is just a friendly reminder that this is just one video and it may cover some interesting information, but it's not specific to you so I hope you'll do a lot more research, hopefully check with some professionals and get some individualized advice, and that way you can improve the chances of things going well for you.
So now let's talk about how much you might need as you go into retirement. Unfortunately, there's no single answer on what you need because it depends. So the first step is to figure out what sort of income you're going to need, and I've got other videos on that, I'll put links in the description to get you some more information, but you can look at replacing a portion of your income, or you can just say, I want X amount of dollars per year, or you can go with other approaches, but first we need to know how much income you are hoping for. Next, we tally up your income sources, so that might be some guaranteed income that comes in from Social Security, for example, or from your pension at your workplace, but that forms a base of income and that might or might not cover what you need. But it gives us a base and then if we need to fill that in, we can supplement withdrawals from your retirement savings, so that might be out of your IRA, your 401, 403, these accounts that you have built up over time can provide supplemental income to help fill the gap between that guaranteed income you get and the amount you actually want to spend.
There are a number of ways to figure out how much to withdraw and to set up different strategies, there might be bucking strategies, there might be withdrawal strategies like the 4% rule. Or if you don't like that, make it the 3% rule to be safer, or take out more if you think that's not enough and you're selling yourself short. Ultimately, there are a number of ways to approach this, so you just pick one that works well for you, and again, I can point you to some resources on figuring that out. And finally, you will want to look at taxes and inflation, so during your retirement years, it's reasonable to assume that prices may increase on many of the things you buy, so we want your income to be able to increase as well, Social Security typically does rise, but maybe not at the same rate as the things you're buying, so your withdrawals may need to account for that.
Plus we've got taxes. You typically will owe taxes if you're taking distributions or you're taking withdrawals from pre tax retirement accounts. If you have a pension that might be taxable as well. We just want to look at all of these things and figure out what your ultimate money left over to spend each month is going to be. For an over simplified example, let's just look at Jane Doe.
She's 60 years old, she's single, she wants to retire in about five years, she makes about 80,000 a year and has 700,000. A lot of people retire with less than that, a lot of people retire with more. I'm going to bring up my financial planning software that I use with clients, and we'll just go over kind of why there's no single answer on how much you need. Now, if you can tell me exactly how long you'll live and what the markets will do and what inflation will look like, we can tell you exactly what you'll need. But there are a lot of unknowns, so a lot of times we start with a probability of success and I'll go over what that means, and then we look at little tweaks and how different changes might affect that probability of success, so working an extra year might bring her from…
Let's say 75% to 84% likely to succeed. Now, success and failure are pretty complicated. They don't necessarily mean that you go completely broke, but you may need to make some adjustments, so let's talk about what does the success mean? We, again, cannot predict the future, so we say, Let's look back and say, You get dealt 1,000 hands. You're playing a game of cards and you get 1,000 hands. Some of those are good and some of those are bad, so the very good ones tend to be up here, near the top. And you actually end up with a lot of money left over. Some of them are not as good and you end up running out of money early. The median is, again, that one that's right in the middle when we line them up in order for best to worst.
And so you might say, you're probably not going to get the best, you're probably not going to get the worst, although anything is possible. So that's how we go with this likelihood of success. Now, maybe she doesn't want to work an extra year, so we can look at different ways of accomplishing things here. By the way, we've built in some long term care in case she does get sick and needs that at the end of life. She's looking to spend about 4,000 a month, that's after some health care costs that are going to inflate each year, and she's saving a decent amount in some 401K and taxable accounts. Let's say she goes ahead and maxes out that Roth, is it going to make a big difference? Not really, 'cause she only has five years left. So what we do here is we start looking at all of these different variables and playing with the pieces and figuring out what does it take to make her successful at her retirement, or at least successful enough that she's comfortable making that transition.
So here are some tips to improve your chances. The first is to plan for long term care. If you're living on your own, you don't have somebody in the house who can help you do things, and it's arguable if even a couple is capable of managing this on their own… I mean, if you think about a couple, is one of the people physically able to move the other person around and do they have the skills to provide health care, and the time and the energy, frankly, to provide all that type of care? So it's important for everybody, but it's especially important for single people to plan for this care. So you can look at getting insurance, you can look at budgeting for some costs, like we showed you in the software, you might want to budget for a much bigger number if you go into memory care or something like that with 24 hour supervision, it can get really expensive quickly.
And you can explore different living arrangements, maybe doing things with friends or certain communities that might be a good fit for you. Next is to avoid leaving money on the table so if you were previously married and your spouse passed away or you've been divorced, you may be eligible for benefits. That's maybe from Social Security, you can potentially get a survivor's benefit, or if you were married for at least 10 years and you've been divorced, you can potentially get spousal benefits on your ex spouse's work record. It's just important to explore all of these to see if there are any resources available for you.
Next is to make a plan, and I am of course biased as a financial planner, but I think it is really helpful to go through the process, and the main goal isn't to get a big document that tells you what your financial plan is. Instead, really, the benefit is going through that process and learning a lot about your finances as you do it, and in that process, you get an idea of what the risks are, how you're doing, you might get confidence and clarity on whether or not you can go ahead and retire, if you should do certain things or not. It's just a very valuable process for a lot of people, but I'll leave that for you to decide. If you found this video helpful, please leave a quick thumbs up. That gives me feedback that this is something you might enjoy more of, so thanks for watching and take care..
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2 Ways to Estimate Retirement Spending
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
When you're planning for retirement, your spending level is one of the most important pieces of the puzzle, so how much should you plan to spend each year? That's going to dictate what we are withdrawing from your investments and how that needs to supplement your Social Security, pensions, and that sort of thing. So we're going to go over two methods that you can use to fairly easily figure out what your spending might look like in retirement.
As you go through this exercise, it's important to remember that no method is perfect and it's impossible to predict the future, so we don't know what your grocery bill is going to be in 14 years, or how much you'll spend on electricity in 12 years, but what we can do is make some reasonable guesses and estimates and take action based on that, take a step forward and then learn a few things and then adjust if adjustments need to be made. So the two ways of figuring out your budget I want to talk about today are the top down and the bottom up approach, and there are a couple of other ways to estimate your retirement spending need as well.
So the replacement ratio is a pretty popular one, and that's where you say, I might need, let's say, 80% or some other percentage of my current income to spend in retirement, hopefully it's a relatively high number, but there… You're just basically saying, Well, I'm not going to save for retirement anymore, I'm not going to be paying payroll taxes, so maybe 80 90 or some other percentage is an appropriate amount, but we're going to go over again, top down and Bottom up, so starting with top down, the top down strategy focuses on the amount you spend and is not as concerned with the destination of those dollars or the specific costs that you pay, all that that information is important, and we're probably going to want it, but when we look at a top down approach, we say, What is all of the income minus the savings you do? And the answer is your costs or your total spending, so we don't know necessarily exactly where that money went, but it went somewhere… Okay, so you had income, you save some money in some different places, the rest of it went away and it's not your money anymore, so that's the top down approach, so how do we figure out the income? The best place or the very top is to start with your pay stubs or your income tax returns, so those are going to capture even dollars that never hit your bank account, so for example, you can say, my total income is X, but I put money into my workplace plan, my 401k, that money is never going to show up in your bank account, you're not going to see it as a line item in your transactions where you saved money, but you did indeed save that money, you didn't spend it on something else, you can spend it later, so if we start with the income sources from a very high level, we're talking about your pay stubs and your tax returns, then we look at the savings, so this is going to be all of the additions you make to various accounts, so that's going to be your 401K, 403B, any bank savings accounts, HSAs, IRAS, any place that you're saving money for the future, this is going to get subtracted from that income number we came up with, so we have our income at a high level, we have the savings that we did, we subtract that, then the result is the total spending, and again, we're not totally concerned with exactly where the money went.
Although if there is a problem, a spending issue or something like that, then we definitely want to look closer. Naturally, there are pros and cons of any approach, so the advantages of this top down strategy are going to be that it's really easy and it gives you a big picture view, and it captures really pretty much everything, it might capture too much, so we'll talk about that in a second, but if you are not sure exactly where your money goes, but you're doing okay budget wise, and you want to keep the same lifestyle basically that you currently have, then this can be a decent way to estimate how much you might spend later in life, so we don't know how much of it went on vacation versus dining versus whatever, but you did spend the money somewhere, and that's really what we need to know is how much do you spend…
But this could capture some costs that you aren't going to have in retirement, so for example, your payroll taxes are going to be something that we want to think about if we're using this top down approach, because when you stop working, you'll no longer have those payroll taxes. Likewise, if you have a mortgage and you're doing monthly mortgage payments at some point that loan might go away and that won't be an expense for you in retirement, you would generally still have taxes and insurance, but you wouldn't have the principal and interest portion of your mortgage payment at some point down the road, hopefully.
So again, with top down, we start with this big picture view, income minus savings equals expenses, and then maybe we want to make some adjustments for certain things that are going to change over time, so here's a little example of how it looks visually, you've got your income of 100,000 you're over age 50, you're doing 27,000 into your 401K, you've got an IRA as well, there's another 7,000 that you're saving. And so your actual spending is no more than 66,000, and it's probably even less than that when we think about payroll taxes and maybe a couple of other things, so think about this as you evaluate what your costs might be, sometimes people think I make 100,000 right now, so I'm going to need a 100000 of income every year in retirement, and that's often not the case, and this is another way to illustrate that point, in fact, those are the types of exercises I often go through with clients, by the way, I'm Justin. Pritchard, and I help people plan for retirement and invest for the future, so in the description below, there's going to be more on this topic, on your spending and just some other general retirement planning type resources that I think will be really helpful for you.
So please check those out, and it's also a good time for a friendly reminder that this is just general information, it's a short video that can't possibly cover everything, so please check with some experts before you make some important decisions. Next, we have the bottom up approach, and so this is going to be what you might be more familiar with as just budgeting, so that's looking at every single expense and transaction and categorizing those costs and figuring out where exactly your money goes. So you're really looking closely at the destination of each dollar that leaves your household, so you have a detailed view of what's happening, you can get this information from places like your credit card statement, so every time you spend money, there's an electronic record of it.
You can categorize that and track it, your bank account is also probably a good place to look, so if you have those electronic automatic payments that go out of your bank account, maybe your mortgage or your insurance payments, that kind of thing… Those are going to be important to know about and include in your budget. Even a check register. So you might only write one or two checks a year these days, but they're probably big ones and they're probably important to know about, so make sure you're tracking that if it's a charitable contributions, or maybe you pay your property taxes once a year by check, that sort of thing, we need to know about those so that you can continue that type of spending. This technique really relies on you being able to track and find and categorize that information, so it's probably a decent idea to just cross check this with a top down approach, so say, Well, here's what I think I spend based on my budget, based on all the things I tracked and looked at, but let's just see if that more or less adds up based on my income versus how much I put into different accounts, and are we in the ballpark? Just like with the top down approach, it's important to pay attention to any costs that might change over time.
So if you are making mortgage payments again and you're going to have that loan paid off at some point, want to look at what's the principal and interest portion of that payment, and what's the taxes and insurance portion, and keep those separated, you know that you'll continue to pay taxes and insurance, but not the principal and interest at some point down the road. Again, there are pros and cons to this, just like everything else, it's probably a decent way to go if you are very close to retirement because you're going to be spending in a similar way next year or two years from now, as you are today, so your current budget might be a nice reflection of what the next couple of years budget could look like, one of the drawbacks though, is that this can give you a false sense of precision, so you've got your list and your spreadsheet and you've got you exactly how much you paid for a bagel eight months ago, and you know exactly where your money is going, but you might be missing something, that's really the main risk is that you could be missing some important expenses, so that if you base your spending off of your spreadsheet or your list, it might not be nearly as accurate as you think it is.
So I hope you found that helpful. If you did, please leave a quick thumbs up. Thank you and take care..
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Building Optimal Portfolios | Portfolio Blueprint 1 of 5 #investing #retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
[Music] there's a lot of advice out there on what stock to buy or what fun to buy but at the end of the day you need to remember you're not buying a stock you're not buying a bond you're not buying a rental property what you're really trying to do is build a portfolio and the idea of a portfolio is that it's going to be greater than the sum of its parts these are the Investments the engine that drives your financial plan which ultimately generates your cash flow and retirement which also generates tax taxes that you'll want to minimize so we'll go over some examples of how your Investments can be used to not only generate income but also reduce your taxes what I want to cover first is a – tested investment philosophy and what this means is that there are a lot of different ways to invest and our belief here at pure is that you want to find a way to invest that's based on academic research and empirical evidence as well as logic because if you can do that then you can have controls in place to manage your emotions you can reduce your taxes and you can generate the cash flow that you need while still sleeping at night and that's going to give you a better chance of sticking with that investment philosophy through the inevitable ups and downs you're going to encounter as you walk that path as an investor what I want to begin with is key elements of proper portfolio construction and really it all begins with getting the return you need think about it this way if you're going on a vacation somewhere yes you want to get there as directly as possible if you're flying you want less flight delays if you're driving you want less traffic but really the first determinant of whether it's a good vacation is whether you reach your destination so the number one goal of investing is that you want to get the return you need that while taking as little risk as possible and what that is is having gone through your cash flow planning there's going to be a return that matches up with your financial goals if you don't get that return across the next years and decades well you're going to run out of money or you're not going to meet your goals so one of the tools that you can use for this is Broad diversification and that's owning Securities both at home here in the United States and abroad in other countries stocks and bonds real estate all different asset classes of course you're going to want to use research something that you can hang your hat on and say okay this is an approach that's worked over time now that's not a guarantee it'll work going forward but it's better than just guessing what the future might hold and then finally of course there's a lot of uncertainty out there there's politics there's the economy there's International Affairs all of those are beyond your control but there's also some factors that you can control on your journey to financial success
Can I Retire at 55? Tips for Early Retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
If you're thinking of retiring at 55, you want to be careful about where you get your advice and guidance, and that's because most retirement advice is geared toward those who retire quite a bit later, in fact… Most people retire at 62, but things will be different for you if you're going to retire at 55. So that's what we'll talk about for the next couple of minutes here, we'll go over where you can get the money from, and how that works with taxes as well as healthcare, then we'll look at some actual numbers and what it might look like for somebody who retires at age 55. We might also want to get philosophical just briefly and ask the question, Why age 55? Yes, it's a nice round number. And there are some interesting tax strategies that are available around that age, but let's say you could retire a little bit earlier at 54, would you want to make that happen? Or if you worked a few more years… I know you'll think this is crazy, but if you worked a couple of more years and you could not impact your finances, but still take some of those dream vacations and spend time with loved ones, would that be worth it to maybe work until 59, for example? So we want to figure out exactly why you are pursuing a particular goal and then we can improve the chances of success for you, so let's start with health coverage, this is a tricky one because you're retiring quite a bit earlier than most people who might be near that Medicare age, so you have a number of different options to continue being covered, and it is a good idea to have real health insurance coverage just in case something happens.
So a couple of your choices include, number one, you can continue your current benefits from a job if you have them for up to 18 months in most cases, and that's under COBRA or your state's continuation program, that can get quite expensive because you're going to pay the full price, if you weren't already doing that, plus perhaps a teeny little bit extra for administration, but it is a way to continue with the program that you currently have, so that can be helpful if you are mid stream in certain treatments or if it's going to be hard to get certain benefits that you currently have on a different health care program, unfortunately, that's not usually a long term solution because we need to get you until age 65, which is when most people enroll in Medicare, and you should see your costs go down quite a bit at that point, maybe depending on what happens, so another solution that a lot of people look at is buying their own coverage, and that happens typically through a healthcare marketplace or an exchange, and that's where you just by coverage through an insurance company.
So you can go directly to the insurers, but it's often a good idea to go through… Start at healthcare.gov, and then go through the marketplace or the exchange, and that way you can shop some plans and potentially, depending on your income, you can potentially get some cost reductions that make it a lot more affordable, I'll talk more about that in a second, but another option is to switch to a spouse's plan, if you happen to be married and that person has coverage that's going to continue for whatever reason, that might also be a solution for you, when you leave your job, it could be a qualifying event that allows you to get on that person's program, but let's talk more about saving money on health care expenses before age 65, most people are going to buy a policy based on the factors that are most important to them, so that could be the premium or the out of pocket maximum, the deductible, the co pays, certain areas of coverage, all that kind of thing, you can select a plan that fits your needs.
Now, you might find that those tend to be quite expensive, and so if your income is below certain levels, you might be able to get effectively a reduction in the premium, it might be in the form of a tax credit or a subsidy, so here's just a preview of how things could look for you, let's say your income is, let's say 50,000 in retirement, and you need to look at exactly what income means, but there is no coverage available from a spouse, we've got one adult, and let's say you are… As our video suggest age 55 here, so you might get a benefit of roughly 422 a month, meaning you could spend that much less each month, and that's going to make it a lot easier to pay for coverage on these plans, if we switch your income down to 25,000 per year, the help is even bigger, so as you can see by varying or controlling your income, and this is something you might have some control over if you retire at 55, you can also control your healthcare costs, we'll talk about some conflicting goals here, where you might not want to absolutely minimize your income during these years, but this is important for you to know if you're going to be paying for your own coverage, and if you're experiencing sticker shock when you see the prices…
By the way, I'm going to have a link to this and a bunch of other resources in the description below, so you can play with this same calculator yourself. Now, once you're on Medicare, the cost should drop quite a bit, this is a calculator from Fidelity where we can say, let's say you are a female, and we're going to say you're eligible for Medicare at this point, so we'll bring you up to age 65. It is going to be quite a bit higher cost, if you look at it before age 65, and that's because you are paying for those private policies from insurance companies, let's say you're going to live until age 93, and so you might expect to spend roughly 5800 6000 bucks per year, depending on your health and your location and other factors, it could be more or less, but this is an estimate of what somebody might spend, a single woman each year in retirement, of course, that number is going to increase each year with inflation and deteriorating health issues.
But this is a ballpark estimate of what you might be spending in the future, now we get to the question of, do you have the financial resources to retire at 55? And that comes down to the income and the assets that you're going to draw from to provide the resources you need to buy the things you want and need, and one way to look at this is to say We want to avoid early withdrawal penalties because again, you are retiring at an age that's earlier than the typical retiree and most retirement accounts are designed for you to take withdrawals at 59.5 or later, to avoid those penalties, fortunately, you have a couple of options, so with individual and joint accounts, just taxable brokerage accounts, you can typically withdraw from those without any penalties, but you may have capital gains taxes when you sell something, those taxes may be at a lower rate than you would pay if you take big withdrawals from retirement accounts, but you just want to double and triple check that, but that can be a liquid source of funds.
You. Can also typically withdraw from Roth accounts pretty easily. So those regular contributions come out first, in other words, you can pull out your regular contributions at any time with no taxes and no penalties, what that means is that's the annual limit contributions you might have been making her by year, so the 7000 per year, for example. That money would be easily accessible, but if you have other money types like Roth conversions, for example, you're going to be very careful and check with your CPA and find out what all of that could look like. There. Are other ways to get at funds that are inside of pre tax retirement accounts, and it might actually make sense to draw on those to some extent, we'll talk more about that in a minute, but these are some of the tricks you can use to avoid an early withdrawal penalty yet still draw on those assets before age 59.5. The first one is the so called rule of 55, so this applies if you work at a job with, let's say a 401K, and you stop working at that employer at age 55 or later, if you meet certain criteria, then you can withdraw those funds from the 401k so they go directly from the 401k to you.
They don't go over to an IRA, you could withdraw those funds without an early withdrawal penalty. A complication here is that not every employer allows you to do that, so 401k plans can set a bunch of their own rules, and one of them might be that they don't let you just call them up and take money whenever you want, they might make you… Withdraw the entire amount, so if that's the case, this isn't going to work, so be sure to triple check with your employer and the plan vendors and find out exactly how this would work logistically or if it will even work. Next, we have SEPP that stands for substantially equal periodic payments or rule 72. This is an opportunity to draw funds from, let's say your IRA or a certain IRA that you choose, but before age 59 and a half without getting early withdrawal penalties. Now, this is not my favorite choice. I don't necessarily recommend this very often at all, and the reason is because it's easy to slip up and end up paying tax penalties. The reason for that is in part that it's really rigid, so when you establish this, You calculate an amount that you have to take out every year, and it has to be the same amount every year, and you have to make sure you do that for the longer of when you turn age 59 1/2 or for five years.
And even that sounds kind of simple, but it's still easy to trip up, and you also have to avoid making any kind of changes to your accounts, so it's just really rigid and can be difficult to stick to you, so… Not my favorite choice, but it could be an option. Those of you who work for governmental bodies, maybe a city organization or something like that, you might have a 457b plan, and those plans do not have early withdrawal penalties before 59 and a half, so you could withdraw money from that and use some income, pre pay some taxes, and have some money to spend fairly easily, this by the way, is an argument for leaving money in your employer's 457 versus rolling it over to an IRA, because once it goes over to an IRA, you are subject to those 59 1/2 rules and a potential early withdrawal penalty. So that could end up leaving you with 72 to work with, for example, which again is not ideal. So you might be asking, well shouldn't I just minimize taxes and hold off on paying taxes for as long as possible? And the answer is not necessarily.
So it could make sense to go ahead and pre pay some taxes by getting strategic, the reason for that is that you will eventually have to pay taxes on your pre tax money and it might happen in a big lump, and that can bump you up into the highest tax brackets, so it could be better to smooth out the rate at which you draw from those accounts and hopefully keep yourself in lower tax bracket, at least relatively speaking. So when your RMDs or your required minimum distributions kick in after age 72 under current law, that could possibly bump you up into the highest tax brackets, maybe you want to smooth things out and take some income early. So let's look at the question of, Do you have enough with some specific numbers, and before we glance at those numbers, just want to mention that I am Justin Pritchard.
I help people plan for retirement and invest for the future. I've got some good resources, I think, in the description below, some of the things that we've been talking about here today, as well as some general retirement planning information. So if this is on your mind, I think a lot of that is going to be really helpful for you. Please take a look at that and let me know what you think of what you find. It's also a good time for a friendly reminder, This is just a short video, I can't possibly cover everything. So please triple and quadruple check with some professionals like a CPA or a financial advisor before you make any decisions, so let's get back into these questions, Do you have enough? As we always need to mention, it depends on where you are and how much you spend and how things work for you. Are you lucky to retire into a good market, or are you unlucky and retiring into a bad market? All of these different aspects are going to affect your success, but let's jump over to my financial planning tool and take a look at an example.
This is just a hypothetical example, it's the world's most over simplified example, so please keep that in mind, with a real person, we've got a lot more going on. The world is a complicated place and things get messier, but we're keeping it very simple here, just to talk about an example of how things might look, so this person has one million in pre tax assets and 350,000 in a brokerage account, and if we just quickly glance at their dashboard here, pretty high probability of success, so let's make it a little bit more interesting and say… Maybe that IRA has, let's say, 700,000 in it. What is that going to do? And by the way, this is still a lot more than a lot of people have, but again, if you're going to be retiring at 55, you typically have quite low expenses and/or a lot of assets. So let's keep in mind here that retirees don't necessarily spend at a flat inflation adjusted level, and I'll get into the assumptions here in a second, but let's just look at if this person spends at inflation minus 1% using the retirement spending "smile," that dramatically improves their chances, and I've got videos on why you might consider that as a potential reality, so you can look into that later at your leisure, but as far as the assumptions, we assume they spend about 50,000 a year, retire at age 55.
The returns are 5.5% per year, and inflation is 3% per year. Wouldn't that be refreshing if we got 3%… So we glance at their income here age 55, nothing, and then Social Security kicks in at 70. They're doing a Social Security bridge strategy. I've got videos on that as well, or at least one video, the full year kicks in here later, and then their Social Security adjust for inflation, looking at their taxes, we have zero taxes in these earlier years because they are just not pulling from those pre tax accounts. Maybe not getting much, if anything, in terms of capital gains, maybe their deduction is wiping that out, so we may have an opportunity here to actually do something and again, pre pay some taxes and pull some taxable income forward.
In fact, if we glance at their federal income tax bracket, you can see that it's fairly low from 55 on, maybe they want to pull some of this income forward so that later in life, they are drawing everything out of the pre tax accounts all at once. It just depends on what's important to you and what you want to try to do, and that brings us to some tips for doing calculations, whether you are doing this with somebody, a financial planner or on your own, you want to look at that gap between when you stop working and when your income benefits begin from, let's say, Social Security, there's also that gap between when you stop working and when Medicare starts, and that's another important thing to look at, but what are your strategies available there? Should you take some income, and exactly how much? That's going to be an area where you might have some control, so it's worth doing some good planning.
We also want to look closely at the inflation and investment returns, and what are the assumptions in any software that you're using, for example? These are really important inputs and they can dramatically change what happens… You saw what happened when we switched from a flat inflation adjusted increase each year to the retirement spending smile, just a subtle little adjustment has a big difference on how things unfold, and in that scenario, by the way, we would typically have healthcare increasing at a faster rate.
But like I said, we use an over simplified example and didn't necessarily include that in this case, but you do want to click through or ask questions on what exactly are the assumptions and are you on board with those assumptions? You may also need to make some adjustments, and this is just the reality of retiring at an early age when you may have 30 plus years of retirement left, a lot can happen, and there really is a lot of benefit to making slight adjustments, especially during market crashes, for example, so.
If things are not necessarily going great, some little tweaks could potentially improve the chances of success substantially, that might mean something as simple as skipping an inflation adjustment for a year or two, or maybe dialing back some vacation spending. These are things you don't want to do, that's for sure, but with those little adjustments, you can potentially keep things on track, and that way you don't have to go back to work or make bigger sacrifices. And so I hope you found that helpful. If you did, please leave a quick thumbs up, thank you and take care..
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Retirement Planning in Your 50s and Beyond
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Your 50s are an excellent time to get serious
about retirement planning, and that's because at this point in your life, you may have figured
a couple of things out. You might have a decent idea of where you
spend money, what your preferences are, the things you don't care for so much, and you
might also have some financial advantages at this point in life. Perhaps you've paid off a lot of debt maybe. If you had kids, they're out of the house
or almost independent. And you might be in your peak earnings years
because you have gained some expertise and some knowledge in whatever it is you do for
a living, and one big reason to get serious is you might have more money than you've ever
had before saved up so now it really counts.
A 10 % loss in the markets, for example, hurts
a lot more than it did when you were 22 years old. But whether you're just getting started saving
for retirement or you've been doing it for decades there are some important things that
come up in your 50s that can help you pave the way to a smoother retirement down the
road. The first thing to watch for is catch-up contributions,
and this is not the condiment, this is a catch-up contribution that allows you to put extra
into your retirement accounts each year once you reach age 50. The IRS sets maximum limits on how much you
can contribute to those accounts, but at 50, you can do a little bit extra and that helps
to boost what goes into those accounts each year for example in your 401k or 403 b or
governmental 457 you can put in an extra six thousand six hundred dollars per year as a
catch-up contribution on top of the max that you had back when you were 49 years old and
your knees didn't hurt as much. For traditional and Roth IRAs, for 2022 that
number is a thousand dollars of extra catch-up contributions.
Of course, this is assuming that you have
the cash flow to make the maximum contribution and put the catch-up contribution on top of
that, and if you don't, that's okay, it's not feasible for everybody, just do what you
can. But if you are really trying to maximize your
account balances at retirement, those catch ups are a powerful tool. The next thing to do is to look at your Social
Security and pension benefits. It's a good time to start getting a realistic
expectation of what you might get, and that's because you might assume that you're going
to get a lot more or a lot less, but it's really helpful to start figuring out how those
systems work and how much you can expect each month.
If you're eligible for Social Security, you'll
want to go through your earnings history and make sure that that is accurate because if
any years are missing you may end up with a smaller monthly retirement benefit. Your benefit is based on your 35 highest earnings
years, so you want to make sure that those good earning years are in there and that you
don't have any unnecessary zeros in your history. Keep in mind that you may be able to get some
retirement benefits from a former spouse or your current spouse, so if you're widowed
or divorced, for example, you want to research those potential benefits and you might also
be able to get income on your spouse's earnings record if you are still married and there,
are some strategies you'll want to look at as you go through that process. By the way, I'm Justin Pritchard, and i help
people plan for retirement and invest for the future. So, there will be some resources down in the
description below that cover this in more detail and give you some other pointers.
Another smart move is to manage your debts
or make a strategy for them. So, if you have consumer debts like credit
cards for example, you definitely want to plan to eliminate those debts and make sure
that your spending stays within your income limits so that you're not digging yourself
a hole during retirement or as you head towards retirement. But what about so-called "good debts" in retirement? For example, a mortgage. There's a lot of benefit to being debt-free
and not having a mortgage payment when you're in retirement a lot of people really focus
on getting rid of that loan before their retirement date but it's not necessarily the end of the
world to have a mortgage in retirement, and paying it off quickly out of your retirement
funds can cause some problems.
As long as you can fit that monthly payment
into your income maybe that's your Social Security, pensions, and some withdrawals from
savings accounts, and you can manage that debt comfortably, then again, it's not the
end of the world, and remember that that loan payment will eventually go away someday which
frees up cash flow for other expenses maybe health care expenses later in life. Speaking of expenses, how much are you going
to need to spend? Well, that's something to start figuring out
and there are a couple of different ways to do that this video that's going to pop up
above will give you some pointers on that but basically you can look at your spending
today and maybe adjust that for inflation or you might look at an income replacement
ratio and say maybe I just need 80 percent of what I'm earning now that might or might
not be right for you or you can target a certain level of spending such as $50 or $100,000
whatever the case may be, and with those numbers you can set a goal to start heading for once
you have an idea of your spending and your retirement income sources and your assets
then you can run some calculations and again we're setting your expectations so that you
know if you're on track or not and this can alert you to some potential shortfalls or
maybe let you know if you could retire earlier than maybe you expected there are a lot of
helpful online calculators out there they can do a decent job of getting you in the
ballpark but make sure you understand what their limitations might be so they don't necessarily
get super detailed and you might not be able to adjust all of the assumptions but again
you can get some basic ideas of if you're sort of close or if you're way off on what
you expected another good move in your 50s is to refine your investment strategy so up
to this point you may have been doing some great things to get you to the point where
you are you've built up some nice assets but if you've been using high risk strategies
maybe speculating maybe day trading that sort of thing it's time to ask yourself if that's
something that you want to continue doing at this stage in life it is difficult to consistently
get good results with those high risk approaches and you might have more to lose now than you
did previously.
I'm not saying you can't do it or definitely
don't do it but I would say proceed with extreme caution and maybe just say hey I've done a
good job up to this point maybe I'll reevaluate what I'm going to do going forward. At 50 it's time to start thinking about long-term
care if you haven't already been thinking about it there's a 70 percent chance that
you might need some type of long-term care and that might include everything from somebody
helping you out at home maybe this is a loved one assuming you have somebody at home who
is willing and able and remember it could be physically and emotionally difficult and
it might require expertise but it could include somebody helping you out at home who you know
or you going into a skilled nursing facility and paying those higher costs that are associated
with that higher level of care there are several ways to deal with the costs and that might
include a long-term care insurance policy but those are kind of problematic so definitely
look into them but consider some other alternatives as well maybe instead of maybe to supplement
or maybe you just go with insurance but some other options include saving up assets and
earmarking those for a long-term care event or maybe looking at your home equity as a
safety net to cover some of those big expenses that's not necessarily a fun way to spend
your time so one of the other things you can do is envision how you want your retirement
to unfold and this is a really important step that a lot of people skip it's important to
have something to do with yourself once you stop working you might have gotten a lot of
your social engagement a lot of your meaning and some of your identity out of your work
and you might want to not necessarily admit that but for a lot of people that's the case
it's easy to say that the main thing you're looking forward to in retirement is not going
to work but you probably want to have some ideas on how you're going to fill your time
and that way you're going to number one enjoy it more and number two there might be some
real benefits in terms of your mental and physical health if you are retiring to something
as opposed to just retiring from work, so ask yourself how will you fill your days? What are you most excited about and interested
in? What can you do to find some meaning and some
purpose during that time? And who might you spend time with, and what
are your plans for keeping your physical health as good as you can possibly keep it? So, I hope you found that helpful.
If you did, please leave a quick thumbs up,
thank you, and take care..
Is a Retirement Bucket Strategy Right for You?
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Making your money last in retirement can be tricky, so it's worth asking if a bucketing strategy might help you address some of the biggest challenges you face. So in particular, we're talking about number one having the confidence to stop working and start spending. That can be terrifying even for those of you who are well prepared. You might have assets and a healthy income from social security and pensions, but still it's kind of terrifying to walk away from a job with a steady income and some nice health care. You might also need to invest at least some portion of your assets for long term growth, and that's because we all face the risk of inflation or rising prices over time.
So if your assets aren't growing then you may lose purchasing power over decades in retirement, and that can be a problem. Then a third issue is of course that sequence of returns risk, and this is when you are selling assets especially at the beginning of your retirement when markets are down, if there happens to be a crash at the beginning of your retirement years, if you're selling assets during that event it can really take a bigger bite out of your portfolio and increase the risk of you running out of money later in life, and we don't want that. So let's spend the next couple of minutes talking about retirement bucket strategies. We'll go over some examples, maybe look at how to start it and manage it over time, and then discuss if it's the right move for you. I will mention that I don't see a lot of clients using this beyond a two bucket approach, but it's still nice to know these concepts so that you can either rule it out if you're not going to use it or get some good ideas. Bucketing is also known as time segmentation.
In other words, you have different buckets of assets that you can pull from over different time frames, and the promise of this is that hopefully you would be able to avoid selling assets when they're down and you can be confident that you have the funds you need for your withdrawals and your spending. So you always have a cash bucket and this involves money that you might be spending next week or next month.
This is relatively safe money, and then beyond that you might have one or more additional buckets that are invested a bit differently, and we'll talk about that in just a minute. It's important for you to know that you can customize this in any way you want. We're just going to go over some examples that are concepts, but whether you use two buckets or three buckets or make the time frames different, maybe you want four years worth of cash for example, these are all things that you can customize to suit your preferences. One of the simplest approaches is a two bucket strategy.
So you've got just that one bucket for several years worth of spending. You might set aside enough cash to satisfy let's say one to three years worth of withdrawals if you needed to take money out of investments and you didn't want to sell investments because they're down perhaps. The second bucket is maybe a total return portfolio. It might be invested according to whatever is right for your risk preferences, your needs, and your tolerance, and you would know that given that you have some cash set aside you don't need to dip into that bucket for at least four years or so. Now keep in mind that this isn't rigid so you don't need to necessarily start by spending from your cash bucket.
If the markets are doing well and your investments are gaining value it might make sense just to spend from those investments and leave that cash bucket as is and it's there for if you ever need it. So if there is ever a market crash it is already loaded with cash that you can draw on and you can worry a lot less about what the markets are doing. So you can see some of the investments in bucket number one. These are cash equivalents basically it might even be in a savings account or CDs. You could look at T bills if you wanted and other types of things. Again this is up to you but the point is you might feel really confident if you have this money set aside. And by the way it's probably a good idea to start building up this cash bucket a few years before retirement so that once you reach day one of retirement you have this money set aside already. In the second bucket of course you have a diversified portfolio so that might be mutual funds and ETFs, maybe some individual stocks and bonds, whatever it is that you invest in according to whatever is appropriate for you as an investor.
So if that's a 60 40 for example you do that maybe you have more risk or less risk or alternatives or something else. We'll look at some deeper examples next but first I want to mention I'm Justin Pritchard and I help people plan for retirement and invest for the future, and in the description below you're going to find more information on bucketing, some resources from Christine Benz, as well as just some general retirement planning resources and information. I think you will find all of that really helpful so please check that out. And by the way it's just a friendly reminder that this is just a short video it can't possibly cover everything. You can still run out of money even if you use a bucketing strategy so triple check all of this with some professionals and be aware that there is always some risk and uncertainty in the retirement planning world. Now moving on to a three bucket example we have those same two buckets as before but we've added an income bucket so this is in between the cash withdrawal bucket and the longer term growth bucket.
You might prefer to set aside an extra bucket. I'm not sure that you necessarily need this bucket but you could include things that kick off higher levels of income perhaps longer term bonds and CDs maybe some dividend stocks if you have the appetite for that kind of risk and anything else that comes to mind that might help create some income that can go into bucket number one. If we look at this three bucket example depending on how you set it up you might have roughly or almost 10 years worth of withdrawals in relatively safe assets.
You've got a couple of years in cash so that's going to be really safe and then the income is a little bit more risk but not quite everything in the stock market like your growth bucket you could potentially pull from those assets for up to 10 years before you need to go and sell from your growth bucket and of course the past doesn't necessarily repeat, there are no guarantees but if we look historically there's a decent chance that you wouldn't be selling at least at steep losses and you might not be selling at any losses if you have a diversified portfolio over a rolling 10 year period, again can't predict the future, then if you really wanted to you could add more buckets but that really gets complicated, and speaking of complicated, let's get into bucket maintenance or bucket management.
This is really where you start to see some cracks in getting too complicated with this strategy or using too many buckets it's easy enough to design a bucket strategy in theory so you can set up the amounts you want and figure out how many years they should last and on your retirement date and in the early months you will have a lovely set of buckets, you've got the exact amount in each one and the investment mix in each one is exactly what you want, but at some point, life might happen, if you get into an extended downturn or even a flat market or if you have huge expenses that you didn't expect at some point we need to figure out how exactly you're going to be moving assets from one bucket to the next again when things are going well you're typically going to maybe just sell from those investment assets and not even use bucket number one the safe money you might just take profits off the top of whatever your growth investments are doing during the good times and meanwhile you might be sending income let's say dividends or capital gains payments over from the income and growth buckets into bucket number one and that can help to build that up or replenish it from any withdrawals that you might have taken but if you really start drawing from bucket one that safe bucket how exactly do we decide when and how to put money back in well one way is to use a systematic approach and that might be one example is going to be just every time period whether it's every six months every year you take some money out of the subsequent buckets and pull it forward into your cash bucket that can kind of defeat the purpose of bucketing because the idea is that you don't want to do things systematically you want to be more opportunistic and not just sell every six months but you want to avoid selling when investments are down to make a slight improvement on that you could look at a rebalancing strategy so you just take profits off the top of whatever did well and sell those assets and put the proceeds into bucket number one so if stocks did really well you're taking money out of stocks putting it into cash if bonds did really well and stocks suffered you would sell some bonds to get back into balance and then move that money over into the cash bucket you could also look at more opportunistic approaches and these border on market timing but you might say that maybe you have some rules you could say if something rises by more than five percent during a quarter or during a month for example you're going to sell some of that get it back down to a smaller proportion and take the sales proceeds put that into cash your bucket maintenance gets really complicated at some point especially if the markets don't behave so I would say you want to do a lot more thinking ahead and a lot more research if this is something you're considering look at some of the discussions with Christine Benz from Morningstar there are a number of those here on YouTube and she talks about that in more detail and proposes maybe some simplified ways of going about this which might take us right back to the two bucket approach really quickly how do you set this up in the first place well one way to do it is to use different accounts so your cash bucket is in cash and that might be in savings accounts CDs banks credit unions or even a conservative brokerage account then you might have your other buckets in different accounts and that way you can keep a balance of whatever the assets are in that account you can rebalance that account and the cash bucket is unaffected so it might make sense to do that but if you prefer you could do all of this in one account so for example you could have a couple of years worth of withdrawals sitting in cash or in a money market fund in a brokerage account then the subsequent money or the rest of the buckets would be in other investments inside of that same account ultimately this comes down to your preferences and what's going to be easiest for you to keep track of because that's really important you have to manage this over time it isn't just setting it up once and then letting it run you really do need to keep paying attention to it so I've hinted at some of the potential challenges here and I'm going to propose what I think is a simpler way of doing that and explain exactly why I think that but again it can be hard to manage this over time you don't always know what the next step is and so you might be kind of figuring things out and winging it as you go and that kind of defeats the purpose of setting up a structured process at the beginning if you aren't really sure what you're going to do with it as the years pass this can also be a cash heavy approach so you might have several years worth of withdrawals sitting in cash and that's not necessarily a bad idea but for some people given how everything is set up that can potentially mean that they don't have much that is invested for longer term growth so you want to think about that as you explore all of this and of course there are no guarantees so there could be extended draw downs that cause you to wipe out one bucket then the next and then get right into those growth assets selling exactly when you don't want to sell you can still have problems with this approach so what are some decent alternatives to bucketing you're obviously looking for a solution that can provide some peace of mind and give you a reasonable path forward as you figure out how to spend down the assets that you have one solution might be total return investing and that's where you just have a diversified portfolio that is tailored to your needs it has the right risk level and then a cash reserve so basically we're just talking about two buckets here if you want to look at it that way you've got a couple of years let's say worth of money in cash that can satisfy withdrawals during market downturns and the rest of it is invested I think you'll find that this functions similarly to what everybody thinks about as a bucket strategy so what you're doing with that approach is you want to keep the portfolio in balance so a couple of options number one is you can just sell what's been doing well and generate cash that's kind of like what we were talking about with bucketing or you might keep the portfolio in balance every six months for example or when it gets out of different tolerance ranges you might get it back into balance but effectively you're still selling your winners there and then putting it into the portfolio balance and then whenever you want to add cash you would just sell everything proportionally but you have been previously selling your winners to keep the portfolio in balance it's not exactly the same as a three bucket strategy for example but it can function somewhat similarly and another approach is to look at guardrails this is different than bucketing and looking at what to sell and when but it might be a different way to figure out exactly how much you can spend and avoid running out of money during retirement that's a topic for another video but it's something to look into if you're exploring these ideas so I hope you found this helpful if you did please leave a quick thumbs up thank you and take care.
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