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Retirement Goals: How Specific Do You Want Them?

Do you have specific retirement goals, or does the idea of making a list of goals make you a little bit uneasy? You've probably heard that you can't accomplish anything unless you make a goal to accomplish it, and one of the biggest milestones in your life might be when you can stop working for pay, but I'd like to challenge the traditional view of goal setting and say that it might be okay if you don't have a laundry list of ideas on what you're going to do with your time in retirement, and this has a profound impact on how you design your life and the direction you head for retirement, so if we think about your first 20 years in retirement, those might be the most active years when you're able to do the most…

Those could consist of 7300 days or more than that, if you have good health. And so the question is, what will you do with that time? Now, we certainly want to have some ideas so that you hit the ground running and you're not just retiring from work, but if you think about the things that you enjoy most, like Maybe that's sitting on the beach and reading the book, is that something that you really want to do that many times, or perhaps, do we want to make sure that you have the resources to have some options and perhaps go through different chapters in retirement? Not knowing exactly what you'll do with every day is okay, because it can cause you to delay your planning if you work too hard on figuring out exactly what you're going to do with your time, so if we just make some intelligent guesses about how you're going to spend your time, think about taxes and inflation and healthcare costs and factor all of that in…

For most clients, I think that's a decent way to get started on your retirement planning, this line of thinking is backed by the so called "End of History Illusion," and that explains just how bad we are at predicting who our future selves will be. So predicting the future is always hard, we know that as investors, but it's also hard to predict what our personality traits and our values and our preferences might look like, let's say 10 years ahead of time, if those things change, then the way you want to spend your time and your resources could very well also change, so one way to think about this is to look back 10 years and saying, What was most important to you at that time? What did you like, what types of music…

Food, people to hang out with, all of those sorts of things? And has that changed over the last 10 years? And it might have changed for a variety of reasons, but the fact is that it probably did change in ways that you couldn't have anticipated 10 years ago, and that could very well continue. Now, it is true, and this is based on the research, that the older we get, the less those changes might be, they might be less severe, but the fact is we are likely to still experience some changes, in fact, as you get into a retirement or a financial independence stage of life, you can experience a lot of change, you might not have financial struggles, which gives you a different perspective on life, you might have kids that are out of the house, if you had kids, or grandkids entering the picture, that sort of thing can certainly change your view of the world. So a lot of change can still happen later in life, and sometimes to a surprising degree, a major consequence of the end of history illusion is that we tend to double down on our current version of ourself, so that can be good if you're very clear on what you like, but again, it's hard to predict, and so you might end up sending yourself down a path or pigeon holing certain aspects of your life, you might miss out on other rich experiences in life that you currently aren't really even aware of, so a cliche for retirement is that you're going to play golf every day or something like that, and of course, 7300 days in your first 20 years, that could potentially get old, and that applies to pretty much anything else, I don't play golf, but whatever it is you might enjoy doing today…

Let's think about how you might possibly evolve, and plus our bodies might change in ways that we aren't doing the exact same things in the future. I want to encourage you to explore the possibility of having some loosely held retirement goals or possibly no retirement goals at all, and not very specific, of course, we want you to be financially independent, and that probably means not working forever, so there are certainly some directions we want to head in, but as far as nailing down a list of things, maybe we can be a bit slower and gentler in terms of trying to name exactly what retirement is going to look like for us.

So let's look at how some other people have talked about this problem, Carl Richards used to do the sketches on the napkins for The New York Times, he's a former financial advisor, and he talks about this a lot, and it's kind of consistent with what my experience is with clients where you might ask people, What are your goals in retirement, what do you want to do, and sometimes they just don't really know, they know that they don't want to work forever, they have a decent idea of what level of income might make them comfortable, but they're not really sure how to answer the question, and Carl would point out that at that point, sometimes people just say what they think they should say, so they say, I want to be free to do whatever I want, when I want. Or they might say, I want to travel, that's what people want to do in retirement, right? Or they might say they want to spend time with loved ones, and there's nothing wrong with any of those goals, those are all great, but we want to be specific about what exactly they mean so what is travel? What does it mean to spend time with loved ones and why couldn't that happen right now, what are the specific differences that would make it a reality? And once you start doing that, it can feel like you're starting to force things.

Sometimes. I've also heard Carl refer to Pema Chodron's excellent book, When Things Fall Apart multiple times, and the gist of that book is that the ground is constantly shifting beneath us, and it's really hard to predict with any certainty what's going to happen, and grasping for certainty can be a recipe for suffering, so if we can acknowledge that we have some preferences and some directions to head in, but if things don't work out exactly that way, that's exactly what we should expect out of life, so that's a pretty big over simplification. And I'm not sure the book even contains the word goals, but it's a pretty quick read and you can check it out if you haven't seen it before, there's also a lot of information out there about not having goals and some of the benefits of that, and some of the pitfalls of making goals, and you can search online for how that might apply to you because it can be situation or person specific, but the important thing to remember is that not having goals doesn't mean that you don't do anything.

It doesn't mean that you don't have any desires or that you can't make your life for the world better, it just means that you haven't written down specific goals that you're going to try to pursue… By the way, I'm Justin Pritchard and I help people plan for retirement and invest for the future, so I'm going to have some links to some of the things we look at here today down in the description, as well as some general retirement planning information. This is more of the nuts and bolts in terms of figuring out taxes and Social Security and spending and income and that sort of thing, there will be some good resources for that, and I think you'll find that very helpful. By the way, if you are finding this interesting, please leave a quick thumbs up. That's a signal to me to keep talking about these types of topics. I will also link to an article by Maggie Zhou, which discusses anti goals, and this is the idea of maybe figuring out what you don't want in your life anymore instead of all of the things you do when it comes to retirement planning.

Those might be things like, I never want to drive in rush hour again, or I don't want to ever feel stressed about what medical bills I'm going to pay, I want to make it really easy to spend time with my loved ones, whether that's making it affordable or not, having to go through too many airports or whatever the case may be, by eliminating the things that don't necessarily add to your life, you may be able to leave a room for the things that do add to your life. However, we don't want to forget that End of History illusion, so if you are thinking, These are things I really don't want in my life, it may be the case that later in life you would tolerate them and really enjoy them, they might add to your life, so by ruling things out entirely that could potentially come back to haunt you, we just want to be careful about predicting exactly who we will be, what we want, what we prefer, what we value in the future.

All that said, we probably do want to have some vision for how you're going to enjoy yourself in retirement, there are some studies to suggest that leaving work can potentially lead to some mental and physical health declines, but there's no guarantee that will happen to you, that said, there are some significant changes that happen when you stop working, so you lose the structure of going to work, the schedule, sometimes that can be helpful, you might lose the identity of being a whatever it is you used to do for work, for some people that's valuable, you might lose a lot of social interaction.

So the time you spent talking to co workers, colleagues, customers, etcetera, that can possibly cause you to have a lot less social interaction, which can be problematic, even physical activity for office workers, even there may be a lot less… Just walking back and forth, up and down the stairs. Your walk after lunch with a co worker, that sort of thing goes away and you risk having some physical health impact, ultimately you end up with fewer required challenges that might keep your mind sharp as you have to overcome different challenges at work, and you also lose the accolades or the recognition that you might have grown to appreciate over the years, maybe you value that, maybe you don't, in general, ultimately you can lose some sense of purpose as you stop working, and for many people, I know, they're going to say, my work is not my purpose, and that's great, but for some people, it has a surprising place in your psyche, so just keep that in mind.

The good news is that you can offset those effects, so whether you're taking classes or volunteering or working on different projects or something else, you can really offset those mental and physical effects of stopping work, so I know of a woman who coordinates volunteer opportunities for retirees, and the way she explains it is this helps them to get out of the house and maybe stop thinking about their health issues, these are ways to keep them engaged, and it might not even feel like work for them, they're doing things for non profits where they just need to have a responsible adult keeping an eye on things, that type of thing, and it really is good for everybody, it's good for the community, and it's good for the individual.

So please make sure that whatever it is, you have a way to have that purpose in your life. And so if you want to set some goals that's fantastic, just hold them with a loose hand knowing that things might evolve, and if you don't have a lot of specific goals, that could be Okay. 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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How to Retire Solo & Smart: Retirement Planning for Single Millennials, Gen-X, and Baby Boomers

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

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

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

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

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

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

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

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

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

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

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Do Withdrawal Rates Make Sense for Retirement?

As you plan your retirement, one of the biggest questions that comes up is how much can I afford to spend each year, and how can I be sure that I won't run out of money if I spend at a certain rate? And a lot of people look to a withdrawal rate to help them figure that out, in other words, they might say, Maybe I can spend 4% or 3%, and that way I would have enough money to last for the rest of my life, but I think there are a lot better ways to go about that, so I wanted to review those with you and point out some of the issues, and hopefully this way you see what you might be missing out on if you use a withdrawal rate and you don't have to waste any time obsessing over what exactly is the perfect rate…

I should mention that when I work with clients, we don't really even look at The withdrawal rate, it's something we can find after the fact, after we've done some more robust planning, but we don't start with a withdraw rate, it's just something we might check out of curiosity. As a quick refresher, a withdrawal rate is a way of looking at how much you're pulling out of your savings and investments that are earmarked for retirement. Perhaps. The most famous and the most notorious is the so called 4% rule, which is really more of a research finding, so it's not a rule that you would necessarily follow, although some people talk about it that way. It's based on some research that was done by Bill Bengen where he looked at how much could you withdraw from a portfolio over a typical 30 year retirement horizon, and let's say you have a 50 50 stock and bond portfolio.

Well, what it turned out was in his research at the time, you could take out 4% of your starting portfolio and adjust it for inflation and not run out of money in any of those worst case scenario historical periods that lasted 30 years. Now, since then, the rule has been debated and criticized and refined, and people talk about things like, what about the current environment? Or what if I diversify more? How might that look? And a lot of people just love or hate the 4% rule. Either way, I don't think it's the best way to go about it, but it's important to understand how it works. So just for simplicity's sake, let's use round numbers that are easy to multiply in our head, and we'll say, let's say you have 100,000, or for each 100,000 of savings that you have at retirement, we would say You can pull 4% of that out per year, and we start with your first year, 4% of 100,000 is 4,000. So that's your Year One withdrawal, now you're going to adjust this for inflation each year, so in the subsequent here, If inflation is anything above zero, you're going to pull out more than that initial 4000 and with each passing here, you're going to adjust your withdrawals, you continue to take those inflation adjusted withdrawals each year, regardless of what happens with the markets or how high inflation is for at least that's how it worked in the original research, so that's a basic overview of a withdrawal strategy like the 4% rule, but just as one example of something that might be missing in that analysis because it's pretty over simplified is taxes.

So for example, are you pulling money out of pre tax accounts that you're going to go income tags on like a traditional IRA, or are you pulling from taxable brokerage account or Roth accounts? They wouldn't necessarily have as much tax, so depending on where the money comes from, that 4000 or 40000, if you have a million dollars is going to offer you more spending money or less…

Now again, at a 40000 income, the taxes might not be too burdensome, but you need to know that there are probably some taxes due, so that's going to affect your budget, another issue with withdrawal rates or the 4% rule, for example, is that you might not spend as much as you could, and that might mean you're missing out on opportunities, making memories or doing things you want to do, or retiring at a later date then you need it to… Historically, there were quite a few runs where you ended up with a lot more money than you started out with, so we assume you started with 1 million dollars, you did a 4% withdrawal rate, and you had more than 2 million at the end of your life, 45% of the time, your money doubled over your retirement years, or in some cases, you might have died with more than 5 million.

That's great if your goal is to give money away at death, but if your goal is to maximize your enjoyment of your assets during life, then a simplified withdraw rate might not let you do that. This would be a perfect time to mention that past performance does not guarantee future results, and this is just a short video, so friendly reminder, please do a lot more research before you make any decisions, decide to take any action or not, because this stuff is really important. So please read that carefully, and by the way, I'm Justin Pritchard and I help people plan for retirement and invest for the future, so in the description below, you're going to find more resources on this topic, some discussions about withdrawal rates and some calculators that help you work with withdrawal rates, if you want to go that route and look at some alternatives, I think you'll find all of that helpful.

When you make a more robust income plan, you might have a withdrawal rate that varies over time, so it might start relatively high, perhaps you're withdrawing at a relatively high rate in the early years of retirement and spending down some assets, and that might be something you do as you wait for Social Security benefits to start, perhaps you're going to delay Social Security, maybe you want that time to make a little bit of room so that you can do Roth conversions or fill up some tax brackets, or maybe you're just trying to maximize what your Social Security benefit is, there's some really good reasons for doing this, for example, maybe there's going to be a survivor involved, and you want to make sure that that benefit is as high as possible because once one spouse dies, for example, the surviving spouse would be left with just one Social Security income, so perhaps it's important to have that be as high as possible, and here's an example of how that could look, so we can just check somebody's withdrawal rate.

And in this case, they aren't going to start Social Security until age 70, so they have started out with a relatively high rate here, then it drops off as other income sources kick in, they're in the low threes here for a while, and then when Long term care expenses come up, you're back to a high withdrawal. We can also see how it looks kind of visually with the asset levels, so again, at retirement here, maybe they're going to wait until 70, they're going to spend down some assets for a while, and then that curve… And by the way, this can be kind of nerve racking to watch your assets decrease over time, but if you have a plan in place and you've got those retirement income sources that can perhaps help you have the confidence they, again, here spending down assets until the Social Security and pension sources kick in, and then the withdrawal rate decreases dramatically, now, not everybody has a pension plus Social Security, that's actually going to help them increase their assets once those income sources kick in, but some people are fortunate, and that's what retirement looks like for them.

One other issue with withdrawal rates is that your spending can change over time, so as just one example, maybe you're going to buy a car periodically, and so that spikes your withdrawal rate every couple of years, so how do you deal with that? Or if we look at research on retiree spending, not everybody spends a flat inflation adjusted amount each year, in fact, for some retirees, you might have them spending at roughly inflation minus 1%, of course, that ignores those healthcare expenses which continue to increase at a pretty fast rate, probably faster than general inflation is a good way to model that, but other expenses might not increase, so if you own your home and you don't drive too much, for example, you might not be experiencing a lot of inflation. In fact, David Blanchett's research called the retirement spending smile actually shows retirees spending at roughly inflation minus 1%.

Or another way to look at this is your retirement spending stages. Sometimes people call this the go go, the slow go and the no go years. So right after you retire, you might be spending at a relatively high rate, these are your go go years, you've just finished working, you've saved all your life, you want to travel and have fun, and so you're going to do that while you're still young and healthy, but then you get into the slow go years, your spending might slow down a little bit, you've done a lot of the travel, you're spending more time just with friends or family or whatever the case may be, and then we get into the no go years where a lot of your leisure and entertainment recreation spending are going to decrease, but that healthcare spending ramps back up in the no go years, so if we're thinking of that in terms of withdrawal rates in the go go years, you're at a relatively high rate, slow go years, not quite as high, and the no go years, you're back into a relatively high rate, so I hope now you have a richer understanding of withdrawal rates.

If that helped, please leave a quick thumbs up. Thanks, and Take Care..

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Retirement Planning for Singles

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

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..

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2 Ways to Estimate Retirement Spending

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

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

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

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

[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

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