Welcome to how to retire on time, a show that answers your questions about all things retirement, including income, taxes, social security, health care, and more. The show is an extension of the book, How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial advisor, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much discuss it all. Now that said, please remember this is just a show.

Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, then request Your Wealth Analysis from my team today by going to www.YourWealthAnalysis.com. With me in the studio today is mister David Fransen. Thanks for being here.

Yes. Hello. Thank you.

David's gonna be reading your questions, and I'm gonna do my best to answer them. You can send your questions in by either texting us to (913) 363-1234. That's (913) 363-1234. Or email them to heymike@howtoretireontime.com. Let's begin.

Hey, Mike. How much do I need to save for retirement?

Couple of layers to that question. So the first one is, you know, how much does it cost to be you? You need to understand what your spending's gonna be. And your spending is probably gonna be different when you retire than when you're working. I mean, just think about it for a second.

Work is kind of like your hobby. It's your pastime, except for you get paid to do it. Yeah. So when you have an extra eight, nine, ten hours of the day to do something, you're probably not gonna get paid to sit around. So is your hobby or your fair pastime or what you'll you're volunteering, is it gonna cause you your expenses to increase or is it gonna be about the same?

Oh, okay.

So those are some things to consider. A lot of people, they'll remain kinda the same. Some people, they'll be exponentially greater. Few times will the cost actually go down. Alright.

Now that's different than income. Right? So your income from your work may be higher, but maybe you're saving a lot of the money. You're not actually spending it all. So you need to understand not what your current income is, but what your expenses are and what they're expected to do.

That make sense so far?

Okay. What my expenses are now and then what they might be after retirement?

Yes. Like once you retire, get rid of savings because you don't save when you're retired. Oh. You're just spending at that point. You're invested or you're spending.

Yeah. So what are your actual expenses? And multiple ways you could do that. Some exercises are, like, downloading the past couple of months of your bank statements and kind of going through and itemizing them. We created an app to help people have a healthy relationship with their money called Cashflow and Capital, which is available on iPhone soon on Android.

So check that out if you wanna really dive into, if you wanna get in tune with your expenses. But that's the first question is, what are your expenses gonna actually be? Now you take that number. Okay? And then what you gotta do is make it into a year.

It's easier, I think, from a year standpoint. Uh-huh. So let's say your number is well, easy math. A hundred thousand a year is how much you're because that's easy roundabout.

What I need for income in retirement.

That's your expenses.

Oh, those are my expenses. Okay.

Your hundred thousand in expenses, including maybe some traveling in there, just kind of a general lifestyle. You know? Your trip to Breckenridge or whatever it might be. Sure. K.

So let's just say that's what it is. And for what it's worth, don't feel shameful or weird about your expenses. Everyone's expenses are so different one from the other. What makes people happy varies so greatly that like, you know, how much should your expenses be? Well, I don't know.

That depends on you. Mhmm. Don't compare your life to someone else's. How much does it cost to be you? What life do you want to live?

Let's stop overgeneralizing what should be by other people's lives. Like, what's yours? So let's say it happens to be a hundred thousand.

Okay.

K? How much is your Social Security gonna be? Because we're not just trying to take income from our assets. We're trying to get, you know, roughly how much we have to get saved, but there's other income streams. So let's say you're gonna get 30,000 from Social Security.

Alright.

K. You and your spouse or maybe assist you, whatever the number is. Again, round numbers here. So a hundred thousand minus 30,000, we've got 70,000 left over. You with me so far?

I am. I'm following.

K. So we got 70,000 left over. Now let's assume that you've got some rental properties. They're bringing in around, I don't know, let's say 20,000 in just Okay. Cash flow.

Okay.

So 70,000, 60 so we're at 50,000 now. You need a hundred thousand of just income coming in.

Mhmm.

30,000 is gonna come in from social security. 20,000 is gonna come in from your rental income. Alright. So you need 50,000 from portfolio, four zero one k, just income from assets of sorts. Alright.

So you take 50,000, then you times it by 24. Yes. Roughly in this situation, it'd be 1,200,000.0.

Okay.

That's based on the 4% rule. The 4% rule is a great rule of thumb, but it's not a retirement plan. Mhmm. When I say rule of thumb, it's like if you're in your thirties or forties, how much do I need to earn? Well, there's so many variables.

It's really hard to gauge exactly what that would look like. But if you know kind of this is the ballpark of where I need to be, this is a really helpful exercise.

Uh-huh.

So for this person in particular, maybe they need around 1,200,000.0 saved up. 4% rule suggests that if you if your stocks average, let's say, 8% year over year and your bonds average 4% year over year, bond funds specifically, then you should be able to take out 4% year over year and be fine. Now I've got a lot of grief against this mindset because it's based on the idea of the asset allocation, to generic traditional portfolio. You got your large cap. You got your small cap.

You got your emerging markets. You got all these terms that most people don't even understand what they mean. Mhmm. But they hear, oh, I'm diversified, so they assume it's right.

Yeah.

Well, over the last couple of years, large caps have averaged around 13% year over year, small caps around 10% year over year. And the real estate sector, if you invest in it correctly with publicly traded REITs, which aren't really that good, but, you know, it's better than nothing, are what, like 8% or something like that. But if you do a traditional portfolio, your average is, like, 6.2. How much of a disservice have we done in saying, hey. You know, you can retire.

All is well, but we're gonna put you in this very cliche portfolio based on your age, based on your alleged risk tolerance, which most people don't know how to define anyway, and put you into a very bland portfolio and grow your money at around 6.2% according to historical averages, and you'd be fine. That's why I say, like, look, 4% rule and this whole concept of it, and you need 1,200,000.0 in this scenario, it's oversimplified. Yeah. But at least gives you an idea of where you're going. Yeah.

Now, that said, when you're five years away from when you want to retire or not, you can really make some some drastic changes to your savings and to your investments. And it might be that through social security optimization, through portfolio optimization, seeking efficiencies within there, through tax minimization, you might be able to do this off of a million dollars or maybe 800,000, 9 hundred thousand dollars, something like that.

That's interesting.

You've got a lot of wiggle room because where your money is and how you've saved changes the equation drastically. So $1,200,000 in pretax four zero one k is going to be very different than 1,200,000.0, let's say, in Roth. Let's say you've got 600,000 in the IRA versus 600,000 in the Roth. Very different situations.

Mhmm.

And maybe you're five years out and you think, you know, gosh, I don't know if I'm gonna make it and no one can control the market. But what if just a subtle adjustment of you now saving more in the Roth, the after tax part of your four zero one k, then the pretax helps bridge the gap? Yeah. What if we can find $7,000 a year of tax efficiency through Social Security tax optimization? See, it's not just the dollar amount.

So when people say, how much do I need to save? It's like, well, hold on. Actually putting your plan together, there's a lot that needs to be considered. But if you're looking for a basic ballpark, figure out how much you need after the pension, after social security is accounted for, all of that, and then times that number by 24, and that's a ballpark. And if you're within that range, roughly, that's when you need to see a financial professional like us at Kedrick to where we can then break it down, seek efficiencies, and show you how you can potentially get more out of your hard earned money instead of falling into these cliche portfolios that really are just it's just laziness.

Mhmm. How is that for a tangent?

Yeah. No. Enjoyable. There's there's a lot of nuance, it sounds like. There's a lot of things that maybe the rest of us haven't considered, and we just get into this oversimplified, like, I wanna know what my exact number is, and that's what I'll focus on.

Everyone knows how to run. All kids, almost all kids run.

Mhmm.

Well, if you wanna really know how to run, you don't just run faster or try to run stronger. You have to learn how to train within certain zones. You have to learn how to hydrate certain way. You have to learn how to breathe a certain way. Mhmm.

Right? The cool thing about finance is you can actually elect the difficult part of the training to a professional. Like in fitness, at the end of the day, you've gotta be the one that performs. Yeah. In finance, you can elect that professionalism to have someone else get more out of your money than you would have on your own.

So it's one of the few industries where you can actually have someone else take care of it for you. And that's I I I think that's the cool part about finances, getting more out of your money through efficiencies. It's not just taking on more risk. It's strategy. I mean, finance is really three-dimensional chess.

Mhmm. Once you get that comprehensive plan, something that really dives into the multiple layers of strategic planning of, of efficiency, that's when your eyes start to open and you're starting to go bad. This is pretty sweet. 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.

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