Have the years raced by without saving for retirement being a priority? You are in good company. Financial professionals Joe Anderson and Alan Clopine give you tips to fast track your retirement after 40. Planning for your retirement takes a different approach when you haven’t focused on it until the time horizon for retirement isn’t that far off in the distance. From putting a plan in place, keeping more of what you make to making sure you don’t derail your retirement, this segment is a must-see for anyone falling short of their savings goals.
(0:00) – Intro
(1:50) – Retirement Goals Employees Want
(2:30) – Fast Track Your Retirement After 40
(4:00) – Action Plan
(5:40) – Determine Spending
(7:50) – Monthly Plan to 500k
(9:00) – Retirement Accounts
(12:20) – Delay Retirement
(13:10) – Keep Working
(15:50) – Patience Pays
(19:20) – Avoid Raiding the Account
(20:40) – Are you giving it to Adult Children?
(21:40) – Ask the Experts
Joe: If I asked you if you could retire tomorrow, what would be the answer? For most of you, it’s probably I have no idea. But how about if you had to? Or let’s say you had to retire in the next five or 10 years? Do you have a plan to put your retirement in check? Well, we’re going to fast track your retirement today, folks. Welcome to the show. The show is called Your Money, Your Wealth®. Joe Anderson here I am a CERTIFIED FINANCIAL PLANNER™, President of Pure Financial Advisors. Of course, I’m with the big man. Big Al Clopine, CPa. Hello Big Al.
Al: How are you doing Joe?
Joe: I’m doing fantastic. How are you?
Al: Me too.
Joe: Hey, if I asked you if you could retire tomorrow, could you? I think I could.
Joe: Look at Big Al’s. We might not see him anymore. Hopefully, he sticks around. Today’s show is all about fast tracking your retirement. When you look at the statistics here, 48% of people don’t even know how much money they have saved. They have no clue. We want to get the clue in you. That’s today’s financial focus. Let’s fast track this retirement for you. Here’s the sad statistics. If I’m looking at people from 40 to 49, 41 % of you have less than $50,000 saved; from 50 to 59, almost 40 % of those individuals have less than $50,000 saved; 60 to 69, 30 % of people surveyed have less than $50,000. If I go to the other side of the spectrum. Only about 7, 8, 12 %, respectively, have over a million. How much money do you need to retire? Is it less than 50? It’s probably a little bit closer to here. Another quick thing. Employers asked their employees What is on your mind? What is concerning you? Guess what? Most of them say retirement. But it’s not adding up. We’re not saving money. We’re worried about it. We want a fast track. We want to retire tomorrow, but we don’t have a plan in place. Let’s get one. Let’s bring in the big man right now. Big Al Clopine, CPA.
Al: Fast tracking your retirement. This is an important topic because a lot of folks get to their 40s and 50s and they realize maybe I’m a bit behind, what can I do to fast track it? That’s what we’re going to talk about today. Let’s start out with the basics. You need to have a plan. You need to set up a plan. What’s the plan? Figure out how much money you want to spend. Take a look at how much money you have. How much more you need to save. What kind of lifestyle do you want? When do you want to retire? All these types of things. When you have that plan, then you can figure out what your savings goal should be, to get there. Can you make it? Can you live the lifestyle you want? Or do you have to work a little bit longer? Any number of things. After that you’ve got to monitor and adjust because life happens. Sometimes you get a little behind again and you have to readjust. Finally, don’t get derailed. There’s things that can happen to derail your retirement savings and goals. We’ll talk about that as well. Joe, I’m kind of excited today because we get this question a lot: I’m in my 40s, 50s, 60s and I haven’t saved enough. What can I do to fast track it? That’s what we’re going to talk about.
Joe: Even this,is that some people are like, I want to retire. I’m over this; the fire moment. You hear all sorts of accelerated retirement, but most people are not necessarily on track.
Let’s get you on track, starting with the plan. This is pretty self-explanatory, but write it down. Most people don’t write down their plans. They just think about it. I want to retire at age 50, 55 or 70 and I think I’ll get there with my Social Security and my pension. Well, write it down. What’s your goal? I want to retire with $70,000 of income. What is the step by step process that you need to get here? Well, I need to save 20% of my income. Maybe you can’t save 20%, maybe it’s close to 5%. At least you’ll know what to do. Make yourself accountable. You could hire a financial planner or make sure that you tell your spouse to look at your actions over the next several years. Hold yourself accountable. A plan is only a plan, but you have to execute the plan, Big Al.
Al: Absolutely. A plan can be a lot more than that Joe. In fact, what do you want to do with your time in retirement that’s actually just as important as the finances. We’re going to focus on finances today because that’s what’s going to allow you to live the lifestyle that you want to live?
Joe: Let’s look at a quick example. This is more or less the 4% rule. When Alan’s talking about, all right, well, how much money do you want to spend? Maybe it’s $75,000. Maybe it’s $50,000. Maybe it’s $150,000. This is a quick example just to help you with the math. You want to spend $50,000. Look at what your fixed income sources are. That could be Social Security pension, real estate income. You take what you want to spend, minus what is going to come in. You’re left with a shortfall of $20,000. That’s what needs to come from your portfolio. I want to spend $50,000. I know I can count on $30,000. I’m going to be short $20,000. How much money do I need? You can take that and divide it by 4 % or an easier way to do it is just multiply it by 25. In this example, you would need roughly $500,000 to create $20,000 of income for the rest of your life. Of course, there’s a lot of variables here, depending on how old you are. The 4% rule is basically a rule of thumb stating that you have a high probability of success if you don’t take more than 4%.
Al: It’s kind of a gauge. It’s not going to be exactly perfect, but at least it tells you whether you’re on track or what you need to do to get on track. Let’s say you’re about to retire and you got a million bucks, you can go the other way. You can take a million bucks and divide it by 25 or multiply it by 4%. That’s the same number. Then you can figure out how much you can spend. In that example it would be $40,000. Joe, let’s talk about how much you need to save. What if $500,000 is the number you come up with and you’re 5 years away, 10 years, 20 years away.
Joe: It just seems like it’s a huge number.
Al: It is. How do you figure out how much to save each month?
Joe: Right? It’s like I have $5,000. How am I going to get to $500,000? When we looked earlier, like 40% of individuals have less than $50,000. We’re telling you to create $20,000 of income per year. You need a half a million bucks. What have we got to do? To accumulate $500,000, now this is high level rules of thumb. There’s a lot of different variables and everything else. This is just a hypothetical example. If you were to assume roughly a 7% rate of return on your money. If you wanted to get that $500,000 in 5 years, you need to save about $7,000 a month. $7,000 a month. That’s really fast tracking it. That’s really putting some octane in there. If I got 10 years, let’s double that. Now it’s around $28,000 a month, which could be a little feasible. Now I have 15 years, $1,600; 20 years, $950. What’s the point? Start early! Get going on your plan. If you need to accumulate that and you’re dead set on 5 years it’s a pretty big nut.
Al: We’ve got a graph here that talks about if you start saving at 40 and what’s it going to look like at 50, 60, 70? Now this is aggressive. I’d be honest right here. This is about 11.5 % rate of return, which is what small value stocks have done over the last several decades. I take the concept more than the rate of return. Obviously, what it shows is that the sooner that you save and the longer you save, the higher amount you’re going to end up with.
Joe: If you say, Hey, I’m behind and I want to go to a 100% stock portfolio and let’s see how much money I can have. Maybe over a 40 year time period you could accumulate 11 or 12% rate of return. We would probably gauge closer to a 6 or 7% rate of return in your overall planning. If you get really good returns over the next 20, 30 years. Compound interest is really what the example here is that money grows on top of each other very quickly over time. Let’s get into the order Al. What should people do?
Al: When you figure out how much you need to save, then where do you want to save it or where should you save it? Here’s what we recommend. Start with your 401(k) or 403(b) if you have one that has a match. Make sure you’re saving up to the match. That’s most important because a lot of matches are dollar for dollar or $0.50 on a $1. You put in a dollar and the company puts in a dollar. You want to start there. You might want to stop at that point and make sure you fully fund a Roth IRA, if you’re eligible. Then you fund that Roth IRA. Go back to your 401(k) and max that out. Finally, if you still have extra, then put that in your brokerage account. That’s not a bad place to save. Joe, I think Roth conversions are something everyone should look at.
Joe: The reason why we look at the sequence is tax diversification. If I’m looking at most individuals, they like to save down here in their tax deferred account. That’s your 401(k), that’s the first step. Save into the 401(k) to the match point, get that free money. Don’t continue just to put all of your money in the 401K plan. Once you hit that match, then you might want to stop and say; You know what, I want to go up here in my tax free account. Let’s fill up that Roth IRA of $6,000, $7,000. Oh, guess what, I still want to save a little bit more money. I’m fast tracking this thing. I got $6,800 a month I want to save. All right now, I’m going back to the 401(k) to fill that bad boy up until it’s to the max, depending on how old you are. If there’s still more money to save, then look over here; What most people do, they only save here and they get this big 401(k), which is great. But every dollar that comes out of the 401(k) is taxed at ordinary income. Every dollar that comes out of the Roth is tax free. Every dollar that comes out of your brokerage account is taxed at a capital gain. You can diversify your taxes a lot better. The earlier you start, then you can start strategizing from a tax perspective as well as your savings as well as your overall retirement. Hey, go to our website, YourMoneyYourWealth.com. We’ve got tips for you to fast track your retirement. That’s our special offer today. Go to YourMoneyYourWealth.com. We’ll be back in just a second.
Joe: Welcome back to the show, it’s called Your Money, Your Wealth®. Joe Anderson and Big Al just hanging out fast tracking your retirement today. If you want to get on the fast lane to retirement. Well, you found the right stop. Go to YourMoneyYourWealth.com. Click on that special offer. It’s our tips to a fast track to retirement. Let’s see how you did on the true false question.
Al: Social Security spousal benefits are not impacted by the age you receive them. Joe, what do you think? True or false?
Joe: They are definitely affected by your age. You can collect as early as what, 62. You can push it out until age 70. Actually, you can collect at age 60 on a survivor benefit. You can actually collect earlier than that if it’s a disability.
Al: True. Yeah. We could spend the whole show on that.
Joe: Yeah, I know. But yes, they’re definitely affected, and we’ll dive into that. A lot of you might want to delay your retirement. We’re talking about fast tracking this thing. Sometimes being patient might pay off.
Al: What’s interesting, Joe is sometimes just working another 1 or 2 or 3 more years than what you thought makes a really big difference in what your retirement looks like.
Joe: It could double your income almost or at least increase it by 20, 30, 50 %.
Al: Basically, by delaying your retirement, it would provide you an additional chance for lifetime savings. If you’re working longer, you can save more. When you’re saving more, you’re actually spending less. Because you’re saving, you’re not depleting your portfolio.
Joe: This is a really good illustration. If I just work 1 or 2 more years, it’s going to give me a little bit more runway. I know we’re fast tracking this, but if I can just get off one more stop instead of this one. It could provide a lot more income to you. Al, let’s go through that illustration.
Al: Here’s a couple, a 60 year old couple. $200,000 of combined income. A million dollars of retirement savings. They want to withdraw maybe 3 or 4%, and they’re contributing 15% annually to their savings. They’re 62. What if they retire right now? Given this scenario, they’d have about $70,000 of fixed income. Great. If they work part time from 60 to 65, they’ve had closer to $83,000, $84,000. If they work full time to 65 now they’re close to $88,000. What about if they work part time to age 70? That’s the last stage, the high stage, of Social Security. Then they’ll get about $119,000. What if they were full time to 70, $128,000. This is what you’re talking about, almost double just by working a few more years.
Joe: Let’s say, I’m done, I’m going to retire at age 62. That’s your paycheck, $70,000. Maybe one spouse wants to work part time,the other one fully retires. Maybe both of you work part time and then you just delay retirement benefits a little bit from your Social Security, or you delay it all the way to age 70. I mean, $70,000 to $130,000, that’s a huge difference. It’s just pushing these levers a little bit. When you get close to your retirement date. Look at Social Security, this is a big component of a lot of fixed income. You want to be really careful on how people collect this.
Al: You do. Just a few basics here. What the Social Security Administration does is they look at your highest 35 years of income. Some of you maybe you weren’t making a lot in your 20s. If you retire relatively young, you don’t have a lot of years of higher income. Just waiting a little bit and working a little bit longer to have more higher income years can make a big difference.
Joe: Question is “I’m retiring at 55 and I get my Social Security statement and it says I’m going to receive $2,800 a month at my full retirement age, so I’m feeling pretty good. I’m going to retire at 55. Then once I hit full retirement age, I’m going to get that $2,800.
Al: It turns out you don’t. The reason for that is because when you get your Social Security statement at 55, it’s assuming you’re going to have basically the same salary adjusted for inflation all the way to full retirement age. You’ve got to be aware of that.
Joe: If you are fast tracking this and you are retiring earlier, you can’t necessarily take a look at that Social Security statement and think that that’s going to be your overall benefit. They are looking at 35 total years. If you do not have 35 total years, they’re going to plug in zeros and then take an average. That’s of course, adjusted with inflation for that. In this example, you know, patience could pay off. It pays back. At my full retirement age , say at 66, I’ll receive $1,000. If I retire at 62, I’m going to receive a haircut. So it’s $750. I know a lot of you are seeing this. I don’t care. I want to take the $750 because I’m collecting at 62. What’s the break even because I’m going to keep collecting the $750 that many more years. You can look at it that way if you’re just going to strictly invest the money. Most of you need to spend it. This is going to help you with your retirement lifestyle. If you collect it at 62, you will get a permanent haircut for life. “If I wait till my full retirement age, I will receive my full benefit. If I wait until 70, I’ll get an 8% delayed retirement credit every year. It goes from $1,000 to about $1,300, that’s a pretty big increase and that’s locked in for life. When you look at your strategy, each of you has a different opinion, I get it, about the Social Security Administration. You don’t trust it. Take it at 62 if you absolutely need it. If you don’t need it, but you want a higher, safe floor of income, wait until age 70. There’s so many different combinations that you can look at here, but just understand if you take it early, you get a haircut. You delay, you get more.
Al: So many people take it early. I think it’s only about 2% that take it at age 70, 2 or 3%. It’s really a great thing because it’s guaranteed income for life and we’re living longer. Consider that as well.
Joe: Go to YourMoneyYourWealth.com. Click on the tips for a fast track retirement or fast track tips to a fast track retirement. Go to YourMoneyYourWealth.com. Click on that special offer this week. It’s our gift to you. Absolutely free. Your Money, Your Wealth®. We’re going to take another break. We’ll be back in just a second.
Joe: Welcome back to the show. The show is called Your Money, Your Wealth®. Joe Anderson, I’m a CERTIFIED FINANCIAL PLANNER™, of course, with Big Al Clopine, he’s a CPA. We’re fast tracking your retirement after 40, because you got to be 40 to get on this train, folks. Go to our website, YourMoneyYourWealth.com. Click on that special offer. It’s tips to fast track your retirement. Before we wrap up the show, let’s see how you did on the true false question.
Al: You can take penalty free withdrawals from your IRA or 401(k)? Wow, that seems like kind of a trick question. I would say it depends. What do you think, Joe?
Joe: I would say true and false.
Al: Yeah, it depends.
Joe: It depends. 401(k) withdrawals, you can take penalty free withdrawals if you separate from service from your employer at age at 55. 55, it’s not 59 ½. In IRA, it is until age 59 ½ to take penalty free withdrawals. However, you can always do what is called a 72(t)tax election. You could get money out of your retirement accounts at any age without any penalties, but you’re pretty restricted with that tax election.
Al: Typically for many accounts like your IRAs, you got to be 59 ½. There’s exceptions, such as medical, college, housing; that one depends.
Joe: It depends. We’re talking about fast tracking your retirement. Some things happen in life where all of a sudden the train derails. Some things are out of your control, but some thing’s absolutely can be in your control. This is interesting, how parents are taking some money.
They’re kind of distributing it somewhere else.
Al: They’re using their money for other things besides retirement. Here’s a graph of what they’re using it for. They’re actually taking money out of their retirement accounts to pay off debt. That’s the biggest one, although vacation is right there.
Joe: It’s almost identical.
Al: Don’t do that.
Joe: Should I pay off debt or should I go to Hawaii? Or should I retire? I guess I’m going to Hawaii because I’m never going to retire.
Al: I know they want to go to Hawaii. I want to go to Hawaii. But don’t! Have a retirement, kids education, day to day expenses, down payment, child care. You know what, if you take child care and kids education, that’s the biggest one. That’s not surprising because a lot of parents use their retirement funds for their kids.
Joe: If you look at the amount of money that a lot of you are spending for your adult children, is, you know, sometimes you gotta just kick them out of the house Big Al.
Al: Yeah. What’s the average? $4,000 was paid to the adult children over COVID? That’s a lot of money that could be used for retirement.
Joe: But they’re your kids Al. I mean, that’s what you spend a month on your kids.
Al: You’re supposed to keep that quiet. Anyway, let’s take a look at what the parents would have done with this money had they not given it away to their kids. They could have paid off debt. This is 33 % of those that give money to their kids, their adult children. What they would have done with that money, they would have used it for day to day expenses, had a bigger emergency, funds, retirement savings and so on. Retirement savings is kind of what we’re focusing on today, and this is really, really common. People want to give money to their kids and I get it. I have two boys. Love them. You got kids. Same, but you gotta make sure you’re OK first. Kids can borrow for college education, but you can’t borrow for your own retirement. I think people forget that Joe.
Joe: This is just another example of that. We have to pay ourselves first. It’s always number one. I got to pay off debt or, you know, living expenses. I get that. But pay yourself first. Start right now. Get in the habit of paying yourself first and then everything else can come second.
Let’s switch gears. Let’s go to ask the experts. This is from Gwen in San Marcos. “I’m in my 60s but I don’t have enough money in my retirement accounts to retire. I do have more than $500,000 worth of equity in my home. Would a reverse mortgage or an equity loan be a better option for me if I want to retire now.” Gwen, that’s a great question because a lot of folks in Southern California or even across the country have a lot of home equity. How do you access it or should you access it in retirement? Of course, you can always sell your home, downsize and buy a cheaper home. That may not be what you want to do. Maybe you want to live in your home. Then you think about; how can I monetize that? One way is to borrow and we like reverse mortgages if you’re over 62 and you want to stay in your home and need those funds. It’s a way to access the funds and not have a mortgage payment. You do have to be a little careful here because the highest reverse mortgage you can probably get is $300,000, maybe close to $400,000.
Joe: Here’s the answer Gwen. No, you can’t retire. You just said it. I don’t have enough money to retire. Don’t retire. Keep working. Keep saving. Next question.
Al: I don’t quite agree with that, but that’s cool. Number two; This is Connor in Coronado. “How do I account for inflation when figuring out how much money I will need in retirement?” What do you think, Joe? What do we think about inflation?
Joe: I don’t know. Is he asking how to calculate inflation or what he should be thinking about in regards to an average inflation rate? I would use at a pretty high conservative rate, I would use like 3.5, 4%. So increase your overall living expenses by that much. Your day to day living expenses, not your mortgage, of course, because that’s a fixed amount. I would use 3.5, 4%.
Al: Yeah, I think that’s a good idea. Then Social Security’s maybe 2%. For your savings and investing, maybe 6%. Stay on the conservative side and see if it works out. If it does, great. If not, then maybe you’ve got to go back to your plan and maybe you retire a year later or you spend a little bit less or whatever or work part time, whatever is going to work for you.
Joe: What did we learn today? Put a plan in place. Once you get the plan in place, set that savings goal. Pay yourself first. Some of you are going to have to work longer. Gwen, I’m talking to you. Then you could delay claiming benefits for your Social Security. Just tweaking the numbers just a little bit is going to help you significantly stay on track and don’t get derailed. That’s it for us. Go to YourMoneyYourWealth.com.Click on that special offer. Tips to a fast track retirement after 40. YourMoneyYourWealth.com for Big Al; I’m Joe Anderson. We’ll see you again next week folks. Have a wonderful day.