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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. Say goodbye to that oversimplified advice you've heard hundreds of times. This show is all about getting into the nitty gritty. Now that said, remember this is just a show, not financial advice, so do your research. As always, you can text your questions to (913) 363-1234, and we'll feature them on the show. David, what do we got today?
David:Hey, Mike. Can I retire on $500,000?
Mike:Maybe.
David:So should I throw some scenarios at you? And you tell me if I can or not.
Mike:So the two questions, how much do you have? Which they told us.
David:500 k.
Mike:How much do you need?
David:For this person, we don't know what they need.
Mike:If you need a $100,000 from that 500 every year for the rest of your life, not gonna cut it.
David:A 100 k in income each year, and you've only got 5 yeah. Unless you're retiring at
Mike:50 like k. Not gonna cut it. Yeah. That'd be a 10% withdrawal rate.
David:Oh, okay.
Mike:Not gonna cut it. I know the markets have averaged over 10% over the last couple of years, but ten, fifteen years or so, that's not gonna happen for the next ten or fifteen years in my opinion. No one can predict the markets.
David:Sure. Okay.
Mike:So what does that mean? It means, well, how much income do you need? 3,000, 4,000, 5,000, $6,007.08. Figure out the income, the net income that you need.
David:Mhmm.
Mike:What's your social security? Do you have a pension? What's the gap? And then just solve the
David:plan. Okay.
Mike:Planning is is the easy part. One plus one is two. So as a general rule of thumb let me get out my calculator.
David:I love when the calculator comes out.
Mike:Yeah. Let's get this calculator out
David:the here. Real nitty gritty here, going deep.
Mike:So you got 500,000. Great. You could maybe take around 20,000 out. Maybe you could take 25,000 out.
David:This is out of your portfolio?
Mike:Maybe out of the portfolio each But I would even go as far as to say that may be too much. And the reason is you need to account for other expenses. So you may want to either delay retirement, or you wanna have something left over for health care. Maybe they have a long term care policy. Maybe they don't.
Mike:Problem with long term care is if you need it, you probably can't afford it. And if you can't afford it, you probably don't need it.
David:Mhmm.
Mike:So they may not be able to afford a proper long term care policy. Maybe they end up self insuring, which means they need, like, 300,000 of these assets to grow. That's 300,000 of when they use it, not necessarily in today's value. So maybe a 150,000 is set aside. So then we have 350,000 for income.
Mike:In income generation, maybe we're doing $1,416,000 or something like that as income. But do you see how it's not just income?
David:Yeah.
Mike:New roof. Yeah. A new car. These there's other expenses that you'll need to consider as well as a part of that. There are ways to structure it, but generally speaking, I would say if you have less money, you may want to guarantee more of your income just in case.
Mike:I'm not saying guarantee with flat income. We didn't really talk about this. We don't talk about this a lot because we don't really talk about lifetime income all the time, but you can do a lifetime income stream from an insurance company that might start at like four or 5% of whatever you put in there.
David:Okay.
Mike:Now for after the bonuses, after all the the hoop and haul or whatever. Mhmm. Was it hoop and
David:hauler? It is now. Yeah.
Mike:So after all of that, four or 5% is probably the beginning, but if the markets go up or your index goes up, you get a cost of living adjustment or a boost. It's not guaranteed, but it's able to last for a while. That can help offset inflation with annuity, because, yeah, you have to calculate that kind of risk. Yeah. But you've built it in a way that you can't go backwards as well, so it's kind of a nice hybrid approach of all of this.
Mike:And the reason why I say that is, like, look, if you're ultra wealthy and needing to give up one or two trips, it's not the end of the world. Yeah. If you're kind of not traveling, maybe you didn't save as much, you're not really giving up trips at that point. You're more now having a conversation about, hey, the prices of food have skyrocketed. Right.
Mike:This is hurting us. Hey. The price of gas has skyrocketed. This is hurting us. There's other things to be considered, because we all need a certain amount of calories.
Mike:In all humans, it's pretty close. We all need health. Health care costs. The doctor's office isn't saying, well, you know, today's procedure is 1% of your portfolio. That's how it works.
Mike:Mm-mm. So you wanna be cautious about saying, well, all of my assets are for my income. And I I hear arguments and things like, well, you need long term care. You're already on your way out anyway, so you might as well spend the money. Okay.
Mike:Well, how long will you be in long term care? How expensive is it gonna be? Are you gonna get kicked out because you blew through your money too fast? I don't know. But people do retire on 500,000 or less.
Mike:Yeah. It's absolutely possible. Just how much do you have? How much do you need? And then what are the other resources that allow you to structure the overall plan and strategy and portfolio?
David:Yeah. So it sounds like you might need some Social Security income in addition to this 500, at the very least, if
Mike:you wanted to, I don't know. Blend it together.
David:Yeah. Blend it. And what if you when you retire and you start taking income, what if you're still in your primary residence, but then can you factor in, well, in in a few years, we're gonna sell this, and we're gonna be in
Mike:a condo or something? Oh, this is a great great point here. So you may factor in the sale of your house. Just understand where you're going and the cost of that, because real estate can go up. Long term care facilities can go up.
Mike:Right. Retirement residents can increase in value, so it make it more expensive. Your house may not increase with the same rate as like these other places. There's a variability there. If you sell your house though, I mean, you're married, you might have like 500,000 of profit that's not taxed.
Mike:So there's an exemption level with the sale of your house. If you're single, about 250,000 would be taxed. So that's one component to it that you can put those in the portfolio or use it for health care costs. That's not sell your house about long term care policy. That's sell your house and invest it appropriately, not necessarily in the stock market, but in something that can grow.
Mike:Yeah. Then when you need medical help that you can pay for it as well. I don't particularly care for reverse mortgages. Oh. They're, I believe, more predatory than not.
Mike:There are situations where they may make sense, but it's extremely rare. The other part is inheritance. Okay. You might receive a large inheritance.
David:Oh, right.
Mike:That may help, but don't bank on it. Because the person you would inherit the money from may have an expensive end of life experience, which drained your inheritance. So it's one of those you get a rough idea of what's going on, and then you still plan as if you got it or you didn't get it. You wanna see both versions of the future. That's all the time we've got for the show today.
Mike:If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis.
Mike:Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date, go to www.yourwealthanalysis.com today to learn more and get started.