3 Different Ways You Can Create $10k/mo in Retirement
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- Опубліковано 18 тра 2024
- Retirement planning is something many of us have on our minds. Our goal is to create a steady income stream that supports our desired lifestyle for the rest of our lives. But how do we get there? There are several ways to achieve this, and each method has its pros and cons. Today, I'm sharing three strategies you can use to create $10,000 per month in retirement income.
💰 Purchasing an Annuity
An annuity is a contract you enter into with an insurance company. You give them a lump sum, and in exchange, they provide you with a steady income stream for the rest of your life or a predetermined period of time.
On the one hand, you have guaranteed income. As long as the insurance company is solvent, you can count on receiving your monthly payments. You don't have to worry about market fluctuations or managing your portfolio. On the other hand, you don’t get to adjust for inflation which can erode your purchasing power. There’s also a lack of flexibility, which may not align with your changing needs.
The cost to purchase an annuity that generates $10,000 per month in retirement varies depending on whether you're single or married. For a single person, it can cost around $1.35 million, and for a married couple, around $1.2 million.
📈 Maximizing Social Security
Social Security can be a powerful source of retirement income, especially if you maximize your benefits. You can receive a significant monthly benefit by working until age 70 and maximizing your earnings record for 35 years. This offers tax advantages, as Social Security benefits often face less taxation at the state and federal levels. Social Security benefits also increase with a cost-of-living adjustment (COLA), helping maintain your purchasing power.
However, it means working longer and being dependent on dual benefits. For a married couple to reach nearly $10,000 per month, both spouses need to maximize their benefits.
⚖️ Investing in a Diversified Portfolio
A diversified investment portfolio can provide you with the income you need, especially when you use the right withdrawal strategy. This approach involves investing your savings and withdrawing a percentage each year to support your lifestyle. This strategy does offer inflation protection: your withdrawals can increase over time to account for inflation. A diversified portfolio also offers more spending flexibility than annuities.
Yet, you’re still at risk of market volatility, and there's no guarantee that your portfolio will grow steadily.
To generate the desired income, a single person might need around $1.96 million in a portfolio, and a married couple, around $1.5 million.
🏠 Honorable Mention: Real Estate
Real estate can also be an effective way to generate retirement income. However, the specifics can vary greatly depending on the type of real estate, location, and other factors.
Each of these strategies offers unique benefits and challenges. The best approach depends on your individual circumstances and goals. You might even choose to combine methods to create a well-rounded retirement income strategy. Whatever you choose, planning ahead and understanding your options can help ensure a comfortable and financially secure retirement.
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⏱Timestamps:⏱
0:00 - Purchase an annuity
3:52 - Annuity pros and cons
5:03 - Maximize Social Security
8:22 - Honorable mention: real estate
9:50 - Invest in a diversified portfolio
12:44 - Portfolio pros
15:10 - Portfolio cons
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Comparing the annuity to investment portfolio - it isn’t just that the annuity is does not inflation adjust… there is a high likelihood you’ll die with a good sized portfolio for your heirs or charities.
The key to reducing sequence of returns (up and down markets) risk with a portfolio investment funding retirement - the bucket strategy - funding a bucket with 2-5 years current/near term spending in cash/near-cash when the market is good… so you do not have to do withdrawals when the market is down.
Thank you for weaving those that are single into your excellent presentation. For simplification, I realize you were addressing gross numbers. It is the tax bite situation that makes this so complicated - and different impact for everyone - since we have to live off the net vs gross.
Great video James. Surprised though that you didn't mention that annuities CAN include an adjustment for inflation. Sure, to get the same starting income would require more $ up front. But it is an option.
It helps if you are a high wage earner to begin with. This has little to do with the average earner.
Thanks James for another informative video!
We will have about $7k a month from SS and pensions. With me keep buying dividend stocks, we will have at least $3k a month qualified dividends. So we will have easily $10k a month with zero tax,without touching our multi million investments. Will pull the trigger in a couple of years.
I have a similar plan with a 7k pension but am only at 650 per month in dividends. I am building that up, hoping for 1-2k per month extra.
This provided me with lots of info. Thanks.
Thanks James! Great insights!
Errrr.....annuities? Are will still pushing these...thought we'd moved on from these investment vehicles. To stake your future on the life of an insurance company, high fees, lose out on inflation adjustments and short-change your heirs...I fail to see any positives other than for the person selling them and the insurance company.
Thanks for showing us these options. I usually favor rental properties, but hate property management aspect. I think I’d rather go with annuity and set aside money to accommodate the inflation.
How did you get so smart in this retirement and be so young? I wish I knew that much when I was your age. thank you for the info!
James. I like your videos. The way to deal with annunities that don't adjust for inflation is to do what Tom Hegna recommends - get an additional annunity(ies) that kick in at specific points in one's like life. Say at age 70 and another at age 75. Also, as another person mentioned, transfer of risk to the insurance company is what its all about.
Also,you didn't mention what is considered perhaps the most incredible financial instrument that most people don't know about - the IUL ( Indexed Universal Life policy) The IUL- the pros : monies are "borrowed" not withdrawn and therfore avoid taxes, living benefits, plus no taxes when passing it on to the heirs. I could go on and on.
Yes. A health screening is required but for the younger crowd here, its easier and they can contribute to it with less amounts than the order crowd.
Also, James.... i never or almost never see you respond to people's comments ..?
Interesting discussion. The social security option was a handy exercise, but how many folks started their 35 years of SS-taxed wages at the 35 year ago equivalent of today $168K per year… and earned at least that for all 35 years? A very rare scenario. And a fair number of folks with that kind of wealth, had their own businesses and were smart enough to shift W2 income to profit distributions, reducing their SS taxable wages… and their benefit.
That person is also waiting until full retirement age before filing for SS benefits, to get the maximum payment.
Thank you, James. Great explanation.
Instead of using an annuity, I am using a TIPS treasury ladder in my pre-tax IRA to provide inflation adjusted annual income, flexibility (withdraw as needed) and is guaranteed by uncle sam (assuming you trust uncle sam).
As always, great info!
Annuities can be pricey!
3:56 “As long as that insurance company is solvent…”
I love the part of as long as they solvent. No guarantees in anything. What are the annuity providers profiting off you?
Don’t forget that you need to also cover the gap in tax you have to pay on you taxed social security benefit at that level.
Good video
I would group annuities and whole life insurance into same group. They benefit financial advisor more than individual investor.
When you work on something that only has the capacity to make you 5 dollars, it does not matter how much harder you work - the most you will make is 5 dollars.
You forgot your mention that all of those numbers needs to be increased substantially because of taxes unless everything is being de-cumulated from a Roth. Also, studies have shown that most people squirrel away money and WON’T spend their 3-4 percent withdrawal strategy in down markets. They unnecessarily get nervous and don’t enjoy the fruits of their investments during those years which can easily be solved with an annuity.
Bill Bergen developed the 4% rule for withdrawal rate. 5% is considered aggressive. I would also be more specific about the annuity being a transfer of risk to the insurance company. There is a 100% chance you will never run out of income. Also, many advisors, like Dr, Wade Pfau, suggest buying an annuity along with Social Security and any pension, to create an income floor to cover your basic needs, then taking a withdrawl rate from your investment portfolio to fund the rest of your living expenses.
This is my situation. Pension w/COLA covers my basic needs, 4% from IRA is fun money. Emergency fund is in high interest savings account. SS is gravy.
if inflation goes over 10 percent or more, are there any strategies that work? The federal debt will require massive money printing= high inflation. There is no historical precedent for this so models don't exist. Are you able to set out strategies for scenarios tat include high inflation? Thanks for your content! You are a natural teacher.
That’s why you have a diversified portfolio, including various intermediate terms bonds. You turn the bonds over as necessary to make sure they’re keeping up with inflation. The stocks should increase in value as the economy grows (even on a nominal basis).
P.s. Very unlikely, in my opinion, that inflation goes that high. And if it does, you can make a fortune off bonds. Can you imagine being able to buy a 30yr treasury bond at 10%?! 😂
An annuity is very rarely a good investment. It's a set it and forget it method whichsounds attractive, but you pay an extreme premium to get that. At 5% withdrawal rate, you could prob get close to that with a 30yr Treasury which is 100% safe, and you keep your money. You could prob get 7%-9% with government agency bonds, AAA corporate bonds, or preferred dividend stocks. If you don't want to buy them directly, buy an etf(s) that focuses on these in investments.
Why $10k/mo or is it just a nice round number. We are simple people with equally simple needs and will be trying to stay out of that (probably) 25% tax bracket as much as possible.
Good video. The realkty is that the optimum is a combination of all 3, optimize SS, an annuity to protect against longevity and sequence of returns, and a portfolio to protect against inflation and possibly grow wealth. Sorry but relying on a portfolio alone is a bit scary. If you dont think so ask those who retired in 1989 in Japan.
Your example of $1.2m for a joint annuity of $6,300 per month. The issue is when you both pass away nothing goes to your kids. If you bought a 20 year treasury at 5%, you would get a slightly less $5,000 per month and still have your $1.2m after you pass. At $1,300 per month, you will never come close to replacing the $1.2m. Even if you reinvested the difference and didn’t touch it for 30 years you would only have $800k for your heirs vs $1.2m.
“assuming your annuity company is still solvent”
Therein lies the biggest red flag for me.
I’m old. I’ve seen insurance companies fail.
Not pretty.
One of the things you covered in another video but not in this one was the cost of failure. My wife and I are projected to have 1.2 million in pretax and 800k in ROTH. Our home will be paid off at retirement and we have no debt. I intend on waiting until full retirement to start collecting SS (retire at 62 though) so in terms of living day by day we could live off of my SS alone. While not a fortune we won't starve. In addition I have a large home worth about 700k right now and when I get older I will probably want to downsize it which would give us extra money. So out of our 2 million I think it would be foolish to only take out 4-5%. I really have no risk of failure since we can live off of just one SS check if we had to and I can downsize my home. I intend on taking out on average 7%.
I would never do an annuity, but out of curiousity how do they factor in ROTH money that has been saved?
Think about instead of living off of the Roth between 62 and 65 with minimal withdrawls from the taxable accounts IF you can have a MAGI of around $20K you'll qualify for medicaid in most states. So you're cost of medical coverage will be essentially zero since medicaid is income based not asset based. Drive you're Magi into the dirt living off cash reserves or the roth until medicare kicks in.
Good points except on annuity. Do not do the annuity part.
I agree that annuities are trash and sold to suckers not educated.
Funny you say that because studies have shown that the happiest retirees have annuities. You should read Wade Pfau’s books among others. Academics who have studied the issue disagree with you and so do I. Enough guaranteed income to cover basics in a combination of SS, pensions, and annuities makes you sleep better at night. I love stocks, they have done great for me, and I did not sell EVER in 1988, 2008, 2020, etc but I don’t want to be reliant on my portfolio to live on and go through 2008 again, or worse yet a 30 year stagnant market like Japan just lived through.
My wife and I will already be at 10k+ a month in retirement. I receive my military retirement pension, and she will have her retirement from the county school system. At 55 we will be set.
And you have free health care as a military retiree. Ok, well $500 a year, which is basically free. Military benefits are great - your BAQ pay buys you a house with no money out of pocket if you use it wisely. I hate hearing military complain. I no longer receive the benefits & pay $1200/month for health care even though I am an RN in a hospital.
Too bad for all the poor people who got ripped off by teachers pensions and bloated military budgets. Nobody cares about your bragging about your situation. He is telling normal working people how to retire not privileged people who didn’t work until normal retirement. Get over yourself
Congrats Nice job working toward the same goal and on pace to be set like you at 62.
Great! How does posting this help anyone? Or are you just looking for a place to brag?
Military did not teach you humility and extreme gratitude? It did me, for 24 yrs of my life. Too many thanking you for your service, it seems.
If John Doe had an annuity and is living off the income what happens after his death? Does his estate get the initial sum or does the insurance company keep it?
As always: it depends
Some annuities do have a life insurance portion if you die early.
Caveat emptor.
Depends on the terms of the annuity. Some allow a portion to be returned on the death of the individual, some don’t. Also, though James didn’t mention this, one can also purchase an annuity with inflation -adjusted payments.
Purchasing an annuity is essentially buy a defined benefit retirement plan. That’s why they’re popular.
And, finally, thought not one of the income tiers mentioned in this video, one may wish to consider a reverse mortgage on a home in which one lives. If you meet certain requirements, you get a monthly payment for as long as you live in the home. The nice thing is that this payment is a “loan” so it’s not considered taxable income.
The price of the annuity is gone. That’s the insurance company’s money now.
It depends upon the type of annuity contract because they are all structured differently. Definitely shop around and be sure to pick a good company when doing so.
Well I thought it was a good question. But I'm only a mechanic so the hell do I know?
Would a 3% withdraw rate be a good starting point for those retiring early in their 40s? For rough planning purpose only of course.
Yes, you will never run out of money if you withdraw only 3% per year from your investments. He talks about this is another video.
@adam964 If you are really thinking about retiring in your 40s - you seriously want to review and understand "The Safe Withdrawal Rate Series" at Early Retirement Now (Google search will find it easily). If you are in the US, then you really want to understand how you will be getting medical insurance. Note: I retired at 50, and will be taking Social Security at 70 - I was lucky to have good tax diversification (and partially paid retiree medical benefits). Early retirement was one of the best decisions I ever made, and has allowed a lot of interesting travel while we were capable of it. Good luck.
How you can create $10,000 a month in retirement income. Step 1. retire with millions of dollars.
Step 2. ....
3:18 $1,212 (one time payment) for $6,300/mo. Sounds too good to be true. Are you offering this annuity, James?
He misspoke that graphic was $1,212,000
Hey James - Another great video. Note that at around 3:20, you state "one thousand" when it should have been "one million". Oops...
What is the age of the people in this example, that affects all of your assumptions whether it is the annuity is ss income
When he was talking about Social Security, the person waited until reaching full retirement age before filing.
Careful about that idea of "need less if you are married because you have more social security." You're going to lose a big chunk of that social security when one dies, and your taxes are going to go up.
You mean one million, two hundred twelve thousand dollars, not ten times less.
You said one thousand two hundred and twenty two it’s should be one million two hundred thousand and twelve dollars on joint life annuity
At least I know you’re not a AI Chatbot
He has failed to mention buying bitcoin, which should be at least 5% of even the most conservative portfolio.. not financial advice
Annuity monthly payouts are guaranteed because it’s an insurance payout, whereas bitcoins being subject to market price movements, the payout is not guaranteed.
Annuities are the biggest rip off.
More click bait herr😮
Your credibility as a financial planner is greatly diminished by your positive comments on annuities. The risk of an insurance company not meeting its obligations over one's lifetime is way too high in addition to as you said the lack of adjustment for inflation. Annuities very risky. Also your overall assumptions are not realisitic----rarely does a porfolio return 6-8% annully. One is very lucky if a balanced with moderate risk profolio returns maybe 5% annually. Any why do you spend all this time doinig these videos? Why aren't you spending your time finding the best investments and strategies for your clients?
He laid out the case for annuities because everyone would have asked about them if he didn’t. You don’t have to like them, but they are a valid option.
6-8% return may feel too aggressive an assumption for you, but plenty of advisors imply you can plan for higher that that. (I.e. Dave Ramsey)
He makes videos because 1) he makes money from them, and 2) because he gets clients from them.
😂😂😂
Actually he is quite conservative in the return. You need to learn more about the capital market.
James doesn't really talk about annuities very often so I don't think they are a big part of his advisory service, but they are an option. There are other YT 'advisors' that hang their on hat on annuities, any yes (imho) they have lowered their credibility.
Can you share some examples of AAA Insurance companies defaulting on annuities?
You need to get up to date 5 facts, social security will be insolvent by 2030, and the recession will eat 60% of the investments. You're reading the wrong books, kid.
Wow, you think you know what will happen in the future
bugs taste better with garlic or chocolate, same with rats
No chance the feds let Social Security default on its obligations. They’ll just start paying for it as part of the regular budget. If there’s one group politicians don’t want to piss off, it’s the old people.😅 Can you give a reference for the books that discusses “the recession [eating] investments”? I’d be curious to check that out. And that whippersnapper might like it as well. 🤪