Think you’re ready to retire? Joe Anderson, CFP® and Big Al Clopine, CPA reveal six powerful signs that show whether you truly have enough to quit working—and what steps you can take now to secure the retirement you’ve always imagined.
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Important Points:
- 00:00 – Intro: The #1 Question About Retirement
- 01:35 – Sign #1: You Know Your Retirement Number
- 02:57 – Sign #2: Your Withdrawal Strategy Works
- 04:01 – Sign #3: Social Security Timing Is Locked In
- 06:11 – Sign #4: You’ve Built a Realistic Retirement Budget
- 08:48 – Sign #5: Your Healthcare Costs Are Covered
- 11:27 – Sign #6: You’re Mentally Ready to Retire
- 13:03 – Bonus: Tax & Withdrawal Strategies to Maximize Retirement Income
- 17:56 – Building the Right Retirement Portfolio
- 20:33 – Required Minimum Distributions (RMDs) Explained
- 21:08 – Why an Estate Plan Is Essential—Even Before Retirement
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Transcript:
(NOTE: Transcriptions are an approximation and may not be entirely correct)
The #1 Question About Retirement
Joe: I know what a lot of you are thinking. Can I ever retire? Please show me a sign. Guess what? We’re gonna show you that sign today, folks. Welcome to the show. Show’s called Your Money, Your Wealth®. I’m Joe Anderson, CFP®. President of Pure Financial Advisors, and of course I’m with the big man. Here’s Big Al Clopine. How are you?
Al: I’m doing great. Yourself?
Joe: You ready to show people the signs that they’re ready to retire?
Al: I can’t wait.
Joe: You know, it could be savings, it could be debt, it could be an age, or it could be just your focus on the next phase of life. Those could be the signs. But more importantly, that’s today’s financial focus.
So here’s the problem. Over 25% of people think. I’m gonna die at my desk that I will never, ever be able to retire. I’m gonna work until I drop. I think that’s unacceptable. You gotta enjoy a little bit of retirement. Let’s bring in the big man to show us the way.
Al: Alright, so we’re gonna get into the signs today. So first we’ll talk about income and spending kind of, you know, a little bit of mathematics to figure out if you’re ready financially. But then let’s talk about health and lifestyle, right? That’s very important as well in taxes and portfolio. So, Joe, I guess we’re gonna cover a lot of ground in a short period of time.
Sign #1: You Know Your Retirement Number
Joe: Yeah, I think we’ve just taken it in small bites. Look at income, lifestyle, and then we’ll wrap it up with taxes. So let’s start here. Being financially prepared. You know, fidelity runs this study. I think a lot of big financial firms look at, all right, to get you in the ballpark, how much money do you need?
So I think a lot of us want to know a target. What is that number? How much should I have in my overall portfolio? They say about 10 to 12 times. Last year’s annual income.
Al: They do say that. And, when you think about it, the way they come up with this is they figure that because you’re not saving it a 401k and you don’t have Social Security, taxes, withholdings on your paycheck, maybe you can spend like a little bit less than what you’re spending before.
So you’re spending 80% and then you have 10 to 12 times your last salary. You combine that with Social Security and you should be able to live somewhat a similar lifestyle.
Joe: Yeah, I think this is rule of thumb, you know, because the problem is that some people, you know, have significant amount of assets and they still think that they gotta continue to work and they’re stressed out.
But if you just did some simple math alright, then you might be able to be a little bit more relieved. And say, Hey, I could pull the trigger at any point. On the opposite side of the spectrum, people are retiring with maybe not as big as a nest egg that they should, and their spending is a lot higher. So this is a decent rule of thumb to kind of look at, to see if you’re in the ballpark.
Sign #2: Your Withdrawal Strategy Works
There’s also another rule, the 4% rule. Big Al.
Al: Yeah, there is. And, so this, again, it’s a rule of thumb. It’s not, gospel. At least it tells you if you’re in the right ballpark. So take a look at your liquid assets, your savings, Your, stocks, your bonds, your mutual funds, your cash, that’s your liquid assets.
Multiply that by 0.04. Figure out how much you can spend yearly. So here’s an example. You got 1.4 million. Congratulations. You did a great job. What does that translate into? An income, maybe your 65 and, you wanna live till at least 90, maybe even 95. What’s, what’s a sustainable income? 4%. you’d end up with about $56,000 a year.
Joe: Alright. Yeah, Bill Bengen right here in Southern California came up with that 4% rule. Another way to do it as well is that, you know, you’re trying to figure out what is the maximum spend that you can, and 4% is a, is just a rule of thumb. Some of you can spend more, of course, some of you can spend less really depending on, when you retire.
Sign #3: Social Security Timing Is Locked In
Another thing to look at is your Social Security. So here’s a hypothetical of Social Security benefits. Just assume, let’s say it’s a $2,000 base rate at your full retirement age 67. So at age 67, $2,000 a month is going to come to you. However, you could take it as early as 62. Or you could delay your benefit until age six or till age 70 each year you delay, after your full retirement, you get an 8% delayed retirement credit, so you’re locking in a lot higher number.
Plus there’s also a cola on that, depending on what the Social Security Administration does. But I think in this example it’s like two, two and a half percent.
Al: It is, and, I think, it’s a really good reminder that if you can wait till 70, you’ll get a lot bigger benefit. Now, of course, you can take it any month. You don’t have to wait at the end of the year. Every month you wait. It’s a bigger benefit, but the cost of living, we just ran it at like two point half percent just to show you by the time, if you’re 62 and the benefit’s 1400, by the time you’re age 70, it’s gonna be a higher benefit because of cost of living. In this example, almost $3,000.
Joe: So going back to the example, you have $1.4 million in your retirement account. You’re gonna take 4% out of that. That’s $56,000. That will come from savings, and then you take it at full retirement age. At that $2,000 a month or 24,000. Here’s kind of your base hypothetical income of $80,000.
If you can live off of $80,000 a year, hey, I think you’re financially independent. If you cannot live off of $80,000 a year that you’re spending a hundred, 120, 150. you’re gonna be a little bit short because you’re going to have to take a lot more dollars from your overall retirement accounts or your savings.
It’s gonna be higher than that kind of hypothetical, 4% that will put you in danger of running outta money.
Al: Yeah. And I think this is such an important calculation, right? So it’s your Social Security plus roughly 4% of your liquid asset portfolio. That’s approximately what you can spend. And once you’re at, you have that ratio correct, you can spend within that amount. Then you can retire. That’s a great sign of retiring. And even if you feel like you can spend that amount, you still have to be a little bit careful, Joe. You gotta budget a little bit sometimes.
Sign #4: You’ve Built a Realistic Retirement Budget
Joe: Yeah. I think that’s very important here, is that looking at a budget, no one likes to be worth, but you know, maybe 50% of the income is on needs, 30% is on wants, 20% is on savings and debt.
And then maybe some. go online for some online budget tools, but if you’re retired and you still have debt, you’re not probably gonna save anymore. So that 20% could then go back to your needs. So it’s just kind of breaking it out today. Where’s your dollars going? And then taking a look at that snapshot in the future of when you’re retired, what are you gonna continue to spend money on?
What are you not gonna spend money on? And then that could be your budget moving forward. Some people spend a little bit less of what they’re spending today. A lot of people actually spend a little bit more. Once they hit retirement because they got a lot more free time, right? So they could travel more.
They do different projects and things like that. Just having a, it doesn’t have to be to the penny, but I think having a decent understanding of what the cashflow looks like, what the inflow and outflow is on a month by month or quarter by quarter basis is pretty important. Because if you’re planning to spend a hundred thousand dollars a year and you’re spending one 50.
Al: That math doesn’t work big, Al no, it’s not gonna work. And so when you take a look at this math and, if you are short, of course you can work a little bit longer. You can get a part-time job through retirement. You could downsize your home. All kinds of things you could do. But, you gotta go through this math to figure out if you’re ready.
Joe: Hey, if you wanna break this down, go to YourMoneyYourWealth.com. Take our Financial Blueprint. You can do it right there in the comfort of your own home. You break things down. What’s good, what’s bad, what’s ugly? Gives you an idea, a blueprint, if you will, of what steps that you need to take to have a successful retirement.
If you wanna sign, if you’re ready for retirement, go YourMoneyYourWealth.com. Click on that special offer. It’s our Financial Blueprint. Alright, we gotta take a quick break. We’ll be back in just a sec.
Joe: Hey, welcome back to the show’s called Your Money or Wealth. Joe Anderson, Big Al breaking things down, showing you the signs if you can actually retire.
If you want more help, we got the answers, go YourMoneyYourWealth.com. Click on that special offer. It’s our Financial Blueprint. Thousands of you have already done it. Go to YourMoneyYourWealth.com. Click on that special offer. It’s our Financial Blueprint. It will give you, Hey, this is great. That’s a green.
Hey, you need some work that’s a yellow or a red. You don’t wanna be in the red, but you wanna find out what’s in the red so you can get it to green. Go to YourMoneyYourWealth.com. Click on the Financial Blueprint. It’s our special offer this week. Alright, let’s see how you did on that true false question.
Sign #5: Your Healthcare Costs Are Covered
Al: Nearly 70% of people turning 65 today will need long-term care at some point in their lives. True or false? unfortunately that’s a true statement, but Joe, it’s, what the, the insurance companies, they tout this all the time, but sometimes it’s just like a day or two of long-term care.
It’s not necessarily a long stay.
Joe: Yeah. You could twist a knee or something like that. It’s maybe a little bit of rehab.
Al: Correct. Or you could be in there for years for a long time.
Joe: One of the bigger things that we see when it comes to long-term care. It’s not actually having the care for you, but it’s your spouse because of how expensive this care is.
Al: it is, and so a lot, some people have insurance, but in a lot of cases, what people do is the first spouse that needs help, the second spouse helps them. Which is a lot of work and difficult. And then if the second spouse needs it, they end up selling their home. That’s a common strategy. you don’t necessarily need long-term care insurance, but for many, that’s a good way to go too, because it helps preserve other assets.
Joe: Alright, let’s talk about Medicare. There’s also cost when it comes just to your daily healthcare.
Al: there is, and it’s confusing, right? There’s all these different parts. A, B, C, D, what do you do? let’s, I’ll try to break it down a little bit. A, B and D sort of go together in a group, and C is kind of a standalone, right?
So A is hospitalization, B is doctors, D is drugs. Prescriptions. And then c is kinda, kinda like a, plan that encompasses all three.
Joe: This is where you’re paying currently on a, through F attacks. This is IRMAA. So it starts at 85, but it depends on your modified adjusted gross income that this will continue to increase.
So the more dollars that you make, or the income that you drive, once you reach, Medicare age, it’s actually two years prior to that. They’re gonna take a look at what your Part B is, and then part D is. Your prescription drugs, but you’re, this is like an HMO, if you will, that just puts everything together.
If I wanna have a concierge doctor, a lot of people retire prior to 65, so you still need health insurance. So you have to look at bridging the gap,
Al: Affordable Care Act, al that came around during the Obama administration and so it, it makes, insurance cheaper for many people depending upon your income level.
So if your income level is low, regardless of the amount of assets. Then you can get some credits against what would normally be paid for health insurance.
Joe: I think the purpose of this is that if I’m retiring prior to age 65, my income is probably gonna be pretty low, or I can control the income that shows up on my tax return.
Sign #6: You’re Mentally Ready to Retire
Joe: So hopefully I can get the insurance that I need at affordable cost. Are you ready to retire? Mentally, the dollars and cents are one thing, Al, but are you actually ready to go? How are you gonna spend your time in regards to hobbies and activities? some people get lonely, you know?
Al: I mean, retirement for some people is really bad and some is the best thing ever. Your relationship with your spouse, you know your friends, what are you gonna be doing? The hobbies, what do you do with your time? You gonna volunteer, you gonna spend time with the grandkids? You have to have some reason to get outta bed, right? Maintaining a positive attitude to me is. Key. So try to get in the right mindset every day.
Joe: Hey, speaking of great mindsets, go to YourMoneyYourWealth.com. Click on that special offer this week. It’s our Financial Blueprint can map things out in regards to your income, your assets, your spending, your income against your spending, to see if you’re on track, not on track, or what are the things that you need to do to get on track.
Go to YourMoneyYourWealth.com. Click on that special offer. It’s our Financial Blueprint. Now, when we get back, we’re gonna get into the portfolio, 401(k)s IRAs, Roth IRAs, what that portfolio should look like, how do you start taking distributions? And of course, Al’s favorite taxes, so don’t go anywhere.
Joe: Hey, welcome back to the show folks. Show’s called Your Money, Your Wealth®. Joe Anderson here, Big Al Clopine, showing you the signs if you can actually retire. I’ll give you that sign. Go to YourMoneyYourWealth.com. Click on that special offer. It’s a blueprint. It’s our Financial Blueprint. See if you’re on track.
And what do you need to do to get on track? So Al, let’s get to that true false question.
Bonus: Tax & Withdrawal Strategies to Maximize Retirement Income
Al: You can withdraw from your 401k without penalty at age 55. Wow, that seems a little odd, but believe it or not, that’s a true statement. As long as you have a 401k. With your current employer and you retire at age 55 or older, you don’t have to wait till 59 and a half. In that particular case, I think Joe, a lot of people don’t know that
Joe: a lot of people make this mistake. They retire, they separate from service and they think they cannot get access to their retirement account without that 10% penalty. Without that, early withdrawal penalty, but 55, as long as you separate from service, as Al said at 55. You have penalty free withdrawals as long as you keep it in the 401k.
Do not roll it into the IRA until you turn 59 and a half. Because then that will be a 10% penalty if it comes from an IRA, it has to be from a 401k, but the standard rules out for the 401k is 59 and a half.
Al: Yeah, and I think on the 401k topic, be careful here because it’s only your current 401k with your current employer that you retire your age.
55 or older old 401(k)s that you have, do not apply to this rule, but certainly IRAs and 401(k)s that don’t qualify for this 55 rule. 59 and a half is your age where you can with withdraw it without penalty. Of course, you still pay taxes on what you withdraw, but you get to take it without penalty.
Joe: Yeah. Let me break it down a little bit differently here too. So we’re talking tax deferred accounts, right? So that’s your IRAs 401(k)s, 403(b)s, TSPs, SEPs, simples, and the like, right? You get a pre-tax dollar going in, it grows tax deferred, and then when you pull these dollars out to spend. All right. I want a little cash here to live off of.
this is gonna be taxed at those ordinary income rates. So depending on how much money that you pull out is going to be, dependent on what tax bracket that you’re in, you pull a lot out, you’re gonna pay a lot of tax. You pull a little out, you’re probably gonna pay a little tax. So that’s the tax deferred accounts.
There’s a lot of rules and restrictions because you get the tax deferment and you get that tax deduction going in. If you pull these dollars out prematurely, right? Then most people get, assess that 10% penalty. However, there are some rules, as we talked about the 55 rule. There’s also, the 72(t) tax election, but just understand tax deferred accounts.
When you pull these dollars out, you can, avoid that 10% penalty if you do it right. But for most of us, after 59 and a half. You avoid the penalty, but you do have to pay ordinary income tax on the federal level in the state, depending on what state that you live in. Taxable investments would be a brokerage account.
That could be stocks, bonds, mutual funds. It could be real estate. It’s a capital asset. Anything outside of a retirement account. So if you hold those assets for a year and a day and you wanna take those out, it depends on how much gain that you have in that asset is gonna be determined of the tax.
You buy something for a hundred thousand dollars, it grows to $125,000. You cash it out? you have $25,000 of growth within that asset. You’re subject to tax. If you hold that asset for a year and a day, it’s a capital gains rate. It could be as low as zero, or it could be as high as 20. So then this is dependent on what is your adjusted gross income, right?
Or what tax bracket that you’re in. There’s also another tax on top of that if you have high income, which is called the net investment income tax. So there’s tax all the way around this circle here or this triangle. You just have to understand how your assets are going to be taxed. So these two pools have taxed, but this pool doesn’t.
That’s the tax free pool. That’s the good old Roth IRA, Roth 401k could be municipal bonds. So here we like this pool quite a bit because all of the growth that is growing up here can come out to you without any tax. So you have to take account of where your assets sit. To determine what strategy that you wanna look at as you’re creating income.
Most of you probably have all of your assets or most of the assets here. Just understand that every dollar that comes out, in most cases, we’ll be taxed at ordinary income rates. As we started this show, we’re saying, Hey, most people wanna replace their paycheck or they’re gonna live a little bit, or maybe 80% of what their income is.
Some of you’re gonna spend more. The rule of thumb was that I will be in a lower tax bracket in retirement. if all of my money is sitting in this account here and it’s taxed just like my paycheck for the most part, from an ordinary income perspective, just know that tax bill might be a little bit higher than you’re anticipating.
Building the Right Retirement Portfolio
Al: Yeah. Joe, I think taxes are such an important part, but now let’s pivot to your portfolio. So, we have different flavors of portfolio from conservative to aggressive growth. Notice I’m not necessarily talking about age, right? Because if you’re. 70, 60, 80. You know your portfolios depending upon your own circumstances, right?
If you need a conservative portfolio, you can see that it’s not very many stocks, US stocks or foreign stocks. It’s mostly bonds and short term investments. On the other hand, if you want to go. All in aggressive growth, right? It’s a lot of stocks, a lot of foreign stocks, just a few bonds, and not a lot of, in fact, none short term investments.
So the, way that you figure out what portfolio you need is you gotta do the little, the math that we did at the beginning of the show, which is figure out what rate of return do you need from your portfolio. Then you work backwards and start figuring out what kind of portfolio is gonna make the most sense for you through retirement.
For a lot of you, it might be on this chart that the balanced portfolio. You know, with about half stocks and half bonds, half, growth, half safety, but. Everyone’s different. Some of you may be older and do a very aggressive portfolio because it’s really for your grandkids and you don’t need it. So be aware that everyone is different.
You don’t have to do, and you shouldn’t do what your neighbor’s doing ’cause your circumstance is probably different.
Joe: Yeah, and I think, just to put another layer of complexity on it, if I do have dollars in my tax deferred account, if I do have dollars in my Roth account, and if I do have dollars in a taxable account, you probably want a whole different asset classes in these pools.
So most people have most of the assets here. Maybe a little bit of assets here. If you think about it, if that growth is gonna be a hundred percent tax free, you don’t have to pay any taxes at all on the growth. I might wanna put a little bit more aggressive type investments here. This is my opinion is that if I can get a 6, 7, 8, 9% rate of return, and that 9% is all my tax free, right?
That could be a really good deal over the long term. but you’re gonna have a lot of volatility in this, in this account. So if you’re drawing it for income, of course you want safety here. Taxable account, this is tax favored here too, versus a tax deferred account. So I think I would probably wanna have more tax efficient type stocks in here because I’m gonna be taxed at a capital gains rate versus ordinary income.
So sometimes we see it backwards where this is really safe. And then you have a lot of risk here and no money here. You wanna just be a little bit more balanced and a little bit more diversified. This could save you quite a bit of money in taxes and a lot more efficient portfolio long term.
Required Minimum Distributions (RMDs) Explained
Al: You know, Joe speaking about the tax deferred, bucket, if you will. RMDs required minimum distributions. These happen at right now, at age 73. You have to take money out and there’s different ways to calculate the RMDs. It’s based upon your life expectancy table. But be careful there’s different. Tables, right? There’s a table for single, there’s a table for joint. There’s even a different table if your spouse is more than 10 years younger.
So just make sure you get the right table so that you do the right amount. Now, you can always do more, but you have to do at least the minimum amount.
Joe: Okay, let’s switch gears. Let’s go to our viewer question.
Why an Estate Plan Is Essential—Even Before Retirement
Al: This is from Maggie in Seattle. Should I have an estate plan in place before I retire or wait?
That’s a great question, Maggie. It’s a estate plan that’s confusing to a lot of people. What does that mean? Estate plan just really means you’ve got a will. Or a trust, right? You have power of attorneys for health and financial. That’s what you need. You gotta do that as soon as you have something to lose, which is usually in your twenties or thirties.
You’ve got accounts, you have a house, you got kids, you got a spouse. Yes, you need an estate plan while you’re working. if you don’t have one when you retire, then certainly get one. But the sooner you get it, the better.
Joe: Yeah, I think it’s just a simple document. It could be, you know, this is, here’s my assets, this is where I want them to go.
or let’s say if something happened to you, you got sick or injured and you couldn’t necessarily pay your bills. You want to have someone there to help continue to pay your bills. And then if you get sick or someone you know from a healthcare directive, it’s like you have wishes that you wanna make sure that someone acts in your best wishes of what you really want to happen.
So you could get very high tech and. Of a very advanced estate planning, or very simple estate planning really depends on what you, where, what stage of life that you’re in, to determine what type of plan that you should get.
Al: And I think, yeah, certainly a will. that’s where you need to start. Everyone should have a will. And then just some thoughts on what should happen with your finances and health.
Joe: That’s it for us. If you want more help, go to YourMoneyYourWealth.com. Click on that special offer this week. It’s our Financial Blueprint, thousands. If you have done it, the Financial Blueprint will show you the signs.
It will show you the signs. If you can retire or not, go to YourMoneyYourWealth.com. Click on that special offer for Big Al Clopine, I’m Joe Anderson. Hopefully enjoyed the show as much as we did. We’ll see you again next week.
IMPORTANT DISCLOSURES:
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.
• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
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