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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Welcome to How to Retire On Time, a show that answers your retirement questions. We're here to move past that oversimplified advice that you've heard hundreds of times. Instead, we're gonna get into the nitty gritty. As always, text your questions to (913) 363-1234. And remember, this is just a show, not investment advice.
Mike:Do your research. David, what do we got today?
David:Hey, Mike. Retirement feels incredibly overwhelming. Where do you start?
Mike:Yeah. It's understandable to feel overwhelming because of the significant change. So you've got first your work life, social life, the social life at work, all of that is gone. Now there's a huge void. What's gonna give you purpose?
Mike:How are you gonna spend your time? Do you have enough? Do you not have enough? There was an interesting study at Harvard, where they asked people like, how much money do you have, and what's your rate of happiness, and how much more money would you need to get a 10 on the scale of one to 10 of happiness? And they were saying like, double the money would make me more happy.
Mike:And the problem with that is they assumed more money would make them happier, but there's this thing called the hedonic treadmill. What it means is you might have blips of happiness and sadness, but you kind of end up at the same threshold of happiness over the long term. You go back to your default set of happiness. And so when you understand that more money may not make you happier, there's a certain threshold that you can afford now to retire, but working to get more money may not actually generate more happiness. Instead, self development and learning how to be a happier person so you can increase the hedonic treadmill.
Mike:Look it up. Hedonic treadmill. Okay. And how to increase your overall general default setting of happiness. That's, I think, maybe a better way to look at it, and here's how you do that.
Mike:First off, just use the 4% rule as a general idea of how much money do you need to save. So let's say you need $70,000 of income, roughly speaking, to be happy in retirement, to live your current lifestyle, and 30,000 is expected to come from Social Security. So you only really need 40,000 from a portfolio. So back that in 40,000 divided by 4%. You know, you've got, you can back in the 4% rule and get a million dollars.
Mike:Okay. So if you're near a million dollars, you're within the ballpark, or you can probably afford to retire. Now don't go off of that as your retirement plan. Just use it as a general threshold. Then here is the correct order or sequence in preparing for retirement in my opinion.
Mike:First off, plan your lifestyle. What's going to give you purpose? Right. Is that more expensive or less expensive than your current cash flow system? Then you then put together your actual first version of the plan.
Mike:Ignore investments and products and all of that. Just see how does the cash flow work. Start optimizing and looking at things from different ways, longevity, and so on. Then you look at strategies, tax strategies, social security strategies. Look at strategies how to get more out of your money.
Mike:Then once you have all of that, now notice it's all based on how your money's gonna serve you. Your lifestyle plans came first, then you looked at your planned cash flow, the overall projections, then you started looking at investments and products. The investments and products, if I'm in reverse order this, allow you to implement those strategies, which bring to life your plan, which then support your quality of life. Too often, we go to a financial professional and say, well, hey, do this. Yeah.
Mike:I wanna retire. How much income can I get? And we wanna force our lifestyle around that income. It needs to be reversed. I see.
Mike:Figure out your lifestyle first, then build your plan around that lifestyle. And if they're talking about investments in products in that first appointment, run for the hills. Mhmm. That's the last thing that you do. Not the first.
Mike:So that's my answer. Lifestyle planning first, financial projections or the general plan, strategies, then investments and products or your portfolio in the end. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time.
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