Retirement is no different than pre retirement. Its not your income but your spending habits that determine your lifestyle. I have family members that died below the poverty level owing more than their net worth. Made good money their entire careers but lived in debt and above their means so were always in trouble financially. Others made much less but lived debt free and ultimately had a better retirement because of it.
Advice: Upon retirement, do NOT be afraid to spend money. Not stupidly, of course. But your health-ability to spend on what you want will go down as you age. EG: I am renting two motorhomes next summer for a family trip. Total cost: $10k+, and worth every penny. As Carson (from Downton Abby) says, “In the end, memories are all we have.”
Whether you can afford it or not there is no need for expensive taste. You can have just as much fun with fam without tenting motorhomes and give the excess money to the poor where it could be life changing
@@S62r Yeah....because what the poor desperately need are more handouts. No. They have worked all their life to benefit themselves and their family AND has been paying taxes their whole life to fund the welfare programs for the poor. The money if for THEM to enjoy, keep your dirty hands off it.
@@S62r your comment is an exemplary reason why we have to have social security, which should be gotten rid of by the way. People with your thought process and values would starve.
@@S62ror they could spend the money the earned on the things and experience they want. Don’t get me wrong, help those less fortunate but enjoy your own life how you want too.
My parents were afraid to retire when they clearly had plenty to retire on. They're open with their finances and they've told me SS pretty much takes care of 90% of their living expenses. They barely touch their investments. They've slowly begun spending more freely as they've realized they'll likely never run out of money.
fully retired and living off of my dividends. I started investing in 1958 in growth and transitioned 15 yrs ago into dividend aristocrats paying stocks. No regrets and financially free. Life is good while helping the less fortunate.
Staying in broad stock ETFs would most likely have produced greater available spending limits. The aversion to volatility, despite what is probably a very low chance of outliving your money, is understandable.
Insurance broker from Germany here. I just want to say i love your video's aesthetics. I can't comment much on american social security and Roth IRAs etc but the delivery is absolutely on point. Big inspiration. Thank you
@@linh0810But you pay it for everything else. You never actually own a home. Even if you think it’s paid off you rent it from the government in the form of taxes. If you don’t pay they take it.
Taxes pay for civilization. How do you think the roads you use get build and maintained? Police and fire services? The military? The FAA, USDA, FDA, etc. The court system. Storm and sewage management. Public schools. And on and on and on. You have an impact on the world around you and use these shared services as soon as you leave your paid off home or are retired. You're still using services as long as you alive. Those services need to be paid.
Something to keep in mind for couples who are planning on living on their combined social security payments without other investments- when one of you dies, the other will only get the larger check. So, in the example mentioned in this video, the smaller $2000 benefit would go away and the survivor would only have $3000 to live on. That would be a big adjustment if there weren't other assets to make up the difference.
My husband was laid off at age 62 and took his SS as finding a new job in his career would have been difficult, if not impossible. I waited until I was 70. Our combined SS income of $70K annually is enough for us to live a good life. And before we settle into that good life, we are enjoying a GREAT life of full-time traveling and spending an additional $40K a year from our investments to do so for as long as we’re physically able. Waiting was the best thing for ME (since I’m likely to outlive him) and for US.
If I had a dollar for every time my mother-in-law said she was going to outlive my father-in-law I could retire off of just that money. She’s been gone 8 years now and he’s happily re-married. 😂
This is one of the BEST UA-cams on financial retirement. My Simple Plan: I retired at age 72 but started taking SS at FRT (67). My income dropped by 60% upon retirement, but we have NO debt and we were living below our means for many years. I worked until we both could be on Medicare (wife is younger) and I saved/invested 35% for the last ten years. By living below our means, we transitioned successfully into retirement. I simply monitor our bank accounts each month. They have still been going up slightly. I haven’t been “fun spending” as much, but all is well. I am using QCD’s to cover my RMD’s (to Teen Challenge Ministry). James’ advice is solid.
Enjoy your videos. I’m lucky, I’m retiring next year at 59 with 2 pensions that will pay me $9500 a month, 850K in savings/401K/403B and a paid for Condo. I’ll collect SS early and collect $2800 a month. My health benefits are picked up by the union and all I’ll pay is copayments until 65. I’ll also pay no state or city taxes on my pensions.
I’m retiring at 46, and health insurance (and property taxes) is the reason we won’t be staying the US - combined its $40k per year without even getting out of bed.
Agreed. We want retire at 53 & 55. We can live well of a budget of 4K/month if we leave the USA for 6-8 months/year. We would also need to get an international Healthcare plan.That is our plan for now. 😀
My husband and I are aiming for around $10k a month. We want to travel and enjoy our retirement, not just get by. But when I start crunching the numbers, it feels like a lot more might be needed, especially with healthcare costs rising.
Very nicely done video, showing, at a high level, the way social security decisions interact with portfolio needs… without getting caught in the weeds. One set of “weeds” - particularly for folks focusing on that first $5K/mo scenario since it has minimal portfolio needs - don’t forget to factor in onetime expenses like replacing the roof on your home or replacing a car. No portfolio means you must have a larger emergency fund to cover these needs.
also in the first scenario I’d consider if they want to retire at 65, don’t fuss the complexity of a constnatly monitored portfolio caused by lower SS. Instead, fund the 1.8 years directly - about $100k - and then flip to full SS at 66.8
The government also takes Part B Medicare premiums out of your social security check, for 2024 that comes to $175 a month and you have to pay Part B premiums. Then you need a Medigap policy and a drug plan....That's another $200 a month.
I love how "just wait to collect Social Security and keep working" makes it sound like everyone has a choice. Ageism is real, companies love to lay off older workers and hire new college grads. If you can wait, and stay employed, you are very lucky. If you cannot delay, take it earlier and cut expenses where you can. Rarely in these types of videos does anyone talk about how Social Security is taxable income.
Also, not to mention whether S.S.A. will still have the funding to sustain the payout ... don't they keep saying that S.S. Reserve Fund is going to run out by 2037 (or some years even sooner--everyone quotes a different number)?!?!? Or even if not as bad, I heard that there will be a 25% reduction of benefits in a few years ............ 🤔
Easy to work until 70 if you work in an airconditioned office, sitting in front of a computer. Tougher for those of us who actually physically work for a living! Climbing up on rooftops in hundred degree weather, collecting garbage, hanging drywall, fishermen hauling heavy nets, scrubbing floors, stocking shelves, installing and repairing plumbing! The body breaks down. I've watched too many people die within a year or two after retiring, including my dad.
@@ExtraordinaryLivingWell, if they let the fund run out it will mean lower benefits, for everyone. Won't matter whether you are already retired or not. The system can't go broke because working folks are paying into it every day, but the reserve fund running out will mean the can't pay full promised amounts. The solution is simple, eliminate the cap on income subject to SS tax. But they won't do it (at least until the last minute) because those rich people donate a lot of money to political campaigns.....but WE vote!
Great video. I retired from the Navy in 2021 with nearly 30 years on active duty. My wife died on active duty in 2014. Last year (2022) at age 62 I started to take survivor benefits until I turn 70 when I would take my Social Security. This limits me to about 20K in earnings before SS is adversely affected. I have a pension and have money saved through TSP, etc.
Sorry to hear about your wife :( 21 year retired vet myself but no TSP was offered back then. Got out, got a good job in healthcare (IT), just retired from the company with a 2nd pension. It's too bad pensions have gone the way of the dinosaur.
Can you explain how you do this? My home is paid off and I am spending no less than $2,500 in expenses per month. This includes health insurance costs. It does not include the additional cost of wanting to have some kind of life. For that, I would add no less than $500 per month, which really isn't very much.
That's amazing. I can't without making some major changes like relocating, having a paid off home and getting a roommate. Just the cost of healthcare would take a huge chunk out of that $2K, much less housing, food, transportation and communication. If I don't have a choice then I'd have to find a way.
‘Guessing if you’re living comfortably on $2K/month, you’re also not likely a good candidate in the first place for a quality Financial Planner relationship.
I live in a state where social security benefits is taxed. If you have the option of waiting a few years more before retiring, and that will greatly improve your situation, then do it. Waiting is not always possible and its harder to go back to work in your retirement years.
That hurts. I live in a state that has no tax on any retirement income (SS, pension, or 401K) up to some big number. Any income on top of that is taxed as if there was no retirement. That is, income starts at zero and all deductions are taken off the income, not the retirement. It makes a huge difference.
Excellent videos and format. Very clarifying and helpful. I wonder if you've done any videos looking at moving to lower cost of living countries with lower tax rates. The tax benefits alone would offset millions in portfolio savings, and the lower cost of living can increase lifestyle.
Basically, take your annual expenditures, subtract income sources like social security, multiply by 30x and that is what you need in your portfolio. That's reasonably conservative. Multiple by 20x is aggressive. The "4% rule" is 25x.
I say divide by the number of years you anticipate living in retirement, or 30, whichever is smaller. Just redo the calculation each year. The most likely situation for those following 4% or lower percentage is that they'll die and have more money than when they started. That's fine if you have beneficiaries.
@TheFirstRealChewy It's also fine if you want to play it safe! How would you like to be a 90'something and live through the past three years of run away Inflation? Better to die with money in the bank. If not Beneficiaries then at least, Charity....
Thank you for talking about something other than most the people talk about million dollar people and $500,000 people now you’re getting to the point where average working people have to survive on a fixed income. This is the kind of program I like to hear because I’m a working class person I will never see $1 million on a high income to be able to retire on Manufac. I still have to work I’m 78 years old. Luckily my house is in good shape and I intend to keep going as long as possible, but we are the average people the 5000 $15,000 people that don’t have squat as it is and what am I able to put anything aside because of all the cost of trying to raise children pay for a house and cars no 9 yards. Thank you very much for sending this across. Keep up your programming keep up your programming because we like listening to your program. When you’re talk down to common sense people are with them average income type well done take care of young man.
Excellent video, it might have been interesting to have contrasted the amounts needed at 4% and 6% return as well, just to show how big of a difference rate of return assumptions can make.
First example… seems that the drop of social security by taking it early isn’t worth it. They would only need $108k of money to spend in the 1.8 years before social security starts, and they’d be on $5k/month throughout. Much cheaper than accepting that large a SS deduction.
I am living in San Jose, CA. All single family homes in San Jose are over $1M, but they all are very old. Will spend a lot of $ for repair. If I don’t have $1M cash, I never want to think about buying a house. I hate debt.
James, I have much respect and admiration for your fine work and I look forward to your videos each week. This is another well prepared, educational and thorough video. You have built a reputation and brand based on competence, care and custom client solutions. You’re obviously an accomplished professional and you pride yourself on getting the details perfect - right down to the your meticulous appearance, color coordinated set and presentation. With that said, I must admit that I’m relieved to know, after seeing your handwriting, that you’re human after all. Nice work!
Another great video James. Have you done a video on determining one's budget while in retirement? Sure, $10k/mo sounds good but will I really NEED that much.
The simpliest way is to split your portfolio into two. One split takes your from 55 to the age you collect social security, ex 65. The next split takes you from 65 to EOL. You'll want to go with a lower rate of return unless your investments are returning much more than 4% over inflation.
How long do you need the money to last. If 20-25 years, then 5% should be fine. Even if your investments grow only to match inflation, it should last 20 years at 5%. The earlier you retire, the lower you want that percent to be since your retirement years is likely to be longer. If retiring at 70, then 20 years of retirement puts you at 90 before the money runs out (technically you'd still have social security benefits).
Fact is, 5k is way different to different people. A lot of people will look at this and go, "Wow! I never MADE 5k a month in my life...I can only wish!" While others will go, "I don't know how anyone could survive!"
great video. what about health care cost if you retire at 60 or 62 and have to pay for that til 65? live off portfolio for 3-5 yrs, not claiming SS til 65 or 67..
Your videos are so incredibly helpful. My understanding for retirement has been illuminated. I enjoy your calm friendly voice and how you share your knowledge in an easy to understand way. I’m implementing retirement strategies right away. Thank you so very much! Another perk of these videos is you have a pleasant face. I think a light green or blue shirt would make your eyes pop. Just saying…😊
Hitting debt free this year. I could easily live on 3k a month, 5k would be better, 10k would be great. In todays dollars. So. Double it by the time I retire. I'm shooting for $5-10 million invested before 60.
Will the ss stop increasing if you loose your job at any age before retirement? Will it resume again once you have a job? For instance, if I stop working at 56 for a year and the assume amount to receive at 67 is. $1000. Will it decrease because I stop working for a year?
Very informative exercise! Assuming one were to retire at 55 instead of 65, how would this affect the equation assuming 5% annually would need to be withdrawn from the portfolio? This would obviously add 10 additional years of withdrawals without being able to collect social security benefits. Appreciate the insight and info!
There are a lot of personal circumstances that would modify these numbers. What if you are single instead of married? What if you are collecting qualified dividends from a brokerage account instead of withdrawing money from an IRA? What if you own a building or two? What if you want to continue saving substantial amounts while in retirement? Everyone has to run the numbers for their circumstances.
Kind of misses the point of the video - as stated over and over - your situation might vary. The point I took away? The general way different social security and spending needs interact with portfolio needs. This video did that very nicely without getting caught in the weeds.
thank you James for all the knowledge you share on this channel. i really appreciate it. would you please consider do more examples of SINGLE people instead of couples? I know there are a lot more people that are not married and will not be married in their retirement for sure in the upcoming years. thank you.
I have plenty of money in my portfolio to provide my monthly income, but I always take into account life span. For that reason I’m taking my money from the feds at 65…..once either my wife dies or I die, it takes $1500 a month away from our income or 33%. I want to get my money from the feds
MWS, interesting. Your scenario is similar to mine but we came to different decisions. Since we didn't need the SS income at retirement to pay the bills we decided to wait til 70. It made more sense to us also because of the SS survivor benefit which would be higher when it's needed more if I died first. We look at it as an insurance benefit when we need it. I'm quite disciplined when it comes to spending, saving, and investing and considered drawing at 62 and investing it. We ran the numbers with our accountant and he told us that if anyone can do it we could. But in the thirty years he's been advising people in retirement he's never seen a single client who pulled it off successfully and was able to do better long term by drawing at 62. With the exception of those who died before 70. Both wife and I have longevity, which is no guarantee, so that ultimately helped with our decision.
What about a retirement plan that takes into account when one spouse passes away and then social security payments are slashed into half or almost half? The widow’s penalty as some refer to the phenomenon.
Yes, you should account for that. In this example she would get whatever is benefits is, plus pulling the same amount from their portfolio would result in a tax hike. So she will want to reduce her expenses to offset the taxes and loss of income if possible.
My mom got my stepdad's s.s. when he passed away earlier this year so she is getting about $2,075 a month now. She used to get half of what he got, she now doesn't get that half anymore. She gets $ from a small annuity he took out, about $600 a month. She also has a small pension from NYC and she has health benefits from NYC which are very good benefits. She also gets another $300 from another annuity she had taken out some years ago.
I hear you. The market crashed a month after I retired. I've taken money out of my retirement account for only one month. I don't want to sell low. I've been living off my emergency fund instead.
Yo, my husband and I are both working making good money. We don't even spend $5,000 a month even though we dine out every Friday and buy groceries about twice a week. What are you spending all that money? Biggest spending we have every year is overseas travel. Home and cars are fully paid, no debts.
Great video! I wonder, with the 5% withdrawal rate are you planning on never running out of money no matter how long you live? What’s the average interest rate you are planning on to keep enough in the portfolio to continue to withdrawal 5%?
Buy a 30 year treasury @ the current 4.95% and you'll never have to touch the $1 million. Decent bond interest rate change all the previous guesstimates
People severely underestimate the health care costs. If you need to go to a senior home or worse yet, if you need full time care, that can exceed a hundred thousand per year. Depending on your risk tolerance, you might not even want to withdraw 5% annually. A more conservative withdrawal of 4% is probably safer. You may think 1% is not a big difference, but in the world of math, it makes a huge difference.
Yes and no. If you are broke, government picks up the tab for nursing homes. But that said, the kind of nursing homes that take the govt pay schedule are about as bad as they get. You'll be lucky not to be getting spaghetti or spam every day. They try to make up the differences by billing for medical services. I'll stop there.
Out of curiosity, what is the likelihood of social security existing in 30 years? I don't feel confident that I'd be able to count on it with regards to my own retirement plans
100% When people say Social Security is going to "run out" they don't mean it will go away, they mean it will shift to a PAYG (pay as you go) system. That means people on Social Security will see a 10-15% drop in benefits.
You don't want to be 90 with $9mn in the bank account having never lived or taken a vacation. But you want to burn your $9m before 70 either. So you really need to draw down while having money and enough to even leave for your kids. So you have to plan. After retirement I think most costs will be property taxes on home (say $15k-$20k/year, $1500/month) + food/groceries ($750/month) + health costs ($1000/month) + entertainment ($1500/month) , so about $5k/month on a decent life style or $10k/month on a much nicer lifestyle . Medicare hopefully covers most health cost, social security covers food/groceries. So basically you need to pull from interest on portfolio. If you have a nice $5m portfolio at 65, you can get easily 8%-10% ROI on avg for about $400k-$500k/year income from it which should allow you to nicely live and have the $5m grow to suit your life for 30y before it all ends
Good examples that show with decent Social Security you may not be destitute and on the street, but with time and persistent investing to put together a few million in retirement, your future can indeed by "comfortable". Though, when you example above-average Social Security incomes like $3000 and $2000 at FRA, you need to work backwards from PIA to AIME to understand the income downgrade (or upgrade) that is being proposed. Back fitting AIME for those payouts $3000 => ~$7400, $2000 => ~$4100. A combined AIME of over $11,500. ~$140K/year "Averaged Indexed Annual Income" during their earning years. Going from $140K/year average gross to $60K net is going to be quite brutal. Especially as most people tend to have proportionally higher incomes in their later years. Concerns regarding end of life healthcare or assisted living for a few years would be significant. Never mind the loss of the lower earner social security income when one partner passes and the other still has to live for a decade or more. More is better!
I think flow of income ( pension) is primarily important. Of course, you need retirement investments After tax savings and investments are needed too for lump sum expenditures that rarely happens
I have seen many of your videos on how you calculate retirement scenarios, but I have a pension and was wondering how you calculate the value of ongoing pension payments and whether you have enough to retire.
Basically add pension after social security (with similar tax considerations…and adjust the tax rate used upwards to factor in the higher total income). Then subtract the monthly after tax amount for BOTH SS and pension from your monthly need. Finally do the same calculation as shown in the video to calculate the monthly and annual gap with a 5% withdrawal rate.
I'm very comfortable at $31K/year and I don't spend half of it. I've been frugal all my life and it's a difficult habit to change. I just don't want to buy anything. I guess it makes my heirs happy. My NW is $500K and rising.
One thing I would add. Anyone that expects to receive 10K or 15K per month most likely has some of their investments in after tax accounts that will not be taxed when withdrawn.
Can you run a scenario where I want to live on 8500 a month and receive a total of $62,004 yr SS + 5,000 pension yr for a total of $67,004 yr. How large a portfolio would I have to have? I am 69 and on SS at $3,145 a month my wife is 65 and SS is $2,022 a month
I always like these UA-cam videos of some very youthful person explaining the intricacy’s of retirement planning and spending. I guess we just need to trust his vast experience and knowledge on the subject!😢
Yes, he studied the topics, trained on the topics, then does hundreds of plans for individuals and talks to hundreds of retirees regularly. Also using the same software as other planners. Is passionate about the topics and runs a successful CFP form. I'd say he is qualified despite his age.
Depending solely on 2 Social Securities is risky & not realistic. My husband just passed away this year at 65. The average age of widows in the US is 59yrs old. 😔
$60k/year should be the minimum target. $5k/month. This assumes you have no mortgage and live in a low cost state. Im not counting on SS to save me with the govt debt issues.
$5k might be enough if you’re living modestly in a low-cost area, but $10k or $15k gives you more flexibility, especially if you want to travel or live in a more expensive city.
Most of the retirement videos assume that you want to maintain the wealth you have accumulated while drawing from it in retirement. What if you don't have any heirs and really want to spend the greatest bulk of it. In other words if we have a retirement portfolio of 2.5 million and I retire at 61 and my wife who is 5 years younger retires at 59.5. How much do we need to spend a year so that our money lasts us but we are not leaving a huge pile of cash for distant relatives we barely know?
excellent video, could you please break down a video on someone who wants to retire at 62,has pension,401k and roth ira. the wife is on disability for lewy body dementia, ssdisabity the home is paid for, could you do a video on this situation? general terms we spend about 4500 expenses. parkinson is not cheap and finding good insurance.
Great Video. I've a question on a bit different subject but within your expertise. I've had a capital gain taxes from investment this year. I also bought a rental property as well (25% downpayment). To offset capital gain taxes from stocks/investments, I want to use full rental property depreciation (all at once not 27.5 yrs). Is it doable? Please advise as my tax rate will be higher due to short term capital gains + W2 income. I want to avoid that for this year.
That’s not how depreciation works. The best you can do is make the property a short-term rental on Airbnb for this year only (you can convert it back to a regular rental next year), and meet the other requirements to take a 35% depreciation. Look up the special rules on short-term rental depreciation.
Question, when we talk about retirement income in these scenarios, are they future dollars or present dollars? It's never clear to me whether I should be adjusting for inflation or not. Thanks for the informative video!
Let me start, that I do think your videos are quite clear. However I think you might have missed that people's portfolios could be of several types. First, they could have money that has already been taxed. This could be cash. Or mutual funds that have done annual capital gains. Second, they could have money in Roths. Again this is likely not going to be taxed. Only the third, traditional 401K or IRA are going to be taxed on withdrawal. So, you're how large a portfolio you need will change depending on its source.
If you have access to an HSA the best thing you can do is max that baby OUT! It’s triple tax advantaged and will help carry you through retirement because most folks largest bill in retirement are those medical bills! Not financial advice, but I believe most advisors would agree.
Retirement is no different than pre retirement. Its not your income but your spending habits that determine your lifestyle.
I have family members that died below the poverty level owing more than their net worth. Made good money their entire careers but lived in debt and above their means so were always in trouble financially. Others made much less but lived debt free and ultimately had a better retirement because of it.
Advice: Upon retirement, do NOT be afraid to spend money. Not stupidly, of course. But your health-ability to spend on what you want will go down as you age. EG: I am renting two motorhomes next summer for a family trip. Total cost: $10k+, and worth every penny.
As Carson (from Downton Abby) says, “In the end, memories are all we have.”
Whether you can afford it or not there is no need for expensive taste. You can have just as much fun with fam without tenting motorhomes and give the excess money to the poor where it could be life changing
@@S62r Yeah....because what the poor desperately need are more handouts. No. They have worked all their life to benefit themselves and their family AND has been paying taxes their whole life to fund the welfare programs for the poor. The money if for THEM to enjoy, keep your dirty hands off it.
@@S62r your comment is an exemplary reason why we have to have social security, which should be gotten rid of by the way. People with your thought process and values would starve.
@@S62ror they could spend the money the earned on the things and experience they want.
Don’t get me wrong, help those less fortunate but enjoy your own life how you want too.
My parents were afraid to retire when they clearly had plenty to retire on. They're open with their finances and they've told me SS pretty much takes care of 90% of their living expenses. They barely touch their investments. They've slowly begun spending more freely as they've realized they'll likely never run out of money.
fully retired and living off of my dividends. I started investing in 1958 in growth and transitioned 15 yrs ago into dividend aristocrats paying stocks. No regrets and financially free. Life is good while helping the less fortunate.
Dividends are lame.
Haha read it as retired since 1958... Good stuff!
Haha read it as retired since 1958... Good stuff!
Haha read it as retired since 1958... Good stuff!
Staying in broad stock ETFs would most likely have produced greater available spending limits. The aversion to volatility, despite what is probably a very low chance of outliving your money, is understandable.
Insurance broker from Germany here. I just want to say i love your video's aesthetics. I can't comment much on american social security and Roth IRAs etc but the delivery is absolutely on point. Big inspiration. Thank you
The fact that they tax our social security benefits is absolutely bonkers.
Well, you didn't pay income tax for your SS "contribution"
Why would you be taxed on FICA? The government gets to borrow it for decades for free before they have to provide the promised services.
@@linh0810But you pay it for everything else. You never actually own a home. Even if you think it’s paid off you rent it from the government in the form of taxes. If you don’t pay they take it.
Taxes pay for civilization. How do you think the roads you use get build and maintained? Police and fire services? The military? The FAA, USDA, FDA, etc. The court system. Storm and sewage management. Public schools. And on and on and on.
You have an impact on the world around you and use these shared services as soon as you leave your paid off home or are retired. You're still using services as long as you alive. Those services need to be paid.
Thank Reagan for taxing social security. He signed that legislation in 1983.
Something to keep in mind for couples who are planning on living on their combined social security payments without other investments- when one of you dies, the other will only get the larger check. So, in the example mentioned in this video, the smaller $2000 benefit would go away and the survivor would only have $3000 to live on. That would be a big adjustment if there weren't other assets to make up the difference.
Excellent Point.
My husband was laid off at age 62 and took his SS as finding a new job in his career would have been difficult, if not impossible. I waited until I was 70. Our combined SS income of $70K annually is enough for us to live a good life. And before we settle into that good life, we are enjoying a GREAT life of full-time traveling and spending an additional $40K a year from our investments to do so for as long as we’re physically able. Waiting was the best thing for ME (since I’m likely to outlive him) and for US.
If I had a dollar for every time my mother-in-law said she was going to outlive my father-in-law I could retire off of just that money. She’s been gone 8 years now and he’s happily re-married. 😂
@@edhcb9359😂
This is one of the BEST UA-cams on financial retirement.
My Simple Plan:
I retired at age 72 but started taking SS at FRT (67).
My income dropped by 60% upon retirement, but we have NO debt and we were living below our means for many years. I worked until we both could be on Medicare (wife is younger) and I saved/invested 35% for the last ten years. By living below our means, we transitioned successfully into retirement. I simply monitor our bank accounts each month. They have still been going up slightly. I haven’t been “fun spending” as much, but all is well. I am using QCD’s to cover my RMD’s (to Teen Challenge Ministry).
James’ advice is solid.
What are QCDs?
Qualified Charitable Donations@@ladylove34
Enjoy your videos. I’m lucky, I’m retiring next year at 59 with 2 pensions that will pay me $9500 a month, 850K in savings/401K/403B and a paid for Condo. I’ll collect SS early and collect $2800 a month. My health benefits are picked up by the union and all I’ll pay is copayments until 65. I’ll also pay no state or city taxes on my pensions.
Biggest hurdle retiring at 55 is health insurance.
I’m retiring at 46, and health insurance (and property taxes) is the reason we won’t be staying the US - combined its $40k per year without even getting out of bed.
where you headed?@@O1012-u7q
@@O1012-u7q Yeah, this isn't a bad option and I'm sure we'll see more people do this as the cost of living here continually increases.
Agreed. We want retire at 53 & 55. We can live well of a budget of 4K/month if we leave the USA for 6-8 months/year. We would also need to get an international Healthcare plan.That is our plan for now. 😀
@@O1012-u7qwhat’s your health insurance percentage? How many people?
You put out exceptional videos! They open my eyes to a lot of things I never considered before.
@rootfp - Can you do a similar video but for FIRE? (Ie retiring early and no SS for many years)
Great job 👍
This actually basically shows the whole concept of retirement planning
Thanks, James; your videos are always a special treat of well-constructed financial thinking.
My husband and I are aiming for around $10k a month. We want to travel and enjoy our retirement, not just get by. But when I start crunching the numbers, it feels like a lot more might be needed, especially with healthcare costs rising.
Very nicely done video, showing, at a high level, the way social security decisions interact with portfolio needs… without getting caught in the weeds.
One set of “weeds” - particularly for folks focusing on that first $5K/mo scenario since it has minimal portfolio needs - don’t forget to factor in onetime expenses like replacing the roof on your home or replacing a car. No portfolio means you must have a larger emergency fund to cover these needs.
Good point. Can’t forget to account for those other large expenses.
also in the first scenario I’d consider if they want to retire at 65, don’t fuss the complexity of a constnatly monitored portfolio caused by lower SS. Instead, fund the 1.8 years directly - about $100k - and then flip to full SS at 66.8
The government also takes Part B Medicare premiums out of your social security check, for 2024 that comes to $175 a month and you have to pay Part B premiums. Then you need a Medigap policy and a drug plan....That's another $200 a month.
Have you done a video where people just ignore social security? Then do a range from 45 55 and 65 retirement age
I wish he would. This used to be an early retirement channel but turned into mentioning SS and pensions 😂
I love how "just wait to collect Social Security and keep working" makes it sound like everyone has a choice. Ageism is real, companies love to lay off older workers and hire new college grads.
If you can wait, and stay employed, you are very lucky. If you cannot delay, take it earlier and cut expenses where you can.
Rarely in these types of videos does anyone talk about how Social Security is taxable income.
Not to mention, no way most people want to work until they are 66! this so greatly oversimplifies retirement planning it's ludicrous.
Also, not to mention whether S.S.A. will still have the funding to sustain the payout ... don't they keep saying that S.S. Reserve Fund is going to run out by 2037 (or some years even sooner--everyone quotes a different number)?!?!? Or even if not as bad, I heard that there will be a 25% reduction of benefits in a few years ............ 🤔
@ExtraordinaryLiving
It's "Scare language" they'll find the money.
They're not going to take away SS!
Easy to work until 70 if you work in an airconditioned office, sitting in front of a computer. Tougher for those of us who actually physically work for a living! Climbing up on rooftops in hundred degree weather, collecting garbage, hanging drywall, fishermen hauling heavy nets, scrubbing floors, stocking shelves, installing and repairing plumbing! The body breaks down. I've watched too many people die within a year or two after retiring, including my dad.
@@ExtraordinaryLivingWell, if they let the fund run out it will mean lower benefits, for everyone. Won't matter whether you are already retired or not. The system can't go broke because working folks are paying into it every day, but the reserve fund running out will mean the can't pay full promised amounts. The solution is simple, eliminate the cap on income subject to SS tax. But they won't do it (at least until the last minute) because those rich people donate a lot of money to political campaigns.....but WE vote!
Great video.
I retired from the Navy in 2021 with nearly 30 years on active duty.
My wife died on active duty in 2014.
Last year (2022) at age 62 I started to take survivor benefits until I turn 70 when I would take my Social Security.
This limits me to about 20K in earnings before SS is adversely affected.
I have a pension and have money saved through TSP, etc.
Sorry to hear about your wife :( 21 year retired vet myself but no TSP was offered back then. Got out, got a good job in healthcare (IT), just retired from the company with a 2nd pension. It's too bad pensions have gone the way of the dinosaur.
I can meet all my living expenses on 2K a month, at 5K I would need a few more hobbies
Can you explain how you do this? My home is paid off and I am spending no less than $2,500 in expenses per month. This includes health insurance costs. It does not include the additional cost of wanting to have some kind of life. For that, I would add no less than $500 per month, which really isn't very much.
That's amazing. I can't without making some major changes like relocating, having a paid off home and getting a roommate. Just the cost of healthcare would take a huge chunk out of that $2K, much less housing, food, transportation and communication. If I don't have a choice then I'd have to find a way.
Where do you live?
You must live in a low property tax state.
‘Guessing if you’re living comfortably on $2K/month, you’re also not likely a good candidate in the first place for a quality Financial Planner relationship.
I live in a state where social security benefits is taxed.
If you have the option of waiting a few years more before retiring, and that will greatly improve your situation, then do it. Waiting is not always possible and its harder to go back to work in your retirement years.
That hurts. I live in a state that has no tax on any retirement income (SS, pension, or 401K) up to some big number. Any income on top of that is taxed as if there was no retirement. That is, income starts at zero and all deductions are taken off the income, not the retirement. It makes a huge difference.
This was a good, clear explanation of some stuff that's hard to explain clearly. Good job! :)
Excellent videos and format. Very clarifying and helpful. I wonder if you've done any videos looking at moving to lower cost of living countries with lower tax rates. The tax benefits alone would offset millions in portfolio savings, and the lower cost of living can increase lifestyle.
Basically, take your annual expenditures, subtract income sources like social security, multiply by 30x and that is what you need in your portfolio. That's reasonably conservative. Multiple by 20x is aggressive. The "4% rule" is 25x.
I say divide by the number of years you anticipate living in retirement, or 30, whichever is smaller. Just redo the calculation each year.
The most likely situation for those following 4% or lower percentage is that they'll die and have more money than when they started. That's fine if you have beneficiaries.
@TheFirstRealChewy
It's also fine if you want to play it safe!
How would you like to be a 90'something and live through the past three years of run away Inflation?
Better to die with money in the bank.
If not Beneficiaries then at least, Charity....
Thank you so much James. It’s very helpful to understand all of those things. As always hit the Like button and once again Thank You.
Thank you for supporting the channel 🙏🏼
If you live in California the energy and tax bills are very high.
I always feel better after watching you. Thank you.!
Definitely consider this service! Plain amazing service o see the passion put into this program. Unbelievable education value!
Thank you for talking about something other than most the people talk about million dollar people and $500,000 people now you’re getting to the point where average working people have to survive on a fixed income. This is the kind of program I like to hear because I’m a working class person I will never see $1 million on a high income to be able to retire on Manufac. I still have to work I’m 78 years old. Luckily my house is in good shape and I intend to keep going as long as possible, but we are the average people the 5000 $15,000 people that don’t have squat as it is and what am I able to put anything aside because of all the cost of trying to raise children pay for a house and cars no 9 yards. Thank you very much for sending this across. Keep up your programming keep up your programming because we like listening to your program. When you’re talk down to common sense people are with them average income type well done take care of young man.
Excellent video, it might have been interesting to have contrasted the amounts needed at 4% and 6% return as well, just to show how big of a difference rate of return assumptions can make.
Great video James. Love the actual illustrations.
Very useful math - THANKS!😀
First example… seems that the drop of social security by taking it early isn’t worth it. They would only need $108k of money to spend in the 1.8 years before social security starts, and they’d be on $5k/month throughout. Much cheaper than accepting that large a SS deduction.
I like the way you looked at that. Well done.
I am living in San Jose, CA. All single family homes in San Jose are over $1M, but they all are very old. Will spend a lot of $ for repair. If I don’t have $1M cash, I never want to think about buying a house. I hate debt.
James, I have much respect and admiration for your fine work and I look forward to your videos each week. This is another well prepared, educational and thorough video. You have built a reputation and brand based on competence, care and custom client solutions. You’re obviously an accomplished professional and you pride yourself on getting the details perfect - right down to the your meticulous appearance, color coordinated set and presentation. With that said, I must admit that I’m relieved to know, after seeing your handwriting, that you’re human after all. Nice work!
Ha! Thank you for watching.
Another great video James. Have you done a video on determining one's budget while in retirement? Sure, $10k/mo sounds good but will I really NEED that much.
Thank you for going through the math step by step. This video is great!
Excellent video! Very straightforward to get baseline information on how to convert monthly income versus portfolio needed.
Thank you!
That portfolio needs to be invested. 1m makes 90-100k per year. 1m/with a minor portfolio burn would be pretty easy to reach that including SS.
James would you run the same scenario but have them retiring at 55 and living soley on investments?
The simpliest way is to split your portfolio into two. One split takes your from 55 to the age you collect social security, ex 65. The next split takes you from 65 to EOL. You'll want to go with a lower rate of return unless your investments are returning much more than 4% over inflation.
Good video but isn't 5% SWR a bit high for a future of possible reduced investment returns?
How long do you need the money to last. If 20-25 years, then 5% should be fine. Even if your investments grow only to match inflation, it should last 20 years at 5%.
The earlier you retire, the lower you want that percent to be since your retirement years is likely to be longer. If retiring at 70, then 20 years of retirement puts you at 90 before the money runs out (technically you'd still have social security benefits).
Fact is, 5k is way different to different people. A lot of people will look at this and go, "Wow! I never MADE 5k a month in my life...I can only wish!" While others will go, "I don't know how anyone could survive!"
Your videos both scare the 💩 out of me, and give me hope through the excellent information and "example scenarios". Thanks 👍
Thank you. Very informative.
great video. what about health care cost if you retire at 60 or 62 and have to pay for that til 65? live off portfolio for 3-5 yrs, not claiming SS til 65 or 67..
Your videos are so incredibly helpful. My understanding for retirement has been illuminated. I enjoy your calm friendly voice and how you share your knowledge in an easy to understand way. I’m implementing retirement strategies right away. Thank you so very much! Another perk of these videos is you have a pleasant face. I think a light green or blue shirt would make your eyes pop. Just saying…😊
Awesome!! Thank you!! Very clear and concise!
Retirement budget breakdown: $5k/month - Ramen; $10k/month - Ramen with toppings; $15k/month - Ramen with a gold spoon.😋😋
Great examples thanks James.
Hitting debt free this year.
I could easily live on 3k a month, 5k would be better, 10k would be great. In todays dollars. So. Double it by the time I retire.
I'm shooting for $5-10 million invested before 60.
Amazing video. Thank you for sharing.
Glad you enjoyed it!
I know your examples are simplified but since retirement might be multiple decades I really think you should account for inflation.
And don't forget increasing healthcare costs as you get older.
And the fact that there will probably be lesser to no social security by the time a lot of us retire. Depending on social security is risky….
Will the ss stop increasing if you loose your job at any age before retirement? Will it resume again once you have a job? For instance, if I stop working at 56 for a year and the assume amount to receive at 67 is. $1000. Will it decrease because I stop working for a year?
Very informative exercise! Assuming one were to retire at 55 instead of 65, how would this affect the equation assuming 5% annually would need to be withdrawn from the portfolio? This would obviously add 10 additional years of withdrawals without being able to collect social security benefits. Appreciate the insight and info!
There are a lot of personal circumstances that would modify these numbers. What if you are single instead of married? What if you are collecting qualified dividends from a brokerage account instead of withdrawing money from an IRA? What if you own a building or two? What if you want to continue saving substantial amounts while in retirement? Everyone has to run the numbers for their circumstances.
Agreed. No single example will fit for everybody’s circumstances
Kind of misses the point of the video - as stated over and over - your situation might vary. The point I took away? The general way different social security and spending needs interact with portfolio needs. This video did that very nicely without getting caught in the weeds.
Excellent video man, really helps visualize all the income sources in retirement.
thank you James for all the knowledge you share on this channel. i really appreciate it. would you please consider do more examples of SINGLE people instead of couples? I know there are a lot more people that are not married and will not be married in their retirement for sure in the upcoming years. thank you.
I have plenty of money in my portfolio to provide my monthly income, but I always take into account life span. For that reason I’m taking my money from the feds at 65…..once either my wife dies or I die, it takes $1500 a month away from our income or 33%. I want to get my money from the feds
MWS, interesting. Your scenario is similar to mine but we came to different decisions. Since we didn't need the SS income at retirement to pay the bills we decided to wait til 70. It made more sense to us also because of the SS survivor benefit which would be higher when it's needed more if I died first. We look at it as an insurance benefit when we need it. I'm quite disciplined when it comes to spending, saving, and investing and considered drawing at 62 and investing it. We ran the numbers with our accountant and he told us that if anyone can do it we could. But in the thirty years he's been advising people in retirement he's never seen a single client who pulled it off successfully and was able to do better long term by drawing at 62. With the exception of those who died before 70. Both wife and I have longevity, which is no guarantee, so that ultimately helped with our decision.
What about a retirement plan that takes into account when one spouse passes away and then social security payments are slashed into half or almost half? The widow’s penalty as some refer to the phenomenon.
Yes, you should account for that. In this example she would get whatever is benefits is, plus pulling the same amount from their portfolio would result in a tax hike. So she will want to reduce her expenses to offset the taxes and loss of income if possible.
My mom got my stepdad's s.s. when he passed away earlier this year so she is getting about $2,075 a month now. She used to get half of what he got, she now doesn't get that half anymore. She gets $ from a small annuity he took out, about $600 a month. She also has a small pension from NYC and she has health benefits from NYC which are very good benefits. She also gets another $300 from another annuity she had taken out some years ago.
You need to figure out how to manage your money now so you can have a good life when you're older. Nice video!
Thanks, Dan!
I'm scared but also excited to add to my positions as the market drops. Looking forward to 10 years from now with the hope of retiring early.
I hear you. The market crashed a month after I retired. I've taken money out of my retirement account for only one month. I don't want to sell low. I've been living off my emergency fund instead.
People also need to figure irmaa into their expenditures. That is medicare cost adjustments.
Yes
Yo, my husband and I are both working making good money. We don't even spend $5,000 a month even though we dine out every Friday and buy groceries about twice a week. What are you spending all that money? Biggest spending we have every year is overseas travel. Home and cars are fully paid, no debts.
How are you videoing writing on that paper? It looks like legitimate photos of the paper but like it can't be right?
Another informative episode! Thank you so much!
Great video! I wonder, with the 5% withdrawal rate are you planning on never running out of money no matter how long you live? What’s the average interest rate you are planning on to keep enough in the portfolio to continue to withdrawal 5%?
Buy a 30 year treasury @ the current 4.95% and you'll never have to touch the $1 million. Decent bond interest rate change all the previous guesstimates
I think it works out he was calculating that the balance would hit zero at 90 years old in each case?
5%
People severely underestimate the health care costs. If you need to go to a senior home or worse yet, if you need full time care, that can exceed a hundred thousand per year. Depending on your risk tolerance, you might not even want to withdraw 5% annually. A more conservative withdrawal of 4% is probably safer. You may think 1% is not a big difference, but in the world of math, it makes a huge difference.
Yes and no. If you are broke, government picks up the tab for nursing homes. But that said, the kind of nursing homes that take the govt pay schedule are about as bad as they get. You'll be lucky not to be getting spaghetti or spam every day.
They try to make up the differences by billing for medical services. I'll stop there.
Out of curiosity, what is the likelihood of social security existing in 30 years? I don't feel confident that I'd be able to count on it with regards to my own retirement plans
100%
When people say Social Security is going to "run out" they don't mean it will go away, they mean it will shift to a PAYG (pay as you go) system. That means people on Social Security will see a 10-15% drop in benefits.
Depends how many people are retired vs how many people are working at that time? Current workers pay for current retirees. It's not a pot of money.
You don't want to be 90 with $9mn in the bank account having never lived or taken a vacation. But you want to burn your $9m before 70 either. So you really need to draw down while having money and enough to even leave for your kids. So you have to plan. After retirement I think most costs will be property taxes on home (say $15k-$20k/year, $1500/month) + food/groceries ($750/month) + health costs ($1000/month) + entertainment ($1500/month) , so about $5k/month on a decent life style or $10k/month on a much nicer lifestyle . Medicare hopefully covers most health cost, social security covers food/groceries. So basically you need to pull from interest on portfolio. If you have a nice $5m portfolio at 65, you can get easily 8%-10% ROI on avg for about $400k-$500k/year income from it which should allow you to nicely live and have the $5m grow to suit your life for 30y before it all ends
Good examples that show with decent Social Security you may not be destitute and on the street, but with time and persistent investing to put together a few million in retirement, your future can indeed by "comfortable".
Though, when you example above-average Social Security incomes like $3000 and $2000 at FRA, you need to work backwards from PIA to AIME to understand the income downgrade (or upgrade) that is being proposed. Back fitting AIME for those payouts
$3000 => ~$7400, $2000 => ~$4100.
A combined AIME of over $11,500. ~$140K/year "Averaged Indexed Annual Income" during their earning years. Going from $140K/year average gross to $60K net is going to be quite brutal. Especially as most people tend to have proportionally higher incomes in their later years. Concerns regarding end of life healthcare or assisted living for a few years would be significant. Never mind the loss of the lower earner social security income when one partner passes and the other still has to live for a decade or more.
More is better!
I think flow of income ( pension) is primarily important. Of course, you need retirement investments
After tax savings and investments are needed too for lump sum expenditures that rarely happens
I have seen many of your videos on how you calculate retirement scenarios, but I have a pension and was wondering how you calculate the value of ongoing pension payments and whether you have enough to retire.
Basically add pension after social security (with similar tax considerations…and adjust the tax rate used upwards to factor in the higher total income). Then subtract the monthly after tax amount for BOTH SS and pension from your monthly need. Finally do the same calculation as shown in the video to calculate the monthly and annual gap with a 5% withdrawal rate.
Very informative, good job!
my case, I've been targeting $10k a month for retirement. I'm investing wisely to reach that goal.
I'm very comfortable at $31K/year and I don't spend half of it. I've been frugal all my life and it's a difficult habit to change. I just don't want to buy anything. I guess it makes my heirs happy. My NW is $500K and rising.
One thing I would
add. Anyone that expects to receive 10K or 15K per month most likely has some of their investments in after tax accounts that will not be taxed when withdrawn.
Can you run a scenario where I want to live on 8500 a month and receive a total of $62,004 yr SS + 5,000 pension yr for a total of $67,004 yr. How large a portfolio would I have to have? I am 69 and on SS at $3,145 a month my wife is 65 and SS is $2,022 a month
You will need a portfolio of $874,222, Assuming his provisional income tax of 10% and a withdrawal rate of 5%
Wow , crazy jumps !
I always like these UA-cam videos of some very youthful person explaining the intricacy’s of retirement planning and spending. I guess we just need to trust his vast experience and knowledge on the subject!😢
Yes, he studied the topics, trained on the topics, then does hundreds of plans for individuals and talks to hundreds of retirees regularly. Also using the same software as other planners. Is passionate about the topics and runs a successful CFP form. I'd say he is qualified despite his age.
Great formula if you just want to spend interest earnings and never deplete your portfolio. You can't take it with you!
Do the calculations for tax purposes take into account the $29,200 tax deduction for filing jointly?
Depending solely on 2 Social Securities is risky & not realistic. My husband just passed away this year at 65. The average age of widows in the US is 59yrs old. 😔
I have 5k a month..currently. it's not enough .
Taking 5 percent out per year is a high number. Where do you get that
Actually not at all. 5.5% is what I'm planning on and adjust accordingly each year. I want to deplete to zero not keep it.😊
So when you say you need 3 million for 15k per month, how is it invested? Or is it even invested?
$60k/year should be the minimum target. $5k/month. This assumes you have no mortgage and live in a low cost state.
Im not counting on SS to save me with the govt debt issues.
Mistake around the 16 minute mark - $157k/year, not month. Great video.
$5k might be enough if you’re living modestly in a low-cost area, but $10k or $15k gives you more flexibility, especially if you want to travel or live in a more expensive city.
Why not $20k or $40k if you want to live comfortably in a nice city? 🤔
Most of the retirement videos assume that you want to maintain the wealth you have accumulated while drawing from it in retirement. What if you don't have any heirs and really want to spend the greatest bulk of it. In other words if we have a retirement portfolio of 2.5 million and I retire at 61 and my wife who is 5 years younger retires at 59.5. How much do we need to spend a year so that our money lasts us but we are not leaving a huge pile of cash for distant relatives we barely know?
I’ll make it simple; Your current salary x 20. As soon as you hit that number you can retire.
excellent video, could you please break down a video on someone who wants to retire at 62,has pension,401k and roth ira. the wife is on disability for lewy body dementia, ssdisabity the home is paid for, could you do a video on this situation? general terms we spend about 4500 expenses. parkinson is not cheap and finding good insurance.
Wife and I are close, next year, done, have it figured out we will have 7 k per month without touching savings,
And then someone dies and the widow/er is homeless because you used the combined social security check to satisfy retirement needs.
Is there an easy way to calculate or assume the effective tax rate on retirement income?
Great Video. I've a question on a bit different subject but within your expertise. I've had a capital gain taxes from investment this year. I also bought a rental property as well (25% downpayment). To offset capital gain taxes from stocks/investments, I want to use full rental property depreciation (all at once not 27.5 yrs). Is it doable? Please advise as my tax rate will be higher due to short term capital gains + W2 income. I want to avoid that for this year.
That’s not how depreciation works. The best you can do is make the property a short-term rental on Airbnb for this year only (you can convert it back to a regular rental next year), and meet the other requirements to take a 35% depreciation. Look up the special rules on short-term rental depreciation.
Love this specificity. What about inflation on these numbers?
Question, when we talk about retirement income in these scenarios, are they future dollars or present dollars?
It's never clear to me whether I should be adjusting for inflation or not.
Thanks for the informative video!
Question, when we write a sentence with a question mark at the end, why do we label it a question?
Let me start, that I do think your videos are quite clear. However I think you might have missed that people's portfolios could be of several types. First, they could have money that has already been taxed. This could be cash. Or mutual funds that have done annual capital gains. Second, they could have money in Roths. Again this is likely not going to be taxed. Only the third, traditional 401K or IRA are going to be taxed on withdrawal. So, you're how large a portfolio you need will change depending on its source.
If you have access to an HSA the best thing you can do is max that baby OUT! It’s triple tax advantaged and will help carry you through retirement because most folks largest bill in retirement are those medical bills! Not financial advice, but I believe most advisors would agree.