Tag: Finance
Retirement: I’m 60 Years Old with $900K in Savings. Can I Retire Now? What is My Risk Capacity?
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
so you're 60 years old with nine hundred thousand dollars saved and the question is can you retire in today's video we're going to look at a few different decisions that could be made the impact those decisions have on the plan with the overall goal of not running out of money hi I'm Troy sharp CEO of Oak Harvest Financial Group a certified financial planner professional host of the retirement income show and a certified tax specialist in today's case study we're going to look at a situation that's not too dissimilar from what we normally encounter in our day-to-day operations here at Oak Harvest Financial Group so we have James who's 60 years old he comes in and he says Troy I want to spend about seventy thousand dollars and I'm just tired of working I want to to this year to be my last year so I want to spend seventy thousand dollars I think I'm going to live to about 90 years old pretty good health and I want this fifty thousand dollars to increase with inflation over the course of my retirement but for the first 10 years and what I hear you talk about in this go go spending phase I want to spend an additional 20 000 per year bringing that first 10 years of spending up to 70 000 per year then that go go spending goes away and then we have the inflation adjusted 50 000 to plan for from age 70 to age 90.
Hey just a brief Interruption here to ask you to subscribe to the channel now what that does for you is that puts us Oak Harvest Financial Group and all the content we produce in your little TV Guide so you have a much easier way to come back and find it later share this video with a friend or family member and also comment down below I love to respond to the comments now if you have any questions about your particular situation or you'd like to consider becoming a client of Oak Harvest feel free to reach out to us there's a link in the description below but you can always reach out to us and give us a call and have a conversation to see if we might be a good fit for each other James tells us that since he wants to retire as soon as possible he he thinks it makes sense to take Social Security the first time available so claiming at 62 a little more than two thousand dollars a month at twenty five thousand dollars per year he also has that nine hundred thousand dollars broken out to four 401K money of 700 Grand then 200 000 in a taxable account or what we call non-qualified outside of the retirement account very important to point out here that the tax characteristic of these two accounts and the Investments inside them and the interest and dividends and the withdrawals from them are taxed differently so that's part of an overall tax plan now James also has a home that's completely paid for and worth six hundred thousand dollars but he's told me that I don't want to use this to fund any of my retirement goals I've lived in this home for a long time I want to stay in the home but we know from a planning perspective that we do have that in our back pocket if it's needed down the road so James's total net worth here is about 1.5 million looking at the paid off home of six hundred thousand the 700 Grand inside the 401K and the 200 000 of non-qualified or taxable account assets now as part of the process to understand where someone is and where they're trying to get to we have to understand how is the portfolio currently allocated so James tells us that Troy I know I've wanted to retire so I've been investing aggressively and trying to get ahead of the game but here we are in 2022 and the markets have pulled back some so that double-edged sword is starting to kind of rear its rear its head but we see James's 93 stock so one of the questions that we have from an internal planning perspective is if we keep this same level of risk while we retire and start taking income out of the portfolio what does that do for what we call the risk capacity or the portfolio's ability to take on risk while Distributing income in the retirement phase so we have to look at the guard rails and guard rails are essentially a statistical calculation of probabilities of the portfolio returning this much on the high side and a good year and this much on the downside in a bad year if these guard rails are too far apart and we're taking in income out if we run into a bad couple of years that bump up against that bottom guardrail but we significantly increase the risk of running out of money so part of the analysis of the planning is is this an appropriate guard rail for this type of portfolio given the desired income level so with everything we've looked at so far the question is if James continues doing what he's currently doing and retires with the desired spending level the assets that he's accumulated living until age 90 what is the probability that he has success well it comes in at about 61 so that's probably not a good retirement number it's something we want to see if we can work to improve so I'm going to pull up the what if analysis here and start to look at some of these different decisions that we could make and see if we can get this probability to increase okay so now we have the what if analysis where we have two different columns up here on the board right now they're identical we're going to keep this one the same as the base case everything that we just went through but now we're going to start to change some of these variables to see what the impact those decisions have on the overall retirement plan and this is much more of an art at this stage than it is a science because we want to start to explore different scenarios and then see what is most comfortable for you once you understand the impact of these different decisions you can take some time to kind of way think about them weigh the the pros and cons and now we're starting to work together to craft you a retirement plan that gives us increased probabilities of success but also something that you feel very very comfortable with so the first couple of options we have which are the most simple and usually have the biggest impact on the plan is that we can either work longer or spend less so James says no I don't want to spend less I have a specific plan I want to get my RV I want to travel the country I want to play some golf I've done my budget I need to spend that 70 000 for the first 10 years so the first thing we'll look at is the impact of working another couple of years so I've changed the age here to 63 as far as Retirement the only variable we're going to change at this time I don't want to change too many variables at once I want to see the impact of different decisions how they impact the overall plan okay so that gives us a bit of an increase but the next thing I want to look at here is social security so Social Security is a very valuable source of guaranteed lifetime income first it's an increasing stream of income it increases with inflation but two no matter what happens with the stock market that income is always going to be coming in so instead of taking the 62 and having a significant reduction in the lifetime income that we receive because I don't want to change spending we still have the 50 and 20 in here I want to change the Social Security from taking it a 62 to taking it at full retirement age okay so changing the Social Security election day gets us up to 76 we're definitely moving in the right direction here after a conversation with James and he realizing that you know what I do feel really secure with that increased social security income because if the market doesn't cooperate I know I'm still going to have that much higher income later in life so that would lead us down the road to say okay let's look at adding more guaranteed lifetime income if we can get your Baseline income to cover a majority of your spending needs then we don't need the market to perform necessarily as well later in life so now we want to look at the impact of adding more guaranteed income to the plan which has the effect of providing more security later in life because if the markets don't cooperate we know we have a certain level of income being deposited every single month no matter how long we live so if you go to our website here it's Oak harvestfinancialgroup.com com we have up top an income writer quote where this is constantly searching for the highest amounts of guaranteed lifetime income that are available in the marketplace simply input the variables here so in Texas age 60 Ira money income starts we're going to start looking at seven years here and I know the dollar amount I would want to put in 300 000.
The good news here is you can input any of these different variables we don't ask for your information so it's a calculator tool that you can play with on your own Single Life payout and we get quote okay so here's the output screen we have all of these different companies over here when you see the same company twice it's because that company offers multiple different products with the same income Rider so an income writer is just an addendum or an attachment to a contract that guarantees no matter what the stock market does a certain amount of Lifetime income based on the specifications you input so about thirty three thousand dollars here so that's about 11 percent of the initial deposit with that income starting in year seven this is why we call it a deferred income annuity because it gets a guaranteed growth to calculate a guaranteed lifetime income that you then would incorporate into your plan so in this what-if analysis we come down here we I've already inputted so three hundred thousand dollars and then we just calculate these scenarios okay now we're up to 87 percent here so now things are starting to look a little bit better let's make a couple of different adjustments here because remember when I talked about the guard rails that's too aggressive of a portfolio given the income need especially in the beginning years but now that we've added some deferred income into the plan the portfolio's capacity for risk increases later in life and all that means is because there's so much income coming in the portfolio can withstand a bit more volatility later once Social Security and the Deferred income annuity kick on because you're needing to take less from the portfolio so let's make a couple more adjustments here so after retirement we don't want to keep the the current investment strategy let's get a little bit more conservative here go from an aggressive plan to something a little bit more conservative and then you know what let's also say now that we're starting to move in the right direction instead of retiring at 63 what happens if we retire at 62.
Get your retired one year earlier than some of these other numbers okay now we're at 83 percent retiring at 62. I want to look at one more variable here because you may want to get a part-time job James may want to be a starter at a golf course maybe he wants to work in the church and he can get ten thousand or fifteen thousand dollars a year maybe just wants to work two three months out of the year so the next thing I want to look at is if we've done all this now what happens if during this first 10 years of retirement he decides he wants to work three months out of the year or maybe just a part-time job and work one or two days a week so instead of needing twenty thousand dollars per year we just need another ten thousand let's say from the portfolio so really that's only earning ten thousand dollars extra in retirement income you could do that driving Uber many different choices there you know what I'm just going to decrease this no I'll leave it there now with James deciding to maybe work part-time here to reduce that spending need in the first 10 years let's see if we can also get them retired at 61.
Okay so now James has decided that working part-time and hey we're talking 10 grand here so this isn't a lot of money now I want to see what happens if we go back to the original goal that James had of retiring as soon as possible at age 61. so we're going to change this back to his original goal 61 calculate all scenarios and now this gets us up to 94 so we started at 61 if where James was originally at whenever he came in if he kept doing whatever he was already doing we got him up to 94 percent here okay I want to take a minute before we finish the final Concept in this video to discuss some of the adjustments we've made so far to get James from 61 to 94 so first and foremost we adjusted the Social Security election strategy secondly we added that deferred income annuity thirdly James has decided to work part-time to generate ten thousand dollars per year in those beginning years to help reduce the burden of taking out an additional twenty thousand dollars of retirement income and then finally we've brought the guardrails in on the Investment Portfolio which helps to eliminate very bad outcomes that could happen with his original 93 allocation to stocks we haven't totally went to bonds or cash we've just brought those guard rails in by reducing our Equity exposure in the beginning years of retirement we can always adjust that later now last thing I want to do is look at what we call the combined details all of these things together in a spreadsheet just so we can see how these different pieces are working together and then look at what we call different Monte Carlo analyzes so now I want to share with you some of the individual trial analysis that we run just like we would for a normal client to help identify not only where the weak spots are in the portfolio but how these different decisions that we're making impact the overall client balance and it's not just looking at what we call an average rate of return it's looking at a thousand different simulations we're going to look at a couple here and the Order of the return so check out the video if you want to understand more about this concept you can click the link up above and the title of the video is how eleven percent average returns could destroy your retirement and that'll really get home that concept of it's not about what you average but it's about the order in which you realize returns over the course of your retirement during the day distribution phase so here we have this individual trial and we're gonna it's the median scenario out of a thousand different scenarios so I just want to go through this fairly quickly with you and based on some of the adjustments to the portfolio we see the investment return column here so all of this I think averaged out to I think it was about four and a half percent gross returns I can go back and double check that in a second but you see it's it's never four four four four four four four four or six six six six this is what it looks like in the real world so James retires essentially the beginning of 2023 we have the Deferred income annuity clicking on here we've changed Social Security to click on here so if we add these two together come heck or high water there will be minimally 74 000 almost 75 000 deposited into his bank account every single year now if we look at the retirement need it's about sixty one thousand dollars plus the discretionary Go-Go spending is about twelve thousand two ninety nine so about seventy three thousand dollars but what this does is because we're getting so much from these two sources it really reduces the need for the portfolio to perform and if we kind of go out go on out through retirement you see Social Security isn't increasing income so later in life now we're up to about 89 almost 90 000 of income and our ninety thousand dollars inflation adjusted retirement income need is covered by the amount of guaranteed lifetime income that we have in the portfolio which then allows our portfolio balances to stabilize because we're not needing it to support our lifestyle later in life so this is just one example here but we see the ending portfolio value even though it spends down a little bit in the beginning years okay it starts to stabilize because the income provided from the decisions that we've made put us in a situation where we don't have to withdraw so much from the portfolio Okay so now I want to look at a different trial and just to confirm here the 500th scenario was an average of 4.6 but you saw the different order of those returns and how we actually got to 4.6 okay so if we slide this up here let's assume it's a pretty bad scenario this is going to let me change it here find a worse return okay so this brings the average down to 3.05 and we still see in bar graph form here that the portfolio value still is stabilized and it's primarily because that change in the Social Security decision and adding the Deferred income annuity it still puts us into that position to where if the market doesn't perform we have enough income from guaranteed sources that we're not dependent on the stock market to provide us income in retirement especially later in life when we typically are more conservative and most people that I've worked with don't have the same stomach at 80 or 82 to stay invested in Big Market pullbacks as they did when they were 52 or 62.
Now what I want to show you is the comparison to what we just looked at in the individual trial analysis to the original plan that came in at 61 percent with all the original inputs so if James just wanted to retire not go see anyone make any adjustments I want to show you what that looks like on the individual trial analysis so remember in this scenario we kept Social Security at 62 no job so the spending stayed at seventy thousand twenty thousand was that go go spending no change to the portfolio so we still have the aggressive portfolio which brings in the possibility of some pretty bad outcomes and no deferred income annuity here to help stabilize the income generation later in life as well as the volatility impact on the portfolio so when we when we look at this so here we go um had James has a 900 000.
You see we have none of the annuity income here Social Security starts out at about 26 000 for him a little more than two thousand a month now look at the investment returns here because it's a more aggressive portfolio the range the guard rails are increased here and then finally the spending we have the fifty thousand plus twenty thousand increasing for inflation with the Go-Go lasting 10 years so in the first 10 years of retirement we see things are going pretty well even at this spending level because we have some pretty good returns in here even though we have a couple bad years but what happens is the income because of inflation the income need increases later in life and we see it really just takes a couple of bad years here minus 21 minus 12 we go from a million to 755 and then it's pretty much all downhill from there in this particular scenario running out of income except for Social Security which is now only up to about forty four thousand dollars per year compared to the other plan with the Deferred Social Security so full retirement age and the Deferred income annuity we were at I wanted to say it was around 85 88 000 um of income not dependent on the stock market here we're only at 45 in the mid 80s so that means we have to take more out of the portfolio so it's more susceptible to bad returns later in retirement now the big takeaway here is this is what a good retirement planner does it's not necessarily about the investment returns it's about determining how much money you should have in the market when you should take Social Security we didn't even get into taxes here additional benefits could be provided through tax planning but what you should do with taxes and identifying those spending goals and those needs in order to get you retired and stay retired and then staying connected to this plan over time that's what a good retirement advisor does it's not about outperforming the market it's about finding a plan that gets you and keeps you retired just a brief reminder here to subscribe to the channel now what that does is that puts us in your TV Guide here on YouTube so it doesn't cost anything but if you subscribe to the channel you can come back to us much more easily down the road make sure to comment down below and also share this video with a friend or family member that you think could benefit from what we're talking about today [Music] foreign
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11 Things That Will Destroy Your Wealth
Jason 0 Comments Retire Wealthy
Money has always been like a love affair, too
sweet if you're smart enough not to get caught. But if you also make one small mistake, it could
turn sour quickly when your partner discovers your infidelity. Just like money, if you're smart with
it, you'll enjoy the benefits of always being in a stable position in your life. Mistakes, no matter
how minor, could lead to the destruction of the wealth you worked so hard to create. Here are some
of the things you probably didn't know that are destroying your wealth.
11. Gambling The number one rule in gambling is that
the game is always in favor of the house. No matter how close you feel you are about to win,
please resist the urge because it is just a scheme to milk money from you. You might be playing on
the slot machines or card games, and you are on a winning streak. In the long term, the house will
win.
It’s a well-planned illusion while at the casino, as they want to have you there for as long
as they can. They will offer free refreshments and the environment itself will trick you with its
nonexistent natural light, making you unable to tell the time. Our addicted brothers and sisters
lose more in the gambling dens, ranging from about 55-90 thousand dollars each year. That’s enough to
start a business that will sustain your lifestyle! 10. Cars
These raving beasts are a sight to behold, and it's even better when you own one or two of
them. However, don't be too quick to spend your money on acquire such an asset.
This is because
it comes with a lot of baggage that will surely destroy your wealth. Why? Well, buying a new
car will have you paying extra monthly or yearly charges to maintain it. This ranges from
car insurance, car payments, finance charges, and down payments. And we haven't even included
the amount of fuel you need to run your errands daily and the parking fee.
This will add up to
roughly $450 a month on top of the 35,000 used to purchase the car if it was new. Maybe you
thought that it would be a smart move to buy a used car instead of a new one, which would have
cost 20,000 dollars. Sure, you saved a few bucks, but the fact is that you just bought yourself
a liability that depreciates every single day. The stats show that a new car depreciates 15%
in the first year of driving it. Thereafter, it decreases a further 15% each year. So, if you
wanted to sell the same car three years later, you'd only get $10,000-18,000 for it. Now that car
dealership isn't looking all that enticing, right? 9. Debt
Don't get me wrong. Debt isn't always the enemy, as it can help salvage a failing business, or even
create an outstanding income-generating stream if well thought through.
I'm talking about student
loan debt and credit card debt. These two are the most well-known American dream slayers, with up
to 1.6 trillion in student debt alone in the U.S. Stay away from the fascination of going to a more
prestigious university than you can afford. It forces you into debt that will take a good amount
of time to pay off, instead of opting for a local university that will take you in for a cheaper
price. You could also look into getting grants and student scholarships. Coupled with student
loans, a majority of students find themselves deep in credit card debt after spending their
entire college years purchasing on credit the things they can't afford with cash. These debts
are carried to adulthood, leaving many shackled to massive debt. Despite getting a handsome
paycheck at the end of the month, many end up broke because a large portion of that income is
spent on repaying all the debt they have accrued. 8.
Financial illiteracy
Alan Greenspan once said that the biggest problem in today's generation and
economy is the lack of financial literacy. It's no wonder many people are finding themselves deep
in debt and stagnant despite having well-paying jobs. No person is interested in learning about
money management. They'd rather just wing it when it comes to their finances, not knowing that
financial knowledge is powerful. We simply think that we can duplicate what other people
are doing, and our money bags will be fuller. Sorry to be the one to tell you this, but your
finances are as unique to you as your fingerprint. There is no ‘one shoe fits all’.
You have to learn
to balance what you spend on versus how much you earn. to come up with the most workable budget
for you. Learn about accounting and investing. This kind of knowledge will be beneficial in
the long run. Whereas a lack of it will destroy your wealth more than you acquired it.
7. Fashion Gucci bags, Louboutin shoes, a Rolex watch all
to try to make a good first impression. Stop it, please, you don't need to have the
most expensive suit in the room to make an impression. All you need is a
normal-looking one that's crisp and clean. Brush your teeth and maintain a good hygiene
season with some charisma and personality. You'll have everyone in the event looking
for an opportunity to interact with you.
We can all attest to doing all this clingy,
dressing just to keep up with the Jones. But we end up looking rich outside while
our bank accounts are screaming for help. It costs more to buy a 200$ bag that you carry
only once instead of buying one versatile one. 6. Eating out
Did you know that you probably spend around $3,000 a year just on
take-out? That's five times the amount you'd have spent if you'd cooked the food yourself.
Don't
get me started on the amount of time you wasted waiting for your delivery to get to you. Or how
long it takes to pick up the delivery yourself. You'd be saving a good amount of cash every month
by cooking your meals at home. You can stash this money away in your emergency fund for a rainy day.
Doing this not only saves you money, but allows you the opportunity to have a hot meal every day.
You can watch how many calories you're eating. You can even personalize your meals as much as you
want without the worry that the restaurant will forget to add extra gravy again.
Furthermore,
it's healthier to make that dinner yourself. Don't fall into this money trap and have your
wealth robbed from you as you sit by and watch. 5. Wrong relationship
Being in the wrong relationship might just cost you a fortune in your finances.
Up until today, you probably didn’t know, but statistics prove that the average man
spends close to 120,000 dollars on dates. A wedding costs about $34,000 to plan, with
an additional $6,000 for an engagement ring. Can you imagine spending this much only to
be hit with divorce papers? Quite expensive, don’t you think? A survey carried out has shown
that millennials getting into marriage secure themselves by signing a prenup in case things fall
apart.
In that case, they’ll walk out of someone’s life with something in their pocket. I don’t know
whom it might concern, but you better be keen when getting into relationships because the wrong
relationship will not only cost you emotional grief but will also dent your wealth. The
average marriage that works out in the US is 50%, so it’s important you know this before venturing
into it blindly. This means that if you flip a coin, you’ll be able to predict whether your
marriage will work out or not. In the case that things don’t work out for you, it costs an
average of 13,000 dollars to facilitate a divorce, not forgetting other expenses such as alimony
and child support that would be on your back. Without a doubt, we better invest smartly to
avoid these blunders that will destroy our wealth. 4.
Shopping
Shopping has turned into a famous trend all over the world where once someone makes
some small amount of money, all that runs through their mind is how they’ll swing by the mall and
shop till they drop. We should be very precise in our shopping and it would be better if we tagged
along with a shopping list to avoid the temptation of overspending. A close look at this will help
realize how much money is lost in thrift shops and shopping malls. All these shopping sprees
eventually lead to debt, and even more debt if you aren’t keen enough.
Can you believe that
the average credit card debt stands at $57,008? 3. No emergency fund
Living without an emergency fund is like going hiking and choosing not
to carry an extra bottle of water. because the instructor said that you'd be back
from the hike in 6 hours. Only for you to end up dehydrated because your only water bottle fell off
a cliff. The point here is, life is unpredictable, it's so important to have an emergency fund ready.
There isn't a standard amount of money you need to keep for any emergencies. Some say that you
need to have saved triple your monthly income while specifying a certain amount. However, we
are sure that not having an emergency fund will leave you broke in the event of an accident or
calamity. You'll be forced to pay out of pocket or max out your credit to shelter yourself.
This
will, in turn, lead to several financial strains unfolding in your life. You'll be left wondering
where your whole salary is disappearing to. 2. Alcohol
Some claim that a little wine every day does more good than harm. But have you ever
sat down to think about the financial implications that are associated with drinking? You're lucky
if you drink just a little, because heavy drinkers are suffering out there. In 2018 alone, people
have already downed more than 6.3 gallons of beer and 900 million gallons of wine. Do the math, and
you'll be stunned. Even more shocking is that the wealthy and those who are well educated are the
ones partaking in this joyous affair. Be smart to avoid this other money trap, because we've
all heard those stories. The ones who were once at the peak of their careers, both in title and
income, end up losing their jobs because they go out drinking way too much.
Reporting late
to work or even delivering inaccurate reports such a waste of good talent don’t you think?
1. Jewellery. Hip-hop has a firm grip on the dress code we
wear, as well as the bling and glamour that adorns our outfits. You’ll see little to none of
these celebrities without some dope iced-out chain or a gorgeous Rolex watch worth millions. Take a
look at Lil Wayne. For instance, he owns a pinkie ring worth two thousand dollars and Rick Ross’s
custom-made chain worth 1.5 million dollars! Practically speaking, owning such things may
destabilize your wealth. Did you know that jewellery is a depreciating asset? Probably not,
so next time you invest millions in jewellery, you better take a moment to critically assess
your decision. Even if you purchase top-shelf jewellery, it won’t bring back as much as you
invested, even if you resell it after a day. Jewellery is merely a status symbol that
you really won’t need to spend cash on. At the end of the day, the amount of wealth
you are worth is not calculated by the gold chain on your neck.
Be smart. One
last question before we wrap up: What will you do when you are given ten thousand
dollars in cash? Let us know down below. Well folks, thank you so much for watching.
If you enjoyed the video, give it a thumbs-up, and if you’re new here, welcome and
subscribe for more content like this. With that said, have a great
day, and see you in the next one..
Retirement: I’m 60 Years Old with $900K in Savings. Can I Retire Now? What is My Risk Capacity?
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
so you're 60 years old with nine hundred thousand dollars saved and the question is can you retire in today's video we're going to look at a few different decisions that could be made the impact those decisions have on the plan with the overall goal of not running out of money hi I'm Troy sharp CEO of Oak Harvest Financial Group a certified financial planner professional host of the retirement income show and a certified tax specialist in today's case study we're going to look at a situation that's not too dissimilar from what we normally encounter in our day-to-day operations here at Oak Harvest Financial Group so we have James who's 60 years old he comes in and he says Troy I want to spend about seventy thousand dollars and I'm just tired of working I want to to this year to be my last year so I want to spend seventy thousand dollars I think I'm going to live to about 90 years old pretty good health and I want this fifty thousand dollars to increase with inflation over the course of my retirement but for the first 10 years and what I hear you talk about in this go go spending phase I want to spend an additional 20 000 per year bringing that first 10 years of spending up to 70 000 per year then that go go spending goes away and then we have the inflation adjusted 50 000 to plan for from age 70 to age 90.
Hey just a brief Interruption here to ask you to subscribe to the channel now what that does for you is that puts us Oak Harvest Financial Group and all the content we produce in your little TV Guide so you have a much easier way to come back and find it later share this video with a friend or family member and also comment down below I love to respond to the comments now if you have any questions about your particular situation or you'd like to consider becoming a client of Oak Harvest feel free to reach out to us there's a link in the description below but you can always reach out to us and give us a call and have a conversation to see if we might be a good fit for each other James tells us that since he wants to retire as soon as possible he he thinks it makes sense to take Social Security the first time available so claiming at 62 a little more than two thousand dollars a month at twenty five thousand dollars per year he also has that nine hundred thousand dollars broken out to four 401K money of 700 Grand then 200 000 in a taxable account or what we call non-qualified outside of the retirement account very important to point out here that the tax characteristic of these two accounts and the Investments inside them and the interest and dividends and the withdrawals from them are taxed differently so that's part of an overall tax plan now James also has a home that's completely paid for and worth six hundred thousand dollars but he's told me that I don't want to use this to fund any of my retirement goals I've lived in this home for a long time I want to stay in the home but we know from a planning perspective that we do have that in our back pocket if it's needed down the road so James's total net worth here is about 1.5 million looking at the paid off home of six hundred thousand the 700 Grand inside the 401K and the 200 000 of non-qualified or taxable account assets now as part of the process to understand where someone is and where they're trying to get to we have to understand how is the portfolio currently allocated so James tells us that Troy I know I've wanted to retire so I've been investing aggressively and trying to get ahead of the game but here we are in 2022 and the markets have pulled back some so that double-edged sword is starting to kind of rear its rear its head but we see James's 93 stock so one of the questions that we have from an internal planning perspective is if we keep this same level of risk while we retire and start taking income out of the portfolio what does that do for what we call the risk capacity or the portfolio's ability to take on risk while Distributing income in the retirement phase so we have to look at the guard rails and guard rails are essentially a statistical calculation of probabilities of the portfolio returning this much on the high side and a good year and this much on the downside in a bad year if these guard rails are too far apart and we're taking in income out if we run into a bad couple of years that bump up against that bottom guardrail but we significantly increase the risk of running out of money so part of the analysis of the planning is is this an appropriate guard rail for this type of portfolio given the desired income level so with everything we've looked at so far the question is if James continues doing what he's currently doing and retires with the desired spending level the assets that he's accumulated living until age 90 what is the probability that he has success well it comes in at about 61 so that's probably not a good retirement number it's something we want to see if we can work to improve so I'm going to pull up the what if analysis here and start to look at some of these different decisions that we could make and see if we can get this probability to increase okay so now we have the what if analysis where we have two different columns up here on the board right now they're identical we're going to keep this one the same as the base case everything that we just went through but now we're going to start to change some of these variables to see what the impact those decisions have on the overall retirement plan and this is much more of an art at this stage than it is a science because we want to start to explore different scenarios and then see what is most comfortable for you once you understand the impact of these different decisions you can take some time to kind of way think about them weigh the the pros and cons and now we're starting to work together to craft you a retirement plan that gives us increased probabilities of success but also something that you feel very very comfortable with so the first couple of options we have which are the most simple and usually have the biggest impact on the plan is that we can either work longer or spend less so James says no I don't want to spend less I have a specific plan I want to get my RV I want to travel the country I want to play some golf I've done my budget I need to spend that 70 000 for the first 10 years so the first thing we'll look at is the impact of working another couple of years so I've changed the age here to 63 as far as Retirement the only variable we're going to change at this time I don't want to change too many variables at once I want to see the impact of different decisions how they impact the overall plan okay so that gives us a bit of an increase but the next thing I want to look at here is social security so Social Security is a very valuable source of guaranteed lifetime income first it's an increasing stream of income it increases with inflation but two no matter what happens with the stock market that income is always going to be coming in so instead of taking the 62 and having a significant reduction in the lifetime income that we receive because I don't want to change spending we still have the 50 and 20 in here I want to change the Social Security from taking it a 62 to taking it at full retirement age okay so changing the Social Security election day gets us up to 76 we're definitely moving in the right direction here after a conversation with James and he realizing that you know what I do feel really secure with that increased social security income because if the market doesn't cooperate I know I'm still going to have that much higher income later in life so that would lead us down the road to say okay let's look at adding more guaranteed lifetime income if we can get your Baseline income to cover a majority of your spending needs then we don't need the market to perform necessarily as well later in life so now we want to look at the impact of adding more guaranteed income to the plan which has the effect of providing more security later in life because if the markets don't cooperate we know we have a certain level of income being deposited every single month no matter how long we live so if you go to our website here it's Oak harvestfinancialgroup.com com we have up top an income writer quote where this is constantly searching for the highest amounts of guaranteed lifetime income that are available in the marketplace simply input the variables here so in Texas age 60 Ira money income starts we're going to start looking at seven years here and I know the dollar amount I would want to put in 300 000.
The good news here is you can input any of these different variables we don't ask for your information so it's a calculator tool that you can play with on your own Single Life payout and we get quote okay so here's the output screen we have all of these different companies over here when you see the same company twice it's because that company offers multiple different products with the same income Rider so an income writer is just an addendum or an attachment to a contract that guarantees no matter what the stock market does a certain amount of Lifetime income based on the specifications you input so about thirty three thousand dollars here so that's about 11 percent of the initial deposit with that income starting in year seven this is why we call it a deferred income annuity because it gets a guaranteed growth to calculate a guaranteed lifetime income that you then would incorporate into your plan so in this what-if analysis we come down here we I've already inputted so three hundred thousand dollars and then we just calculate these scenarios okay now we're up to 87 percent here so now things are starting to look a little bit better let's make a couple of different adjustments here because remember when I talked about the guard rails that's too aggressive of a portfolio given the income need especially in the beginning years but now that we've added some deferred income into the plan the portfolio's capacity for risk increases later in life and all that means is because there's so much income coming in the portfolio can withstand a bit more volatility later once Social Security and the Deferred income annuity kick on because you're needing to take less from the portfolio so let's make a couple more adjustments here so after retirement we don't want to keep the the current investment strategy let's get a little bit more conservative here go from an aggressive plan to something a little bit more conservative and then you know what let's also say now that we're starting to move in the right direction instead of retiring at 63 what happens if we retire at 62.
Get your retired one year earlier than some of these other numbers okay now we're at 83 percent retiring at 62. I want to look at one more variable here because you may want to get a part-time job James may want to be a starter at a golf course maybe he wants to work in the church and he can get ten thousand or fifteen thousand dollars a year maybe just wants to work two three months out of the year so the next thing I want to look at is if we've done all this now what happens if during this first 10 years of retirement he decides he wants to work three months out of the year or maybe just a part-time job and work one or two days a week so instead of needing twenty thousand dollars per year we just need another ten thousand let's say from the portfolio so really that's only earning ten thousand dollars extra in retirement income you could do that driving Uber many different choices there you know what I'm just going to decrease this no I'll leave it there now with James deciding to maybe work part-time here to reduce that spending need in the first 10 years let's see if we can also get them retired at 61.
Okay so now James has decided that working part-time and hey we're talking 10 grand here so this isn't a lot of money now I want to see what happens if we go back to the original goal that James had of retiring as soon as possible at age 61. so we're going to change this back to his original goal 61 calculate all scenarios and now this gets us up to 94 so we started at 61 if where James was originally at whenever he came in if he kept doing whatever he was already doing we got him up to 94 percent here okay I want to take a minute before we finish the final Concept in this video to discuss some of the adjustments we've made so far to get James from 61 to 94 so first and foremost we adjusted the Social Security election strategy secondly we added that deferred income annuity thirdly James has decided to work part-time to generate ten thousand dollars per year in those beginning years to help reduce the burden of taking out an additional twenty thousand dollars of retirement income and then finally we've brought the guardrails in on the Investment Portfolio which helps to eliminate very bad outcomes that could happen with his original 93 allocation to stocks we haven't totally went to bonds or cash we've just brought those guard rails in by reducing our Equity exposure in the beginning years of retirement we can always adjust that later now last thing I want to do is look at what we call the combined details all of these things together in a spreadsheet just so we can see how these different pieces are working together and then look at what we call different Monte Carlo analyzes so now I want to share with you some of the individual trial analysis that we run just like we would for a normal client to help identify not only where the weak spots are in the portfolio but how these different decisions that we're making impact the overall client balance and it's not just looking at what we call an average rate of return it's looking at a thousand different simulations we're going to look at a couple here and the Order of the return so check out the video if you want to understand more about this concept you can click the link up above and the title of the video is how eleven percent average returns could destroy your retirement and that'll really get home that concept of it's not about what you average but it's about the order in which you realize returns over the course of your retirement during the day distribution phase so here we have this individual trial and we're gonna it's the median scenario out of a thousand different scenarios so I just want to go through this fairly quickly with you and based on some of the adjustments to the portfolio we see the investment return column here so all of this I think averaged out to I think it was about four and a half percent gross returns I can go back and double check that in a second but you see it's it's never four four four four four four four four or six six six six this is what it looks like in the real world so James retires essentially the beginning of 2023 we have the Deferred income annuity clicking on here we've changed Social Security to click on here so if we add these two together come heck or high water there will be minimally 74 000 almost 75 000 deposited into his bank account every single year now if we look at the retirement need it's about sixty one thousand dollars plus the discretionary Go-Go spending is about twelve thousand two ninety nine so about seventy three thousand dollars but what this does is because we're getting so much from these two sources it really reduces the need for the portfolio to perform and if we kind of go out go on out through retirement you see Social Security isn't increasing income so later in life now we're up to about 89 almost 90 000 of income and our ninety thousand dollars inflation adjusted retirement income need is covered by the amount of guaranteed lifetime income that we have in the portfolio which then allows our portfolio balances to stabilize because we're not needing it to support our lifestyle later in life so this is just one example here but we see the ending portfolio value even though it spends down a little bit in the beginning years okay it starts to stabilize because the income provided from the decisions that we've made put us in a situation where we don't have to withdraw so much from the portfolio Okay so now I want to look at a different trial and just to confirm here the 500th scenario was an average of 4.6 but you saw the different order of those returns and how we actually got to 4.6 okay so if we slide this up here let's assume it's a pretty bad scenario this is going to let me change it here find a worse return okay so this brings the average down to 3.05 and we still see in bar graph form here that the portfolio value still is stabilized and it's primarily because that change in the Social Security decision and adding the Deferred income annuity it still puts us into that position to where if the market doesn't perform we have enough income from guaranteed sources that we're not dependent on the stock market to provide us income in retirement especially later in life when we typically are more conservative and most people that I've worked with don't have the same stomach at 80 or 82 to stay invested in Big Market pullbacks as they did when they were 52 or 62.
Now what I want to show you is the comparison to what we just looked at in the individual trial analysis to the original plan that came in at 61 percent with all the original inputs so if James just wanted to retire not go see anyone make any adjustments I want to show you what that looks like on the individual trial analysis so remember in this scenario we kept Social Security at 62 no job so the spending stayed at seventy thousand twenty thousand was that go go spending no change to the portfolio so we still have the aggressive portfolio which brings in the possibility of some pretty bad outcomes and no deferred income annuity here to help stabilize the income generation later in life as well as the volatility impact on the portfolio so when we when we look at this so here we go um had James has a 900 000.
You see we have none of the annuity income here Social Security starts out at about 26 000 for him a little more than two thousand a month now look at the investment returns here because it's a more aggressive portfolio the range the guard rails are increased here and then finally the spending we have the fifty thousand plus twenty thousand increasing for inflation with the Go-Go lasting 10 years so in the first 10 years of retirement we see things are going pretty well even at this spending level because we have some pretty good returns in here even though we have a couple bad years but what happens is the income because of inflation the income need increases later in life and we see it really just takes a couple of bad years here minus 21 minus 12 we go from a million to 755 and then it's pretty much all downhill from there in this particular scenario running out of income except for Social Security which is now only up to about forty four thousand dollars per year compared to the other plan with the Deferred Social Security so full retirement age and the Deferred income annuity we were at I wanted to say it was around 85 88 000 um of income not dependent on the stock market here we're only at 45 in the mid 80s so that means we have to take more out of the portfolio so it's more susceptible to bad returns later in retirement now the big takeaway here is this is what a good retirement planner does it's not necessarily about the investment returns it's about determining how much money you should have in the market when you should take Social Security we didn't even get into taxes here additional benefits could be provided through tax planning but what you should do with taxes and identifying those spending goals and those needs in order to get you retired and stay retired and then staying connected to this plan over time that's what a good retirement advisor does it's not about outperforming the market it's about finding a plan that gets you and keeps you retired just a brief reminder here to subscribe to the channel now what that does is that puts us in your TV Guide here on YouTube so it doesn't cost anything but if you subscribe to the channel you can come back to us much more easily down the road make sure to comment down below and also share this video with a friend or family member that you think could benefit from what we're talking about today [Music] foreign
Read More
401K Explained in தமிழ் (US Retirement Series – 1)
Jason 0 Comments Retire Wealthy Retirement Planning
This episode and next few episodes are going to be US specific episodes. All these US specific episodes will have US flag in their thumbnails. Indian audience, feel free to skip these episodes and save your time. US folks, there are 2 main retirement plans in USA. 1. 401K and 2. IRA. We will cover more in detail about IRA in another episode. In this episode, we will cover 401K in detail. Hi. My name is Vijay Mohan. You are watching – Investment Insights. 401K is a retirement plan offered thru employer. We will not be able to open a 401K account just by ourself like a brokerage account. We can contribute to a 401K, only if it is offered through our employer. Almost all employers offer 401K plan. Very few small companies do not offer 401K. How much can we contribute to a 401K? Each employee can save up to $20,500 per year.
If husband and wife both are working, both can contribute $20,500 each. People older than 50 can contribute more – $27,000/year. That is called as "Catch up contribution". Other than our contribution to 401K, many employers match up our contribution up to certain percentage. Let's say that an employer is matching up to 7%. If our salary is $100K, 7% of that would be $7,000. Let's say that we are contributing $20,500 to our 401k and maxing it out. Employer would have matched up the first $7,000 of that $20,500 and would have contributed that $7,000 to our 401K. So in total, our contribution $20,500 + employer match up contribution $7,000 = $27,500 would have gone into our 401K account. Employer match of $7,000 would not come under the contribution limit of $20,500. This match is over that contribution limit.
In this employer match, each employer has a catch called "Vesting Schedule". This vesting schedule defines when that extra amount matched up by the employer is going to actually credit in our account. Let's say that an employer has a vesting schedule of 2 years, then in that 2 years, the match up amount contributed by the employer will be in our account, but not vested. That means, if we leave the job within the 2 years of joining, then we will not get that matched up amount. But after 2 years, that matched up amount will be ours totally, even if we leave the job. Also, after that vesting period of 2 years, all money matched up by the employer will be vested (available) to us immediately. That means, there will not be any restriction over the matched up money after passing 2 years. The 2 years I am referring here is just an example. It will be different for every employer. So what is the advantage to us from this 401K? The advantage is, we do not have to pay the tax on the amount we are contributing to 401K.
But we should pay tax on withdrawal after retirement. What? No tax for the contributed money, but taxed on withdrawal? What benefit does that offer to us? Good question. To understand that, we should know about our tax bracket. What we are seeing here is 2022 Married Filing Jointly tax bracket. Let's say that our family income is $120,000. We will come under 22% tax bracket. That does not mean that we will be paying 22% tax for the whole $120,000 we earned. First 20,000 of $120,000 will be taxed at 10%. Next 63,000 will be taxed at 12%. Money earned over that will be taxed at 22% tax. So the 22% tax is charged for the top most dollar we made in that year. This is called as Marginal Tax rate. If we add up all the taxes for individual brackets of 10%, 12% and 22%, that comes out to $17,634. This is 14.7% of our total income $120,000. So actually we are paying only 14.7% of our income as tax. This 14.7% is called "Effective Tax Rate". May confuse between marginal tax rate and effective tax rate. Hope it is clear now. So when we contribute $20,500 to our 401K, it comes out of our top most tax bracket.
That means, the tax we saved from the contribution of $20,500 is 22%. $4510. If we withdraw the same $20,500 after our retirement, the tax rate for that would be 10%. Tax saved for contribution is 22%, while money coming out is taxed at 10%. The difference is 12% in our favor. Or in other words, we save tax in marginal tax rate for contribution and we pay effective tax rate while withdrawal. We all know that effective tax rate will be always lower than the marginal tax rate.
This is first advantage. Let's check out a sample calculation to understand the next advantage. Let's say that our family income is $120,000. Then federal marginal tax rate is 22%. Let's use Illinois state tax rate – 5%. For 401K contribution, not just the federal tax, we don't have to pay the state tax as well. Let's assume that our 401K will be growing at 8% growth rate. We are maxing out our 401K contribution every year by contributing 20,500/year. Tax savings from this contribution is 27%. $5535. We are continuing to do this till our retirement for 25 years. By the end of 25 years, our 401K balance would have reached 1 million 600,000 dollars. The $5535 that we saved every year in tax alone would have grown into $437,000. The absolute tax saved is 5355 * 25 = $138,000. The growth from that savings is approximately $300,000. Or in other words, just because we did not pay (deferred) the tax of $138,000, the extra growth we got from that is $300,000.
The growth of money by deferring (not paying the tax now) the taxes to pay later is called as "Tax deferred Compounding". This tax deferred compounding is 401K's second advantage. For these 2 advantages, we can contribute to 401K. We should. So far we have seen a regular pretax 401K. There are other flavors of 401K like Roth 401K and After tax 401K. We will dig deeper into that in the next episode. Thank You.
Read MoreThe AI Hustle – No… ChatGPT Will NOT Make You $300 A Day.
Jason 0 Comments Retire Wealthy
a good Break calls for people to think four.
points people need to think it'' s reputable people need to think it will certainly provide riches.
or a far better life people need to believe it will certainly be easy as well as individuals need to believe that the.
grifter has a secret to making it all function AI is mosting likely to be a far better possibility for scammers.
than cryptocurrency and it'' s already beginning however I ' m going to be going with exactly how you can make use of. this new AI book with chat GPT to aid you when it concerns generating income online in this video I'' m. going to show you a silly easy method to make money with chat GPT I don'' t need to tell you about conversation.
GPT if you have actually been anywhere on the internet in the last 6 months you currently understand about what.
it as well as various other programs like it can do designing images creating code as well as producing material are the.
most time consuming jobs in the most typed up Industries Tech as well as online advertising if you pay.
focus to the area you will certainly become aware of individuals making substantial lot of money on a day-to-day basis the.
difficulty is that coding writing and developing digital media takes a lot of effort and calls for.
skill as well as experience someone who requires to fast money currently doesn'' t have time to discover internet.
advancement or take a Photoshop course and also AI is the solution to that brand-new programs can take fundamental.
motivates as well as produce feasible web content which can after that be monetized except it just doesn'' t work and also. pinheads online demand to stop telling you it does brand-new AI programs are not going to make.
you abundant and there are 4 reasons why that takes place to line up perfectly with the components.
that make a wonderful scam the very first reason is that the fields they obviously function in just incentive.
leading performers as well as AI doesn'' t create web content as good as the best people one of the most regularly.
recommended AI hustle is creating completely automated YouTube networks business strategy is to get.
chat GPT to create you a video clip mid-journey to produce a slide show of visuals and some freemium.
on-line software program to transform it into a video clip to publish on YouTube and also make that wonderful ad Profits to.
receive money making on YouTube a network needs a minimum of 4 000 hours of watch time and also.
1 000 customers that doesn'' t seem like much yet much less than one percent of channels ever before certify.
for the companion program and this barrier was so difficult for new channels to overcome the.
YouTube lowered the demand to 3 000 hrs of watch time as well as 500 customers even if the.
channels that obtain sufficient of a following to be generated income from most are only making a couple of bucks a day.
it took me and also a lot of the various other creators I talk with personally even more than a year of making material.
before we were generated income from making videos is time taking in so allowing AI do all of the help you.
plays well right into one of the essential ingredients of a great scam individuals need to think it will be very easy.
engaging than an internet word generator so they get countless views and also the numerous people.
attempting to produce automatic networks get absolutely nothing Drop Delivery is one more usual grasp that has.
the same noticeable Advantage which is truly its greatest weakness if you are among the fortunate couple of.
that has not had the Decline Shipping dream pitch to you yet the business strategy is to discover overseas.
firms marketing cheap items overseas utilizing sites like Alibaba as soon as you locate something you.
believe will offer well you set up a web site of your very own to offer those products at a higher price when.
somebody purchases something off your website you transform around and also buy it off the overseas seller as well as.
merely provide the address of the purchaser so they can take care of the postage and you maintain the.
earnings yet not just will you be contending with the hundreds of other people that are attempting to.
do the very same point you will certainly also be taking on Walmart and Amazon that provide faster distribution.
times better brand acknowledgment reduced prices a larger item choice and have numerous.
site visitors visiting their stores constantly individuals selling Decrease Delivery programs also hardly ever.
admit that your consumer can likewise just go on Alibaba themselves and get the item at the.
lower cost producing material using AI encounters every one of the very same problems it'' s pitched as an easy. means to construct a business or generate side income but it'' s never ever going to compete with the people.
placing in real effort to bring a much better item to Market the length of time would certainly you view a video of an.
AI voice reading a procedurally generated script wouldn'' t you instead invest your time on YouTube. seeing content from dedicated creators naturally you would and also because YouTube desires you to use their.
system for as long as feasible they will just promote material that keeps people involved but what.
about all the individuals that did obtain rich off of Decline Delivery and individuals already making money using.
AI well the absence of competitiveness that is absolutely no hidden to entrance business has is simply the first.
issue with assuming AI will amazingly make you 300 a day so it'' s time to find out how cash Works.
to discover just how in a remarkable technology is being developed into the globe'' s greatest grift today'' s. lesson was funded by great browsing the swiftly advancing globe of synthetic intelligence.
needs strong understanding as well as clear viewpoint great is an outstanding platform to offer this.
recognizing in today'' s climate ai ' s Appeal has been manipulated by grifter'' s appealing instant.
treasures a dream far removed from truth nevertheless recognizing AI can aid you translucent these.
incorrect assurances and Fantastic is right here to aid Developing supplies courses in fabricated neural.
networks and support understanding that are excellent for debunking the complex world of AI.
having personally take these training courses I can assure you that it will certainly help you understand the Practical.
applications as well as limitations of AI dazzling'' s come close to advertises Interactive Discovering you get.
to implement your newfound expertise almost allowing you to acknowledge exactly how AI can be.
effectively and also genuinely made use of brilliant has turned discovering right into a satisfying Trip.
their academic content is much from being a completely dry academic task but rather an intriguing Expedition.
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reduce exactly how cash works or click the web link in the description and the initial 200 of you will certainly get.
20 off great yearly premium registration the 2nd reason that AI has currently.
end up being such a terrific grift is that the means that it can make you cash noise.
trustworthy Chad gbt only blends together things it scuffed off the internet but it.
can still do some quite excellent things and also we'' re gon na get some solutions is it magic is it.
just algorithms is it mosting likely to save us or ruin us allow'' s go discover another popular plan to make.
money utilizing AI has actually been letting chat GPT pick stocks for you all the big Financial influencers.
have actually made some variant of this video as well as even reliable Electrical outlets like CNN service have actually composed.
a posts recommending that AI chatbots can pick stocks for you far better than a fund manager I really hope.
to the majority of you that appears entirely ridiculous because it is but it'' s also very easy to recognize why. people would fall for this monetary education is significantly lacking in America in the majority of various other.
countries people are told that they must spend and it'' s typically left at that accessing.
a paid Financial specialist is costly as well as makes a plain active investing pointless if you.
need to pay someone two thousand dollars to inform you exactly how to invest your remaining eight thousand.
dollars so the only choice is relying on people on the net that offer basic recommendations that.
won'' t be suitable for everyone or in some cases from that'' s why I ' m truly honored to back up.
today'' s fund FTX another point that individuals understand is important but wear'' t know much
about is AI. talking with just a little of authority about these 2 subjects will bring in a big audience.
there are computer Pro programs used by Significant Quant funds that are coded by individuals with phds.
as well as data physics and also computer technology these are programs that utilize millions of information points to.
obtain a mild Side in trading this makes the claim regarding AI spending audio reliable given that conversation GPT.
is an outstanding computer program that utilizes a big information set it'' s had the ability to do points like pass the.
bar test on its first shot so it must have the ability to do the exact same thing as those Quant algorithms right.
incorrect the programs that Quant funds use just work when they specifically implement an approach and also.
they typically put on'' t work as well as when they do they just function for a short time before the market. reverse Engineers what they are doing as well as does the same point that'' s very various from passing.
bench which is mostly a test of remembering legal precedence since chant GPT has a large Bank of.
training data it offers it an unfair Benefit an typical individual with some standard legal training.
might possibly pass bench too if they were allowed to bring a laptop computer with an archive of situation.
law right into the exam area but they are not investing is extremely different from passing bench any.
approach that can be accessed by typing a punctual right into chat gbt T is mosting likely to have no Competitive.
Side over the market because any person else can do the same point also Chan gbt does not take your.
personal financial situation right into account as well as because its training data just increases to 2021 it'' s. outdated also the factor the much better Economic makers on YouTube wear'' t discuss what to. purchase is since they understand it'' s impossible to provide good suggestions to such a big target market this.
is discouraging for them due to the fact that they can see just how much cash various other people are making by asserting.
to be Economists and also giving advice that is actually harming individuals so wear'' t ever anticipate fulfill.
Kevin to market you a Supply Spending course thank you a lot for considering this training course you are.
phony information it'' s also annoying to Their audience because individuals like Patrick Boyle the ordinary bagel.
and also Ben Felix are Economic experts with qualifications licenses as well as qualifications.
that make them far better outfitted to give guidance however it'' s as a result of their experience that.
they understand that they can'' t provide guidance a straightforward referral like you should get a wide market.
index fund is great suggestions for some people however it can be terrible recommendations for people with short term.
economic objectives high passion financial obligation or no emergency cost savings since as YouTubers we can'' t control who.
sees our video clips the following finest thing we can do is not offer any type of suggestions in all Chad GPT has.
the same restrictions it doesn'' t recognize your financial resources it just forecasts what word makes the.
the majority of sense to kind out next so even if it does appear like you can make whatever less complicated please.
put on'' t use it for economic suggestions the AI hype is made to seem a lot more reliable since there.
are individuals that are going to get abundant off this technology the fear of missing out on an exciting.
Fad similar to this can make it tough to remain sensible individuals that are going to make millions in.
this sector autumn right into 3 classifications the very first team are individuals that can in fact produce.
programs like chatgpt due to the fact that they are brilliants in the fields of artificial intelligence allowing them.
to start their very own companies or work out substantial salary bundles from Large tech business that.
want leading talent in the room the following team are people that have actually currently spent right into AI companies.
that are currently benefiting off capitalist buzz and also the 3rd group are people that run normal organizations.
that can make use of AI to make procedures more effective which is different from constructing an organization.
totally from the ground up utilizing AI if you'' re not in one of these groups that'' s okay nobody can be.
in the appropriate place at the correct time whenever and also chasing Fads is a pricey exercise the 3rd.
factor that AI is mosting likely to make such a fantastic scam is due to the fact that it'' s very easy for people to claim they have.
the key to making it all function AI programs are very easy to utilize yet they still have a discovering curve.
and to utilize them to their max potential you are mosting likely to require to search for Guides Online.
to discover exactly how to get it to function and also what can be performed with it that'' s an easy way for people to. make large insurance claims and also saturate up those wonderful clicks they may claim it'' s safe yet it isn'' t and also. that ' s due to the fact that among the greatest troubles in the YouTuber Finance room is a strategy I call the.
bait and backpedal this is where a YouTuber will upload a clickbait title like how to use conversation GPT to.
end up being a millionaire and afterwards state nothing in the video regarding just how this program is meant to make.
you a millionaire the people that have perfected this method will certainly also cover themselves in the.
video by saying that people shouldn'' t risk their money which AI is not made for this which is.
the back pedal part of the strategy that means if they are ever before called out they can simply claimed.
that the individual didn'' t see their video clip but by that point the damage is done not everyone.
that sees a thumbnail will certainly click it I am quite poor at clickbait so my numbers might be even worse yet.
for every single one sight on my network my video requires to be displayed to 15 people usually a great deal.
of individuals will certainly simply see that conversation GPT can make them a millionaire and also never ever view the video clip that.
states specifically the opposite which'' s the 4th factor it ' s easy to believe that this might change.
your life beginning a service or investing is not amazing if it'' s amazing you are most likely.
doing something wrong investing is a long-lasting as well as monotonous exercise that rewards technique more.
than chasing Patterns beginning organization coincides with the addition of a great deal of difficult job a simple.
shortcut seems wonderful however the best instances of this not working is in fact the 2nd richest.
family members in America they run their business in such a standard means that their Execs still.
need to authorize in with a punch card not chasing trends like AI is specifically just how they have remained.
rich but to figure out the covert Luster behind doing points the old method go and also see my.
video clip about exactly how a damaged candy maker yet the fourth biggest private business in America as well as if you want.
to get these videos a day earlier than every person else authorize up to my e-newsletter compounded.
daily to go on discovering exactly how cash works.
How America’s Wealth Gap Shaped the Modern Economy
Jason 0 Comments Retire Wealthy
[Martin Luther King Jr.] The reality is that countless Negroes, as an outcome of centuries
of denial as well as neglect, have actually been left bootless. It is a cruel jest to
state to a bootless male that he should certainly lift himself
by his own bootstraps. At the dawn of emancipation, the total Black wide range in
Today that number is between 1-2%. The most destructive form of the racial riches space
is when we take individuals, human beings, as funding for others, as being an asset whereby
others can be enriched, can gather, can give resources from one generation to the other. [Martin Luther King Jr.
] They find themselves poor aliens in
this upscale society and also there is a wonderful offer
that culture can and also should do if the Negro is to acquire the
financial protection that he needs.The origins of the racial wealth space begins
when Black people went into the coasts of the United States as belongings funding. There were two types in which Black individuals offered as capital, the uncompensated labor that they offered, yet their sheer bodies themselves could be traded, could be traded and also stood as
a source of wide range and also wide range structure for White people. The slavery of Black individuals in America is what made the United state economic situation grow into the giant that it is today. At the begin of the Civil War, each servant was worth a standard of$ 1,000.
With the 13th Modification that released slaves, the point is that, that ' s not enough. When you ' ve had centuries of literally bondage imposed upon a people,'if you want real justice or true flexibility, there required to be not just that liberty from bondage, but actual coming with of sources so that individuals might pursue their resources. Expecting a people to to thrive as well as thrive without payment for all that unfair harm truly just established a system for fascism and also a system that was unjust.Toward the end of the Civil War, General William Tecumseh Sherman made an assurance to slaves that as quickly as the battle was over, they would certainly be provided 40 acres of land
as well as a burro. This concept of offering land had a dual function.
People that supported it saw it as a method to both cost-free the formerly-enslaved from their old masters and as a way to water down the power of these southerly land owners. A couple of months later, President Abraham Lincoln was shot and eliminated. His Vice President, Johnson, promptly eliminated this guarantee. When Andrew Johnson banned the Freedmen ' s Costs, he stated, look, this is a. White male ' s federal government, to ensure that was the impetus. But additionally used this idea that the government. doesn ' t hand out land, this is'commercialism. As well as the idea that this is a. free market as well as self-government'was really much used to damage. cases of the 40 acres, while at the exact same time the federal government is giving. away cost-free land out west via the Homestead Act.The Homestead Acts were a series of bills suggested to urge negotiation. of the American West. In all, 270 million
acres were given out as part of the bills. That land, which represents about 10% of the entire nation, was mainly taken from Indigenous Americans and also most of the 1.5 million Americans that took advantage of the. Homestead Acts were White. They were actually giveaways that provided White individuals. eventually a key ingredient to construct wealth,
and. that ' s resources itself, and also deliberately Black. people were not included.
The Homestead Act is a significant indication of united state federal government.'assisting in the buildup for White people and not. promoting it for Black people, but it ' s among many.The Homestead Act fits. into a larger context that throughout our United States history, well past enslavement, we. think of racial repression and also we assume that with emancipation, that all of an abrupt. we were a cost-free country, but a larger point to make is that if we think of a middle class, a middle, White, asset-building course, it was government plan. that produced it. What little financial successes Black people were able. to contend this moment usually spurred a great deal of. bitterness among Whites
. This resulted in countless. lynchings of Black individuals and other violent assaults, in some cases on whole Black. areas and also neighborhoods
. My name is Roy Woodle and I ' m not ashamed to be a Klansmen. Amen! This remained in the moment of heavy Jim Crow, it was in the moment of rising Klan
, and also while where. White supremacy was acquiring'this pseudo-scientific authenticity. It is the situation that throughout background, not only have Blacks not been permitted to collect land,
funding. and other kinds of source to the very same level as Whites, however when they were able. to conquer obstacles and accumulate those sources,. it ' s always gone through straight-out horror, straight-out seizure, due to the fact that we did not have the codification that comes along with federal government to safeguard the resources of Black people similarly that it was. protected for White people.Tulsa, for instance, in the. 1900s, there was oil boom with a great deal of wealth that. was in that area and so they built the Greenwood District and the main component of the.
city was this Black church.
It was really elaborate as well as gorgeous
. These areas are called. the Black Wall Surface Street, where it wasn ' t a sharecropping market, there were landholdings. The important things that took place was.
that the racial bitterness expanded. There were battles and truly just a total.
In that one day, Black Wall surface Road was ruined as well as 10,000 Tulsans were displaced. There ' s even evidence that. Globe War One bomber planes were made use of to melt the community.
The Tulsa Bloodbath was. Civil War and the 1940s, destroying a significant. On the one hand, those neighborhoods are clear examples of the methods
in which Black.
They can in fact grow. However on the various other hand,.
we romanticize the past.We define a nostalgia as if. we had these kingdoms of gold, when in fact, it was never the case that Black people had wide range en masse.
Slavery itself developed a. multi-trillion dollar wide range gap as well as the period promptly. As well as none of that consists of the one point that many individuals today can map their wide range. This legislation, for the initial time,.
As a matter of fact, the government. federal government went the other means.
Communities were redlined. The federal government produced.
maps that revealed the level of threat by area.
These had different shades and the riskiest was outlined in red.
This was really a lot a crude calculus however advanced in a way that they actually had heaps.
of maps throughout the nation as well as you would see the manner in which they mapped out a neighborhood and they checked out the
. house: Is it single-family? Is it industrial? Is it farmland? What are the features. of the neighborhood? Yet the top thing. that they considered is who lives there? So they would certainly say this is a. Black area, redline.And normally
what would certainly establish? Slums. What would develop? Neighborhood degregation. When you have funding. getting away certain areas as well as capital being flooded right into areas, the outcomes come to be evident. If you stayed in a Black area, because it was a Black community, you did not
get that FHA mortgage, you did not obtain that GI costs funding, you did not obtain the ranch
lendings. Today the legacy of those legislations is that your neighborhood. is quite racially-coded. This is exactly how racism obtains. ingrained in wealth. Word originated from Capitol Hill that Congress had passed. and sent to the White House the Civil Civil Liberty Act of 1968. Consisted of in the procedure was. a spots open real estate expense, which, when totally efficient,. would certainly prohibit discrimination in about 80%. of all real estate provided for rent or offer for sale in the United States. The Civil Rights Motion, and specifically the. Fair Housing Act of 1968, tried to place an end to. that discrimination. Fair real estate for all, all humans
who live in this nation, is now a part of the American lifestyle.
They didn ' t have much economic power as well as they battled to.
undo the decades of damage that had actually already been done.Since that time
the wide range. gap has in fact widened. In 1967, Black families had 1/5 the riches of White families. Today, that number is 1/7.
It ' s not simply that you have. It is likewise the opportunities; the ladders up for your kids are different in certain areas, non-existent in some neighborhoods as well as, rather honestly, tough to fall off of in other areas.
This tale is not all dismal. Similar to plan can be enacted to produce these unjustified disparities, likewise plan can be. enacted to remedy them.
We need something in.
My #1 Rule To Create Wealth — T. Harv Eker
Jason 0 Comments Retire Wealthy
What I specifically like concerning owning your
very own company is that you have placed on your own in a setting where creating
wide range goes to least possible. Currently consider it by doing this: You know tennis, everyone'' s saw tennis, played tennis, but if'you ' re having fun tennis as well as the round is way, method over here, method over below, all right so the very first point you have to do if you'' re gon na strike the round is if you'' re method over there, you ' ve reached obtain in setting to be able to hit the round. You can'' t hit an excellent shot from means back over there there'' s no chance! It ' s the same with riches. You need to give yourself a chance as well as your ideal chance includes your own business. You understand, the research study reveals that 90% of all self-made millionaires did it in their own business Why? Let me tell you why … Because what I call Ensure you remember this. You write this down you. You publish it on your forehead. On your mirror … Riches Regulation # 1 And also here it is … I will repeat that: No Limits On Your Income Here'' s the problem … If you remain in a job, or you get paid a set wage, or even in any scenario where you earn money by the hour, that suggests you are being paid for your, what? Your time.And of training course here ' s the challenge: there'' s just 1 day in the day and also since time and also your time is restricted, your revenue comes to be, what? Minimal … And you'' ve broken one of the most vital guideline of wide range: No Limits On Your Income.
Building Wealth (Ep.2) – Delayed Gratification (தமிழ்)
Jason 0 Comments Retire Wealthy
That is – rather of enjoying the life upgrades quickly we can postpone it to some time, as well as obtain financial growth. From 1 BR we update to 2 Bedroom.From 2 Bed room, we upgrade to have residence. If our entire life is 80 years, Its not truly a huge bargain to delay our upgrades for 3-5 years.We are going to acquire all these anyways.
Retirement: I’m 60 Years Old with $900K in Savings. Can I Retire Now? What is My Risk Capacity?
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Hey simply a short Disturbance right here to ask you to subscribe to the channel now what that does for you is that places us Oak Harvest Financial Team and also all the material we produce in your little TV Overview so you have a much simpler means to come back and find it later share this video with a good friend or family participant and likewise comment down below I enjoy to respond to the comments now if you have any concerns concerning your particular circumstance or you'' d like to consider ending up being a client of Oak Harvest really feel complimentary to get to out to us there'' s a link in the summary listed below however you can always reach out to us and also provide us a call and have a discussion to see if we may be a great fit for each various other James informs us that given that he desires to retire as quickly as feasible he he thinks it makes sense to take Social Protection the very first time readily available so declaring at 62 a little even more than two thousand dollars a month at twenty five thousand dollars per year he additionally has that nine hundred thousand bucks damaged out to 4 401K money of 700 Grand after that 200 000 in a taxable account or what we call non-qualified outside of the retired life account extremely vital to aim out below that the tax characteristic of these two accounts and the Investments inside them as well as the rate of interest and also dividends as well as the withdrawals from them are taxed in different ways so that'' s component of a total tax obligation plan currently James also has a residence that ' s totally paid for and also worth six hundred thousand dollars yet he'' s told me that I put on'' t desire to utilize this to fund any of my retirement goals I'' ve lived in this residence for a long time I desire to remain in the residence however we understand from a preparation point of view that we do have that in our back pocket if it'' s needed down the roadway so James'' s overall web worth right here is about 1.5 million looking at the paid off house of 6 hundred thousand the 700 Grand inside the 401K and the 200 000 of non-qualified or taxable account properties currently as part of the process to comprehend where somebody is and where they'' re attempting to get to we have to understand just how is the profile currently alloted so James informs us that Troy I understand I'' ve wanted to retire so I'' ve been spending boldy and attempting to get in advance of the game yet here we are in 2022 as well as the markets have actually pulled back some so that double-edged sword is starting to kind of back its back its head yet we see James'' s 93 supply so one of the concerns that we have from an inner planning perspective is if we maintain this very same degree of threat while we retire and begin taking revenue out of the profile what does that do for what we call the risk capacity or the profile'' s ability to take on danger while Distributing revenue in the retired life phase so we have to look at the guard rails as well as guard rails are essentially an analytical calculation of likelihoods of the portfolio returning this much on the high side and also a great year and also this much on the drawback in a poor year if these guard rails are as well far apart and also we'' re taking in income out if we run right into a bad pair of years that bump up against that bottom guardrail however we dramatically raise the risk of running out of cash so part of the analysis of the planning is is this a proper guard rail for this kind of profile given the preferred revenue level so with every little thing we'' ve looked at so much the question is if James continues doing what he'' s presently doing and also retires with the desired investing degree the possessions that he'' s gathered living until age 90 what is the likelihood that he has success well it comes in at regarding 61 so that'' s possibly not a great retirement number it'' s something we want to see if we can function to boost so I ' m going to pull up the what if evaluation here as well as start to look at some of these different decisions that we might make and also see if we can obtain this probability to enhance all right so currently we have the what if evaluation where we have 2 different columns up right here on the board right currently they'' re similar we ' re going to maintain this one the same as the base situation every little thing that we simply went via however now we'' re going to begin to change some of these variables to see what the impact those choices have on the total retired life strategy and this is much even more of an art at this phase than it is a scientific research due to the fact that we want to begin to check out different situations and also then see what is most comfortable for you once you comprehend the effect of these various decisions you can take some time to kind of method assume about them evaluate the the pros and disadvantages and also now we'' re beginning to work with each other to craft you a retired life plan that provides us boosted likelihoods of success however also something that you feel really really comfy with so the first couple of choices we have which are the most easy as well as typically have the biggest effect on the strategy is that we can either function longer or invest much less so James states no I wear'' t desire to spend less I have a specific plan I desire to get my Recreational vehicle I desire to travel the nation I want to play some golf I'' ve done my spending plan I need to invest that 70 000 for the first 10 years so the initial thing we'' ll appearance at is the influence of functioning another couple of years so I'' ve altered the age right here to 63 as much as Retirement the only variable we'' re going to alter at this time I don'' t want to transform as well lots of variables at once I want to see the influence of different choices exactly how they affect the general plan alright so that gives us a little bit of an increase however the following point I desire to look at right here is social safety and security so Social Safety is a really beneficial resource of guaranteed lifetime earnings initially it'' s a raising stream of earnings it increases with rising cost of living but two no matter what takes place with the stock market that earnings is always going to be coming in so rather of taking the 62 and also having a substantial decrease in the life time income that we receive due to the fact that I don'' t want to transform investing we still have the 50 and also 20 in below I desire to transform the Social Safety and security from taking it a 62 to taking it at full retired life age all right so altering the Social Security election day gets us up to 76 we'' re certainly moving in the best instructions right here after a discussion with James as well as he understanding that you recognize what I do feel truly safe and secure with that enhanced social security revenue due to the fact that if the market doesn'' t comply I'recognize I ' m still going to have that a lot greater revenue later on in life so that would certainly lead us down the roadway to say fine let'' s look at adding extra guaranteed lifetime earnings if we can obtain your Baseline income to cover a majority of your spending requires after that we put on'' t require the market to carry out necessarily as well later in life so now we desire to look at the effect of adding more surefire earnings to the strategy which has the effect of providing even more safety later on in life because if the markets put on'' t coordinate we know we have a specific level of revenue being deposited every single month no matter exactly how long we live so if you go to our web site here it'' s Oak harvestfinancialgroup.com com we have up leading an income author quote where this is continuously looking for the highest possible amounts of assured life time earnings that are available in the industry simply input the variables here so in Texas age 60 Individual retirement account money income starts we ' re going to start looking at seven years below and I recognize the buck quantity I would certainly desire to place in 300 000. I want to look at one more variable right here since you may want to get a part-time job James might want to be a starter at a golf course perhaps he wants to work in the church and he can get ten thousand or fifteen thousand dollars a year maybe just desires to function 2 3 months out of the year so the next point I want to look at is if we ' ve done all this now what occurs if throughout this very first 10 years of retirement he chooses he desires to function 3 months out of the year or maybe simply a part-time work as well as work one or 2 days a week so instead of needing twenty thousand dollars per year we simply need another 10 thousand allowed ' s say from the profile so actually that ' s just gaining ten thousand bucks extra in retired life income you might do that driving Uber many various selections there you understand what I ' m just going to reduce this no I ' ll leave it there now with James deciding to perhaps work part-time right here to reduce that investing demand in the initial 10 years allow ' s see if we can likewise get them retired at 61. We'' re going to transform this back to his original objective 61 determine all situations as well as now this gets us up to 94 so we started at 61 if where James was originally at whenever he came in if he maintained doing whatever he was currently doing we obtained him up to 94 percent below alright I desire to take a minute before we finish the last Concept in this video clip to discuss some of the modifications we ' ve made so much to get James from 61 to 94 so initial and also primary we readjusted the Social Safety and security election strategy second of all we included that deferred earnings annuity thirdly James has chosen to work part-time to produce ten thousand dollars per year in those beginning years to help reduce the concern of taking out an extra twenty thousand dollars of retired life revenue and after that finally we ' ve brought the guardrails in on the Financial investment Portfolio which helps to remove extremely bad end results that might happen with his initial 93 allotment to supplies we haven ' t entirely went to bonds or cash we ' ve simply brought those guard rails in by decreasing our Equity direct exposure in the starting years of retirement we can constantly change that later on currently last thing I want to do is look at what we call the mixed information all of these things with each other in a spread sheet just so we'can see just how these different pieces are working with each other as well as after that look at what we call different Monte Carlo analyzes so currently I want to share with you some of the specific test evaluation that we run simply like we would certainly for a typical customer to assist recognize not only where the weak areas are in the profile however just how these different decisions that we ' re making impact the overall client equilibrium and it ' s not just looking at what we call a typical price of return it ' s looking at a thousand different simulations we ' re going to look at a pair right here and also the Order of the return so inspect out the video if you want to recognize even more'regarding this principle you can click the web link up above and also the title of the video clip is how eleven percent average returns could destroy your retirement as well as that ' ll really get home that idea of it ' s not about what you balance yet it ' s regarding the order in which you recognize returns over the course of your retired life during the day distribution phase so here we have this private test and also we ' re gon na it ' s the average circumstance out of a thousand different situations so I simply want to go'with this rather swiftly with you as well as based on some of the adjustments to the portfolio we see the financial investment return column below so all of this I think balanced out to I think it was concerning 4 and also a half percent gross returns I can go'back and also double check that in a 2nd yet you see it ' s it ' s never ever 4 4 4 four four 4 4 4 or 6 six 6 six this is what it looks like in the actual globe so James retires essentially the start of 2023 we have the Deferred income annuity clicking on right here we ' ve altered Social Protection to click on below so if we include these two with each other come hell or high water there'will certainly'be minimally 74 000 nearly 75 000 transferred into his bank account every solitary year currently if we look at the retirement require it ' s about sixty one thousand bucks plus the discretionary Go-Go investing is concerning twelve thousand two ninety nine so about seventy three thousand dollars yet what this does is due to the fact that we ' re getting so a lot from these 2 sources it really minimizes the need for the profile to do and if we kind of go out go on out via retired life you see Social Security isn ' t boosting revenue so later on in life currently we ' re up to regarding 89 practically 90 000 of earnings as well as our ninety thousand dollars inflation adjusted retirement revenue requirement is covered by the amount of assured life time revenue that we have in the profile which then allows our profile equilibriums to support because we ' re not needing it to sustain our way of life later on in life so this is just one instance right here however we see the ending profile worth also though it spends down a little bit in the beginning years fine it begins to support since the revenue provided from the choices that we ' ve made placed us in a situation where we put on ' t have to take out so a lot from the profile Okay so now I want to look at a different test as well as simply to validate below the 500th situation was a standard of 4.6 but you saw the various order of those returns and exactly how we really obtained to 4.6 all right so if we move this up here allow ' s think it ' s a rather negative scenario this is going to let me alter it here find a worse return all right so this brings the average down to 3.05 and also we still see in bar chart kind below that the portfolio value still is stabilized and it ' s mainly because that adjustment in the Social Safety decision as well as adding the Deferred earnings annuity it still places us into that position to where if the market doesn ' t execute we have sufficient revenue from assured sources'that we ' re not reliant on the stock market to offer us income in retirement specifically later on in life when we generally are much more conventional as well as a lot of individuals that I ' ve worked with put on ' t have the same stomach at 80 or 82 to remain spent in Big Market pullbacks as they did when they were 52 or 62.
The #1 Wealth KILLER
Jason 0 Comments Retire Wealthy
Albert Einstein once referred to compound interest as the 8th wonder of the world. Saying he who understands it earns it; he who doesn’t pays it. And he couldn’t have been more right. Today we’re going to be looking at the miracle that is compound interest and how can protect my retirement as it relates to the #1 killer of your wealth. Let’s get started. So the #1 wealth killer is debt. Yeah, I know, big shocker. But it’s really true and today we’re going to look at why that is.
The truth is, having too much debt can put a limit on your greatest wealth-building tool – your income. While it may be tempting to invest rather than pay off your debt, compound interest is a force to be reckoned with. In fact, I recently dedicated an entire video to its power. Financial advisors often use the example of Jane, who invests $100 per month ($1,200 per year) from the age of 18 to 25 and earns an average of 10% per year on her investments. By the time she stops investing at age 25, her nest egg will be worth just over $15,000.
However, before you start investing, it’s important to consider your debt load. Here are some reasons why paying off your debt first may be the smarter choice:
High-interest rates: Many forms of debt, such as credit card debt or personal loans, carry high-interest rates that can negate any potential investment gains.
Risk: Investing always carries some degree of risk, and if you have high levels of debt, taking on additional risk may not be advisable.
Stress: Debt can be a significant source of stress and anxiety, which can have negative impacts on your overall financial well-being.
Freedom: Paying off debt can give you a sense of freedom and control over your financial situation, allowing you to make better long-term decisions.
That being said, paying off debt doesn’t mean you can’t invest at all. Here are some steps you can take to balance debt repayment and investing:
Create a budget: Determine how much money you can allocate towards debt repayment and investing each month.
Focus on high-interest debt: Prioritize paying off high-interest debt first, as this will save you the most money in the long run.
Consider employer-matched retirement accounts: If your employer offers a retirement plan with a matching contribution, take advantage of it. This is essentially free money that can help you save for the future.
Seek professional advice: A financial advisor can help you create a personalized plan that takes your unique financial situation into account.
In conclusion, while compound interest is a powerful tool for building wealth, it’s important to consider your debt load before investing. Paying off high-interest debt should be a priority, but that doesn’t mean you can’t invest at all. By creating a budget, focusing on high-interest debt, taking advantage of employer-matched retirement accounts, and seeking professional advice, you can balance debt repayment and investing to achieve your financial goals.
Over the course of the next 45 years, those investments will continue to grow. Assuming that it continues to grow at an average annualized rate of 10% per year she will end up with $1.1 million in her portfolio at age 70. That’s all achieved with eight years of investing $100 a month. Jane becomes a millionaire by investing $9,600 of her own money. On the other hand, we have John. John doesn’t start investing at age 18. Instead, he starts at the age of 26 (just after Jane had finished all of her investing). He also invests $100 a month. However, unlike Jane, he does it from the age of 26 all the way until the age of 70. John invests $54,000 of his own money over the course of those years and ends up with a nest egg of just under $950,000. So John ends up with approximately $150,000 less than Jane. This is in spite of the fact that he invested six times more of his own money than she did.
It’s no secret that excessive debt can put a damper on your ability to build wealth using your most powerful tool – your income. While the concept of compound interest is widely known to be an effective way to grow your money over time, paying off debt may seem like a counterproductive move. However, it’s important to remember that not all investments are created equal, especially when you’re dealing with debt payments.
Let’s take a look at an example: Jane invests $100 a month for 7 years starting at 18 and ends up with a net worth of $1.1 million at the age of 70. Now, let’s say John starts investing $100 a month at the same age and earns an average of 10% per year, just like Jane. Even if John continues to invest until he’s 100 years old, Jane would still have more money than him, and her lead would only increase with time. In fact, at the age of 100, Jane would have $19.2 million to her name, while John would have $16.7 million. This just goes to show the power of compound interest, as famously called by Albert Einstein as the 8th Wonder of the world.
However, when it comes to investing, it’s important to consider the context of one’s financial situation. Comparing someone who is debt-free to someone who is not will not provide an accurate comparison. While Jane invested $100 a month for 7 years, John was dealing with debt payments and didn’t invest anything for those first 8 years. But what if John managed to free up an extra $200 a year, or less than $17 a month, by paying off his debts? In that case, he would come out ahead of Jane by the time they’re both 70. And if he freed up more money than that, he would pass Jane even earlier.
So, what’s the takeaway? While compound interest is undoubtedly a powerful tool, it’s important to also consider the impact of debt on one’s ability to invest. Paying off debt and freeing up funds for investment can ultimately lead to greater financial success in the long run.
And given the state of the average American debt situation, $17 a month in payments is a remarkably conservative estimate. According to articles in business insider,
CNBC, and Forbes the average American debt situation looks like this: About $9,000 in credit card debt which is
often split between several cards. $30,000 in student loan debt. And assuming a used vehicle was bought a little
over $21,000 on a car loan. That’s around $60,000 in total debt. If we assume 18% interest on the credit cards
and 4.5% interest on the other loans and terms of 5 and 10 years on the car loan and student
loan respectively, the minimum payments could be roughly $900 a month. Freeing up that much cashflow could make a
tremendous difference in the previous example. Let’s look back at John’s situation from before
and assume that his household’s debt situation was that of the average American. John uses his $100 a month of excess cash
flow to pay off these debts.
Based on the numbers it would take him roughly
six years to become debt-free. This is assuming he did not work any extra
hours or sell anything to get out of debt faster. Once he was debt-free he would have almost
$1,000 a month left over to invest. If he starts the process of becoming debt-free
at the age of 18 when Jane was starting to invest he would have become debt-free by his
24th birthday. If he then turned around and started investing
the full $1,000 a month he would actually be further along in his investments by his
25th birthday then Jane was. Granted this is largely because he has invested
more money than Jane has at this point. Jane by her 25th birthday had only invested
$8,400. That’s quite a bit less than John’s $12,000
but think of the potential payoff of this down the road if John keepS investing that
money.
He’ll also likely be able to lead a much
better lifestyle than Jane in the present due to his lower monthly expenses. Jane may eventually equal him in that regard
if she gets her debts paid off, but for those first several years after John is debt-free,
it is worth noting. Remember, compound interest is an incredibly
powerful mathematical force. But it can work just as hard against you as
it can for you. So it’s important to make sure that compound
interest is your ally in your finances, not your enemy. So with that being said how do we avoid this
killer of wealth? First, if you’re lucky enough to not have
any debt right now research some ways to ensure that you keep it that way.
If you’re planning to go to college look into
ESA or 529 plans. They are ways to start saving for college
while lowering your tax burden (which is always a nice perk). Also, look into scholarship opportunities
or PSEO. Don’t be afraid to have a summer job and work
during the school year part-time. For the record, this can also be a good option
in high school to give yourself a head start financially so long as it doesn’t take away
from your studies too much. Make sure that you always have an emergency
fund. It should contain three to six months worth
of expenses so that you don’t have to take on debt for those moments when life happens. Make sure you have insurance for those catastrophes
that you wouldn’t be able to cover with your savings. Catastrophic health emergencies are a good
candidate for this.
If you’re already in debt, learn about how
people have paid off their debts. Then choose the strategy that is most likely
to get you (and keep you) completely out of debt. Three of the most popular strategies are the
debt snowball, debt avalanche, and debt tsunami. I have done videos on all three of those and
they will be linked in the description. The debt snowball is the one made famous by
financial personalities such as Dave Ramsey. It has you order your debts from smallest
to largest balance and pay them off in that order regardless of the interest rates on
those debts. The plus side is the momentum you can build
up for yourself by quickly wiping out those bills. The downside is it isn’t the most mathematically
efficient way to get out of debt, all else being equal.
The debt avalanche is the more mathematically
efficient option if you can stick to it. It has you order your debts from highest to
lowest interest rate and pay them off in that order. This is regardless of the size of the loan
itself. The upside is the fact that you’ll be paying
less in interest. The downside is in some situations it may
take quite a while to get rid of that first bill. For those who are more motivated by seeing
the balances of the debts themselves going down this may not be much of an issue.
For those that are more motivated by the lowering
of bills, this could be an issue in some situations. The debt tsunami has you order your debts
from the most emotionally stressful to the least emotionally stressful and pay them off
in that order. In some cases, this could mean paying off
the largest balance that also has the lowest interest rate first. However in my experience that is not commonly
how it goes. Most of the people that I’ve seen use this
strategy tend to use it because there are personal loans between family or friends that
are causing a lot of stress in the relationship. The person with the debt uses the tsunami
to get rid of that loan first and then often switches to a different strategy such as the
snowball or avalanche. Which is another viable option for many people. There’s nothing stopping you from starting
with one strategy that will help get you going and then switching to another that will work
for you longer-term.
I know a lot of people who have started with
the snowball to get themselves some momentum and then switched to the avalanche once they
were on a roll so that they could save on interest. Another thing I would recommend looking into
is the power of the debt snowflake. If you haven’t heard, the debt snowflake is
a strategy where you find ways to free up money (or just happened to find the money)
that you can put towards your debt payoff strategy. The nice thing about it is it works well with
any of the other three strategies I mentioned. While by itself it isn’t game-changing it
does help your primary strategy do its job a little better. And as we know every little bit helps. If you need more motivation make sure to check
out Dave Ramsey’s YouTube channel and their debt-free screams playlist.
It’s filled with a lot of amazing stories
of people paying off loads of debt on various levels of income and getting to see their
relief when they are finally debt-free is very inspiring. You might also find their Turning Points playlist
interesting. It is essentially interviews of people who
have become debt-free talking about what made them decide to go through that process and
achieve that lifestyle. I’ll leave a link to both playlists in the
description as well..
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