foreign welcome back to the retirement income show I'm Mark Elliott here with the CEO and founder of Oak Harvest Finance group we're talking about the retirement success plan once it's in place it's not done it's not finished it's always changing and evolving with you and your life so it's really important to get this in place to have a plan give you more confidence and and be more comfortable in retirement with maybe hopefully not so much stress about where you are again that number is 800-822-6434 to learn more 800-822-6434 Troy's breaking down what is exactly the retirement success plan so it starts with the investment plan then it's the income plan then it's a tax plan then it's a health plan and then it is the estate plan so I want to kind of tie together why that sequence is is important just briefly but if you don't understand if you don't have a proper risk management structure in place obviously you open the potential for losses beyond your willingness to stay the course now it's not just stay the course with the Investments it's stay the course with your retirement success plan with your financial plan so we have to Define what those guard rails are first this is the process of understanding where your risk limitations are so if you think about you're going down a highway and of course you have guard rails on each side and if you go off the highway those guard rails are there to protect you from going into the opposing Direction on the freeway now in retirement when we're talking about managing risk when we can identify these emotional guardrails so are you willing to see and I and I'd like to Define risk in terms of dollars not percentages and I'll tell you why in a minute but let's say you have a million dollars saved for retirement if all that money is in your 401k first and foremost we have to realize that it's not really a million dollars because every dollar in there is tax deferred so we have to understand we're going to address that as part of this process but when we talk about risk we have to understand that not all of those dollars are yours you have a junior partner on that account we want to keep them a junior partner we don't want Uncle Sam to become a senior partner or a majority share owner of your retirement account but just understanding that that not all of that money is yours that you do have a junior partner in that account it ties into this risk management discussion a little bit so when we talk about risk in terms of dollars are you willing to see your account go down two hundred thousand just a question could be yes could be no it doesn't there is no right or wrong answer but by asking these questions we can start to Define where your emotional guard rails are because the number one thing that you can do when it comes to ruining a financial plan or a retirement plan is to have more risks so your accounts go down more than you can mentally tolerate emotionally withstand and then you sell get out sit in cash for two or three years miss the rebound and now you're you're in a you know you're in a bad bad bad spot I can't tell you I mean we've been through this so many times with clients and conversations about you know Troy I've been watching the news I think we're going into recession we need to get out of the market we need to do this or my accounts are down 10 or 20 or when covid hit we there's a plan for for a proper plan accounts for the markets being down 20 or 30 percent so when we talk about risk management and we're asking you these questions the reason why is because we're already planning for recessions we're planning for potential Market crashes this is part of life okay we cannot avoid these things unless we completely stay in cash and if that's the case you might as well bury the money in the backyard and just spend whatever you can and hope you don't run out and eat rice and beans for for for retirement and that's not how most of our clients that's not how most of you want to spend you know after working for an entire career you want to spend your life so are you okay with a 200 000 decline by the way which is 20 and the reason why I Define it in terms of dollars is because a long time ago I had a client come in well it was a prospective client at the time and like most financial advisors we would talk about it in terms of percentages and and we said are you okay with a 10 or 20 decline he said you know what 20 is pretty much my Max and he had around a million dollars so then I I just happened to put it in terms of dollars and I said okay so if your accounts go down two hundred thousand dollars you're okay with that and he said he said no Troy he said I would fire you on the spot and so that you know for me it connected a Big Dot It was kind of a big evolution in my career when I was younger because I realized I'm a financial guy I do this every single day I think in terms of percentages and statistics and and but most people think in terms of dollars so when we ask you that question you say yes I'm okay with a 200 000 or 100 000 or maybe it's not even close to that or maybe it's much much much more what that does for us is it helps to Define what type of portfolio we need to construct so emotionally there's a small probability that it is going to hit your your downside guard ramp and if we can go through retirement and not ever hit that downside guard rail well there's a very good chance from our experience that you're going to stay the course you're going to stick with your plan and if you can stick with your plan you have a much higher probability of success in retirement this is why we call it the retirement success process this is why we call it a retirement success plan this is what we want to deliver to you so now I said I wanted to talk a little bit about the sequence and why risk management in investment planning comes first if we don't and in most simple terms if if your money let's say you have a million bucks and you never had to take anything out if you average four percent versus nine percent at higher rates of return you obviously can expect your accounts to grow to a larger value that means the income planning is impacted that also means that now your tax planning is impacted so we can't build an income plan or a tax plan without first understanding an estimated reasonable expected return for a combination of Securities inside a portfolio so step one has to be this risk management discussion which then can lead us to the investment construction of your portfolio which then gives us a pretty good idea of expected return upside downside deviation so we can now start talking about income planning we can actually project and do a sensitivity analysis on tax planning based on different account levels let me break that down for you before we get into the tax planning section later on the show if you have a million dollars in your IRA you are forced to start taking a certain percentage out it's around four percent at age 72 but as you get to be 74 76 77 you're required to distribute a larger and larger percentage so if your million grows to 1.5 you take let's say four percent of that out that's a that's a number that is less than if your IRA grows to 2 million so the more aggressive your portfolio is or the higher expected return the more we should anticipate that require minimum distribution being a larger number that rmd is the amount you're forced to take out and pay taxes on we've seen clients I I'd like to phrase this for prospective clients because we address this with you as a client this is part of the retirement success process and the retirement success plan but so often when someone comes in here and they've done a pretty good job saving they have eight hundred thousand they have a million they have two or three million when we start to do this analysis if you don't address this tax problem and it is a tax problem it can be you know a tax nightmare for many of you those rmds when we get out to be 75 and 77 or 78 a hundred thousand hundred and fifty thousand two hundred thousand now you're taking that money out you're probably not spending that much on top of Social Security on top of any rental income or real estate income or pension or dividend or interest or any other income that you have outside of your retirement account and we've seen many people be in a much higher tax bracket and have much more income in their 80s than they ever had throughout their entire life up to that point and it's because of a lack of planning so that's what we're trying to get ahead of so we have to understand the risk structure of our portfolio and how we manage that risk so we can keep you on course we can keep you on schedule with your plan that then gives us an idea of a range of expected returns based on basic financial planning Concepts from there we can develop that income strategy and income is not just Social Security it's not just how much to take out don't get me started on the four percent rule but it is also from which accounts and then we get into the taxes so if you don't have a retirement success plan give us a call 1-800-822-6434 we're going to walk you through this process if you become a client you will have this plan in place that deals with risk Investments taxes income along with the rest of the retirement success plan 1-800-822-6434 Oak Harvest Financial Group check out the website check out the YouTube channel Oak Harvest Financial Group so we're talking about the retirement success plan Troy still got a lot to get to stay with us we're back in one minute investment advisory services offered through Oak Harvest Financial Group LLC Oak Harbor's Financial Group is an independent Financial Services firm that helps people create retirement strategies using a variety of insurance and investment products investing involves risk including the loss of principal any references to protection benefits or lifetime income generally refer to fixed Insurance products never Securities or investment products insurance and annuity product guarantees are backed by the financial strength and claims paying ability of the issuing insurance company Oak Harbor's Financial Group LLC is not permitted to offer a No statement made during this show shall constitute tax or legal advice you should speak to a qualified professional before making any decisions about your personal situation we are not affiliated with the US government or any governmental agency this radio show is a paid placement foreign [Music]Read More
Even if it's my goal to continue working longer, what would I do for healthcare, for example, if for some reason I'm not able to continue working until I'm Medicare eligible? What is a safe withdrawal rate for me from my investment portfolio if I need to retire earlier than I expected to? Morningstar's Personal Finance Guru joins us for part two of our Building and Better retirement series on Consuelo Mack WEALTHTRACK. Announcer: Funding provided by ClearBridge Investments, First Eagle Investments, Royce Investment Partners, Baird, Matthews Asia, Strategas Asset Management and Women Investing in Security and Education. Mack: Hello and welcome to this edition of WEALTHTRACK. I'm Consuelo Mack. There are few tasks more fraught with financial challenges and anxiety than planning for retirement and replacing a work paycheck with one from savings, ostensibly to last a lifetime. It's especially daunting against the backdrop of 2022's broad-based market decline and the new era of higher inflation, rising interest rates and the threat of recession.
This week's guest describes herself as being passionate about simplifying retirement portfolio planning. Amen to that! She is Christine Benz, Morningstar's widely followed and admired Director of Personal Finance, a position she has held since 2008. She is here for the second of our two-part series on Building a Better Retirement. If you missed the first installment, you can see it on wealthtrack.com. Well, this week Benz is discussing retirement blind spots. She has identified six of them and she's going to help us fix them. The retirement blind spots are: retirement date risk, sequence-of-return risk, low-yield risk, inflation risk, health care / long-term care risk and longevity risk. She certainly ticked all of my boxes. Now, how to mitigate those risks and what steps to take to solve them. I asked Benz to address them one by one, starting with retirement date risk. How big a problem is it? Benz: Well, this is simply that we tend to not be great judges of when we might retire. So there was a survey that Pew Research did several years ago where they asked pre-retirees approximately when they thought they might retire.
And one trend that you see in the data is that people tended to think that they would be able to work longer than they were actually able to work. So many people identified kind of in the period from 70 to 75 as the period when they thought they might hang it up. Well, in reality, when they tracked those same folks about their actual retirement dates, they found that people were not able to delay retirement that long. So the short answer is that we tend to not be great judges of when we might retire. And there are a few reasons why this is the case. One is the health situation, either our own health or our spouse's health or parental health may pull us out of the workforce. We know that ageism is a thing in our culture.
We know that some folks who might have the intention of continuing to work may not be able to. They may have a job that's physically untenable to continue to do later in life. So there are a lot of things that can complicate someone's plans to work longer, which is one reason why I get very nervous when I talk to older adults who say, Well, my plan is to continue working until I'm 70 or 75 or whatever it is.
As Morningstar contributor Mark Miller often says, that's a worthy aspiration. It's not a plan. Mack: So how do you resolve that? Clearly you can't anticipate it unless you're self-employed, in which case you're the one who's going to fire yourself. So that's right. There are some people – or keep your business going, whatever it is. Benz: Well, it's tricky, but the key thing is that you need to stay flexible. And I think for older adults, it's really valuable to kind of have a contingency plan in mind. Even if it's my goal to continue working longer, what would I do for health care, for example, if for some reason I'm not able to continue working until I'm Medicare eligible? What is a safe withdrawal rate for me from my investment portfolio if I need to retire earlier than I expected to? What would I draw upon if I needed to pull from my portfolio? Do I have safe liquid reserves that I could draw upon if I were shoved out of the workforce in a year like 2022 when stocks and bonds went down at the same time? So I think you want to kind of build up, build in that contingency plan.
And then also top of mind is have a backup plan for some other form of work and maybe it's consulting in your field that you've built your career in. Maybe it's a completely different career path. But if you can find some sort of paid remuneration to tide you over in those early retirement years, that can go a long way toward helping your plan last and helping ensure that you're not having to invade your portfolio when it's at a low ebb. Mack: In part one of this series on building a better, more resilient retirement plan, and you've certainly talked about how to handle that from an investment point of view.
So I just want our audience to know that, and they can see that on wealthtrack.com. The next blind spot that you mentioned is sequence-of-return risk. So explain that. And it certainly is, you know, uppermost in our minds after what happened with the markets in 2022. Benz: Sequence-of-return risk is something that retirement researchers really worry about. And this is basically the odds that early on in your retirement, often when your portfolio is at its largest, you encounter a really bad market environment that either features dropping bond prices, falling stock prices, high inflation.
Well of course, we had all of that come into play in 2022. And so what retirement researchers really worry about is that a period like that stretches on for a period of 2 or 3 years or even longer. And if the retiree is simultaneously pulling too much from that portfolio that's dwindling, that is a very bad thing. And that can leave less, leave fewer assets in place to recover and heal themselves when the market eventually does. Mack: One of WealthTrack guests, Mark Cortazzo, who I know you know, is a financial planner, has given us two matching portfolios, equal amounts of money, but showed what happens if you retire in a down market like 2022 versus a market where the stocks and bond prices do really well afterwards. And it can just be devastating in those first couple of years of what happens to you and how quickly you can run out of money.
Benz: Well, that's absolutely true. And that's where we got the 4% guideline for safe withdrawal rates from, where William Bengen looked back over market history and tried to identify, well, what would have been the worst period in market history to have retired into. And he identified the period of the late 1960s to early 70s as the worst starting period in modern market history, because you had a convergence of bad events where you had the '73 '74 bear market for equities, which some of your viewers may remember, you had high inflation after that, and then rising interest rates to help curtail inflation.
And that, of course, clobbered bond prices during that period. So that's the period when researchers look back into history that they home in on as the type of environment when you want to be very, very careful. I think it's too soon to say whether we're sort of in a period like that. But coming into 2022, there were certainly a lot of storm clouds gathering for new retirees specifically that we had very low yields on fixed income and cash securities. So there just wasn't much of a buffer for bond investors. When bond prices decline, they felt the full brunt of that price decline because there wasn't much of a yield there to cushion the losses.
Mack: So, Christine, let's take that worst-case scenario that we are in a period where we could be going into like a lost decade or a period, as you just described in the 1970s, for instance, of high inflation, poor market results. What do we do? Benz: Well, I think two key things. So if you are accumulating assets for retirement, if you're not yet retired, don't worry about it. That this sort of environment is your friend accumulating assets at lower prices. But if you are someone who is just on the cusp of retirement or you've just retired, I would say that a couple of key strategies can come into play.
One is if you can find a way to reduce your withdrawals in those bad market years that redounds to the benefit of the sustainability of your plan. So if you can pull in your belt a little bit in those tough years, that's the first thing you can think about. And then the second thing you can think about is just make sure that you've built a portfolio that includes safe assets that you could spend from. If we go through a period where stocks go down and stay down and we have, say, another lost decade like we had in the early 2000s, the idea would be that you would build yourself kind of a runway of cash investments, perhaps short and intermediate term, high-quality bonds that you could effectively spend through rather than having to touch your depreciated equity assets.
So those are the two things: curtail withdrawals if you possibly can, and also build a portfolio that includes safer assets that you could pull your withdrawals from. Mack: You were talking about yields and one of the retirement blind spots that would have been operative a couple of years ago is the low-yield risk. Now that's changed. So how much of a risk are yields now? Benz: Well, it's gotten so much better. We had this war on savers going on for the past couple of decades, really, where we saw this steady drip drop downward in terms of the interest rates that you're able to earn on safe investments. The good news story of the very bad market environment we had in 2022 is that yields are much, much higher today on all manner of cash and fixed-income investments. So you don't need to stretch to obtain a decent income stream from a cash or fixed-income portfolio. And I would say that this is the kind of thing that kind of ebbs and flows over time if perhaps we have a recessionary environment going forward.
I think it's a reasonable thing to kind of think about that yields could, in fact, drop from here and you'd want to be able to adjust if, in fact, that happens. So another thing to keep in mind, in a recessionary environment, if we see yields on safe investments drop, we will probably also see the prices of higher risk, fixed income securities see price declines as well, because we typically see them move in sympathy with equity markets during recessionary environments. So for me, that's kind of a caution against overly gravitating toward higher yielding, lower quality fixed income securities because they do tend to be pretty equity-like and do tend to respond negatively in a recessionary environment. Mack: You know, as you mentioned, if interest rates do drop, which they do, if we do go into a recession, then the longer-term high-quality bonds like Treasuries will do extremely well because bond prices go up when interest rates drop. Benz: Definitely the high-quality fixed income is just a superb ballast for equity portfolios. We saw it in the great financial crisis. My guess is that in some other recessionary environment or economic shock, we would see a similar pattern where high-quality bonds would really earn their keep.
Mack: Now, another retirement blind spot that you've mentioned, which is quite real now is inflation risk. How can we resolve how can we mitigate the inflation risk? Benz: It's a huge risk factor. It's a risk factor for all consumers, people of all ages. But I think of retirees in some ways as being especially vulnerable for a few key reasons. Some of the categories that older adults spend more on, notably health care, have historically been inflating at a higher, even higher rate than the general inflation rate. So that's one risk factor. Another risk factor is that if you have safe investments in your portfolio and retirees inevitably do and should have safer assets in their portfolio like cash, like bonds, Well, on an inflation-adjusted basis, you're going to kind of get eaten alive.
Your purchasing power will be gobbled up. So that's another reason that older adults tend to be more vulnerable. And then a key issue is that even though a portion of your income stream in retirement is going to receive an inflation adjustment, so specifically, your Social Security benefits will get a very nice bump up. We saw Social Security working exactly as we would hope over the past year in this inflationary environment, The portion of your portfolio that you're withdrawing for your living expenses is not automatically insulated against inflation, which is why it's so valuable to think about adding that inflation insulation to the portfolio.
Mack: And give us some ideas of adding inflation protection to your portfolio. What would you suggest that we look at? Benz: Well, a couple of key categories. One is within that fixed income position, the fixed income allocation, I would hold a complement of Treasury Inflation-Protected Securities and or I Bonds. And when we look at the allocations that my colleagues in Morningstar Investment Management would recommend, they would typically say 25 or 30% of a retiree's fixed income holdings should go in bonds that have those explicit inflation protections. Mack: That's a fairly sizable portion. That's a quarter or more of your fixed income. Yeah. Benz: And probably more than many retirees have. I tend to like the short-term TIPS, short-term inflation-protected bonds because they provide more pure inflation protection without a lot of the interest rate volatility that come along with intermediate-term TIPS.
But retirees should check out that within their fixed income holdings and then equities, we know over long time periods, even though they're by no means any sort of an inflation hedge, they do tend to outearn inflation over long periods of time. We typically see that equity return being higher than the inflation rate. I would expect that that pattern will likely persist into the future, which is one reason why I would say even conservative retirees should take steps to hold stocks in their portfolios simply because they need that growth potential that comes along with an equity portfolio. Mack: And Christine, as far as the Treasury Inflation-Protected Securities, you can buy them directly, you know, at Treasury Direct.gov, but you're talking about funds. So what are some of the funds that Morningstar recommends to buy TIPS. Benz: So investors can go either route. I would keep it very plain vanilla here, and that's probably a recurrent theme with me. I tend to like the funds that give you a lot of diversification and very low costs.
So most of the big firms do run good quality core and even short-term TIPS funds. One I recommend and to the extent that I put together model portfolios: Vanguard Short-Term Inflation-Protected Securities is a fund I really like because of its rock bottom costs and kind of a no-nonsense approach to portfolio construction. So that's a good strategy and I think one that can make sense in retiree portfolios. Mack: And you mentioned another blind spot is health care and long-term care risk, especially. Describe how significant that is and also how we can mitigate it. Benz: Many people think, oh, I'm Medicare eligible, I'm home free.
But Fidelity does these annual reports on how much a 65-year-old couple will expect to spend in health care outlays, out-of-pocket health care outlays over their retirement time horizon. And the most recent run came around, came in around 315,000 for that 65-year-old couple. And importantly, that does not factor in long-term care expenses. So it's a big number. A couple of key messages is, one, you're not paying for it all at once that, you know, typically will be paying for it on an ongoing basis.
And your health care costs can really vary a lot, certainly by your own health situation. But also geography is a big swing factor that in more expensive geographies, certainly in big urban centers, people tend to spend more on health care. They may receive higher quality health care, but they will pay for it. So kind of customizing your own situation, thinking about your own situation, certainly to the extent that people are still accumulating assets for retirement, to the extent that they can be mindful about setting aside a component of their retirement assets to help meet health care needs explicitly can make a lot of sense.
I'm a huge believer in health savings accounts for people who are covered by a high-deductible health care plan. If you can start on this when you're young, fund that HSA to the max and then that is like gold for you coming into retirement because the funds go in pre-tax, they accumulate and can be invested, accumulate interest on a tax-free basis and then their tax free withdrawals for health care expenses. So it's just a terrific account type to bring into retirement, but you need to be covered by a high deductible health care plan in order to be able to contribute to one. Mack: No the HSAs are fabulous. But for retirees, for people who are on Medicare, I mean, they really need a good supplemental health insurance plan. Benz: Absolutely. And good prescription drug coverage as well. And it's also important to re-shop that drug plan every year because your own needs may have changed and what's covered within your plan may have changed. So even though it takes up a little bit of time, if you can do that, a little bit of hygiene every year with your coverage just to make sure you're getting the best possible deal given the drugs that you're taking, that can be time extremely well spent.
Mack: Longevity risk is the final retirement blind spot. And I don't know how you anticipate or plan for that. What's your advice as far as handling longevity risk? Benz: It's such an important consideration, Consuelo. One thing I would say to your viewers is that we see a very strong correlation with income and wealth and longevity. So my guess is that many of your viewers will be higher income folks who have done well in their careers, have amassed substantial assets.
That's great news on many levels, but it does tend to mean that you will live a longer life and will have a longer retirement. So for couples who are, say, in their mid-60s or individuals in their mid-60s who are in fairly good health today, I think it's reasonable to plan for quite a long retirement where you'd want your portfolio to last 30 years or even longer. And so that argues for being conservative in terms of your portfolio withdrawals, not taking too much early on especially. And it also argues for having a balanced portfolio that includes plenty of growth potential. So you'd want to have ample stock exposure, not 90% stock exposure, but probably some sort of a balanced asset allocation because you need the growth potential that comes along with stocks.
Mack: And Christine, we also have in our audience, you know, people who are not as well-to-do and or are aspiring to be. Since so many people don't have a defined benefit plan any longer, they don't have a pension plan. So what about annuities? Benz: And I'm so glad you mentioned that, Consuelo, because annuities, especially with higher interest rates that we have today, that really embellishes the case for annuities in a lot of ways because an annuity, a very simple annuity, which is the type of product that I would tend to favor, is just a contract with an insurance company where they pay you a stream of income that will last for your whole lifetime.
So it can be a terrific product. You don't need to have a lot of assets to have an annuity. And one strategy I really like is just look at your household's fixed costs, your very basic outlays for housing and food and insurance and taxes. Tally those up and try to see if you can match your certain sources of income, your Social Security, plus potentially an annuity, with those fixed outlays.
And that I think will just give you a lot more peace of mind with that long-term portfolio. It can get buffeted around. We can encounter more years like 2022, but you'll know that you'll have those very basic income outlays set aside without having to worry about your portfolio. Very basic, immediate annuity or even a deferred annuity that will start paying you at some later date can be really effective ways to embellish your lifetime income in addition to Social Security.
But job one is get the most you can out of Social Security because that's the best annuity-like product that any of us has. Mack: Is there one investment for a long term diversified portfolio that would actually address these retirement blind spots? Benz: Well, one fund that I really like, and I'm not sure that it addresses each and every blind spot, but Baird Aggregate Bond is a fund I would call out. I know you've had Mary Ellen Stanek on your show many times. She is absolutely terrific, Co-Portfolio Manager of this fund, Co-Chief Investment Officer at Baird. And what I like is that this fund is very high quality. So we've talked about, you know, the types of investments you would want in your portfolio in some sort of a recessionary environment. And this is a fund that I would expect to perform very well because it's high quality and low-cost fixed income portfolios.
Mack: Christine Benz Such a treat to have you on WEALTHTRACK for your annual appearance once again, and thank you for giving us two interviews about building a better retirement plan. You've really helped us tremendously. Thanks, Christine. Benz: Thank you so much, Consuelo. Mack: At the close of every WEALTHTRACK we try to give you one suggestion to help you build and protect your wealth over the long term. This week's Action Point is identify your retirement blind spots and take steps to fix them.
Are they retirement date risks? It turns out for many people that decision is out of their control. Sequence-of-return risk? Last year's miserable markets made us all more aware of how important timing can be to long-term financial security. Inflation risk? It's a heightened reality for all of us now. And of course, should we be so lucky? Longevity risk is a challenge for many of us. Depending on where you are in the retirement cycle, a few or all of these blind spots can be key issues. This is as good a time as any to talk to your family and your financial advisor about them. Next week we'll have another in-depth interview to learn about strategies you need to build and protect your wealth over the long term. In this week's Extra feature, we asked Christine Benz to share which financial blind spots are especially meaningful to her and how she is handling them.
Please follow us on Facebook, Twitter and our YouTube channel. We appreciate the time you spend with us. Have a super weekend and make the week ahead a healthy, profitable and productive one. Announcer: Funding provided by ClearBridge Investments, First Eagle Investments, Royce Investment Partners, Baird, Matthews Asia, Strategas Asset Management and Women Investing in Security and Education. Mack: Hello, I'm Consuelo Mack. Every week on WEALTHTRACK we sit down with great investors and financial thought leaders to talk in depth about strategies you need to build and protect your wealth over the long term. Join us on Consuelo. Mack. Wealthtrack.
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longer and burning history the youtube app storify earth delivery here the to work can make a big difference if we now the reader jury benefit's beyond for him agree you also can earn the darcy types of life timing grads the size of your social benefits can be much a larger my what you do is that you do n't want to have the good social studies trying to better understand our social security de lions time and credit work and for a customized social studies strategy presses live for you and i can go to social security line thanks to humor committee recommendation number name is john try physical and mental half dat satin cherry lifestyle list you the soul and the soul we bring the youtube and ashoka's times in physically and mentally fit maybe the most pointing you can take your time and we fill the new ipad you will have more energy you will and send your ability to work longer and to earn longer the benefits and exercise and the help of a church documentation number 10 is the haafidh 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you ca n't lean was bummed best be so a universe alone there a porn touch religions when comes to actually saving you fire a rat race for my kees with ketchup contributions and have all those videos the goal indeed that when CDA Lyceum in the most active Chile plausible and new of course will be wise in all-wheel of the people who left together the box that Redman in description below environments and 12 is the overflow you have a strategy Aramis Aegon reconversion mortgage it is a time rather in the morning that does not allow the needs to change the renewed hypes or rather in the morning the app more options and more flexibility in the queue the building fifty percent and King Johan and new loses a sixty-two that gate and in a purely morgens payments so I think there is a lot of humor morgens payments you may also be able to establish a tax free stream income the social media tyme come and get to the time in this video to go nobody yourself you can le morvan my book in chernaiev i only online those managers on the fences it is how a strategy cleo public gamechanger pio in your timing you have the toilet in my book while volumes on the books style the holistic time and prime revolution i can also just by the amazon search online a lame arm and your van de bin this is like rats link in the description below so you learn have my god of recommendations if you about fifty five and him just thing super terms definis par des video beneficial have the runs and oh please add a comment dumbell lo domino what sterile and actually to see your in the next episode or the financial pipelines [Music] [Applause] [ Music] [Applause] [Music]Read More
– Even to this day I can still remember one of the first appointments
I had as a financial advisor. I was meeting with this
couple in their early 60s. Now, they brought in all
their financial statements and their goal in meeting with me was they wanted to see
if they could retire. They were sick and tired of their jobs, they were working more than 40 hours, could barely pay the bills, they just were so stressed
out and they were done.
I was pouring through
their financial statements and it became abundantly clear
that they could not retire but that's not where the
story is sad or depressing but the reality was they
couldn't retire that day but there's no way that
they could retire next year or the following year, or most likely even in the
next five maybe 10 years. See, they barely had
any savings whatsoever. All they had was a little bit in a 401k, they had some savings at
their bank and social security and that's all they had. When I got a chance to
learn more about their story and just inquire why this is all they had, I learned that they didn't really invest and the two biggest reasons, the two regrets that they had was they didn't invest and
they didn't start sooner. Those were two regrets that
I still have not forgot and why I'm so passionate about educating those to start investing and start taking charge
of their financial future.
When I think back to that couple, that wasn't the first and only time that I encountered somebody or some people that are wanting to retire, that are wanting to
continue the second chapter of their life but because they
didn't do the right things, they didn't take the right steps, they were unable to fulfill that dream of retiring
and just settling down and what I recognize in
those people and many others is that there are two common mistakes that these people make
when it comes to planning a successful retirement.
The first mistake is that
they didn't have a plan. They continue with their life assuming that things would work out. They assumed that with social security, with what little they were putting in their retirement account, their 401k. What they had in savings,
that that would be enough. But the reality is that they never took the time to run the numbers, to crunch the numbers to
see if it even makes sense or if it's even a possibility that they could retire when they wanted. Many people just assume that
things are going to work out and if that is your plan,
you are not going to win.
You're going to wake up one day with a lot of regret
just like this couple. – No regrets. – Now the second mistake
that this couple make that many people also make
is they never sought advice from an expert, from anybody else. They took care of their
finances on their own. They never thought to think, maybe I should talk to a financial coach, a financial adviser, a
financial consultant, just to see if we are on that right path to do what we want later on in life. There are tons of financial calculators and online financial planning tools that can give you some great insight on how you're doing.
But nothing compares to
actually sitting down with a financial expert,
a financial advisor, a financial consultant that specializes in helping people retire
and that knows the mistakes that people make and the right things to do especially when it comes
to your unique situation. That's why it's no surprise that there are so many statistics out
there that say that those that have a financial plan, that those that actually sit
down to work out their finances and have a decent understanding
of where they're at and where they're trying to get to have a much greater chance of success.
You've got to have a financial plan, you have to seek the counsel of an expert. Don't trust yourself at
least get a second opinion to make sure that you're
on the right track. We all have a goal to continue to live the life as we know it,
to live life on our terms. But if you want to do that, especially when it comes
to having financial freedom and financial security,
you've got to have a plan, you've got to seek advice from somebody that's willing to help. Don't think that you can do this alone. I wanna give a shout out to USAA who has sponsored this video and I've known USAA since
I was deployed to Iraq, they've just been a great organization to partner with other veterans and just have a lot of amazing benefits.
So, with this campaign, this is about their life uninterrupted. They want to make sure
that you can continue to live the life that you know today and live that same life in retirement. But the only way that you're
gonna be able to do so is you gotta have a plan, you gotta work that plan and you also need to seek advice from a financial expert. Coming from someone that
was a financial adviser for over 16 years, I know the value in meeting
with a financial expert. Somebody that's willing to sit down and not just crunch the numbers but also wants to know
your unique situation, to help you achieve the
goals that you want. If you are in the situation where you've got a retirement plan going but you need a second opinion, you want secondary
advice just to make sure that you're on the right track, USAA is offering a no
charge retirement review to look at your situation
just to see how you're doing.
Are you okay? Are you saving enough? Is your savings going to last
or are you going to run out? If you have some of these fears, one of the things that you can do today is to contact USAA and
request a retirement review. I'll have links in the description and also phone numbers where you can call to request this no
charge retirement review to make sure that you're
on the right track. Your life doesn't have to be interrupted just because you're
getting ready to retire. You've got to have a plan, you got to work that plan and you got to seek the
advice from somebody that's going to help
out with your finances that knows more than what you do. Once again, I want to thank
USAA for sponsoring this video and I also want to remind
you that it's your money, it's your life and only
you can make it awesome.
Until next time, peace..Read More
at some point of time you would have thought of retiring early or maybe you're thinking of it now and truth be told retirement is not about abandoning work there are very few who would say I won't work any further but what we yearn for is the freedom to operate to live life in the way we want and that brings us to the five moment now fire stands for financial Independence retirement it's a very catchy acronym and to put it in a nutshell it's a program that's designed around saving aggressively investing in high return instruments like equities and disciplined withdrawals which put together ensures you have enough money to cover your living expenses for the rest of your life and therefore retire early in this video I shall be explaining the concept in Greater details we look at the implementation steps some calculations and why fire needs to be a deliberate part of your financial life this might be a short video but it's a very powerful concept so let's begin the concept of fire was popularized in a book titled your money or your life it was built around self-sufficiency control over one's time moderate consumption and of course living life outside the nine to five for instance this guy Pete atney who is better known as Mr Money Mustache applied the fire principles which allowed him to retire from his job as a software engineer at the age of 30.
He's 48 now and he continues to live comfortably of his Investments after so many years and it's not just Pete there are writers bloggers people traveling the world software developers and even YouTubers who are using these principles to lead a more open life and have attached some articles and videos in the description to that effect some of these stories are really inspirational and it proves the fact that a little bit of planning on the financial side can have a profound impact on other aspects of one's life and in a very positive way now there are three parts one needs to address when implementing a fire strategy the first step is savings and the hardcore fire disciple is expected to save anywhere from 50 to 70 percent of one's monthly income this is of course easier said than done and probably where a lot of people make up their mind that this is not their cup of tea but from what I have read and what I've experienced the saving need not be always defined as a percentage and we can also work with absolute numbers which we'll see when I come to the calculations part now when we hear the word saving our first reaction or response is on reducing our expenses however money can also be saved by upping one's income which is what I suggest and it does make sense right I mean there is a limit to what one can save but income generation has a much longer Runway and in our case it can include taking a part-time job doing some consultancy work asking for a pay hike changing jobs for a better salary reskilling oneself or of course starting a side hustle which can be a mix of active and passive work in fact I have a friend in Bangalore who works as a data scientist from Monday to Friday and then on the weekends he takes classes on an edtech platform and also does some consultancy work to put it in numbers what was earlier a monthly saving of 50 000 Rupees is now easily over 2 lakhs a month and this guy has absolutely changed his life around by leveraging what he knows so he's on fire metaphorically speaking and the the fire strategy encourages us to find creative and better ways of increasing our savings rate the Second Step under the fire strategy is to spend wisely notice I didn't say don't spend I said spend wisely which means you need to identify what is an essential expense and what can be tagged as discretionary now people who practice Fire have a ton of helpful advice for us these include driving a good used car instead of a new one renting versus buying a house cooking at home rather than eating out track your daily expenses cancel unnecessary subscriptions Etc from what I've read these small steps can reduce your monthly expenses by up to 30 percent which if you choose to look at it differently is like getting a 30 incremented salary so you don't have to be stinky when it comes to your expenses but try to be a bit more rational about it and the third and final pillar in the fire system is the investment part now on a basic level the system requires advisors to invest as much money as you can and as early as possible so it's the principle of compounding at work here and this table here is a handy guide to how well your Corpus expands when you give it the necessary capital and a decent amount of time to grow now the fire method keeps this investing part ridiculously simple one you invest some money every month or as we call it you set up an sip a systematic investment plan and secondly this money is invested in a low cost Index Fund or ETF which in our case is either the nifty 50 or maybe a slightly broader Nifty 500 Index so essentially the focus here is to participate in the equity markets rather than actively trying to beat it which by my Reckoning should Fetchers and analyze return of 12 to 13 percent again the idea here is to maximize the returns which is why equities have been suggested but if that makes you a little uncomfortable then you can also settle for a mix of different asset classes which is something I explained in my video on asset allocation a few weeks back yet another investment you can make which is encouraged under the fire movement is on account of passive income dividends from stocks interest from your fixed deposits income from your blog your podcast YouTube channel monetization rental income are just some ways of making an Roi from physical or virtual assets now notice I have put this part under Investments and not income because passive income does require a lot of upfront work but once you do the hard work and you do it well one can expect a continuous stream of income over the next few years which will not only support your early retirement Ambitions but will also act as a safety net in fact there is something called an fi Ratio or the financial Independence ratio which largely means if your passive income is greater than your expenses then you're making some great progress on the path to financial Independence so to sum it up remember fire has three simple principles that you need to work on which is save more spend less and invest wisely if you're getting good value from this video then please do give this video a thumbs up and if you aren't a subscriber yet then do consider becoming one as I can then serve you videos as soon as they are released and also share with you some investing strategies tips and stories that are continually Post in the community section the original fire formula is based on the four percent rule which is the amount of saving you can safely withdraw every year without worrying that your money will run out for example let's say you are 29 years old and your monthly expenses are around 50 000 rupees if you want to retire at 40 then you have 11 years to accumulate a retirement fund so here's the math if household inflation is likely to grow by eight percent per annum then the 50 000 you spend now will rise to 1 lakh 16 000 rupees by the time you're 40.
So annually this comes to 14 lakh rupees and per the four percent rule it's 14 multiplied by 25 which means you need to accumulate a couples of three and a half crores to safely navigate through your retirement years or at least that's what the fire formula says now in my view there are some gaps with this four percent rule that I think we should all be aware of firstly this rule is okay for someone who has factored 25 maybe 30 years of retirement but if the retirement Horizon goes higher let's say 50 years for example then this formula starts getting a bit shaky and I've pinned a research study by Vanguard on this in the video's description secondly the four percent rule is a United States origination of the 1990s and has been tested on a historical basis when the yields on equities and Bonds were sufficiently high now we are not Americans and what works there will most likely not work for us which means there's an asset allocation and a market performance risk which needs to be accounted for and finally because each of us have our own preferences income goals saving patterns Etc I always felt it's important to have a customized fire implementation plan rather than picking something off the shelf which is why I created my own fire calculator which gives a clearer picture of how much I need to accumulate when can I idly retire how much withdrawals can I do on a monthly basis and at what point and in what circumstances my retirement money can run out so this obviously starts with the inputs and you need to type in your current age the age at which you want to retire and of course your life expectancy which I hope is strong and long then comes your current portfolio of Investments and this includes your mutual funds fds ppf EPF gold and other stuff and as a best practice kindly exclude the cost of the house where you will be staying post your retirement if you're still working then input the monthly savings and the annual increase you foresee input the expected returns from your investment the capital gain tax that can remain at 10 percent and finally have a view on how much will your expenses be in the first year of retirement and the expected household inflation rate and once we have these numbers keyed in as I have shown in this example the resulting output should clearly tell us three things one the amount of investment Corpus we need at the time of retirement which in this illustration is 2.2 crores at the age of 40.
Secondly we now have Clarity on how much can be spent on an early basis which starts from 12 lakhs so that's one lakh per month and it increases by eight percent every year and thirdly we get to know how sound or unsound this entire construct is like in this case our calculation shows that I'll run out of my money by the time I am 64 years old which is another way of saying that I need to rework my fire math which can include an increase in the monthly savings and the growth rate I can also consider extending my retirement age to a higher number let's say 45 years and finally I I can be a little careful with my expenses and instead of spending a lack of rupees maybe I can make do with 90 000. so there are many permutations and combinations you can look at but my suggestion is try to be a little conservative in your estimates especially when it comes to return on investment the inflation rate and the post retirement monthly expenses now for your benefit I have enclosed the link of this worksheet in the video's description it's a downloadable sheet all the formulas are open so feel free to change the numbers improve the formula if required add your own customization if it helps you but have a clear idea on when and where you need to be on the path to financial Independence so when I first heard and read about fire I was not a big fan of it I mean saving 50 to 7 20 percent of one salary is almost next to Impossible and I would have shut sharp had I not realized that as a method fire is quite flexible and can be used in many different ways so the calculator is one way and you can make a customized version of it but then there are more strategies there are more variants of the fire strategy and if you are interested then do read up on lean fire fat fire Coast fire and a few more of these in related articles that I've Linked In the video's description the point is and I myself realized a very late in life that many of us don't know when to retire how much is needed to retire which is why we continue working in a role or occupation that we don't enjoy much and that's where I think fire as a strategy might be the solution and it's just three things right increase your income and savings lower your expenses and get your Investments right so read up more about this concept in the Articles and websites I've added in the description and I sincerely hope you practice some sort of fire going forward if you found this video useful then do press the like button do subscribe to my channel share this video and I'll see you three days from now until then foreignRead More