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Family Wealth Killer 2: Bad Investments

Family Wealth Killer #2: Bad Investments All investments look good the first time you see them…right? I met a guy with millions of dollars. He could really accumulate capital, but he couldn’t pick a good investment if his life depended on it. He would only see what he wanted to see and commit precious capital to things he couldn’t control with little possibility of producing a return worth the risks. A good investment policy changed all that. Sticking with our investment policy we always know how to deploy capital because we know what we're trying to accomplish. The deeper we dig with due diligence, the more we understand an opportunity and how it lines up with our values and goals. Picking winners is easier and more fun this way. Building capital is like building anything else— the better the quality of the parts and how they all fit together for us, the better it will perform..

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Do Withdrawal Rates Make Sense for Retirement?

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

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

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

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

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

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

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

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

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

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

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

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ZERO Savings at 50? Plan for Retirement NOW 💰

What are we doing here? What's going on?
>>What are we doing here? >>This is a super-simple game. We're fishing for advice. Give me that.
>>See, I chose the right outfit today.
Yeah. [Fishing for Advice With Financial Advisers] I know you guys are probably thinking
I'm a professional fisherman, but I'm not. I'm a financial coach. You are 50 years old and have not started
saving for retirement. What is the first thing you do? Panic! No, I'm just kidding. So, at 50 years old, that is a big
wake-up call for a lot of people, and the very first thing you do is take stock of where your money is going today, because
you are gonna need to seriously amp up your saving. So, not everybody needs to
have some giant savings.

You need to have enough to replace the amount of income
you're gonna spend in retirement. I'm gonna just cheat a little, because I'm
really embarrassed. So I would just take a minute to assess my full
financial picture and actually sit down with the numbers to take financial
inventory. So I think step 1 is just going through what are all the
accounts I have, what is everything I own, what's the value of everything I own, and
then making another list of everything that I owe. And then from there you can
be like, "OK, well, this is the money that I actually do have, and so maybe there's a
better way for me to maximize this for my retirement." I feel like 50 is the new 20 or
30, you know, still not too late. Yeah, don't think that it's over.
Consider it like a halftime. This is where you go
into the locker room and you look at what you did in the first half and what
can be done better for the second half.

You come up with a new strategy, a new game plan, and then you go out into the second half,
and you prepare to win the game. [Cheering] I have to say this is the weirdest game
I've ever played at a FinCon. You're 50 years old — I am 50 years old — and
have not started saving for retirement. What's the first thing you do? You breathe, and you don't panic, and you start now. What you should not do is
think, "Well, it's too late now, so let's just see what happens in the next 20, 30
years." Because that is going to lead to disaster.

You still have time to turn this around,
but you have to get serious about this now. So you would talk to a
financial planner, come up with a game plan of how you can reduce your spending,
how you could put extra money into savings, and how you can kind of catch up. Once you've found the money, you are gonna automate the flows into those IRAs and 401(k)s, because if you don't automate it, you're gonna force
yourself to go through this exercise again and again, but if you set it and
forget it, you will continue to make headway.

All right, here we go. It’s why I got this net, man. The first thing I want you to do, I want you to take positive action. I want you to look around this minute, right now, and make a decision on some things you're gonna change. And it might be your attitude, it might be
the way that you're spending money, it might be the way that you're even looking at money. Be positive.
You know, it's not over till it's over. You can do it, you just have to start
doing it right now. Whoops! All right, everyone, listen. Gaining
information is absolutely imperative. It keeps you aware and it keeps you motivated. So be sure to subscribe to AARP's YouTube channel. OK, come on. All right. I'm just gonna pick these
fish up. OK! [Laughter].

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2 Ways to Estimate Retirement Spending

When you're planning for retirement, your spending level is one of the most important pieces of the puzzle, so how much should you plan to spend each year? That's going to dictate what we are withdrawing from your investments and how that needs to supplement your Social Security, pensions, and that sort of thing. So we're going to go over two methods that you can use to fairly easily figure out what your spending might look like in retirement. As you go through this exercise, it's important to remember that no method is perfect and it's impossible to predict the future, so we don't know what your grocery bill is going to be in 14 years, or how much you'll spend on electricity in 12 years, but what we can do is make some reasonable guesses and estimates and take action based on that, take a step forward and then learn a few things and then adjust if adjustments need to be made. So the two ways of figuring out your budget I want to talk about today are the top down and the bottom up approach, and there are a couple of other ways to estimate your retirement spending need as well.

So the replacement ratio is a pretty popular one, and that's where you say, I might need, let's say, 80% or some other percentage of my current income to spend in retirement, hopefully it's a relatively high number, but there… You're just basically saying, Well, I'm not going to save for retirement anymore, I'm not going to be paying payroll taxes, so maybe 80 90 or some other percentage is an appropriate amount, but we're going to go over again, top down and Bottom up, so starting with top down, the top down strategy focuses on the amount you spend and is not as concerned with the destination of those dollars or the specific costs that you pay, all that that information is important, and we're probably going to want it, but when we look at a top down approach, we say, What is all of the income minus the savings you do? And the answer is your costs or your total spending, so we don't know necessarily exactly where that money went, but it went somewhere…

Okay, so you had income, you save some money in some different places, the rest of it went away and it's not your money anymore, so that's the top down approach, so how do we figure out the income? The best place or the very top is to start with your pay stubs or your income tax returns, so those are going to capture even dollars that never hit your bank account, so for example, you can say, my total income is X, but I put money into my workplace plan, my 401k, that money is never going to show up in your bank account, you're not going to see it as a line item in your transactions where you saved money, but you did indeed save that money, you didn't spend it on something else, you can spend it later, so if we start with the income sources from a very high level, we're talking about your pay stubs and your tax returns, then we look at the savings, so this is going to be all of the additions you make to various accounts, so that's going to be your 401K, 403B, any bank savings accounts, HSAs, IRAS, any place that you're saving money for the future, this is going to get subtracted from that income number we came up with, so we have our income at a high level, we have the savings that we did, we subtract that, then the result is the total spending, and again, we're not totally concerned with exactly where the money went.

Although if there is a problem, a spending issue or something like that, then we definitely want to look closer. Naturally, there are pros and cons of any approach, so the advantages of this top down strategy are going to be that it's really easy and it gives you a big picture view, and it captures really pretty much everything, it might capture too much, so we'll talk about that in a second, but if you are not sure exactly where your money goes, but you're doing okay budget wise, and you want to keep the same lifestyle basically that you currently have, then this can be a decent way to estimate how much you might spend later in life, so we don't know how much of it went on vacation versus dining versus whatever, but you did spend the money somewhere, and that's really what we need to know is how much do you spend…

But this could capture some costs that you aren't going to have in retirement, so for example, your payroll taxes are going to be something that we want to think about if we're using this top down approach, because when you stop working, you'll no longer have those payroll taxes. Likewise, if you have a mortgage and you're doing monthly mortgage payments at some point that loan might go away and that won't be an expense for you in retirement, you would generally still have taxes and insurance, but you wouldn't have the principal and interest portion of your mortgage payment at some point down the road, hopefully.

So again, with top down, we start with this big picture view, income minus savings equals expenses, and then maybe we want to make some adjustments for certain things that are going to change over time, so here's a little example of how it looks visually, you've got your income of 100,000 you're over age 50, you're doing 27,000 into your 401K, you've got an IRA as well, there's another 7,000 that you're saving. And so your actual spending is no more than 66,000, and it's probably even less than that when we think about payroll taxes and maybe a couple of other things, so think about this as you evaluate what your costs might be, sometimes people think I make 100,000 right now, so I'm going to need a 100000 of income every year in retirement, and that's often not the case, and this is another way to illustrate that point, in fact, those are the types of exercises I often go through with clients, by the way, I'm Justin.

Pritchard, and I help people plan for retirement and invest for the future, so in the description below, there's going to be more on this topic, on your spending and just some other general retirement planning type resources that I think will be really helpful for you. So please check those out, and it's also a good time for a friendly reminder that this is just general information, it's a short video that can't possibly cover everything, so please check with some experts before you make some important decisions. Next, we have the bottom up approach, and so this is going to be what you might be more familiar with as just budgeting, so that's looking at every single expense and transaction and categorizing those costs and figuring out where exactly your money goes.

So you're really looking closely at the destination of each dollar that leaves your household, so you have a detailed view of what's happening, you can get this information from places like your credit card statement, so every time you spend money, there's an electronic record of it. You can categorize that and track it, your bank account is also probably a good place to look, so if you have those electronic automatic payments that go out of your bank account, maybe your mortgage or your insurance payments, that kind of thing… Those are going to be important to know about and include in your budget. Even a check register. So you might only write one or two checks a year these days, but they're probably big ones and they're probably important to know about, so make sure you're tracking that if it's a charitable contributions, or maybe you pay your property taxes once a year by check, that sort of thing, we need to know about those so that you can continue that type of spending.

This technique really relies on you being able to track and find and categorize that information, so it's probably a decent idea to just cross check this with a top down approach, so say, Well, here's what I think I spend based on my budget, based on all the things I tracked and looked at, but let's just see if that more or less adds up based on my income versus how much I put into different accounts, and are we in the ballpark? Just like with the top down approach, it's important to pay attention to any costs that might change over time. So if you are making mortgage payments again and you're going to have that loan paid off at some point, want to look at what's the principal and interest portion of that payment, and what's the taxes and insurance portion, and keep those separated, you know that you'll continue to pay taxes and insurance, but not the principal and interest at some point down the road.

Again, there are pros and cons to this, just like everything else, it's probably a decent way to go if you are very close to retirement because you're going to be spending in a similar way next year or two years from now, as you are today, so your current budget might be a nice reflection of what the next couple of years budget could look like, one of the drawbacks though, is that this can give you a false sense of precision, so you've got your list and your spreadsheet and you've got you exactly how much you paid for a bagel eight months ago, and you know exactly where your money is going, but you might be missing something, that's really the main risk is that you could be missing some important expenses, so that if you base your spending off of your spreadsheet or your list, it might not be nearly as accurate as you think it is.

So I hope you found that helpful. If you did, please leave a quick thumbs up. Thank you and take care..

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Retirement Planning Home

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2 Ways to Estimate Retirement Spending

When you're planning for retirement, your spending level is one of the most important pieces of the puzzle, so how much should you plan to spend each year? That's going to dictate what we are withdrawing from your investments and how that needs to supplement your Social Security, pensions, and that sort of thing. So we're going to go over two methods that you can use to fairly easily figure out what your spending might look like in retirement.

As you go through this exercise, it's important to remember that no method is perfect and it's impossible to predict the future, so we don't know what your grocery bill is going to be in 14 years, or how much you'll spend on electricity in 12 years, but what we can do is make some reasonable guesses and estimates and take action based on that, take a step forward and then learn a few things and then adjust if adjustments need to be made. So the two ways of figuring out your budget I want to talk about today are the top down and the bottom up approach, and there are a couple of other ways to estimate your retirement spending need as well.

So the replacement ratio is a pretty popular one, and that's where you say, I might need, let's say, 80% or some other percentage of my current income to spend in retirement, hopefully it's a relatively high number, but there… You're just basically saying, Well, I'm not going to save for retirement anymore, I'm not going to be paying payroll taxes, so maybe 80 90 or some other percentage is an appropriate amount, but we're going to go over again, top down and Bottom up, so starting with top down, the top down strategy focuses on the amount you spend and is not as concerned with the destination of those dollars or the specific costs that you pay, all that that information is important, and we're probably going to want it, but when we look at a top down approach, we say, What is all of the income minus the savings you do? And the answer is your costs or your total spending, so we don't know necessarily exactly where that money went, but it went somewhere… Okay, so you had income, you save some money in some different places, the rest of it went away and it's not your money anymore, so that's the top down approach, so how do we figure out the income? The best place or the very top is to start with your pay stubs or your income tax returns, so those are going to capture even dollars that never hit your bank account, so for example, you can say, my total income is X, but I put money into my workplace plan, my 401k, that money is never going to show up in your bank account, you're not going to see it as a line item in your transactions where you saved money, but you did indeed save that money, you didn't spend it on something else, you can spend it later, so if we start with the income sources from a very high level, we're talking about your pay stubs and your tax returns, then we look at the savings, so this is going to be all of the additions you make to various accounts, so that's going to be your 401K, 403B, any bank savings accounts, HSAs, IRAS, any place that you're saving money for the future, this is going to get subtracted from that income number we came up with, so we have our income at a high level, we have the savings that we did, we subtract that, then the result is the total spending, and again, we're not totally concerned with exactly where the money went.

Although if there is a problem, a spending issue or something like that, then we definitely want to look closer. Naturally, there are pros and cons of any approach, so the advantages of this top down strategy are going to be that it's really easy and it gives you a big picture view, and it captures really pretty much everything, it might capture too much, so we'll talk about that in a second, but if you are not sure exactly where your money goes, but you're doing okay budget wise, and you want to keep the same lifestyle basically that you currently have, then this can be a decent way to estimate how much you might spend later in life, so we don't know how much of it went on vacation versus dining versus whatever, but you did spend the money somewhere, and that's really what we need to know is how much do you spend…

But this could capture some costs that you aren't going to have in retirement, so for example, your payroll taxes are going to be something that we want to think about if we're using this top down approach, because when you stop working, you'll no longer have those payroll taxes. Likewise, if you have a mortgage and you're doing monthly mortgage payments at some point that loan might go away and that won't be an expense for you in retirement, you would generally still have taxes and insurance, but you wouldn't have the principal and interest portion of your mortgage payment at some point down the road, hopefully.

So again, with top down, we start with this big picture view, income minus savings equals expenses, and then maybe we want to make some adjustments for certain things that are going to change over time, so here's a little example of how it looks visually, you've got your income of 100,000 you're over age 50, you're doing 27,000 into your 401K, you've got an IRA as well, there's another 7,000 that you're saving. And so your actual spending is no more than 66,000, and it's probably even less than that when we think about payroll taxes and maybe a couple of other things, so think about this as you evaluate what your costs might be, sometimes people think I make 100,000 right now, so I'm going to need a 100000 of income every year in retirement, and that's often not the case, and this is another way to illustrate that point, in fact, those are the types of exercises I often go through with clients, by the way, I'm Justin. Pritchard, and I help people plan for retirement and invest for the future, so in the description below, there's going to be more on this topic, on your spending and just some other general retirement planning type resources that I think will be really helpful for you.

So please check those out, and it's also a good time for a friendly reminder that this is just general information, it's a short video that can't possibly cover everything, so please check with some experts before you make some important decisions. Next, we have the bottom up approach, and so this is going to be what you might be more familiar with as just budgeting, so that's looking at every single expense and transaction and categorizing those costs and figuring out where exactly your money goes. So you're really looking closely at the destination of each dollar that leaves your household, so you have a detailed view of what's happening, you can get this information from places like your credit card statement, so every time you spend money, there's an electronic record of it.

You can categorize that and track it, your bank account is also probably a good place to look, so if you have those electronic automatic payments that go out of your bank account, maybe your mortgage or your insurance payments, that kind of thing… Those are going to be important to know about and include in your budget. Even a check register. So you might only write one or two checks a year these days, but they're probably big ones and they're probably important to know about, so make sure you're tracking that if it's a charitable contributions, or maybe you pay your property taxes once a year by check, that sort of thing, we need to know about those so that you can continue that type of spending. This technique really relies on you being able to track and find and categorize that information, so it's probably a decent idea to just cross check this with a top down approach, so say, Well, here's what I think I spend based on my budget, based on all the things I tracked and looked at, but let's just see if that more or less adds up based on my income versus how much I put into different accounts, and are we in the ballpark? Just like with the top down approach, it's important to pay attention to any costs that might change over time.

So if you are making mortgage payments again and you're going to have that loan paid off at some point, want to look at what's the principal and interest portion of that payment, and what's the taxes and insurance portion, and keep those separated, you know that you'll continue to pay taxes and insurance, but not the principal and interest at some point down the road. Again, there are pros and cons to this, just like everything else, it's probably a decent way to go if you are very close to retirement because you're going to be spending in a similar way next year or two years from now, as you are today, so your current budget might be a nice reflection of what the next couple of years budget could look like, one of the drawbacks though, is that this can give you a false sense of precision, so you've got your list and your spreadsheet and you've got you exactly how much you paid for a bagel eight months ago, and you know exactly where your money is going, but you might be missing something, that's really the main risk is that you could be missing some important expenses, so that if you base your spending off of your spreadsheet or your list, it might not be nearly as accurate as you think it is.

So I hope you found that helpful. If you did, please leave a quick thumbs up. Thank you and take care..

As found on YouTube

Retirement Planning Home

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3 MASSIVE Ways To Help Your Money Last Longer In Retirement

Retirement is supposed to be stress-free! 
you're enjoying life you step away from all   of the nonsense of the workplace and all of the 
frustration and you're enjoying your life you're   sitting on the beach just chilling having a good 
time it's all good but there's one stressor that   I see with so many people that are retired 
and that's making your money last the markets   aren't easy to watch you're going to open up 
your accounts and one day you're up you know   $100,000 if you've got a million dollar you know 
10% gain is $100,000 but then if you have a 10%   loss that year you're down $100,000 that's hard 
to stomach when you've built you worked so hard   for all of this money for so long well we've got 
to figure out how to make your money last even   in a bad market so let's take a look here let's 
look at retired Roger I built this out with Nest   eg a software we use for clients here at Jazz 
Wealth and if we're looking Roger looks great   right this second he's got a 92% probability of 
success of having about $11 million at the end   of his life he's 61 years old he plans to live on 
5,100 a year he's got $800,000 little bits 25% of   that is in WTH the rest of it's in pre-tax just 
to give you a breakdown of where he's at so if   we're looking here he's planning to take Social 
Security at 70 he's actually not and I'll show   you a minute Ro Roger's one of those he's like 
ah my dad died early I I think I'm healthier but   I'm not giving that money to the government that 
that was my Roger voice if you didn't catch that   so if we're looking here and we say Okay Roger's 
going to take Social Security early all right well   perfect well let's go ahead and do that so we're 
going to make this adjustment here and we're going   to say he's going to take it early it gives him 
about a you know 5% probability less here though   you're not talking them big difference in money I 
mean $32,000 roughly $33,000 is the difference so   it's not a significant ific difference but what 
happens if the market has a massive pullback if   we see a massive pullback that's what we've got 
to look at here with Roger and figure out what is   best for his scenario now if we go right here 
and we say the markets the equity markets Dro   30% he's going to go down to 64% well personally 
as a planner I'm looking at 64% of probability   of success you know when you're in your 70s 70% 
80% you know it's not too bad because we're also   looking at this number we're also looking 
at something else called the cash flow the   cash flow is going to show us a whole different 
scenario when it comes to this where it's really   looking at things and it's saying okay we've got 
this as far as go it goes in a linear fashion so   he's going to get you know let's say a 7% return 
on his money every single year the money's coming   in the money's going out that's what we're 
looking at there but in this the Monte Carlo   looks at a thousand scenarios and it gives us 
this probability of success it's a little more   conservative but 64% I'm not Ultra comfortable 
telling Roger hey you know take Social Security   at 62 years old the markets just fell 30% now 
you would think that that's actually backwards   because a lot of times advisers will tell you 
hey take Social Security early if the market   Falls that's the option this is where planning 
comes into play because that's not always the   best scenario and in Rogers if we look here and we 
say well you know what Roger going to take Social   Security at 70 instead there's a 30% pullback 
he's now pushing 70% again we still have about   a 5% spread on the probability of success in his 
retirement but when you're in the 60s wouldn't you   rather have a 69% than a 64% I'd much rather give 
him that information and make him do that instead   so now let's go back because there's other stuff 
that Roger wants to do Roger wants to talk about   hey you know what I want to be really aggressive 
with my money and rightfully so if I'm looking   at this plan here and I look here at Roger let's 
get this back going he's sitting here and he says   I want want this to be 100% in equities and here 
is why I'm going to potentially have $2 million   at the end of my life that I can leave my kids 
versus 1.1 million and look here it's only a 1%   probability difference now you're probably saying 
well why is there a 1% Less in having $2 million   the reason for that is if you're investing in 
the stocks this probability of success and the   way this looks at it the Monte Carlo is saying 
there's 29 years of Rogers life still to cover   that's you know until age 90 looking at that 
specific scenario in his life there's 29 years   of Market return projections this gets a little 
bit risky if everything's 100% in the stock market   versus if you have a little bit of bonds or maybe 
some currently money market fund sitting in there   you're not just overly saturated just in the most 
aggressive portfolio that you can be and so in his   scenario though he wants to leave this money 
and he's looking at that well let's go ahead   and take a look now and let's see what this could 
look like now remember if he were to take Social   Security at 70 and the current allocation which 
is about a 6040 mix for his scenario here he would   have a 69.6 probability of success well remember 
he's got you know a lot of opportunity here he's   wanting to leave his kids $900,000 more if he gets 
aggressive but what happens if he gets aggressive   and then the market pulls back you're talking 
60% probability 9% difference 60% probability   of success I'm not comfortable again telling Roger 
hey man this is where you need to be so you've got   to think through not just what today is coming 
up with when it comes to your financial plan and   your retirement you've got to really think through 
the stress factors the stress test of what happens   when the market Falls because ultimately the 
markets will go down that's just an unfortunate   scenario that's going to happen if you look dayto 
day the markets go up the markets go down and   historically they've always appreciated or went 
up but in the short term there will be downfalls   there and so one other thing we got to look look 
at though is if you were wanting to make a big   purchase because remember we're wanting to make 
your retirement dollars last so what happens if   you're wanting to make a large purchase in a down 
Market well remember Roger had $800,000 well let's   just say that you know a 30% pullback would give 
him a lot a lot less money let's just say that   we have a little bit of a pullback and Rogers 
money is now $750,000 and he makes a purchase   he had $800,000 he made a $50,000 purchase well 
the next year when the market recovers Roger's   going to have 82,500 on a 7% return so you know 
eventually the markets fall they will start to   recover it's all about delaying the purchase and 
let me show you exactly why if you were to wait   for the recovery to happen and Roger says I've 
got $800,000 once the market recovers I'm back   to my break even here I get a 7% return I make a 
$5,000 purchase well he had $856,000 he's almost   got enough money to cover the taxes potentially 
depending on what tax bracket he's in and the   actual purchase that $50,000 purchase so it's 
really thinking through and trying to time when   you're in a down Market trying to time when the 
right time is to make this large purchase some   people just get antsy and they say you know what 
the Market's falling I want to get out of it I'm   going to go ahead and buy the car now or buy 
the the house or the RV in retirement because   I don't even know if my money's going to be there 
well that's not the best decision because you're   making an emotional decision so instead you want 
to make sure that you're removing the motion out   you're looking look at a financial plan you're 
not just looking at one scenario but you're really   starting to think through this to determine what 
is going to be best for you thanks for watching   if you want to learn more about jazzwealth 
and how we can help as fiduciary advisers go   to Jazzwealth.com if you want more educational 
content be sure to check out our videos here

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Can I Retire at 55? Tips for Early Retirement

If you're thinking of retiring at 55, you want to be careful about where you get your advice and guidance, and that's because most retirement advice is geared toward those who retire quite a bit later, in fact… Most people retire at 62, but things will be different for you if you're going to retire at 55. So that's what we'll talk about for the next couple of minutes here, we'll go over where you can get the money from, and how that works with taxes as well as healthcare, then we'll look at some actual numbers and what it might look like for somebody who retires at age 55. We might also want to get philosophical just briefly and ask the question, Why age 55? Yes, it's a nice round number. And there are some interesting tax strategies that are available around that age, but let's say you could retire a little bit earlier at 54, would you want to make that happen? Or if you worked a few more years… I know you'll think this is crazy, but if you worked a couple of more years and you could not impact your finances, but still take some of those dream vacations and spend time with loved ones, would that be worth it to maybe work until 59, for example? So we want to figure out exactly why you are pursuing a particular goal and then we can improve the chances of success for you, so let's start with health coverage, this is a tricky one because you're retiring quite a bit earlier than most people who might be near that Medicare age, so you have a number of different options to continue being covered, and it is a good idea to have real health insurance coverage just in case something happens.

So a couple of your choices include, number one, you can continue your current benefits from a job if you have them for up to 18 months in most cases, and that's under COBRA or your state's continuation program, that can get quite expensive because you're going to pay the full price, if you weren't already doing that, plus perhaps a teeny little bit extra for administration, but it is a way to continue with the program that you currently have, so that can be helpful if you are mid stream in certain treatments or if it's going to be hard to get certain benefits that you currently have on a different health care program, unfortunately, that's not usually a long term solution because we need to get you until age 65, which is when most people enroll in Medicare, and you should see your costs go down quite a bit at that point, maybe depending on what happens, so another solution that a lot of people look at is buying their own coverage, and that happens typically through a healthcare marketplace or an exchange, and that's where you just by coverage through an insurance company.

So you can go directly to the insurers, but it's often a good idea to go through… Start at healthcare.gov, and then go through the marketplace or the exchange, and that way you can shop some plans and potentially, depending on your income, you can potentially get some cost reductions that make it a lot more affordable, I'll talk more about that in a second, but another option is to switch to a spouse's plan, if you happen to be married and that person has coverage that's going to continue for whatever reason, that might also be a solution for you, when you leave your job, it could be a qualifying event that allows you to get on that person's program, but let's talk more about saving money on health care expenses before age 65, most people are going to buy a policy based on the factors that are most important to them, so that could be the premium or the out of pocket maximum, the deductible, the co pays, certain areas of coverage, all that kind of thing, you can select a plan that fits your needs.

Now, you might find that those tend to be quite expensive, and so if your income is below certain levels, you might be able to get effectively a reduction in the premium, it might be in the form of a tax credit or a subsidy, so here's just a preview of how things could look for you, let's say your income is, let's say 50,000 in retirement, and you need to look at exactly what income means, but there is no coverage available from a spouse, we've got one adult, and let's say you are… As our video suggest age 55 here, so you might get a benefit of roughly 422 a month, meaning you could spend that much less each month, and that's going to make it a lot easier to pay for coverage on these plans, if we switch your income down to 25,000 per year, the help is even bigger, so as you can see by varying or controlling your income, and this is something you might have some control over if you retire at 55, you can also control your healthcare costs, we'll talk about some conflicting goals here, where you might not want to absolutely minimize your income during these years, but this is important for you to know if you're going to be paying for your own coverage, and if you're experiencing sticker shock when you see the prices…

By the way, I'm going to have a link to this and a bunch of other resources in the description below, so you can play with this same calculator yourself. Now, once you're on Medicare, the cost should drop quite a bit, this is a calculator from Fidelity where we can say, let's say you are a female, and we're going to say you're eligible for Medicare at this point, so we'll bring you up to age 65. It is going to be quite a bit higher cost, if you look at it before age 65, and that's because you are paying for those private policies from insurance companies, let's say you're going to live until age 93, and so you might expect to spend roughly 5800 6000 bucks per year, depending on your health and your location and other factors, it could be more or less, but this is an estimate of what somebody might spend, a single woman each year in retirement, of course, that number is going to increase each year with inflation and deteriorating health issues.

But this is a ballpark estimate of what you might be spending in the future, now we get to the question of, do you have the financial resources to retire at 55? And that comes down to the income and the assets that you're going to draw from to provide the resources you need to buy the things you want and need, and one way to look at this is to say We want to avoid early withdrawal penalties because again, you are retiring at an age that's earlier than the typical retiree and most retirement accounts are designed for you to take withdrawals at 59.5 or later, to avoid those penalties, fortunately, you have a couple of options, so with individual and joint accounts, just taxable brokerage accounts, you can typically withdraw from those without any penalties, but you may have capital gains taxes when you sell something, those taxes may be at a lower rate than you would pay if you take big withdrawals from retirement accounts, but you just want to double and triple check that, but that can be a liquid source of funds.

You. Can also typically withdraw from Roth accounts pretty easily. So those regular contributions come out first, in other words, you can pull out your regular contributions at any time with no taxes and no penalties, what that means is that's the annual limit contributions you might have been making her by year, so the 7000 per year, for example. That money would be easily accessible, but if you have other money types like Roth conversions, for example, you're going to be very careful and check with your CPA and find out what all of that could look like. There. Are other ways to get at funds that are inside of pre tax retirement accounts, and it might actually make sense to draw on those to some extent, we'll talk more about that in a minute, but these are some of the tricks you can use to avoid an early withdrawal penalty yet still draw on those assets before age 59.5. The first one is the so called rule of 55, so this applies if you work at a job with, let's say a 401K, and you stop working at that employer at age 55 or later, if you meet certain criteria, then you can withdraw those funds from the 401k so they go directly from the 401k to you.

They don't go over to an IRA, you could withdraw those funds without an early withdrawal penalty. A complication here is that not every employer allows you to do that, so 401k plans can set a bunch of their own rules, and one of them might be that they don't let you just call them up and take money whenever you want, they might make you… Withdraw the entire amount, so if that's the case, this isn't going to work, so be sure to triple check with your employer and the plan vendors and find out exactly how this would work logistically or if it will even work. Next, we have SEPP that stands for substantially equal periodic payments or rule 72. This is an opportunity to draw funds from, let's say your IRA or a certain IRA that you choose, but before age 59 and a half without getting early withdrawal penalties. Now, this is not my favorite choice. I don't necessarily recommend this very often at all, and the reason is because it's easy to slip up and end up paying tax penalties. The reason for that is in part that it's really rigid, so when you establish this, You calculate an amount that you have to take out every year, and it has to be the same amount every year, and you have to make sure you do that for the longer of when you turn age 59 1/2 or for five years.

And even that sounds kind of simple, but it's still easy to trip up, and you also have to avoid making any kind of changes to your accounts, so it's just really rigid and can be difficult to stick to you, so… Not my favorite choice, but it could be an option. Those of you who work for governmental bodies, maybe a city organization or something like that, you might have a 457b plan, and those plans do not have early withdrawal penalties before 59 and a half, so you could withdraw money from that and use some income, pre pay some taxes, and have some money to spend fairly easily, this by the way, is an argument for leaving money in your employer's 457 versus rolling it over to an IRA, because once it goes over to an IRA, you are subject to those 59 1/2 rules and a potential early withdrawal penalty. So that could end up leaving you with 72 to work with, for example, which again is not ideal. So you might be asking, well shouldn't I just minimize taxes and hold off on paying taxes for as long as possible? And the answer is not necessarily.

So it could make sense to go ahead and pre pay some taxes by getting strategic, the reason for that is that you will eventually have to pay taxes on your pre tax money and it might happen in a big lump, and that can bump you up into the highest tax brackets, so it could be better to smooth out the rate at which you draw from those accounts and hopefully keep yourself in lower tax bracket, at least relatively speaking. So when your RMDs or your required minimum distributions kick in after age 72 under current law, that could possibly bump you up into the highest tax brackets, maybe you want to smooth things out and take some income early. So let's look at the question of, Do you have enough with some specific numbers, and before we glance at those numbers, just want to mention that I am Justin Pritchard.

I help people plan for retirement and invest for the future. I've got some good resources, I think, in the description below, some of the things that we've been talking about here today, as well as some general retirement planning information. So if this is on your mind, I think a lot of that is going to be really helpful for you. Please take a look at that and let me know what you think of what you find. It's also a good time for a friendly reminder, This is just a short video, I can't possibly cover everything. So please triple and quadruple check with some professionals like a CPA or a financial advisor before you make any decisions, so let's get back into these questions, Do you have enough? As we always need to mention, it depends on where you are and how much you spend and how things work for you. Are you lucky to retire into a good market, or are you unlucky and retiring into a bad market? All of these different aspects are going to affect your success, but let's jump over to my financial planning tool and take a look at an example.

This is just a hypothetical example, it's the world's most over simplified example, so please keep that in mind, with a real person, we've got a lot more going on. The world is a complicated place and things get messier, but we're keeping it very simple here, just to talk about an example of how things might look, so this person has one million in pre tax assets and 350,000 in a brokerage account, and if we just quickly glance at their dashboard here, pretty high probability of success, so let's make it a little bit more interesting and say… Maybe that IRA has, let's say, 700,000 in it. What is that going to do? And by the way, this is still a lot more than a lot of people have, but again, if you're going to be retiring at 55, you typically have quite low expenses and/or a lot of assets. So let's keep in mind here that retirees don't necessarily spend at a flat inflation adjusted level, and I'll get into the assumptions here in a second, but let's just look at if this person spends at inflation minus 1% using the retirement spending "smile," that dramatically improves their chances, and I've got videos on why you might consider that as a potential reality, so you can look into that later at your leisure, but as far as the assumptions, we assume they spend about 50,000 a year, retire at age 55.

The returns are 5.5% per year, and inflation is 3% per year. Wouldn't that be refreshing if we got 3%… So we glance at their income here age 55, nothing, and then Social Security kicks in at 70. They're doing a Social Security bridge strategy. I've got videos on that as well, or at least one video, the full year kicks in here later, and then their Social Security adjust for inflation, looking at their taxes, we have zero taxes in these earlier years because they are just not pulling from those pre tax accounts. Maybe not getting much, if anything, in terms of capital gains, maybe their deduction is wiping that out, so we may have an opportunity here to actually do something and again, pre pay some taxes and pull some taxable income forward.

In fact, if we glance at their federal income tax bracket, you can see that it's fairly low from 55 on, maybe they want to pull some of this income forward so that later in life, they are drawing everything out of the pre tax accounts all at once. It just depends on what's important to you and what you want to try to do, and that brings us to some tips for doing calculations, whether you are doing this with somebody, a financial planner or on your own, you want to look at that gap between when you stop working and when your income benefits begin from, let's say, Social Security, there's also that gap between when you stop working and when Medicare starts, and that's another important thing to look at, but what are your strategies available there? Should you take some income, and exactly how much? That's going to be an area where you might have some control, so it's worth doing some good planning.

We also want to look closely at the inflation and investment returns, and what are the assumptions in any software that you're using, for example? These are really important inputs and they can dramatically change what happens… You saw what happened when we switched from a flat inflation adjusted increase each year to the retirement spending smile, just a subtle little adjustment has a big difference on how things unfold, and in that scenario, by the way, we would typically have healthcare increasing at a faster rate.

But like I said, we use an over simplified example and didn't necessarily include that in this case, but you do want to click through or ask questions on what exactly are the assumptions and are you on board with those assumptions? You may also need to make some adjustments, and this is just the reality of retiring at an early age when you may have 30 plus years of retirement left, a lot can happen, and there really is a lot of benefit to making slight adjustments, especially during market crashes, for example, so.

If things are not necessarily going great, some little tweaks could potentially improve the chances of success substantially, that might mean something as simple as skipping an inflation adjustment for a year or two, or maybe dialing back some vacation spending. These are things you don't want to do, that's for sure, but with those little adjustments, you can potentially keep things on track, and that way you don't have to go back to work or make bigger sacrifices. And so I hope you found that helpful. If you did, please leave a quick thumbs up, thank you and take care..

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Can I Retire at 55? Tips for Early Retirement

If you're thinking of retiring at 55, you want to be careful about where you get your advice and guidance, and that's because most retirement advice is geared toward those who retire quite a bit later, in fact… Most people retire at 62, but things will be different for you if you're going to retire at 55. So that's what we'll talk about for the next couple of minutes here, we'll go over where you can get the money from, and how that works with taxes as well as healthcare, then we'll look at some actual numbers and what it might look like for somebody who retires at age 55. We might also want to get philosophical just briefly and ask the question, Why age 55? Yes, it's a nice round number. And there are some interesting tax strategies that are available around that age, but let's say you could retire a little bit earlier at 54, would you want to make that happen? Or if you worked a few more years… I know you'll think this is crazy, but if you worked a couple of more years and you could not impact your finances, but still take some of those dream vacations and spend time with loved ones, would that be worth it to maybe work until 59, for example? So we want to figure out exactly why you are pursuing a particular goal and then we can improve the chances of success for you, so let's start with health coverage, this is a tricky one because you're retiring quite a bit earlier than most people who might be near that Medicare age, so you have a number of different options to continue being covered, and it is a good idea to have real health insurance coverage just in case something happens.

So a couple of your choices include, number one, you can continue your current benefits from a job if you have them for up to 18 months in most cases, and that's under COBRA or your state's continuation program, that can get quite expensive because you're going to pay the full price, if you weren't already doing that, plus perhaps a teeny little bit extra for administration, but it is a way to continue with the program that you currently have, so that can be helpful if you are mid stream in certain treatments or if it's going to be hard to get certain benefits that you currently have on a different health care program, unfortunately, that's not usually a long term solution because we need to get you until age 65, which is when most people enroll in Medicare, and you should see your costs go down quite a bit at that point, maybe depending on what happens, so another solution that a lot of people look at is buying their own coverage, and that happens typically through a healthcare marketplace or an exchange, and that's where you just by coverage through an insurance company.

So you can go directly to the insurers, but it's often a good idea to go through… Start at healthcare.gov, and then go through the marketplace or the exchange, and that way you can shop some plans and potentially, depending on your income, you can potentially get some cost reductions that make it a lot more affordable, I'll talk more about that in a second, but another option is to switch to a spouse's plan, if you happen to be married and that person has coverage that's going to continue for whatever reason, that might also be a solution for you, when you leave your job, it could be a qualifying event that allows you to get on that person's program, but let's talk more about saving money on health care expenses before age 65, most people are going to buy a policy based on the factors that are most important to them, so that could be the premium or the out of pocket maximum, the deductible, the co pays, certain areas of coverage, all that kind of thing, you can select a plan that fits your needs.

Now, you might find that those tend to be quite expensive, and so if your income is below certain levels, you might be able to get effectively a reduction in the premium, it might be in the form of a tax credit or a subsidy, so here's just a preview of how things could look for you, let's say your income is, let's say 50,000 in retirement, and you need to look at exactly what income means, but there is no coverage available from a spouse, we've got one adult, and let's say you are… As our video suggest age 55 here, so you might get a benefit of roughly 422 a month, meaning you could spend that much less each month, and that's going to make it a lot easier to pay for coverage on these plans, if we switch your income down to 25,000 per year, the help is even bigger, so as you can see by varying or controlling your income, and this is something you might have some control over if you retire at 55, you can also control your healthcare costs, we'll talk about some conflicting goals here, where you might not want to absolutely minimize your income during these years, but this is important for you to know if you're going to be paying for your own coverage, and if you're experiencing sticker shock when you see the prices…

By the way, I'm going to have a link to this and a bunch of other resources in the description below, so you can play with this same calculator yourself. Now, once you're on Medicare, the cost should drop quite a bit, this is a calculator from Fidelity where we can say, let's say you are a female, and we're going to say you're eligible for Medicare at this point, so we'll bring you up to age 65. It is going to be quite a bit higher cost, if you look at it before age 65, and that's because you are paying for those private policies from insurance companies, let's say you're going to live until age 93, and so you might expect to spend roughly 5800 6000 bucks per year, depending on your health and your location and other factors, it could be more or less, but this is an estimate of what somebody might spend, a single woman each year in retirement, of course, that number is going to increase each year with inflation and deteriorating health issues.

But this is a ballpark estimate of what you might be spending in the future, now we get to the question of, do you have the financial resources to retire at 55? And that comes down to the income and the assets that you're going to draw from to provide the resources you need to buy the things you want and need, and one way to look at this is to say We want to avoid early withdrawal penalties because again, you are retiring at an age that's earlier than the typical retiree and most retirement accounts are designed for you to take withdrawals at 59.5 or later, to avoid those penalties, fortunately, you have a couple of options, so with individual and joint accounts, just taxable brokerage accounts, you can typically withdraw from those without any penalties, but you may have capital gains taxes when you sell something, those taxes may be at a lower rate than you would pay if you take big withdrawals from retirement accounts, but you just want to double and triple check that, but that can be a liquid source of funds.

You. Can also typically withdraw from Roth accounts pretty easily. So those regular contributions come out first, in other words, you can pull out your regular contributions at any time with no taxes and no penalties, what that means is that's the annual limit contributions you might have been making her by year, so the 7000 per year, for example. That money would be easily accessible, but if you have other money types like Roth conversions, for example, you're going to be very careful and check with your CPA and find out what all of that could look like. There. Are other ways to get at funds that are inside of pre tax retirement accounts, and it might actually make sense to draw on those to some extent, we'll talk more about that in a minute, but these are some of the tricks you can use to avoid an early withdrawal penalty yet still draw on those assets before age 59.5.

The first one is the so called rule of 55, so this applies if you work at a job with, let's say a 401K, and you stop working at that employer at age 55 or later, if you meet certain criteria, then you can withdraw those funds from the 401k so they go directly from the 401k to you. They don't go over to an IRA, you could withdraw those funds without an early withdrawal penalty. A complication here is that not every employer allows you to do that, so 401k plans can set a bunch of their own rules, and one of them might be that they don't let you just call them up and take money whenever you want, they might make you… Withdraw the entire amount, so if that's the case, this isn't going to work, so be sure to triple check with your employer and the plan vendors and find out exactly how this would work logistically or if it will even work. Next, we have SEPP that stands for substantially equal periodic payments or rule 72. This is an opportunity to draw funds from, let's say your IRA or a certain IRA that you choose, but before age 59 and a half without getting early withdrawal penalties.

Now, this is not my favorite choice. I don't necessarily recommend this very often at all, and the reason is because it's easy to slip up and end up paying tax penalties. The reason for that is in part that it's really rigid, so when you establish this, You calculate an amount that you have to take out every year, and it has to be the same amount every year, and you have to make sure you do that for the longer of when you turn age 59 1/2 or for five years.

And even that sounds kind of simple, but it's still easy to trip up, and you also have to avoid making any kind of changes to your accounts, so it's just really rigid and can be difficult to stick to you, so… Not my favorite choice, but it could be an option. Those of you who work for governmental bodies, maybe a city organization or something like that, you might have a 457b plan, and those plans do not have early withdrawal penalties before 59 and a half, so you could withdraw money from that and use some income, pre pay some taxes, and have some money to spend fairly easily, this by the way, is an argument for leaving money in your employer's 457 versus rolling it over to an IRA, because once it goes over to an IRA, you are subject to those 59 1/2 rules and a potential early withdrawal penalty. So that could end up leaving you with 72 to work with, for example, which again is not ideal. So you might be asking, well shouldn't I just minimize taxes and hold off on paying taxes for as long as possible? And the answer is not necessarily.

So it could make sense to go ahead and pre pay some taxes by getting strategic, the reason for that is that you will eventually have to pay taxes on your pre tax money and it might happen in a big lump, and that can bump you up into the highest tax brackets, so it could be better to smooth out the rate at which you draw from those accounts and hopefully keep yourself in lower tax bracket, at least relatively speaking.

So when your RMDs or your required minimum distributions kick in after age 72 under current law, that could possibly bump you up into the highest tax brackets, maybe you want to smooth things out and take some income early. So let's look at the question of, Do you have enough with some specific numbers, and before we glance at those numbers, just want to mention that I am Justin Pritchard. I help people plan for retirement and invest for the future. I've got some good resources, I think, in the description below, some of the things that we've been talking about here today, as well as some general retirement planning information.

So if this is on your mind, I think a lot of that is going to be really helpful for you. Please take a look at that and let me know what you think of what you find. It's also a good time for a friendly reminder, This is just a short video, I can't possibly cover everything. So please triple and quadruple check with some professionals like a CPA or a financial advisor before you make any decisions, so let's get back into these questions, Do you have enough? As we always need to mention, it depends on where you are and how much you spend and how things work for you. Are you lucky to retire into a good market, or are you unlucky and retiring into a bad market? All of these different aspects are going to affect your success, but let's jump over to my financial planning tool and take a look at an example.

This is just a hypothetical example, it's the world's most over simplified example, so please keep that in mind, with a real person, we've got a lot more going on. The world is a complicated place and things get messier, but we're keeping it very simple here, just to talk about an example of how things might look, so this person has one million in pre tax assets and 350,000 in a brokerage account, and if we just quickly glance at their dashboard here, pretty high probability of success, so let's make it a little bit more interesting and say… Maybe that IRA has, let's say, 700,000 in it. What is that going to do? And by the way, this is still a lot more than a lot of people have, but again, if you're going to be retiring at 55, you typically have quite low expenses and/or a lot of assets. So let's keep in mind here that retirees don't necessarily spend at a flat inflation adjusted level, and I'll get into the assumptions here in a second, but let's just look at if this person spends at inflation minus 1% using the retirement spending "smile," that dramatically improves their chances, and I've got videos on why you might consider that as a potential reality, so you can look into that later at your leisure, but as far as the assumptions, we assume they spend about 50,000 a year, retire at age 55.

The returns are 5.5% per year, and inflation is 3% per year. Wouldn't that be refreshing if we got 3%… So we glance at their income here age 55, nothing, and then Social Security kicks in at 70. They're doing a Social Security bridge strategy. I've got videos on that as well, or at least one video, the full year kicks in here later, and then their Social Security adjust for inflation, looking at their taxes, we have zero taxes in these earlier years because they are just not pulling from those pre tax accounts. Maybe not getting much, if anything, in terms of capital gains, maybe their deduction is wiping that out, so we may have an opportunity here to actually do something and again, pre pay some taxes and pull some taxable income forward.

In fact, if we glance at their federal income tax bracket, you can see that it's fairly low from 55 on, maybe they want to pull some of this income forward so that later in life, they are drawing everything out of the pre tax accounts all at once. It just depends on what's important to you and what you want to try to do, and that brings us to some tips for doing calculations, whether you are doing this with somebody, a financial planner or on your own, you want to look at that gap between when you stop working and when your income benefits begin from, let's say, Social Security, there's also that gap between when you stop working and when Medicare starts, and that's another important thing to look at, but what are your strategies available there? Should you take some income, and exactly how much? That's going to be an area where you might have some control, so it's worth doing some good planning.

We also want to look closely at the inflation and investment returns, and what are the assumptions in any software that you're using, for example? These are really important inputs and they can dramatically change what happens… You saw what happened when we switched from a flat inflation adjusted increase each year to the retirement spending smile, just a subtle little adjustment has a big difference on how things unfold, and in that scenario, by the way, we would typically have healthcare increasing at a faster rate. But like I said, we use an over simplified example and didn't necessarily include that in this case, but you do want to click through or ask questions on what exactly are the assumptions and are you on board with those assumptions? You may also need to make some adjustments, and this is just the reality of retiring at an early age when you may have 30 plus years of retirement left, a lot can happen, and there really is a lot of benefit to making slight adjustments, especially during market crashes, for example, so.

If things are not necessarily going great, some little tweaks could potentially improve the chances of success substantially, that might mean something as simple as skipping an inflation adjustment for a year or two, or maybe dialing back some vacation spending. These are things you don't want to do, that's for sure, but with those little adjustments, you can potentially keep things on track, and that way you don't have to go back to work or make bigger sacrifices. And so I hope you found that helpful. If you did, please leave a quick thumbs up, thank you and take care..

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