Subscribe
Share
Share
Embed
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 the oversimplified advice that you've heard hundreds of times. This show is all about the nitty gritty. As always, remember, this is just a show, not financial advice, but you can text your questions to (913) 363-1234, and we'll feature them right here. David, what do we got today?
David:Hey, Mike. Can I retire with $700,000?
Mike:Maybe. I've seen people do it for less. I've seen people with more that could not afford to retire.
David:Interesting.
Mike:There are two things that are connected here. The first one is how much do you have saved, and the second is how much do you need?
David:Okay. This is what everybody should all retirees should be asking themselves?
Mike:Yeah. Uh-huh. And if your needs cost less, so lifestyle that you wanna live isn't that expensive, then you need to save less money. If the retirement you wanna live is very expensive, you need to save more money. I think we do ourselves a disservice by saying, well, I need to hit that million dollars, or the new number's $2,000,000, whatever it is.
Mike:Just advertisements to manipulate you to think something so they only attract the higher net worth clients or whatever. Everyone's different, and I'll even prove my point here.
David:Okay.
Mike:How expensive is it to live in Downtown San Francisco? Forget politics, by the way. Right. It's a pretty fun city to live in. I've I've spent some time in San Francisco.
Mike:Uh-huh. I've enjoyed New York. I've enjoyed Seattle.
David:Yeah. Great cities.
Mike:Pretty expensive.
David:But I I think just from what I've heard, and I haven't really been, but, yeah, I think it's very expensive.
Mike:How expensive would it be to live in La Harp, Kansas? You ever heard of that? I I have. Before we met.
David:Only because of you, though. I'm a native Kansan here, and I had never heard of it until I met you.
Mike:So So that's a small town outside of a small town Yeah. That's two hours away from any major city in Kansas.
David:Yeah. So I'm guessing then it's pretty inexpensive.
Mike:Town of 500 people, maybe? Uh-huh. Good people, very kind people, nice community. You go to the, I guess, bigger town, Iola. They have a nice community college there.
Mike:You know, they got a Walmart. They've got a bike shop. Oh. Tons of trails. Alright.
Mike:You could probably find a home for 40 to $100,000.
David:That's cheap.
Mike:Like a home. Yeah. Okay. Yeah. So the reason why I bring that up is I've met people that live in more rural areas.
Mike:I've met people that live in the cities. How much they need to have saved is so different. And then from there, I've met people, let's say in Kansas City, that need 10 to $15,000 a month. And they say, I don't know how anyone could live off of less than that. And then I've met people here in Kansas City that only need 3 to $4,000 a month, and that's it.
Mike:Yeah. And they're happy as a clam. Yeah. Everyone is different. So generally speaking, $700,000 you know, you can use the 4% rule as an arbitrary benchmark of saying, you know, 700,000 I'll just get a calculator here.
David:Yeah. So you could just test it.
Mike:Yeah. I mean, $700,000 times 4%. So $28,000 a year is roughly 4%.
David:Okay.
Mike:And then let's add in, let's say 25,000. You're single. Social Security, it's 53,000. That's not that bad. Yeah.
Mike:Let's add another 20,000. Say you're married. Your spouse is gonna get 20,000. So you're at $73,000 a year or about $6,000 a month.
David:That seems doable. Gross. Yeah. Okay.
Mike:Now this gets more tricky. Is the $700,000 in your IRA? Because if that's the case Uh-huh. You're gonna pay income tax. Uh-huh.
Mike:Is it in a brokerage account? K? Hear me out on this.
David:Alright.
Mike:If your $700,000 is, let's say, in just a bunch of ETFs that you've bought and hold forever that you didn't do IRA or or four zero one k contributions, you don't have a Roth, that's a pretty good deal. Because 73,000 is underneath, or it's within the 0% long term capital gains tax bracket.
David:Okay. Remind us what that means.
Mike:Yeah. So if you hold a security, so a stock or ETF, an investment, think of something you would buy in Schwab or Vanguard, and you hold it for longer than a year. Okay. You are taxed under long term capital gains brackets. So the first 96,000 or so of gains is not taxed.
David:Oh, okay.
Mike:So if you need $73,000 and all of your assets are in a savings, people say, oh, well, four zero one k, that thing's really, really nice. Yeah. If they're giving you free money. Uh-huh. But if if your investment strategy is just to buy and hold an ETF, like the S and P five hundred ETF or QQQ or the total stock market index, whatever it is, and you held that to retirement, if that was your investment strategy, there is an argument to be made that you might have actually been more tax inefficient by saving in the four zero one k.
Mike:Because if you really want $73,000 a year, even with your Social Security being taxed as ordinary income, let's say, what we say, 45,000 of it was coming from Social Security. Mhmm. So 45,000, 85% of it's subject to ordinary income tax, and then you've got your standard deduction. In that example, they were married. The standard deduction basically takes out most of their ordinary income.
Mike:Their ordinary income is like $5,000 what's left over, whatever it might be. Imagine an entire year, and all you did was pay taxes on $5,000 of income. Okay. That's $500. That's acceptable.
Mike:And then whatever the state income tax would
David:be. Right.
Mike:So if your savings are outside of a four zero one k, gonna treat your plan very differently with the investments and products that you would choose as opposed to if you have an IRA. Okay. 73,000. You know, you could probably manipulate that a little bit. You got your standard deductions.
Mike:Maybe it's like 40,000 or so. You're probably in the 10 to 12% tax bracket plus state taxes. And so now you're gonna wanna kinda stretch that out a little bit. But maybe you don't need to do any IRA to Roth conversions because the income that you want is within a lower tax bracket anyway. And so with the standard deduction, everything's at the 10 to 12% tax bracket.
Mike:Maybe you're fine. Just, you know, your RMD is built into the income you already want.
David:Okay.
Mike:So these are things to think about. But I mean, I don't know. Could you live off of $5.06 k a month? There's a lot of people in this country that would be more than happy tickle pink
David:Yeah.
Mike:To live off of that, and they're still working because they think they need a million or 1,500,000.0.
David:But man, maybe they don't need to be. Maybe they're trying to reach that million dollar threshold for what?
Mike:Yeah. Some people can retire at 500,000. Some people can be less. Some people the most I've ever heard someone needing, and this is first person, not like some arbitrary I was sitting in the office in Chicago. I won't say who.
Mike:I won't say much more than that. Alright. And we were just chatting about retirement planning. And he says, need $500,000 a month Oh. To live my life.
Mike:Oh. 700 k isn't gonna cut it for him.
David:Do you have like a yacht in Monaco or something?
Mike:I think so. Yeah. Actually.
David:Okay. Well, that would make sense.
Mike:Wonderful individual.
David:Yes.
Mike:Just an absolute delight. Okay. Everyone's different. Yeah. So the question is, does one plus one equal two?
Mike:How much do you have? How much do you need? Can you afford to retire? With all of the nuance that comes with it. 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 podcasts. 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. 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.