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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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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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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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👉Retirement Planning At 60 in 2024 – 6 Tips💥

imagine this you're approaching your 60s and starting to think about retirement you've worked hard all your life and it's time to enjoy the fruits of your labor but before you kick back and relax it's time to get laser focused on your retirement plan in this video we'll cover six important tips to help you plan for your retirement at 60. tip one assess your financial situation Jane has a woman who's been working as a nurse for 30 years she's always been Frugal and saved as much as she could but she's not sure she's accumulated enough for a comfortable retirement to assess her financial situation she makes a list of all her assets and her expenses she realizes that she needs to save more if she wants to maintain her lifestyle in retirement tip two explore different retirement options Bob's a 62 year old man has been working as an engineer for the last 40 years his employer has a 401k and he's been contributing to it for years Bob also explores other retirement options such as an IRA to maximize his retirement savings tip three diversify your Investments Mike is a 65 year old man who's been retired for a few years he Diversified his portfolio by investing in many different stock and bond index funds by diversifying his Investments might minimize risk and ensure a stable retirement income tip 4 plan for health care costs Sarah is a 63 year old woman who's been working as a teacher for the last 35 years she's healthy now but she knows health care costs can be expensive in retirement to plan for health care costs Sarah bought long-term care insurance to cover any medical expenses that could arise in the future tip five consider your Social Security benefits Tom is a 64 year old man's been working in construction for the last 45 years he's not sure when to start receiving his social security benefits he decides to wait till 67 to start taking his social security so he'll get a higher benefit which will give him a more comfortable retirement tip six have an actual retirement plan in place Lisa is a 61 year old woman has been working as a sales manager for the last 25 years she has a plan in place that includes a budget for her retirement expenses and a plan for Hospital spend her time in retirement Lisa plans to travel volunteer and take up a new hobby in retirement to stay active and engaged following these tips and learning from the experience of others you can ensure a comfortable and fulfilling retirement it's a great idea to consult with a good financial advisor click on the link in the description if you'd like to set a time to talk with us

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Insights Live: Retirement Income Planning | Fidelity Investments

JONATHAN LAMOTHE:
Hello, everyone, and welcome to the latest
Insights Live, retirement income planning, going
from saving to spending. Today's webinar is the first
of two webinars we have focused on retirement income. Part two is going to
take place on November 9, and it's going to focus on
strategies for RMDs, IRAs, and more. So please ensure you
register for this one as well by visiting
fidelity.com/webinars or keep an eye out for the
email invitation. My name is Jonathan Lamonthe,
vice president of webinars here at Fidelity. And today, we're
going to be talking about a transitional period
in life, the time when you go from earning
income and saving it to living on those wages. We do have a lot
to get to today.

But I truly want to thank
you for taking some time out of your day to join us. I also want to point out that
if you are watching on a laptop or desktop computer,
you're going to see a blue button at
the bottom right hand corner of your
screen to download a great document filled with
a lot of resources that are focused around today's topic.

As always, before
we begin, I would like to mention that Fidelity
does not give legal or tax advice, and nothing
we discussed today should be interpreted
as legal or tax advice. The information we
are providing is going to be general in
nature, and it may not apply to your situation. If you do have legal
or tax questions about your specific
situation, we do encourage that
you talk to your tax professional or your attorney. So with that, I'd like to
turn it over to our moderator today, Ms. Ally Donnelly. Ally, it's all yours. ALLY DONNELLY: Thanks, Jonathan. And thanks to you, our
viewers for tuning in. This is going to be
a great discussion. And we also appreciate
you sending your questions during registration. They help shape
today's discussion. And if we can, we'll pop in
a few more live as we go.

Like Jonathan
said, retirement is a time of transition, when
it comes to your money, especially. You might be wondering what
your spending will look like or whether your
savings will last. We're going to cover all
of that and so much more. So let's meet our panelists. Panelists, could you introduce
yourselves and also share the perspective you bring
to the conversation. Rita, why don't you kick us off. RITA ASSAF: Great. Well, first of all,
thank you for having me. So I'm Rita Assaf. I am responsible for Fidelity's
IRA products and small business retirement products. And what that means is we
help clients understand which product is best for them,
and then how to save on them, and then how to spend
through them once they transition to retirement. ALLY DONNELLY: Terrific. Michelle. MICHELLE HOWELL: Thank you. My name is Michel
Howell, and I'm a vice president,
financial consultant. I collaborate with
individuals and their families to discuss financial planning
topics such as retirement income planning, tax-efficient
investment strategies, navigating financial transitions
such as death and divorce, retirement cash flow
strategies, and also wealth transfer techniques.

I've worked in this
space for over 20 years. And I'm located in the Edina
Minnesota Investor Center. ALLY DONNELLY: Excellent. Jerry, fill us out. JERRY PATTERSON: Well,
greetings, everyone. Jerry Patterson,
excited to be here. I am responsible for Fidelity
Investments Life Insurance Company. We focus on fidelity.com
insurance and protection offerings, including things like
long-term care insurance, life insurance, and annuity
income solutions. Prior to that, I spent
30 years with a number of large financial
services company focused on helping people manage their
money, plan for retirement, build estate plans,
and prepare for and plan for the unexpected. ALLY DONNELLY: Great. All right. Let's get into it. Michelle, I'm going
to start with you. As someone who talks to
clients every day, and you've worked with so many
people on this transition, so help us understand,
what are some of the challenges your
clients talk about in going from
saving to spending? MICHELLE HOWELL: Yeah. There are really
two major challenges I think of in this space as
clients are transitioning from saving to spending. For individuals who have
saved their entire lives, often, there's just a
psychological adjustment that needs to be made
around spending, right? So the best way I can
bring that to color is just through a client
example, one of my clients who's definitely a saver.

I mean, he is at
his core a saver. He also is very passionate
about running and likes to jog. And for years, we'd met
and discussed the fact that he had a very
solid financial plan, but he really wasn't spending
enough in retirement. And his goal was to add to
his discretionary expense by doing some other
things he enjoyed and pursuing additional hobbies. So one time, he
comes into my office and he says, Michelle,
you'll be so proud of me. I actually spent some money. And I was excited. I thought, OK,
well, what property are we going to discuss? Are we looking at a new
vehicle out in the parking lot? Like how did you
spend the money? And he proceeds to tell
me a story about how he went to a local shoe store,
bought four pairs of running shoes at a negotiated price
because he was buying in bulk and spent $500. For most of us, we would
chuckle at that, right? But for him, that
was a huge hurdle. That was a milestone in his
ability to spend in retirement. And conversely for those who
would identify themselves as more of a spender, there's
some coaching conversations that need to take place to
make sure that when you retire, you're not just jumping in and
spending too much too soon.

Logistics and also
monetizing a portfolio is probably the
number one concern people have when they're
transitioning to retirement. Here we've saved this big
pot of money, this nest egg all of our lives. But how do we actually turn
on that spigot of cash flow? How do we get from this nest egg
to monthly cash flow and income streams to support ourselves? And really, that's a question
that has some simple solutions. So at Fidelity, we like
to work through a concept and go through an exercise
called salary and bonus structures.

And while in retirement,
we can actually construct and replicate
the same compensation structure that
many people enjoyed while they were still working. For those who prefer
their retiree income to function like a salary
because of its consistency and reliability, we aim to
cover their essential expenses through reliable income sources
like Social Security, pensions, or other predictable
income sources. The other category of expenses
are discretionary or some of the negotiable expenses. And while working,
these are expenses that are often funded through
savings accounts, from a bonus, or some other windfall
source of income. These expenses are often not
rigid and time-bound either. So in retirement, we like to
create a scenario where you've got some flexibility so that
you can incur the expenses when you're comfortable from a
psychological perspective or perhaps after we've had
a nice run up in the market and you're feeling comfortable
about taking a larger distribution out
of your portfolio, to fund the fun stuff
like the three-week trip to Italy, the kitchen renovation
you've been building up for, or perhaps to take a
huge trip to celebrate a milestone anniversary
across your family.

ALLY DONNELLY: OK. So I'm definitely putting Italy
and milestone anniversaries on my list. But where should
someone start when they're trying to estimate
those retirement expenses? MICHELLE HOWELL: Ally, this
is really the fun part. Retirement is what you make it. From how you choose to prepare
for retirement and also how you choose to spend
your money in retirement. An easy place to
start here is just to think about expenses that
are essential in your budget. These are non-negotiable
costs that everyone incurs. Perhaps it's property tax,
utilities, insurance costs. If these expenses aren't
readily known, that's OK. There's an easy
starting point, which is the fact that most bank
statements as well as credit card statements actually provide
a yearly spending summary.

And we can use that
as the foundation for how we build your budget. As for health care,
at Fidelity we also do research in
this space, and we can help you estimate expenses
that you might incur prior to Medicare eligibility
as well as when you're covered by Medicare. And then from here,
you get to dream. What do you want to
you in retirement? What does that look like to you? What other hobbies
or lifestyle choices do we need to incorporate
in the budget? Is there regular travel? Are there golf memberships? Did you always dream of becoming
that master gardener and there are some expenses that you
need to approach to get there? Those are all things we
can tack into the budget after all of those
building blocks. Lastly, I would say don't
worry about having everything precise. The markets are
definitely not static nor are any of our lives. So things change, and it's your
financial consultant's role to keep up with all of
those shifts taking place. And along the way, we'll share
our experiences and working with others. We'll also give you insights
around other retiree habits.

And in some cases, we'll
provide some transparency and some tough conversations
if the expenses start to compromise the sustainability
of your overall retirement plan. ALLY DONNELLY: OK. So Jerry, let me turn to you. You hear everything
that Michelle is saying about estimating your expenses. But then where do you
start to actually create a plan to make sure you
can cover all the costs? JERRY PATTERSON: Yeah. So for sort of very
first starters, we use a discussion framework
at Fidelity called EPG. It's very popular
with our clients. And it's a great way to begin
the overall planning journey. It's also a great framework
to revisit a plan that you may have done in the past. And through this framework,
we organize the discussion around retirement planning
into three broad categories. E for emergency, P for
protection, and G for growth. E for emergency, we need to
ask ourselves the questions, are we prepared for an
unexpected financial emergency? Do we have enough liquid
funds, for instance, to cover our bills
for six months, which is a rule of thumb
that many people use.

The P for protection,
we ask ourselves, do we have a plan to protect
the income we need to cover our essential expenses? Michelle referred to
predictable sources of income like Social Security,
like pensions. But what happens
if you have a gap between your essential
expenses and Social Security or pensions? Can things like
annuities play a role to close that gap to make sure
that you can fund your income needs as you go
forward in retirement? Do you need long-term
care protection, or are you comfortable
self-funding a long-term care benefit if it should
occur during retirement? And then G for growth,
the big question is, how are you going to invest
the rest of your nest egg after you've set aside
that money for emergencies and you've installed the
protection solutions that you think you need as well? How important are
things like maximizing the legacy you leave to your
heirs versus maintaining your current lifestyle? So G for growth is
really at the heart of the investment strategy
underneath your nest egg.

A good conversation
using this framework usually leads to the development
of very specific goals and investment and
protection strategies to ensure that you're
going to meet those goals. I'd encourage you
try it yourself. You take a piece of paper,
write E, P, G across the top. Write down the
questions that come to mind when you think
about emergency, protection, and growth. And even write down the answers. That's exactly the
kind of conversation we go through with
our clients when you meet with
people like Michelle at the beginning of
the planning process. And like I said, our
clients find the framework a really, really great
place to start the planning conversation. ALLY DONNELLY: Yeah. And I think that is. Like get the
conversation started.

Even if it's in your own
head, because when you really start to think about
it, that's where things come to take shape. But Rita, I have to
ask you, so Jerry's got this great framework. But how do you then
allocate your resources to fit those different
types of expenses? RITA ASSAF: It's
a great question. So in general, a
retirement income plan will cover different
income streams to cover different expenses.

And the reason for this is
it allows for flexibility, but it also reduces risk
that too concentrated on one income source. So in general, what we say
is to protect your income from market risk. Essential expenses– so
think of housing, utilities– these should be covered by
guaranteed income sources like Social Security,
like annuities. And the reason for that
is because they keep up with inflation. And actually, this
just in this morning, the Social Security
Administration just announced that they are
increasing 2024 Social Security benefits by 3.2% because
of cost of living. And this is a little
over from 2023, which was I believe around 8.7% But it has been higher
than the average that we've seen over
the last 20 years, which has been generally around 2.6%. But then when you look at
discretionary expenses, this is where you want these
covered by your savings or investment income so that
if there is a market downturn, you can cut back without hurting
your day-to-day expenses. And I also would echo
what Jerry just mentioned, which is an emergency fund.

So just like today the general
rule of thumb as you're working is if you happen
to lose your job, can you cover about six
months worth of expenses through your emergency fund? Well, we also want to consider
that in retirement as well. And can you tap into available
cash or short term investments should an emergency arise? ALLY DONNELLY: Yeah. Let's look out a bit
further because all of you here have mentioned change time
and again, that life is not static. So most of us don't keep
to a single spending plan year-after-year realistically.

And I mean, retirement
could be 30 years or more. So how does spending
during those years typically change over time
from what you see with clients? RITA ASSAF: So we've generally
seen sort of three stages that clients can experience. And they will vary, obviously. And they come with
different spending habits. So the three stages– and I'll try not
to trip over this– are the go-go years, the slow-go
years, and the no-go years. But by understanding
these stages and their different
spending habits, it can make you feel
much more confident that when you go to
your retirement plan, you're covered for all of these.

So I'll start with
the go-go years. These are generally at the very
beginning of your retirement. You're excited, you're active. You might be traveling, you
might be trying new hobbies. So you're generally
spending more because you're out and about. And then there are the slow-go
years, which is generally a period of transition. So you might be moving from an
active lifestyle to one that's a little bit more balanced. You might be spending more
time on relationships, friends, time with children and
your grandchildren. And it usually means
you're spending sort of comes down a little bit. And your priorities may shift. So you might be more concerned
about financial security and ensuring that
your savings last. And then finally, there
are the no-go years, which is generally
dependent on your health. This is the hardest to predict. It's also the most
emotional because it really does depend on your health.

And it generally
means that you're less active because of it and
that you have higher health care costs. It's also when you're
typically contemplating end of life plans or legacy plans. And this is where planning
does become critical because you want
to ensure you have sufficient savings to cover
these medical expenses and potentially long-term care. ALLY DONNELLY: Yeah. Yeah. I mean, of course, health
care spending is significant. But Jerry, once we hit
65, there's Medicare. So is that kind of a blanket,
so to speak, for our health care expenses? JERRY PATTERSON:
Great question, Ally. Medicare continues to be a
critical financial pillar in the US retirement system. Despite what you see
in the headlines, it's still an
important safety net for millions and
millions of Americans who are retiring and depend
on it for health care.

And for those of you who are
at that critical age of 65 or getting close, don't forget
that open enrollment starts in three days on October 15. So it's right before us. It's top of mind for a lot
of Americans right now. I think what's important
to note about health care and Medicare when you
retire is not everything is covered under Medicare. And even of those
items that are covered, it's not always covered 100%. And there's a lot
of costs we're going to face in our older years
that feel health-related that aren't covered. These include things like
certain prescription drugs, dental care, chiropractic
services, long-term care.

And even things like
foot care and acupuncture are not covered. And don't forget that we're
all responsible out-of-pocket to pay 20% of all
medical costs incurred and Medicare pays the rest. And this can add up to a lot
of money as we grow older. And the likelihood of
these costs emerging increases as we go grow older. In terms of how to address
those gaps and what gaps you may have is a really,
really, really important step in your overall planning. It's important to investigate
plans that are out there, whether that's things like
Medicare Advantage plans, whether it's Medigap or
med supplemental plans or standalone prescription
drugs or standalone dental plans or vision plans.

There's a whole host
of solutions out there that can help you
close those gaps and address things like
coinsurance and copays if those are things
you're uncomfortable with or to get you coverage
that for things that you're not going
to get under Medicare. So there are
solutions out there. And in the planning process,
it's really important as you hit 65 or you start to
creep up on 65 to investigate all those options
because they don't all work in perfect harmony.

So sometimes when
you choose one, it doesn't make sense
to choose another. And sometimes, one
perfectly covers the gap like let's
say you're looking for dental insurance
that's not covered through original Medicare. Well, Medicare Advantage
might provide you with that coverage
you're looking for. But this is an
important, important step in your planning process as
you transition into retirement for sure.

ALLY DONNELLY: Yeah. Yeah. I mean, clearly, health care
is a major expense for retirees that are on people's minds. But Rita, how can someone start
estimating what their cost might truly look like? RITA ASSAF: Yeah. So health care
expenses in retirement are also the biggest stressor. In our research,
that's what we've seen. It's how do you even
try to estimate that? So Fidelity has done some
research around this, and they found that a single
person aged 65 in 2023 would need almost $158,000 saved
after tax to cover health care expenses in retirement. And for a couple aged 65, they
would need almost $315,000. So that's just on average. It'll obviously vary for
your personal situation. But this is where Medicare
research will be important. And Fidelity has resources
that can help you, and our financial professionals
are great at walking you through this. But as Jerry just
mentioned, there are different Medicare options. There's also supplemental. So you want to do your
research to understand what different options
are appropriate for you and what the premiums
would be and what the out-of-pocket
costs would be.

And this includes
what prescription drug plans there are because that's
the biggest unknown as well. And out-of-pocket expenses can
vary by the different Medicare option you choose. And it can include monthly
deductibles, coinsurance, copays. So one way to estimate
these costs is once you settled on
an option, calculate your monthly premium based on
the type of coverage you have. And then keep cash for
out-of-pocket expenses. And out-of-pocket
expenses can vary, but you can also
look at expenses that you might have seen in the
past, how many times have you visited the doctor in the
last year, how many times have I gone for acupuncture,
those types of things to help come up
with that estimate. And Michelle said this earlier. It's not going to be
perfect, and that's OK.

But even getting to
this level of detail will just make you feel
a lot more comfortable. ALLY DONNELLY: Yeah. Yeah. Let me follow up there because
estimating costs are one thing. But how do you help
folks strategize how they're going
to manage the costs? RITA ASSAF: One
way to help manage the costs is through health
savings accounts or HSAs. So you might have
heard about these. They're often described
as triple tax-advantaged. And what that means is that
the contributions are tax-free. The investments grow tax-free. And your withdrawals on
qualified health care expenses are tax-free. But in order to
contribute to an HSA, you will need to be enrolled
in what you generally hear is an HSA-eligible health plan. These tend to be higher
deductible type health plans. But you know I would say,
even if you don't have access to an HSA, it's usually
prudent to set aside some cash specific for health care. But since we're on
the HSA kick, there are some interesting things how
you can use HSAs in retirement. I would say one watch out is
that once you're on Medicare, you cannot contribute
to your HSA.

Otherwise, you'd be
subject to tax penalties. But once you are on Medicare
and if you've had an HSA, you can actually use it to pay
certain expenses like premiums. And a real fun fact about the
HSA is that after you turn 65, you can use it on
whatever you want. It does not need to
be on health care. So you want to buy a boat? You can do that. But it won't allow you to
take full advantage of the tax savings because you are required
to pay state and federal taxes if applicable.

But this is similar then to a
401(k) when you're taking out a withdrawal, you do have to
pay state and federal taxes. So pretty much puts
it on par to that, but you do lose that
third tax advantage, which is being tax-free when
used on health care expenses. ALLY DONNELLY: Now, those are
great things to point out. I mean, clearly, the
cost of health care often exceeds what
we're estimating. So what other
spending curveballs tend to pop up that you
can think of, Jerry? JERRY PATTERSON:
Good question, Ally. And yeah, health care can be one
of those definitely curveball costs. You can have health care shots
deep in retirement that can have huge financial
consequences. . But there are
other things that I think are important
to think about that could come at you infrequently
or even as a one-time cost.

Think about the need to replace
your car during retirement. For me, I've always liked to
drive a car under warranty. And that requires me to go into
car-buying mode every three to five years. And I'm in that mode right now. And I bet there are
plenty of folks listening that share my sentiment that
that's not a fun mode to be in. But I'm there again right now. But given the likelihood
that I'm probably going to drive a lot less in
my retirement years, that's probably an approach
I need to rethink.

But I still need to
incorporate and anticipate that cost is going to come
whether it be 3, 5, or 10 years down the road. I think it's important
to incorporate that into your planning. Other big expenses
that can emerge are things like
paying for a wedding. Probably something people
don't plan for enough, but it happens a lot is
moving closer to your kids or moving somewhere else. And that can be a big cost. Or buying that RV to check
that trip to Glacier Park or to visit the largest
ball of twine in the world off your bucket list
might be another thing you need to plan for. And these are all things that
just need to be incorporated. I think it might
have been Michelle or maybe it was Rita was
talking about building a salary plan and a bonus plan. You almost have to
have this bonus plan with delayed frequency
to anticipate these big costs that could
emerge deep into retirement. Another one that's
really important to plan for is long-term care
because the way long term care emerges is it's usually
unexpected, it happens quickly, and you're suddenly required
to come up with liquidity.

So let's say you end up
going into a nursing home when you're 87. Those costs can range from
$9,000 to $13,000 a month. That is a huge unexpected cost. And most people when
they're deep into their 80s don't have $13,000 a month in
liquid funds easily reachable. So those are the kind of things
that when you talk about curve balls you got to incorporate
into your thinking and your planning for sure. ALLY DONNELLY: Yeah. I mean curveballs are
curveballs for a reason.

It's challenging. I want to follow up on one of
Jerry's comments, Michelle, about big purchases. So lots of clients
have asked us, is it OK to take on
debt in retirement? RITA ASSAF: Ally, the short
answer here is yes, right? Having come through the last
15 years of historically low interest rates, I
do often see clients carrying mortgage or auto
loan debt into retirement. Obviously, the compromise
that gets made, though, is if you're using a
number of cash flows to support debt paydown,
there's less cash flow to be spent on other
discretionary and lifestyle items that you might want to
incorporate in your retirement budget. The other thing I think
of here is actually just loan qualification. So often, lenders
are really focused on the recurring monthly
income sources like salary, pension, annuity income, any
automated payments coming from investments more
so than net worth or what you have on
your balance sheet during that
underwriting process.

And so when working, this
is less obvious to us because we have
compensation, we're maybe accustomed to
just looking at our W-2 and documenting
that compensation. In retirement, underwriting
can be more challenging because depending on
how much of your income is actually automated
versus being distributed on an ad-hoc basis,
the underwriting can look different. One other lending
consideration for those who actually have
non-IRA assets is something called a
collateralized line of credit.

And that's a mouthful. But really all it
is a line of credit that backs a brokerage account
in your investment portfolio. And this allows you
to actually borrow using the value of
your investments without having to sell
down your investments and incur capital gains. And it can be paid off any time. Since the brokerage account
collateralizes the loan, there's just less scrutiny
around where you're receiving your income
sources in retirement, and that can also be an option. ALLY DONNELLY: That's
really interesting. I didn't know that. OK. So once you have a
handle on your expenses, you need income, obviously,
to support the spending plan. So help us flesh out what
are some typical sources of retirement income. JERRY PATTERSON: Absolutely. So there are many typical
sources of retirement income. The obvious ones would be
Social Security, pensions, rental income,
dividends and interest from investments, and
also distributions from the investment portfolios.

Those are all the most common
sources of retiree income. And most retirement
income strategies incorporate several
of these sources just for diversification, as
Rita mentioned earlier. At Fidelity, we do believe
that essential expenses should be covered by guaranteed
sources of income. And again, those include
Social Security, pensions, and annuities, guarantees. Despite most employers no longer
offering traditional pensions, there are easy ways to convert
portions of our savings into monthly income streams
just like a pension. And those instruments
are called annuities. ALLY DONNELLY: Now, we get a lot
of questions about annuities. And Jerry, I know this is
the sweet spot for you. So help us understand how they
can fit into the overall plan. JERRY PATTERSON: Thanks. Well, first and foremost,
there are many different types of annuities.

I happen to be in a meeting with
an annuity provider this week. And this single company
features 23 different flavors of annuities. So there's a lot of
different kinds of annuities. And many of them feature
guarantees of principal or your retirement income in
the the insurance companies that issue them. For clients who value the peace
of mind and predictability that comes with
guarantees, annuities can play a really important
role in your overall savings and investment plan. Fixed income
annuities, for example, can help you close
that gap that Michelle was talking about between
Social Security and pension if you have pension income
and your essential expenses to ensure that you
have your bills fully covered by predictable sources
of income while you're retired.

For many of our
clients at Fidelity, this strategy has been a game
changer where our clients are able to neutralize
effectively the need to worry about covering
essential expenses like those pickleball
league dues. Those would probably
be essentials for me by the time I retire, but
to each his own, I guess. Many annuities
feature various fees. And some of these fees
can be high at times. It's really important for
you to understand those fees and the trade offs
that might be occurring between the investment
returns might have otherwise enjoyed versus
the value of the guarantees to you. You should also think
about the ratings and the financial strength
of the insurance companies that issue these
annuities as you may be staking your retirement
security and certainty on them. ALLY DONNELLY: I
was wondering when pickleball was going to
come into the conversation, so thank you. But Rita, I want to dig into
Social Security specifically.

There's always questions
about the right age to claim benefits. How do you counsel clients
on what considerations they should bring
into their mind before they make that decision? RITA ASSAF: Well, I would
say Social Security is just confusing. It's always a challenge. There's a lot of
myths out there. And there's headlines out
there as well of like, will Social Security last? We can't predict the future. But for now, Social
Security is here. And it should be considered as
part of your retirement income plan. But there are some things
to consider to help you decide when to claim. So first, I'll just say
that you can actually start receiving Social Security
benefits as early as age 62.

But you're entitled to your
full Social Security benefits when you reach your
full retirement age. And you might see
this shortened as FRA. So that FRA will depend
on your date of birth. Right now, the FRA for people
turning 62 and 2023 is age 67. So that group can actually start
to get their full retirement benefits at age 67. But here's where
waiting to claim is actually a benefit for
you because it can result in a higher monthly average. So for every year you delay
past your full retirement age, you get an 8% increase in
your monthly Social Security benefit. So if you wait till
age 70, that could be as much as a 24%
higher monthly benefit. So it really does help
to think about delaying and if you can make
that gap work for you.

But you also want to think
about planning Social Security when to claim with a
spouse because that does come into effect
and could actually maximize your lifetime benefit. ALLY DONNELLY: Interesting. So waiting to claim can
make a big difference. But if you're married, you
have to coordinate the decision with your spouse. Tell me more about that. RITA ASSAF: Yeah. And this is where
it gets confusing. So spouses actually can
get up to 50% of what we call primary worker's benefit. So if your spouse didn't
work for some reason and you're the
primary breadwinner, they actually can get about
50% of your retirement monthly benefit as their
own Social Security. But here's where
delaying doesn't help because if the
primary worker claims before their full
retirement age, then their spouse will
have reduced benefits. It's also important to
note that spouses max out on their Social
Security benefits at their full retirement age.

That means if the primary
worker delays till age 70, for example, and their
spouse is also age 70, the primary worker will
get that extra benefit, but the spouse will not. Also, you want to consider
if your spouse qualifies for Social Security
benefits of their own. So if they do, they will
get that amount first. If for some reason your
Social Security is higher, your spouse will get
that additional amount so that the
combination of benefits equals that higher amount.

We know that this
can be a lot, but we do have resources
and a tool that can help you assess your
options and work through that. ALLY DONNELLY: OK. Perfect. When we talk about
investments, how can someone determine
the right amount of risk to take, Michelle? MICHELLE HOWELL: Yeah. Since retirement can encompass
multiple decades of time, it's imperative that
we maintain a focus on investing for growth to help
offset inflation and longevity risk. Most would be
surprised to recognize that you can be invested
too conservatively and create just as
much of a detriment around your retirement
plan as being invested too aggressively. As an advisor, I
tend to cringe when I see articles that simplify
portfolio construction by simply taking the
number 100 less your age and using that as the sum
of the percentage of stock is what you should carry into
retirement because that's far too simplistic, right? Retirement planning is
just not one-size-fits-all.

It should be tailored it's
specific to everyone's individual situation. And two plans don't
really look alike, right? Everybody has different
investment preferences. They've got a different
history and context that they approach
investing from. And strategic allocation
between stocks, bonds, and cash and everything in between, all
the different sub asset classes should really be measuring
our own risk tolerance, our personalized
distribution needs, and just the greater context
of our own financial plan. ALLY DONNELLY: Yeah. Yeah. Rita, what's your perspective? Anything to add there? RITA ASSAF: I want to
support what Michelle just said, which is, you want to have
a diversified investment mix. It's going to be personalized
based on how comfortable you are with market volatility, your
overall financial situation, and how long you're
investing for. So your diversification
will look different than anyone else's
because you might be more concerned about inflation. So if that's the case,
may you look into tips.

So Treasury-plated protected
securities or commodities. But you also want
to consider growth. And I know a lot of
people fear growth type investments in retirement,
but they do also help against inflation. And that's where
you want to consider stocks and mutual funds. So it will vary. But having a diversified
investment mix personalized to
your goals will help you have a more balanced
plan to help you. ALLY DONNELLY: OK. All right. What about a risk that can also
be a gift, particularly for us, longevity? Women tend to outlive
men, Michelle. And if that's your
life situation, that makes a difference. MICHELLE HOWELL: Absolutely. Women, on average, tend to
outlive men by five years. So let's unpack that, right? So whether you're single
or whether you're married, there's additional income
needed to support ourselves in retirement. And that often comes in tandem
with additional expenses dedicated toward
health care costs while we're living
those extra years.

Additionally, women
tend to be caregivers, so there are added expenses
associated with that, traveling to see our loved
ones, care needs to support our loved ones. And all of those expenses
need to be incorporated into the budget at that time. Longevity risk for
everyone really demands some alternatives
to the way that you plan. So there are some obvious
considerations here like work longer, save more,
spend less in retirement. Maybe invest with a little
bit more growth in mind to grow the asset
base over time. But for many, that's just
not a comfortable situation. Rita just mentioned that often
carrying more stock allocation into retirement can be
uncomfortable for folks as they experience fluctuation. Alternatively, there
are specific investments that Jerry mentioned that really
address longevity risk directly by creating an income stream
that you can't outlive. And those investments
are the annuities that were just discussed.

And they can be designed to
convert a lump sum of money into a series of payments
that you can't outlive. Or perhaps they can be
designed to cover a particular withdrawal percentage from your
portfolio that you also cannot outlive. ALLY DONNELLY: Excellent. Excellent. I mean, this is just
so much to think about. I'd love it if each of you
could share a few takeaways you want to leave our viewers with.

Rita, do you want
to get us started? RITA ASSAF: Sure. I would say rip
the Band-Aid off, just get started with that
retirement income plan. I know it can be hard. Our fear and our emotions
can get in the way of it. It's scary and
it's overwhelming. But we found that people who
have a plan feel more prepared, have greater peace of mind. And you don't have to
do it all yourself. Your financial
professional can actually help you take the
stress out of it.

I would also say, keep
revisiting that plan because if you
constantly check in, you can help
prepare for anything that comes up unexpected. And then finally, I would
say, enjoy retirement. It's an exciting new chapter. You earned it. Have fun. ALLY DONNELLY: Yeah. We're pivoting from fun to
Jerry, back to expenses. What would you say? JERRY PATTERSON: I agree
with both sentiments. No, but I do agree very much. Getting started is
often the hardest step. But there's nothing that
gives more peace of mind and more security
as you transition to retirement than
having a plan. And having a good handle
around expenses is key in core to an effective income
plan in retirement. And I challenge everyone, give
yourself a homework assignment whether you do it
yourself or you sit down with a financial advisor. This is definitely something
we can help you with. We have tools to do it. But even in your
own kitchen, put a piece of paper down in
front of yourself and write, if you're retiring
in the year 2030, you're 2030 spending plan. And think in terms of
essential, discretionary, and one-time expenses.

And start to think about,
which of the expenses I have today when I get to
2030 are going to go away. Am I really going to
need to buy work clothes? Am I going to save
on commuting costs? What are the new expenses
that are going to emerge? The annual river cruise,
the cost of golf cart fuel. Ask yourself questions
like, is the cost of pickleball an
essential expense? Or one that's probably
real and close to heart is visiting my kids
on a regular basis.

Is that essential expense
that I have to plan for? So really getting your
hands around expenses is, like I said, key and
core to your retirement plan and your spending plan. In my own life, I'm going
through this process right now. And I did just as I described. I wrote down on a piece of
paper essential, discretionary, and one-timers. And I have a
25-year-old daughter where I'm afraid
the one-timer might happen while I'm in retirement
when she actually gets married.

We'll see. But that's going to
be a real cost for me that I've got to be
prepared for now as I start to think about expenses
as I transition to retirement down the road. ALLY DONNELLY: Yeah. Yeah. Maybe you can combine the
wedding and pickleball at the same time. Michelle, I hope you don't mind,
but we're being mindful of time and we want to get to a few
of the clients questions. So Rita, I'm actually
going to ask you to take this first one from clients. We want to do a deep
dive on Roth and RMD during our November show. And there have been
a lot of questions on this topic in the chat today. So why don't we cover
some basics right now, what they're whistle. One viewer asked, is converting
money from a traditional IRA to a Roth IRA good
strategy to mitigate some of the tax hit on the RMDs? So Rita, take this
one, if you would.

RITA ASSAF: So this might
frustrate some viewers, but the answer is, it
depends, and depends on your personal situation. So when we talk about
a Roth conversion, we're talking about
moving money that's been tax-deferred to tax-free. So usually, money that's
been in a traditional IRA to a Roth IRA. But you do have to pay taxes. And the reason
why some people do this is because they're
not eligible to contribute to a Roth IRA directly
because of the income limits that Roth have. But if you think about
Roth conversions with RMDs, a lot of people will
think, well, if I do that, then I no longer have to
take RMDs in the Roth IRA.

But this is where you need
to be careful because there are some considerations. You want to look at
your tax bracket. Will it be higher in
retirement or now? So that's a
consideration for you. Do you want to maximize
the money you're going to leave to heirs that may
be doing a Roth conversion can help because it'll earn longer
because you don't have required minimum distributions? Are you not
taxed-diversified, meaning are all your assets and
tax-deferred accounts? That's a consideration
where you want to consider a Roth so that you
have different tax treatments and you can better control your
taxable income in retirement. But here's where you
may not want to consider converting to a Roth.

If you're really in
retirement or near retirement and you need money,
like that could actually impact your taxes and
you wouldn't have time to recoup the taxes
that you would have paid on the conversion. You also want to be careful
because if you're doing a Roth conversion and you're
receiving Social Security or you're on Medicare, the
Roth conversion can increase your taxable income, which
means the Social Security benefits could be taxed and
your Medicare costs could rise. So there's a lot here. And if you're really worried
about RMDs and their tax impact, there are also
Qualified Charitable Distributions or QCD, which is
an option where you're donating to charity, use that RMD
to donate to charity, and you wouldn't
have to pay taxes. So that's why the answer
depends because there's a lot of elements
that go in there. And in next month's
webinar, I know we'll deep dive into these topics. ALLY DONNELLY: Yeah. Yeah. There's a lot there, right? Jerry, I want to get one
more viewer question in as we wrap up these last few minutes.

But this viewer asked, how is it
best to plan for long-term care if you're already over 65? JERRY PATTERSON: Great question. And we get a ton of
questions from clients about long-term
care, and am often startled at the confusion
that's out there. I just looked at some
research last week, and it was shocking to see
how many people of all ages think they already
have the protection because in their mind, they
think their health care insurance pays for that or they
think Social Security backstops that for them or Medicare takes
care of it when they retire. For those of us that
are 65 or older today, we have a 70% chance of
incurring some long-term care costs in retirement. So it's real, and it's going
to happen to more of us than less of us. And if you're already
retired and you're wondering about long-term care,
if you're relatively healthy, you can still seek out and
secure insurance protection if that's something
you want to explore.

You don't automatically get
declined because of age. It's based on health
and medical history. If you're going to
self-fund it, this is one of those
things I talked about before, I think you got to look
at it as a potential one-timer. And it's often a
potential one-timer that hits way deep in
retirement when you're older, and so it becomes harder to
surface the kind of liquidity you might have to come up with
to fund a long-term care event. So again, let's assume you're
going into a facility– I think I shared earlier– costs can range from as much
as $9,000 to $13,000 per month. And imagine if you're
late in your 80s and you suddenly have to come
up with the funds to self-fund and support a cost like that,
it's big and it's significant. But it's something you
got to think about.

So even if you're
already retired, if protection is a route
you're interested in, I'd encourage explore it. And if you're going
to self-fund it, really imagine what
self-funding looks like deep in your retirement
years where you're going to be expected to
deliver a significant amount of liquid funds to
fund those costs. ALLY DONNELLY: Terrific. Terrific. Thank you. Michele, your voice is so
important in this conversation. Help us understand what your
takeaways are from today. MICHELLE HOWELL: Thanks, Ally. Just three things, right? I agree with both Rita
and Jerry, don't delay. Start the planning
conversation today. The best retirements
have been well planned, and they are not
filled with trepidation around money in retirement. You have more enjoyment
because of that. And also, don't let the
fact that you may not have tracked expenses
become some sort of artificial roadblock
to the conversation.

Let your financial consultant
help you with this. We can help break this
up into smaller pieces. Secondarily, be transparent. The best financial plans are
built around full disclosure. There's no need for
you to be embarrassed about how you want to spend
your money in retirement or about the time you may have
sold out of your portfolio because you were anxious
due to market fluctuation. These are really
important things for us to recognize as your
financial consultants so that we can help prepare
you for these events and build a plan
that's all-weather.

You wouldn't want your
doctor to design a treatment plan without assessing
your overall health, right? Lastly, commit. Financial planning is
an iterative process, and it begs clients
and advisors coming to the table with an open mind. So my best relationships
are with clients that I meet with
multiple times a year and they always come in
looking for new ideas.

ALLY DONNELLY: Excellent. Excellent. Well, Michelle, thank you. And thank you to
all of our panelists for their great insights. This was a terrific discussion. And thank you to you, viewers,
for sending in your questions. If you're interested in learning
more about retirement income, tune in for our November
panel on RMDs and Roths. It's going to be a
good conversation too. And to learn more about other
financial planning topics, subscribe to Insights from
Fidelity Wealth Management. I'm Ally Donnelly. Thanks for being here. We hope we see you again soon..

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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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Your Retirement Questions Answered

Nobody teaches you how to retire in school, so you might have a lot of unanswered questions as you approach retirement. We're going to talk about some of the most frequently asked questions, including Social Security, health care, how much money you need, and more… So let's start with how much money you need to retire. There are a couple of ways to answer that, and the best and most honest way is that it depends on a lot of factors, including how much money you have saved up, what you're going to earn or lose on that money, and over what period of time you're going to take withdrawals.

Some people want a quicker answer, so a couple of tips for you: one is to use a chart that shows you some basic check points and it make some assumptions that you need to make sure that you're comfortable with and on board with. But you can use this to at least get a ballpark idea of where you stand for retirement. The other way to do it is to multiply the amount you want to withdraw from your savings (this is not necessarily the amount you want to spend in retirement because you might also have income from Social Security and pensions, but the amount you want to withdraw) multiply that by 25 and that can give you a lump sum amount that you might want to have saved or retirement.

This is just based on sort of a rule of thumb, and it's not a perfect number, it's not gonna guarantee anything, but it can help you estimate using the opposite of the 4% rule, how much money you might want to have, so as an example, if you wanted to withdraw $40,000 per year from your savings, we would multiply that by 25 to arrive at a number of $1 million that you would want to have saved a retirement. Again, 40,000 times 25 equals 1 million. That's going to be your goal. Again, neither the chart or the multiply by 25 who are perfect, and we would love for you to actually do a detailed cash flow projection and estimate taxes and all that other stuff, but these can at least give you a ballpark idea, next is when to take your social security benefits, you can claim your benefits as early as age 62, but if you do that, you get a reduced benefit as compared to your full retirement age benefit, so that reduced benefit means you get less money each month, and if a surviving spouse takes over your Social Security income, they are also stuck with that permanently reduced amount, so it can be problematic to claim early, now you can claim at your full retirement age, and that depends on your birthday, or you can delay claiming and wait until age 70 as you delay.

You get effectively about an 8% per year race, it happens every month, so you don't have to do it on your birthday, but you get about an 8% per year raise, and then those increases stop once you reach age 70, so there's not much benefit. And waiting past that, this confuses a lot of people because they might think, Well, if I retire at age 62, I think I wanna start taking Social Security right away at age 62. And that might make sense and that might be the right answer for you, but it's always helpful to do some calculations to figure out maybe you can spend from your assets and delay claiming and get a bigger social security paycheck when you claim later in life by the way in the meantime, they're in between your retirement date and your first social security payment, you might have the opportunity to do things like convert some assets to rot or pre pay some taxes during your very low income earning years.

So a number of strategies you have, in general, for a lot of people, unless you have major health issues, it pays to wait to claim Social Security. Next is How much will healthcare cost in retirement during your working years, your employer has probably been paying a portion were all of your health insurance premiums, and when you retire, that changes and you are responsible for those costs. So if you are age 65, you're typically gonna go on Medicare, and that's fairly straightforward, although you have a couple of options, and we'll go over some rough cost there, but if you're retired before age 65, it's quite a bit more challenging. You might need to get a plan from the exchange, or you might need to use Cobra or your state's continuation program, so that you can keep using your former employer's healthcare for, let's say, 18 months at a maximum unless California.

But that can be quite expensive. So you need to be aware of those costs, you might also be able to switch to a spouse's coverage. So Let's talk about some Medicare cost. If you're a 65 year old woman, you might expect to spend about 7000 on your first year of retirement on out of pocket expenses, and that assumes you have decent health, but one or two issues, and if you have poor health, it's gonna be more expensive than that. A study from Fidelity tells us each year what retirees should expect in terms of healthcare spending for 2020, that number was 295000 of out of pocket costs, and that ignores any potential long term care costs, so this isn't something that you need to write a check for at the beginning of retirement, that full 295000, but it's what two people might spend between age 65 and the end of their life.

Next is a logistical question. People often wonder, How do I actually spend the money that I have saved up? It's in this account, how do I actually get it out and pay whoever I'm paying, and the answer is, oftentimes, you're gonna move your money to an IRA or an Individual Retirement Account, and you can typically link that account, let's say it's an investment account, with a discount broker or with a financial advisor, you can link that account to your bank account and you can just transfer money over electronically, it's very easy, you can also set up automatic monthly payments to kind of replicate what your income was like during your working years, or if you need a lump sum, you can call them up and say, The furnace broke, send me several thousand dollars, whatever the case may be, and you can make that happen and you get the money within a couple of days, so that's typically how the logistics work.

You should be aware that if you're taking withdrawals from retirement accounts, that's gonna generate taxable income for you, so you can't necessarily spend every penny that you have saved in retirement accounts, if you have 100000 in a retirement account, you're gonna have to pay… Who knows, it might be 18 30000 in taxes to the IRS. So you don't necessarily wanna spend every penny of that Talk to your CPA and figure out exactly what that's gonna look like, just be aware for now that you can't spend all that money. The Other thing to know is that you wanna make sure that this money lasts for the rest of your life, we don't want you to outlive your money, so you need to withdraw at a rate that draws down your account balances gradually or slowly enough so that you don't run out of money, a couple of techniques for that, one of them we touched on with that 4% roll above, and you can learn more about that elsewhere.

Next is, when do most people retire, and you can, of course, retire whenever you have the financial resources to stop working, according to the Employee Benefits Research Institute, most people retire around age 62, an interesting fact that is a lot of people find themselves forced into retirement earlier than they expected. So that's about 40% of people, and a lot of times the reason for that is healthcare, you might be experiencing problems yourself, or you might be caring for a loved one, and that takes you out of the workforce, so that creates a challenge in terms of planning for retirement, because you might not work as long as you had initially thought, the other leading cause of leaving the workforce early at an unexpected time as changes in your job, your employer might reorganize, start doing things differently. Who knows what the case is, but that can often surprise people and put them out of the workforce for the rest of their lives, that Leads us to the question of working longer…

Is that beneficial? So if you work part time or if you're looking at your retirement prospects and it doesn't look as good as you want, should you keep working a couple of extra years, and the answer is it typically is quite helpful for you, and here's why. Number one, your Social Security benefits might improve because social security looks at your 35 highest earning years, and if you continue working later in life, you're typically at your peak earning years, you have earned your promotions, you've developed in a career, and you might presumably be learning some of the IS salary you've ever earned in your life, so as you can add more years at that higher salary, that helps your social security… The concept is the same for pensions, many pension systems look at your highest three years of earnings and they're gonna base your pension payout on that, so if you've got higher earnings for more years, that can just help you out.

The Other way it helps is that you might delay taking your Social Security or your pension at a later age, and as you take those benefits later, you tend to get more each month, so again, we said Social Security, you can claim as early as age 62, but you get that reduction. And if you wait a couple of years till your full retirement age, you get more than at age 62, and you can further increase that by waiting until age 70. Another way that working longer helps is that you have fewer years of retirement to fund, this might sound morbid, but essentially we're looking at the period of time between when you stop working and when you die, and we need you to have an income during that period, but if you keep working longer, that puts you closer to the day you die, and that means fewer years of funding that we need to provide, and finally, as you keep on working, you have the opportunity to say more, you have income, so you can set aside some of that money in your retirement accounts and that provides resources that you can spend later.

Next is the question of annuities. Does an annuity make sense for you? This is a huge and complicated world to deal with, and we can't possibly cover it in a couple of minutes here, but what I would say is that the simplest and purest form of an annuity is something where you just give the insurance company some money and a lump sum, then they pay that money back out to you over time, and they typically guarantee that those payments would last maybe for the rest of your life, or maybe for you and a spouse is life, or maybe for at least 10 years, if you are both of you died within just a few years, those are the simplest types of annuities, and those tend to make the most sense. Other types of annuities get extremely complicated, they can be problematic, you wanna be very careful in approaching those kind of annuities, so just be aware that there are different flavors of annuities out there, and I would suggest talking with the only financial planner to evaluate which annuities might or might not make sense for you.

The only advisors don't get any commission, and so that can take the commission piece out of the question, if somebody is recommending an annuity, you wanna know if they're getting a commission and exactly how much that commission is, it is pretty much never clear. You're probably not gonna know that, so you wanna try and get unbiased advice on these questions, next is the question of taxes in retirement, you are going to most likely pay some taxes, so as I mentioned earlier, is you take money out of pre tax retirement accounts, you typically generate taxable income, and you might have to pay taxes on that income, people also wonder about Social Security, so do you owe taxes on that? And the answer is, it depends. If your earnings go above a certain level, and that number can change from time to time, so probably not worth getting into it, but if you go above a certain level, 50% of your Social Security income might be taxable if you go above a higher level, 85% of your Social Security income could be taxable income, so you wanna try and manage what your taxes are gonna be in retirement, there are several strategies for doing that, that can include timing when you take different withdraws from different accounts, it might include strategies like Roth conversions, you just wanna look at all of these different opportunities to manage what you've pay in taxes so that you have as much as possible to spend on things in retirement.

Will social security run out of money? That's always a big question, and I have a separate video that pretty much just talks about this, but the answer is we don't know, but probably not… So the Social Security trust fund, as you've probably heard, was scheduled to run out of money in 2035, but that could be accelerated due to covid 19, more like 20 29. What you wanna know is that Social Security is a pay as you go system for the most part, so about 75% of the money that's needed to pay out beneficiaries to pay retirement income, let's say, on social security, comes from people's payroll taxes each year.

So if the Social Security trust fund just went away and nothing happened, when people might still receive about 75% of what they were promised, there Are several other ways to fix Social Security, and those include just making small tweaks the US, especially as a retiree, probably would not notice, we don't wanna guarantee anything 'cause we just don't know what the future will bring, but it's likely that you'll probably get the benefits that you were promised, especially if you're over…

Let's say 60 years old today, and for those who are younger, probably smart to expect the Social Security will one way or another be less generous than it has been in the past. Next is the question on pensions, so your employer pays you a pension, maybe it's a city, maybe it's a private employer, a company, and what happens if that company goes bankrupt? Well. You might not necessarily be of luck, many pensions are covered by the PGC or the pension benefit guarantee corporation, that is an agency of the US government, but it does have some limits on how much it's going to pay you, so if you are a particularly high earner, you might not get as much after your organization goes bankrupt as you were before, for 2021, the maxim a monthly benefit for a 65 year old with 634 per month, so if your pension was higher than that, you might suffer some losses in the event of a bankruptcy, but if you're below that, you might be relatively comfortable that you wouldn't see major changes… I hope this information has been helpful.

I'd love to help you plan your retirement, if you'd like to chat, please reach you out, we can look at how your retirement years might unfold, we can uncover maybe some opportunities to help you manage taxes or just to improve your chances in retirement. So please reach out, I'd love to talk. Please subscribe to this channel, and you can do that with the little red graphic there in the bottom right now, that does not cost you anything, what it does is helps you stay informed and get more information like this, and it also helps me out a teeny bit so thank you and thanks everybody. Who is already subscribed?.

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