retirement. There are things we can control, and things we can not control. So
the things we have the most control over (hopefully) are the ones that we put most
of our attention to and and those are, you know, where we try to create a plan
that can hopefully adjust and absorb - any surprises from the things we can't
control. Unfortunately, what often ends up happening is we a lot of people
focus on the things we can't control because those are the the most
newsworthy, right? That's: What's the market going to do? What's going to
happen with lawmakers and and tax rates or Social Security? Or something like
that. Well, we'll talk about at least at least one of those, but retirement is a
big deal so how do you know when you can retire? You might have something like a
pension or Social Security that's coming to you so those would be kind of
equivalent in terms of this conversation. One way to do this is to look at: You've
got a base amount of income that might come from Social Security or a pension,
and that's you know a portion of what you need to spend each month then
there's an additional amount on top of that and we need to figure out what to
do about that and in many cases that is spending from assets that you might have
saved up if your pension or Social Security does not cover your entire
monthly need but it's it's good to know it's important to know how much you're
going to need each month and there are a couple of ways to estimate that that's a
topic for a different time probably Social Security please forgive me if you
don't do Social Security if you've got Pera or something like that we'll move
on from here but Social Security is based in part
on your age so even if you retire early you don't necessarily need to claim your
social security benefits early so we'll talk about why Social Security let's say
you're born in 1960 or later that's down at the bottom here 1960 or later your
full retirement age would be 67 but if you claim it's at age 62 you would only
get about 70% of those benefits you might have heard this before you get
reduced benefits so for example if you were going to receive a thousand dollars
a month what would happen is you'd end up getting only $700 per month and
that's something that sticks with you for the rest of your life and it could
potentially even affect a survivor who is going to continue on with your amount
if you have a spouse for example who's going to continue with your amount on
the other hand if you wait if you go past your full retirement age until age
70 is when it stops increasing you're getting a raise of about 8% per year so
that can be maybe a hundred twenty four percent of the amount you expected if
you are that person born in 1960 or later so you say well I'm gonna retire
but I'm not at my full retirement age yet what do I do a couple of different
ways to do that just one of them is to consider possibly spending down some
assets which is scary to do it takes some you know you want to have some
confidence and make sure you have a good plan how to do that but you can
potentially spend what you might have saved and what happens is as you're
waiting you're gonna get that higher monthly check later that lasts for the
rest of your life and you might also it you know takes a lot of homework here
and you want to verify this with a with a CPA and all that but you might also
end up paying less in taxes if you can do that because as you take money out of
let's say traditional pre-tax IRAs you might end up owing a tax liability on
some of your Social Security income that basically means you get to keep less of
it and that's less to spend on the things you want so definitely just some
you want to look at closely but where you make decisions but you might
ask is social security even going to be there can I count on it in my plan and
is it worth including or should I assume that there will be zero social security
I happen to think you can possibly be optimistic okay I don't know that social
security is just going to go poof and be a complete zero in your retirement
income I might be reduced or it might not the older you are I would think the
more comfortable I am assuming that a good portion of it will be there now
here's why and and I'm not saying these are good solutions or fair or the right
solutions but a number of different solutions have been proposed and they
would indeed keep Social Security going quite a bit longer one of them for
example is increasing the the wage base that people pay Social Security taxes on
so there's a certain limit that you know if you earn below that limit you I mean
you pay Social Security taxes on all of your income but for people who are in
above that limit they only pay Social Security taxes on their income to that
limit then they receive the rest of that income without any Social Security taxes
coming out one way to handle that is to increase that limit
there's also pushing back the full retirement age again that's another
another thing that could be done or tinkering with inflation like how does
inflation get defined and how quickly does that limit go up and how quickly
does your monthly paycheck go up based on how we define inflation those are all
potential ways to really bolster the system again not saying anybody's gonna
love them but all of those by the way I don't think you know a lot of people
might not even notice those so again people who are in below that limit
aren't even gonna notice that again that thing that's right or wrong or tinkering
with inflation a teeny bit it's not something where they come to you and say
hey you get half of what you were getting last year right it's not as
dramatic as that these are much more subtle ways that could potentially keep
it going but that's a different topic for a diff
time let's talk about spending any money you might have saved so we looked at a
base amount of income you might have then there's a gap on top of that
perhaps so you're gonna supplement your pension or Social Security income with
any assets that you have saved so you would ask you know how do I know how
much I need and do I have enough saved one way to kind of guesstimate that it
is not perfect it's a rule of thumb you know the best way is to do some detailed
projections of course a lot of different ways to do that but a good way to
guesstimate is to use a 4% rule so that says that you can take 4% of your total
assets saved in retirement each year you take that as a withdraw and you can also
increase that each year to keep up with inflation so for example let's say a
hundred is an easy number you've got a hundred thousand dollars saved up you
could withdraw four thousand dollars per year and then increase that each year or
you've got a million dollars saved up you could take forty thousand dollars
out each year and then that's year one is 40,000 year two you might take forty
one thousand eight hundred then ideally it increases a bit each year so you can
keep up with inflation so that's a decent rule of thumb to help you figure
out well how much can I take based on what I have or you know you can come
into it from the other direction and figure out well how much am I going to
need if I want to withdraw forty thousand dollars per year for example
then you'd say well a million dollars would would be about what you want again
this is not a perfect it's not a perfect solution because for example it ignores
taxes so let's say you have that million dollars and you need forty thousand
dollars of income out of your assets well if you just withdraw forty thousand
from a pre-tax IRA for example an individual retirement account that maybe
came from a 401 K you would owe income taxes on
on that money so you wouldn't get to spend the entire 40,000 you need to
budget for sending some of that money over to the IRS
so then you need to plan for what's a little bit higher than than 4% that we
need to withdraw so again it's not perfect the idea being behind the 4%
rule it was designed to figure out what's a safe withdrawal rate and of
course safe is in air quotes because nothing is guaranteed or safe in this
world but the idea was they want to look at retirees who call it quits at age 65
and then are gonna spend for the rest of their lives and not run out of money
what's the rate that they could withdraw at and four percent ended up being the
number that they landed on and there is ongoing debate about that being your
high or low or it shouldn't be fixed anyway it's something that you should
should probably adjust over time but that's a quick overview of the 4% rule
so let's chat about health care next by the way on Social Security I wanted to
mention you get about the average is about fifteen hundred dollars per month
that people receive so let me see if I can find this here it's about fifteen
hundred a month that people receive and be maximum right now if you were
retiring and hitting your full retirement age is 2861 so that maybe
gives you an idea of you know how does that how does that fit in with your
budget is it making a nice dent or is it not quite enough hopefully it just
paints a picture of what things could look like and that maximum amount is
gonna be somebody who had pretty high earnings throughout their working years
so that's a higher earner you know you might not get quite that much and if
that person waited by the way if they waited until age 70 to claim those
benefits then they could receive even more each month just by waiting so back
to health care it's a big scary number right so here's look at the fidelity
study that shows a couple today age 65 is gonna need
$285,000 I guess I'm covering that $285,000 just to cover healthcare and
that does not include long-term care so if you need to go to assisted living or
memory care or something like that then there would be additional costs so a lot
of studies show different numbers some of them much higher and this freaks
people out understandably they might say that's a big chunk of what I have or
that's more than what I have so how in the world is this going to work out well
it's a difficult question it's a big question and then just for reference
your single retirees the amount is a hundred fifty thousand for women and 135
for men what I'd like to to show you is hopefully paint a picture of making this
a little bit richer to understand and this is an age 65 woman on Medicare what
our health care costs going to be well they're gonna be between sixty six
hundred and thirty two hundred the median being about thirty nine hundred
and she's got medium health risk so again about thirty-nine hundred at the
median she's medium health risk if you happen
to have let's say two or more of these conditions here or you smoke you might
be higher health risk the point being that you don't really you know write a
check for for $285,000 the day you retire you you don't necessarily need
that in a lump sum it's nice to have but you also have income coming in so if we
go back to where she had annual expenses let's call it 3900 at age 65 well as she
ages those expenses will probably increase but you also have monthly and
annual income from Social Security maybe your pension that can help to cover
those expenses so you don't again necessarily need it in a big lump now if
we look at that $285,000 that was in the fidelity study and we say okay over 30
years that's about 90
five hundred dollars per year so I think a better way to think about health care
is an annual expense not necessarily just a lump sum because that can be very
scary and and cause a lot of distress if you think of it just as as that big lump
sum so that's a quick overview of health care now everything we've talked about
is is just a sliver of what goes on in retirement planning it is a big and
complicated topic covering a lot of different areas but hopefully that helps
you understand at least just this portion that we've talked about here
today I'm Justin Pritchard I'm a certified financial planner I'm based in
Montrose I work with folks all over I am a fee-only fiduciary so I do not
receive any Commission's for selling products I either do hourly or flat fee
or if you want me to manage investments for you I do investment management as
well but you don't have to transfer assets or invest if you don't want
totally up to you we can just do financial planning and just you know
figure out where you are and you can go and do things off on your own if that's
what you'd prefer to do so I hope it's helpful please let me know I am gonna
stick around for questions by the way please let me know what you thought if
this was helpful if this was you know more or less better or worse than what
you might have expected I would love to know so that I can make these as
valuable as possible for you and everybody else in the future so thanks