$1,000,000 is way TOO MUCH saved for retirement
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- Опубліковано 31 лип 2024
- Turning this assumption on it's head. A Financial Advisor breaks it down and explains when $1,000,000 saved for retirement is just TOO much money. I think we all wish we had this problem!
00:00 introduction
00:27 $1M leads to a BROKE retirement
01:04 Most people retire with far less than $1M in retirement accounts
01:40 When is $1M in a retirement account too much
03:19 What advice would I give a 47 year old with a $1M retirement account balance?
03:42 A good problem to have....
04:14 Getting in to the mechanics of this 'problem'
04:55 You need to be under 50 years old
05:14 You work for a company with a solid match/retirement plan
05:45 Plan for Long Term Care
06:29 No Legacy Concerns
07:02 YEA PENSION!!!
07:34 The frugal life
07:54 Work until 67 years old
08:18 Own a home by time you retire
08:24 ROTH
08:32 It's rare that people do this!
09:07 Income Generating Assets
09:21 We Financial Advisors don't really talk about this
09:37 Why not let em' go full throttle for another 20 years?
10:32 A secret of the rich....
11:32 Financial Planning operates in nuance!
I am 61, retired, single with no kids. Recently diagnosed with cancer and I'm thinking about enjoying life and retirement more.
Love your approach and how well you explain your logic. I just sent this to my daughter, 18 months out of college, and asked her to watch this for me, for Father's Day. This information is so incredibly undervalued by society and it's beyond me how our education system cannot see how it negatively impacts kids by its omission from mandated school curriculums. Great job - just subscribed to the channel and thank you for the roadmap. :)
Thanks for the kind words and I love impacting the young people!
Great info....thank you!
Glad you found it informative!
Interesting video. Another aspect of this that I have been thinking about: if you work until 67-ish and have millions in your retirement account at retirement, how will you spend it all in your remaining years? Being adventurous, travelling the world, doing other things that cost a lot of money may not be that feasible or even appealing once you are in your 70's. Are you going to spend it all on a luxury senior living apartment? :) I think if you have been able to accumulate that much of a nest egg by your late 40's, consider retiring early and enjoy the fruits of your labor while you are still young and healthy enough to do so !
Perhaps. I do have clients that retire early and they often find it’s not what they hoped it to be. One of the clients in this situation wanted to start a business in her early 50s and she didn’t want to have to worry about starting a retirement plan for herself (it’s a solo business). Good news is that with her savings she could do a Roth IRA and just do the $7-$8k a year contribution
@@YourRichAuntie Certainly starting one's own business is another great thing to do after reaching financial independence.
I'm 70 and still have a lot of life in me. I hike places the kids have a hard time. 70's not as old as you think. I can do anything a 60 year old. Can. Eat right and stay in shape. Life is good.
@@DavidKroff this is wonderful - unfortunately it's not the experience of the vast majority of Americans. Most Americans are experiencing significant health issues by the time they are 70. Health is a form of wealth
@YourRichAuntie I'll agree with that. But I live in Arizona, and we have very competitive softball games in senior parks.
Thank you for this! Our young people really need to be prepared for retirement and all the taxes that are at play. Trying to get my younger male and female family members to think strategically.
It’s a really hard thing to focus on when you’re younger. They’ll come in to it in their own way and in their own time
We are lucky enough to not worry about money, now how we wish if we can buy back time ! Covid 19 cost us 2 years of our life.
I hate to admit it, but Covid was a great thing for me. I live on a farm. Covid forced me to work from home 100% of the time rather than getting on a plane every week. In late June of 2020, my company offered me an early retirement package that I accepted since I was planning to retire in 2021 anyway.
I got Covid once, and it was like a mild cold. Nobody I personally know died from Covid.
I have always struggled with balancing the tax implications now with those in the future. As a single no kids, I’ve used a higher 401K contribution to help bring my taxable income down but I am in the situation you mention. I was contributing 20% and I’d reduced down to 15% and would like to lower more but don’t want to end up in the next tax bracket.
The tax deduction is nice, but I usually think of 401k contributions in absence of the impact it has on my current taxes. Our tax system is progressive so I’m not so concerned about what tax bracket I’m in or the client is in. Unless you have something compelling going on, getting caught up in the tax break can cause people to over contribute to the traditional 401k and ignore Roth leading to a massive problem later when 100% of their retirement income is taxable and they have huge rmds they can’t control
Great video! Please do more of these for high retirement account owners. You are describing me to a tee. I'm 46 with 1.15M in my portfolio and currently save 23K per year in Roth 401K and another 25K in taxable account. I would argue that people with high net worth can self fund a long term care event and wouldn't need the insurance. The average long term care stay is 3 years @ 14K per month is 500K. That's easily doable for someone who has millions in their retirement accounts with no one to leave their money to as you state in your example.
Thanks for the comment. It may be worth it to pay an hourly CFP® to run the numbers for you and see if they concur with this conclusion for you. A word about self-insuring with long-term care. Long-term care beats inflation by several magnitudes of order and will likely be much more expensive than it is now when you may need it. Also, you have to consider if you end up being an exceptional case of long-term care where you end up in a facility for six years - probably you'll need a combination of a policy and self-insuring to cover. Thank you also for verifying that these folks do exist in the world!
My issue with long term care insurance is that if it winds up being a form of managed care (like Medicare Advantage), I probably wouldn't want it. I have wealthy neighbors who pay for in-home care because they believe it's cheaper and better than long term care insurance.
@@DaveM-FFB your neighbors have the ability to pay for in home care - which is insanely expensive. My mother receives in home care and it’s part long term care policy part self pay. If she had to pay it all out of pocket it’d likely compromise the quality of care. It’s up to every person but I’ve seen cases with long term care and cases without. When long term care was needed, a policy was a good decision
@@YourRichAuntie Assisted Living costs around $65K/yr. Nursing Homes cost around $100K/yr. If you have a home that is paid for, then in-home assistance will likely cost you less than $60K/yr (which is still pricey, but less). I know people with managed care who have difficulty getting all of the tests, second opinions and surgeries that doctors recommend. In some cases, you can get better long term care (depending on your situation) at a fraction of the price in other countries by paying out of pocket. After decades of observation and personal experiences, I am very skeptical of private insurance in America. I spent decades as a small business owner being scammed on medical insurance premiums (not part of group coverage). Now as a Florida resident I'm being scammed on homeowner's and auto insurance premiums due to unchecked litigation, even though I've never had a claim. Thank God I'm self-insured on life insurance, or I'd be getting ripped off on that as well.
Isn't long term care insurance usually pointless because of the complex criteria needed to qualify for the pay out and people usually never meet those criteria? The other problem is the person has to pay the premium roughly for the rest of their lives even after they meet the pay out criteria. Usually it is better to invest the money to self insure, rather than pay into long term care schemes.
I can understand why people think this, but consider if you have a long term care event during a recession in the market - would you pull the money from your portfolio when it’s 40% down and you also have to consider taxes. LTC is tax free and it doesn’t matter what’s happening in the market. Look for policies that your doctor makes final determination and when 2 of 6 indicators for living are failed it will pay out. Also look for cash reimbursement- not receipts for reimbursement. I still think ltc makes sense in many situations
@@YourRichAuntie that is a lot of ifs and corner case scenarios. What percentage of time is the market down 40%? When the representatives were pitching LTC at my company's benefits webinar, LTC sounded very expensive and extremely hard to qualify for particularly when you consider how long you have to pay in(like 30 years) for. Don't most people surrender their LTC because they figure out the benefits just don't justify the costs?
@@nathaniverson Many people end up surrendering the policies because the companies jack the price. Many years ago, companies sold LTC policies and the actuaries got the numbers wrong. So as a result, many of these companies had to raise rates which caused people to relinquish the policies. Those policies are rarely sold now - most LTC policies are tied to life insurance. You're basically accelerating the death benefit if you have an LTC event and you don't pay on those policies forever. I honestly wouldn't buy LTC from a company benefits webinar - they usually offer the worst of the worst. Talk to an insurance specialist or an advisor that is licensed for insurance and be sure to understand how they are compensated if they provide a policy.
Great video! Just curious, do you use any of the standard guidelines for deciding how much a person needs for retirement (4% withdrawal, 25x income, etc.)? The amounts you talk about for it being safe to reduce contributions seem really tilted toward high cost of living areas (which does make sense considering the income required to accrue those amounts). Thanks!
It’s part art and science - 4% withdrawals really falls apart in super high cost of living areas like San Francisco. Interesting point though. I was trained and spent my career in a high cost of living area so my default is to tilt towards using harder guidelines to assess peoples retirement plans
Don't confuse "retirement account" statistics with people statistics. People often have multiple accounts, especially if they are older and/or aggressive savers. I currently have four retirement accounts at 3 different institutions - 401(k), rollover pre-tax IRA, rollover Roth IRA, and contributory Roth IRA. None of them have $1,000,000.
Excellent point - thanks for pointing this out
If you fall in this scenario, it sounds like meet the company match and put the rest of money in a brokerage account where taxes would be 15% for capital gains tax. Do I have that right?
Could be. If the person has low/no savings, we'd start there, but usually, savings are just fine. We could beef up the brokerage account, participate in some real estate transactions, or look at private equity/hedge funds or venture capital moonshots
What about people like me who are sitting in a homeless shelter at 25 years old. I achieved financial freedom by my early 60’s but was able to retire early. I plan to have more by age 67, but all do not have perfect trajectory. Real life has ups and downs, but financial freedom is available to everyone.
Congratulations on reaching financial freedom!
Yes! More control in assets other than retirement accounts. Some have only 6% of NW in RAs but retired early.
Yes, this is true. For extremely wealthy people, only a small percentage of their net worth is in retirement accounts
Semi retired myself at 50, I'm going to let my roth and IRA mellow for 9 years. I've got almost 400k in there, and 200 of equity in my house. Im not going to work a corporate grind until I can't enjoy myself. I would have probably given my company 5 more years, but the package was too sweet to pass up.
Why is there always so much emphasis on people that retire with millions? You said only 10% will, but what about the 90%. Many have struggled to make ends meet for decades and will never have that kind of money. I would like to hear more realistic scenarios in retirement. Maybe someone who is 65 and only has $250,000 at retirement. How do they manage that to live comfortably. Thanks!
Thank you for the feedback and I’ll consider doing a follow up video to show these numbers 😃
Retire with no debt and don’t live in high cost states and you will be fine retiring with $250,000.
you won’t
If you retire at age 65 with $250,000, you are actually doing better than most even though financial planners will tell you it's not enough (for me personally it's not enough, but if I were thrust into that situation I could make it work). If this is your situation though, you can manange to live comfortably on that. You need to make sure that you are debt free by then including a paid-for house in an area that won't kill you with property taxes. If you are single, the average SS monthly payment is about $2,400. If you take 5% of your $250,000, that's another $1,041 a month, so a little over $3,400 a month to live on. Doable if you are debt free and don't live in a high cost of living area. How do I know it's doable? Because millions of retirees live on that and less.
@@2012srpThe median Social Security payment is closer to $1,900.
Are you also saying that as you’ve achieved financial security for your retirement, you now have the opportunity to enjoy a more comfortable lifestyle.; using your surplus funds to enhance your experiences, whether through travel, hobbies, or other enriching activities?
Often these folks already have the resources to do that. They can use the extra money to diversify investment outside of 401k accounts
We met all those criteria (for income, saving, max SS benefits, no kids, etc.) I stopped doing Roth conversions after making sure our Roth accounts had over $1M in them. We will be making sizable donations to universities and other charities, and they don't pay taxes on gifts made from IRAs. So there's no need for me to incur the tax burden during my lifetime. (So why do I still sweat spending $18 on a cocktail?)
Thanks for sharing your story - and totally confirming that there are folks out there that share this situation!
Hi again, you mentioned ltc can easily wipe you. So essentially having ltc plan is like protection for your assets. Do you know if ACA offers ltc plans?
I don't believe the ACA offers Long Term Care. It's still the domain of private industry and it's a bit of the wild west. You have to know what you're looking for and the pros/cons and/or work with an agent you really trust to recommend the right product for your needs
@@YourRichAuntie you're right. I am almost certain aca doesn't offer LTC. LTC is medicaid based. Medicaid looks at income and assets. Aca is only income based.
Hi rich autie, do you usually suggest who are at 59.5 age or age 60 to start moving portions of their 401k to roth , over 10 years or so? Let's assume they have 1 million, 3 Million, or even 5million at age 59.5. I always think of these hypothetical situations when i get to that age. The purpose of this is minimize rmd.
I can’t say what I’d advise here without seeing a persons total porfolio and hearing their plans. If they’re still working this will drive up their income significantly. If they’re no longer working it may make sense. I wouldn’t advise without knowing more and gettingn an accountant in
That RMD in the future is going to be pretty substantial if they keep working to 67. Also, a healthy charity donation or happy nieces and nephews 😂
That’s why we have to ease off the traditional 401k contributions. They can do a qualified charitable distribution or push social security to 70 and take their traditional 401k contributions 67-70 to use up some of their resources
@@YourRichAuntieFor the few clients that’s been in this situation, no heirs/legacy concerns. What have been their motives to continue working to a traditional retirement age 65/67? Seeing as hypothetically, income and resources are more than adequate to stop earlier? More money versus the sands of time left in the hourglass ⌛️.
They genuinely like their jobs or trained for many years to work in their career so they want to work as long as possible. Early retirement is a dream for many but the reality is quite stark when all your friends are still working and you don’t have enough to fill your days. It’s different for different folks - I can see myself working until 67 even though I really don’t have to
@@YourRichAuntie Thanks, appreciate the reply. We all have to retire at some time, by will or by force. Seeing many people not live long enough to fulfill their post work dreams has a profound effect. Also the fear of an unregulated life schedule is terrifying to many. The psychological impact needs to discussed more in my opinion.
I once told a 62 year old worker that his future 401K contributions wouldn't matter much. At that time you already have ~95% of everything you're going to have. Future contributions won't change your retirement lifestyle by much or at all
This is interesting….this might be somewhat applicable to us. My husband is 47 and we have around $750,000 in retirement accounts but he also has a really great pension he’ll be getting. I feel like we’re retirement rich but that’s about it! We’re not crazy high earners but have always just saved. (Plus we have four kids🤣)I feel like I have no idea where we would save if not in retirement accounts. I want the most tax efficient way to save and I feel like those are. But maybe it’s still an unknown but they could change tax rules on everything: capital gains and real estate, etc., etc.
Congratulations on your retirement savings!! Four kids changes everything - usually parents want to be able to help adult children in early adult years and that can put a serious dent in retirement savings. If I had four kids I’d keep saving and plan on working until my late 60s to help them if necessary
If was her at 47 and with the tax changes...I would do upto the match but I would do some small trad roth/401k conversions using separate non retirement money to pay the taxes for a few years so that by the time you are like mid 50's your money continues to grow tax free...the no rmd apply...hopefully you have more in the roth ira and a lesser amount in the traditional ira and 401k that you can take a % out to live on and lower that balance before the rmd start but you also have roth ira tax free that you can use if you choose and not affect your tax situation.
Could be an option - I’d have to know more details before making any recommendation
My wife and I have a net worth of 1.4 million with half of that in our retirement accounts. I am concerned that we are putting too much into retirement and would like to put more in liquid investment accounts and real estate so that we can retire early. We are in our early 40's.
It’s a valid concern given your circumstances. Do you have access to a CFP who can sit with you review your situation and offer advice? If you don’t ask people in their network who their advisors are and are they happy. Also check out any and all advisors on brokercheck.com to make sure they don’t have a background
Do you have a website? bc I fit this ❤️🤑
www.robinpatin.com
@@YourRichAuntie thanks! 🙏🏾
Job seekers need to study the retirement benefits and investment options offered by the prospective employer. This is overlooked by everyone. It is important. 401k's are a poor investment vehicle. The taxes don't go away. They are deferred. Take a job with a Roth ira plan and automate contributions with company match. Understand trusts and use them if applicable to protect your money. You have options to shield yourself from monetary landmines that don't include complicated products such as life insurance and supplemental healthcare. There is no policy that will cover wasting diseases and nursing homes. Make the United States Congress your tax advisor.
Thanks for the comment
Roth and 401k taxes are the same in the end.
@@raiden031 not quite. ROTH you're paying taxes on the front end (now) and never again. Traditional 401K you're paying on the back end when you take a withdrawal. Seeing that taxes will be higher in the future, many consider the ROTH the better option
I don’t understand what you are saying when you assert that somebody age 67 who has $1M saved is screwed (or whatever you actually said). There is nothing wrong with that situation.
Hi - I did say if you have $1M at 67 you’re screwed. I have a video if called “$1M in a retirement account leads to a BROKE retirement” Check it out 🙂
I'm probably one of your unicorns but I don't fit the demographic that you described. I was in corporate finance for 10 years before becoming a "lone wolf" (business owner) for 30 years and a family man. Basically SEP-IRAs can be much better for fueling a retirement nest egg than a corporate salary and company match. In the end, the focus shouldn't be on an IRA balance. It should be on reliable monthly income from several sources. The sooner people understand that the better.
Thanks for sharing that opinion!
@@YourRichAuntieMy point was that 4% of a hefty IRA balance plus Social Security is just one of many ways to win the Retirement/Financial Freedom game. Since less than 10% of retirees have a retirement account balance over $1M, people need to get a head start on developing other income sources for retirement so they can meet or exceed their cash flow needs even if they don't have a 7 figure portfolio.
You had me at the start with saying they should stop saving for retirement if they have $1 million at age 47. But, why on earth would they be required to work till age 67 for this plan to work out? The $1 million would be $4.6 million at a 8% growth rate. You say they live frugally then how are they ever going to spend all that money? Especially with social security. They should be thinking about early retirement at maybe 55 or so. If they want to work longer then it's fine, but not necessary for a healthy retirement.
What funds will they live on at 55? You can’t make penalty free withdrawals until 59.5. Also they aren’t stopping contributions - they’re simply contributing up to the match until age 67. Most people don’t want to retire early even if they have the means to do so. It’s more about having control over the type of work you do and how hard you work.
@@YourRichAuntie Rule of 55, you also said they're making back Roth contributions. Lots of options. People get hung up on the 10% penalty, but if they need to take out say $100k per year that's $10k. That's only .5% of a $2 million portfolio. I get it, they may want to work longer, but it just means they'll die with a lot of money.
Not everybody can abide by the strict rules of 55 and the penalty is large if we get it wrong so I rarely do it. This is not the plan for people that want to "retire early". If you start removing money at 55, you lose the awesome power of compound interest so suddenly the money isn't quite enough. You really do need to work until 67 - especially if you're living in a high cost of living area
Tax man will find a way to get some of that money. A life crisis will knock that money down quickly. As a nurse, I’ve seen healthy ppl develop major medical conditions that crushed their retirement money and savings. Planning only works but so far.
Proper tax planning can prevent the government from getting a lot of that money - people do tax prevention all the time. Health is a major component to retirement and you're correct - we can face dramatic changes to health in a moment. People face health challenges with and without money and most folks would much rather face health challenges WITH resources and money to call on
What advice would you give someone who is on track and has just at a million at 60 yrs old then gets laid off unexpectedly and cannot find a decent job due to age discrimination? Come on, a 47 yr old with a million dollars no kids and planning to work to 67 does not need advice.
Honestly I’d advise to go and see a certified financial planner. I don’t give custom advice on this channel, I have to speak in generalities 🙂
$1million is a $40k annual draw. Not bad but not good either
Not bad but not great either - see my video "Why $1,000,000 means a BROKE retirement" for further details
40K annual withdrawal plus SS and no debt translate into a very nice retirement.
@@pgppe9488 perhaps. What if you're single and not married? Often people who can live on Social Security are thinking of two incomes, not one
The proper response is “it could be not good” or “it could be good”. It really depends on the so many factors that you just can’t say whether it’s good or bad.
Not too many folks with 1M asset at 47....Is there ever a case for too much money for retirement? Human greed / insecurity is limitless at times
Yes, this is indeed a rare scenario - though I think we will encounter it more as people have fewer children in the future. I mention this in the video. I’ve encountered this scenario maybe 18 times total in my career
I don’t quite understand the premise that having more than a million dollars in retirement is a bad thing.
Having $1mil in your 40s that grows into like 5mil could be a bad thing
It’s not bad, but you can’t access it until 59.5, you have limited investment options and much of it is taxable at a higher tax rate upon withdrawal
Your Rich Auntie is correct also keep in mind once you are 73 or so the rmd applies in which you are required to take a % out and that can be easily be over 20%+ of the balance...you are facing a large tax bill which will affect you paying taxes on your ss money...affect the medicare premiums causing you to pay more for the same coverage.... yes I have correct myself when I checked the ages again for rdm...if it was from ages 72-74 the % was higher the 4% started at 75. Thanks Auntie!
@@snow40741 RMDs are typically about 4% of the balance, maybe a little more, but true about medicare
@@YourRichAuntie You can access funds in an IRA and the amount invested is not taxable only the gain on the investment. You could also borrow from the investment if in a 401K if needed but being clear having a million plus in a retirement accounts is hell a lot better than having a couple hundred thousand no matter what the tax situation.
If you have a million dollars at 47, why would you work until 67? 55 should be the goal in this case...or even earlier if they want to be a tad frugal. If you have a million dollars at 47, it is reasonable for that to double in 7 years, so by 54 you could have 2 million dollars.A 5% draw on 2 million dollars is $100,000. Easy to live on that if debt free in most areas of the country, and that doesn't even include Social Security which will come later. If this person wanted to work until 62, that's enough time for it to double again, so perhaps now $4 million. If they had $4 million at age 62, why in the world would they want to work for 5 more years to age 67? I get that some people like to work, but I don't understand wanting to work when you clearly don't have to. $200,000 a year income now based on $4 million dollars in retirement accounts and then another $30-$60K a year if married and taking SS at 62. That's more than enough, and WAY more than most retirees have. The median balance in a 401k for ages 55-64 according to Vanguard is $71,168 in 2023. Not enough for what I want to do, but lots of people make it on that and Social Security.
Thanks for your comment! Think about if you’re not married and can’t rely on a second social security income and if you’re living in a high cost of living area - as so many Americans do live in a high cost of living areas. People work because they want to not because they have to all the time. We assume that all Americans hate their jobs, but many Americans love their job and enjoy their work and with good health and luck easily work until 67. They work because they can and they want too 🙂
@@YourRichAuntie I get that some people want to work later than they have to, but I also KNOW that many of them tell themselves that they love it because they didn't set themselves up to be able to retire sooner.
You don’t understand inflation. Someone in mid career now will need several million to retire decades later.
Thats all so very true. That's why I tell clients they can't go out and blow the money. It has to be invested in places outside of a retirement account 😃 and it's only for clients willing to lead a modest lifestyle in retirement
I don't believe you.
Fair enough - prove me wrong 🙂
@@YourRichAuntie I've never had too much fun and never had too much money.
@@mathew3267 very funny!!