Are you ready for retirement? In this episode of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA test your knowledge with this 18-question pop quiz and they provide actions you can take now to secure your retirement in the future.
Retirement Pop Quiz
- Aware: Did You Know?
- Compare: Are You in the Same Boat?
- Action: What Can You Do?
Important Points:
- 00:00 – Intro
- 00:33 – What Percentage of People Are On Track for Retirement?
- 01:02 – What Percent of Workers Have a Written Retirement Plan?
- 01:38 – Aware, Compare, Action
- 02:22 – What’s the Average Retirement Age in the US?
- 03:14 – What’s the Life Expectancy at Age 65 for the Total Population?
- 04:14 – How Much Do Americans Think They Need When They Retire?
- 06:02 – What Percentage of American Households Have No Savings in Their Retirement Accounts?
- 06:43 – Based on Your Age What Should Be Your Salary Savings in Retirement?
- 07:58 – Retirement Readiness Guide: free download
- 08:09 – Free Financial Assessment: schedule now
- 08:44 – True/False: In 2025 people 60-63 years old will be eligible for a special catch-up contribution of either $10,000 or 150% of the standard catch-up limit for that year, whichever is greater.
- 09:32 – How Many People Who Contribute to a 401(k) Plan Do Not Contribute to the Match?
- 10:29 – At Age 40 How Much Do You Need to Save Monthly to Have $1M By the Time You’re 65?
- 10:52 – What Percentage of Americans Claim Social Security at Age 62?
- 12:36 – What Percentage Will Social Security Replace the Average Salary After Retirement?
- 13:13 – Retirement Readiness Guide: free download
- 13:36 – Free Financial Assessment: schedule now
- 14:19 – True/false: You must take a required minimum distribution from a 401(k) but not a Roth IRA
- 15:00 – When Do You Need to Start Taking Your Required Minimum Distributions (RMD)?
- 16:11 – The 24% Tax Bracket is Scheduled to Go to What Percentage in 2026?
- 17:14 – You Pay The Tax on the Money When You Put it Into This Type of Retirement Account.
- 18:21 – A Dollar Now Equals What in Purchasing Power After 20 Years?
- 19:44 – Is it better to invest in a mutual fund or an ETF? – Corrina, Seattle
- 21:02 – Pure takeaway
- 22:03 – Retirement Readiness Guide: free download
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Transcript:
Joe: A lot of you have questions about your retirement. And of course we have the answers, but today we’re going to do a little pop quiz.
Welcome to the show everyone. Joe Anderson here, CERTIFIED FINANCIAL PLANNER™, President of Pure Financial Advisors, with the big man, Big Al sitting right over there. Hello Big Al.
Al: How are you doing?
Joe: Little pop quiz. Remember pop quizzes?
Al: I do. I didn’t used to like ‘em but I-
Joe: I don’t think anyone loved pop quizzes.
Al: But I’m kind of looking forward to today so let’s see what we got.
Joe: Yeah, let’s test your knowledge. Are you ready? Let’s go.
How many of you are ready to retire? Yes, I am ready. Get me outta here. Not on track? I don’t know. What do you believe is the answer? Not on track, 56% of people, they might want to retire, but they’re not on track. Today we’re going to get you on track. That’s today’s financial focus.
Here’s another quiz question. What percentage of workers have a written retirement plan?
Al: Great question. From our experience, I would say 10% or less, but that’s not a choice.
Joe: I would say 3%.
Al: So let’s go with 33%.
Joe: 33%. So we got some work to do, a written retirement plan or a financial plan. It’s just writing your goals down, figuring out what you want to accomplish and what steps that you need to take on a month by month, quarter by quarter, year by year basis to make sure that you can get there. Let’s bring in Big Al.
Al: So yes, this pop quiz, this retirement pop quiz- So we’re going to start with are you aware? Do you know where you’re at? Okay, number two is comparing yourself to others. At least gives you kind of a benchmark. And then finally, and probably most importantly, what are things that you need to do? What are your action steps to make things better? So Joe, I guess let’s just hop right into the quiz, huh?
Aware: Did You Know?
Joe: Yeah, right. No, this is really interesting and cool. Because a lot of people are not aware. They have dreams and they have goals, but they don’t necessarily know what’s achievable, what’s not. So writing it down and they compare- everyone wants to compare themselves to the Joneses, right? Yeah, it might make you feel better, but it’s not going to get you to where you need to be. So you have to take action. So let’s go. What’s the average age of a retirement in the US?
Al: I would say, you know, when you when you talk to people that are working, they want to retire 65, 66, 67. But based upon at least prior experience, it’s like 62. People retire earlier than they think.
Joe: Yeah, most people retire a lot earlier than they anticipate, because of health issues. Maybe there’s a layoff. Maybe there’s a loved one that needs some sort of care, all sorts of different things. Even though we want to work later, a lot of us retire earlier. Alan, do these people look like they’re 62?
Al: I hope not, because I’m older than 62, and I hope I don’t look like that.
Joe: I think these people look like they’re 82, but they’re super happy. They’re super happy. Alright. Action. Factor in that you probably might have an early retirement. So that’s good news and bad news. Alright, see what’s next. What’s the life expectancy of someone 65 for our total population?
Al: I think I know that one because the last I saw men were like 84 and women were like 87. So I’m going to go with 84 and a half.
Joe: Yeah, just cut that thing right in the middle, right? Boom! So we’re retiring early, which is great, and we’re living a lot longer. So that all sounds fine and dandy, but do you have enough capital? Do you have enough cash? Do you have enough savings? Do you have a strategy to make sure that you can have that many years of overall retirement or even looking at long-term care costs that might come into play too?
Al: Yeah, and I think, Joe, it’s important to note that this is, this is average or median, this is the middle, right? Some people pass away earlier. Some people live a lot longer. So really you gotta plan longer. And actually when you look at a couple that is 65, there’s a 50% chance that at least one of them will make it to age 91 or 92. So you gotta be planning for probably more retirement than you thought.
Joe: All right. Next. How much do Americans think they need when they retire? How much?
Al: You know, it always used to be $1,000,000 when I was, you know, in my, in most of my career. Everyone wanted to get to $1,000,000, then they can retire. So I’m going to say with inflation, it’s probably either $1,300,000 or $1,900,000.
Joe: I mean, $1,000,000 bucks is a good number.
Al: It’s a great number.
Joe: Yeah. I think I’m going to switch my career to a game show host.
Al: You should.
Joe: $1,300,000.
Al: $1,300,000. Okay.
Joe: Yeah. I just saw a study actually right before we taped this, it was $1,820,000. So it’s probably between anywhere from $1,000,000 to $2,000,000. You’re in the ballpark of what people think they need. However, this is not the reality. Some people will need a lot more than this, and some people, of course, will need a lot less than that.
Al: Well, and that’s the funny thing. It depends upon your spending. It depends upon your fixed income. Maybe you’ve got a good retirement, maybe you’ve got great Social Security. Maybe when you retire, you wanna retire early and you’re able to cut your expenses. It’s just, it’s, it’s very independent. But this gives you at least a, an idea.
Joe: Yeah, well, if you put it in perspective too, if you have $1,000,000, it’s a lot, but it’s only going to produce roughly anywhere from $35,000 to $45,000 depending on your age, as you start taking these dollars out. If I’m a millionaire, you’re in the top 5%. But from an income, how you translate that dollar, that lump sum into income sometimes shocks people. They would think, hey, I could live off- if I have $1,000,000, I should be able to spend close to $100,000 a year.
Al: Well, I think that’s, that’s, that’s well said. It’s not just how much you have, but it’s how much income you can produce from it. And you’ve heard us talk about the 4% rule, $1,000,000 times 4% is $40,000. It’s just a guideline. It’s not gospel. It’s a guideline on what possible you could spend.
Joe: So here’s the opposite. So we just talked about we need about $1,000,000 to $2,000,000 in retirement, but what percentage of American households have $0?
Al: Yeah, I think it’s always more than you think. I think it’s about a third. Maybe it’s more. Let’s go with a third.
Joe: 46%.
Al: How about that?
Joe: Half.
Al: Have no retirement savings at all.
Joe: Zero. No retirement savings. So, 26% of the population have saved more than $100,000. 9% have saved more than $500,000.
Al: So, there you go. That $1,000,000 you’re talking about, that’s kind of in the upper echelon.
Joe: Yeah, you’re way above-
Al: – way above average.
Joe: But, you know, maybe 5% of the households have that $1,000,000. Last one here. Based on your age, what should be your salary savings in retirement?
Al: You know what, 3 times your salary at age 46 times- Yeah, that actually looks right. That looks consistent with, I think, the Fidelity study. So I’ll say all the above.
Joe: You know, this is a rule of thumb as well there. There’s a lot of different variables that come into play. 50 years old, I make $100,000 a year. I should have $600,000 saved for my overall retirement. Once you hit 67, that’s a 10Xer, it’s a big number, Al.
Al: That’s a big, that’s a, there’s your $1,000,000 bucks, right?
Joe: That’s a big number. So, but if you start early, right, it’s a lot easier to achieve this. If you start a little bit later, it’s going to be a little bit tougher road to home, but. But this is at least ballpark numbers of where you should be to at least maintain the comfortable lifestyle that you’re accustomed to.
Al: Yeah. And I think Joe, when you look at that, I mean, some people at age 50 say, you know what? I don’t have anything. So it’s hopeless. The answer is no, it’s not hopeless. You start now, regardless of your age, you start now, you will be in a better position in retirement.
Joe: All right. How many did you get right? Stick around. We got a lot more questions on the pop quiz. But if you need more help, you know where to go, YourMoneyYourWealth.com. Click on that special offer. It’s our Retirement Readiness Guide. Get ready for retirement. Do it right now. Go to YourMoneyYourWealth.com. Click on the special offer. It’s our Retirement Readiness Guide. We got more quiz to go. We’ll be right back.
Andi: Ready to take charge of your financial future? Pure Financial Advisors can help. We offer a no cost, no obligation financial assessment with a personalized action plan. Make informed decisions on how to get on your best path to retirement. Sign up for our free assessment online at PureFinancial.com to schedule your appointment.
Compare: Are You in the Same Boat?
Joe: Hey, welcome back. We’re doing a pop quiz on your overall retirement. Stick around. I want to be the professor here today and see how you did. But before we get to the quiz, we gotta go to the true/false question.
Al: In 2025, people 60 through 63 years old will be eligible for a special catchup contribution of either $10,000 or 150% of what the standard catchup limit is for that year, whichever is greater. So right now, if, if you’re 50 and older. On your 401(k), you can, you can do a catch up. You can do $7500 more than other folks in a maximum contribution. So what this is saying is starting in 2025, between ages 60 and 63, you can make it $10,000 or maybe even more. That’s a true statement that came about, I think, SECURE Act 2.0.
Joe: Did that have to, like, scroll as you read the question?
Al: It was a long one, yeah.
Joe: Alright, let’s get back to the quiz. How many people who contribute to a 401(k) plan do not contribute to the match?
Al: Percentage? I don’t know, 20% or 30%. Let’s go with 20%.
Joe: Alright, well, I don’t know, we did a show, it was billions of dollars left on the table with company match. Yeah, I would say, I’m gonna split the middle. 20%.
Al: Oh, we got it, okay.
Joe: Yeah, you don’t want to leave money on the table. So when you think about order or sequence of how you’re saving, is that you absolutely want to start like paying yourself first, but go to the 401(k). If you have a match, go to the match. Then if you want to do other savings, then do that. If you want to pay off debt, then pay off your debt. If whatever the case may be. But if you If you’re looking at how to save the most effectively is that you don’t want to put free money off the table. You want to make sure that you can capture anything that you possibly can. So maxing out the 401(k) plan, at least to the match, is the best starting point. Alright, at age 40, how much do you need to save monthly to have $1,000,000 by the time you’re 65? What do we got? You need to save $1530 a month at a 6% growth rate to get you to that $1,000,000 by the time you’re 65. If you start at age 30, however, you need to save $750 bucks. All right. What percentage of Americans claim Social Security at age 62?
Al: Hmm. A lot. I mean, so you can, you can claim it at 62, 63, 64, all the way to age 70. The longer you wait, the higher the benefit is. It’s a pretty high percentage, Joe, taking it early. So I don’t know, let’s say 29%?
Joe: I would say it’s a lot more than that. You know, I think of the studies that I’ve read is that most people take it as soon as they can get it.
Al: Yeah. Oh, so you’re thinking 50%.
Joe: Yeah. I would say it’s, I would say it’s higher, but-
Al: Oh, Oh, got it.
Joe: 30%. Delay if you can. All right. There’s a couple arguments in regards to when to claim Social Security. Do you want to maximize every dollar from the system, right? If people are raising their hand, yes. I put all those dollars in. I want to get every dollar out and some. All right. Well, if you know when you’re going to die, you could get this thing dialed in really quickly, but most people don’t know necessarily when their life expectancy is. But as we talked about, we’re living a lot longer. So the more you delay, the more benefit that you receive and probably more benefit you’re going to receive from the overall system. However, I mean, there’s the argument too, is that I want to retire at 65 and I want to travel. I want to do different things. I want to really enjoy myself for those first 10 years of retirement. Well then take it at 65.
Al: Yeah, maybe you want the income then, right? Or maybe you’ve got two Social Security amounts ’cause both spouses work. Maybe you take the, you, you delay the, the greater one. Right? So that you have a higher benefit for not only both of you but the survivor when one passes away potentially. But anyway, there’s all, you’re right, there’s all kinds of strategies. I will say this. If you need the money at 62 and you’re not working, take it.
Joe: Yeah. Okay. What percentage of Social Security is going to replace the average salary after retirement? So Social Security, is that going to replace 37% of your income, 45% or 52%.
Al: Yeah. It’s always less than you think. So I’m gonna go with 37%.
Joe: You are correct sir. So Social Security’s there to supplement your overall retirement income, not necessarily replace it.
Al: Yeah, I think that’s the key, Joe. It’s, it is to supplement, it’s to keep you outta poverty. It’s not to replace your income. That’s why you need to save. If you wanna have any kinda lifestyle similar to what you had while you were working.
Joe: All right, if you need help, go to YourMoneyYourWealth.com, click on that special offer, it’s our Retirement Readiness Guide. Are you ready for retirement? Well, get the guide. It’s free of charge, you can download it right there on your computer. If you, if you’ve got one of these questions wrong, you need to download the guide. You’ve got to study up. All right, we’ve got to take a quick break. We’ll wrap up this quiz and answer some of your questions when we get back. The show’s called Your Money, Your Wealth®.
Andi: Ready to take charge of your financial future? Pure Financial Advisors can help. We offer a no cost, no obligation financial assessment with a personalized action plan. Make informed decisions on how to get on your best path to retirement. Sign up for our free assessment online at PureFinancial.com to schedule your appointment.
Action: What Can You Do?
Joe: Hey, welcome back to the show. The show is called Your Money, Your Wealth®. Joe Anderson, Big Al. We’re doing something a little bit fun today. We’re doing a pop quiz, even though pop quizzes are not fun. But when it comes to your retirement, what the heck? Let’s see how well you’re doing. If you need help, go to YourMoneyYourWealth.com. Click on that special offer this week. It’s our Retirement Readiness Guide. Our Retirement Readiness Guide. Alright, let’s see how you all did on that true/false.
Al: You must take a required minimum distribution from a 401(k), but not a Roth IRA. Well, that’s a true statement. 401(k), yes, you need to take a required minimum distribution. But did you know, if you have a Roth component in a 401(k), you still have to take a required minimum distribution from that Roth portion? The workaround is to roll the Roth portion to a Roth IRA, then you don’t have to take distribution.
Joe: I don’t know why they can’t simplify this, but hey, that’s why we’re here, to help educate you on everything that you need to know in regards to your overall financial affairs. We’re doing a pop quiz. Got a few more questions to go. When do you need to start taking required minimum distributions, RMDs, 73, 75 or it depends.
Al: It depends. All 3 of those are correct answers. Before that it was 70 and a half.
Joe: Yeah, 70 and a half. That was kind of really bad, too. It’s like 70 and a half, now I have to take a required distribution. What does that mean, is that you have to start taking dollars from your retirement accounts. Because you were able to get a tax deduction going into, let’s say, your 401(k) plan. It grows compound tax-deferred. So you got a deduction today and it grows compounding tax-deferred. And at a point in time, the IRS is saying, hey, we want some of that money back, pull the money out of the account. And the reason why they want you to pull the money out of the account is because every dollar is going to be taxed at ordinary income rates. So you can’t necessarily compound the tax into perpetuity. They want you at a certain age to start pulling the dollars out. All right, here we go. 1950, 72. ’51 to ’59, ’73. 1960 or later will be 75. Oh, we’re getting into taxes now.
Al: Oh, yeah. Okay.
Joe: The 24% tax bracket is scheduled to go to what percentage in 2026?
Al: That one I know very well. 28%.
Joe: 24% goes to 28%. You are correct, sir. So that’s why tax planning over the next couple of years, I think is going to be so key for a lot of you. You could buy the tax cheap. The tax rates are going up, the 24% tax bracket is going to 28%. And AMT is gonna rear its ugly head. So if you’re in that 28% tax bracket, the likelihood of you hitting AMT could be highly likely as well.
Al: That’s exactly right. And because of the complexities of AMT, alternative minimum tax, you could have an effective rate of 35%. So the point is, pay the tax early, buy the tax cheap. What that means is think about doing Roth conversions, thinking about taking money out of your IRA 401(k), converting it to a Roth IRA. Yes, you pay the tax, but you pay tax in lower brackets in 2024 and 2025.
Joe: All right. You pay tax on money when you put it into what type of retirement account? Traditional IRA, Roth IRA or a simple IRA?
Al: Got to be Roth IRA.
Joe: Roth IRA is correct, sir. So it’s an after-tax contribution. You put the money in, you’ve already paid the tax on the dollars. That will grow 100% tax-deferred. But with a Roth IRA, as you pull those dollars out, it’s 100% tax-free. You put $10,000 into the account. You’ve already paid tax on that $10,000. The $10,000 grows to $20,000. You pull the $20,000 out. How much money do you pay in tax? Nothing. Zero. Right? It’s a pretty good deal for most people. The Roth IRA.
One of the best things I think the IRS has ever given us in regards to retirement plans. And they’re just keep giving and giving and giving.
Al: Well, they are, and I, and I think it’s, as we just talked about, we know we have lower rates for the next two years. Will they continue in 2026? Maybe. Maybe they’ll be extended, but as it’s written right now, the rates are going up. So this is a great time for tax planning. Put yourself in a better position for your retirement to pay less taxes.
Joe: Down to the wire, Al.
Al: Okay.
Joe: $1 now equals what in purchasing power after 20 years? Again, impossible to answer because we need some variables. We need one more thing. We need an inflation rate here.
Al: Well, let’s, let’s use 3% because that’s a good enough number.
Joe: We’re going to guess. All right.
Al: Rule of 72 would say it’s about double-ish. So I’m going to go with $1.81.
Joe: $1.81%. $1.81, almost double, 20 years. So you buy something for a $1, it’s gonna cost you almost $2 in 20 years from now. We talked about life expectancy. People are retiring earlier, living a lot longer. So the likelihood of you having a 20, 30 year retirement is really, really, really high. So the things that you’re buying when you first hit retirement, and then when you have to purchase those same items 10, 20 years later, just understand the impact of inflation given a 3% inflation rate. We’re experiencing a lot higher inflation today, but we’ve experienced a lot lower too. It usually evens out 3%, 3.5%. It’s a good number. This is why we invest. It’s just because of inflation. The dollar that we have today needs to outpace inflation so you can continue to buy the goods and services, in the future as you are today. Alright, let’s switch gears. Let’s go to your questions.
Al: Is it better to invest in a mutual fund or ETF? Oh, that’s a good question. They’re actually pretty similar. What do you think, Joe?
Joe: I don’t care. Makes no difference. I mean, we’re honest, right? An exchange traded fund, it’s a basket of stocks that can buy and sell on the exchange. It’s tax efficient, it’s going to be low cost. If you have an index fund, it acts very similar, but it sells at NAV. For most people, it really doesn’t matter. If you’re looking at actively traded mutual funds, you know, some of them are good, some of them are bad. Actively managed funds are a little bit more expensive. It might kick out some tax for you. I think it’s the overall portfolio is what you want to be focused on. How much money you have in stocks versus bonds, how much money that you have in international versus US and so on and so forth. And then getting into the minutia on what instrument that you use. Yeah, I think it’s important, but for the most people, if they have an index fund versus an ETF-
Al: Yeah, it doesn’t matter that much. I think you’re right. The most important thing is the underlying investments and the cost, right? The cost inside the fund, or ETF. I guess if you had two exactly equal choices, I probably would pick the ETF. I think they’re slightly better, but the differences are so minuscule. I wouldn’t worry too much about it.
Joe: Okay, what did we learn? You’ve got to take some action. How’d you do on your quiz? Hopefully most of you pass with flying colors, but you want to plan, right? You got to write down the goals, figure out what you’re trying to accomplish, write it down. You’re much more apt to accomplish the goal if you just write it down. Prepare for an early retirement. A lot of us say, hey, I want to work until I’m 75 years old. The reality is a lot of us will retire earlier than anticipated because of unforeseen circumstances. We’re living longer. We got to look at what our retirement spending is, right? If we’re off on this, if we think we’re spending X and we’re spending a lot more than that, that money is going to drain that much quicker. Looking at calculating a savings need. If you’re in your 30s and 40s or 50s and you want to retire over the next 10, 20, 30 years. Start today. Start figuring out exactly what you need to save. Looking at Social Security strategies, be tax efficient. Factor in inflation. I mean, there’s so much more, but this is the high-level bullet points. If you start doing these things, I think you’re going to be a lot more successful. Go to YourMoneyYourWealth.com, click on that special offer. It’s our Retirement Readiness Guide. Are you ready for retirement? Well, get the guide. It’s free of charge. You can download it right there on your computer.
Hopefully you enjoyed the pop quiz. Let us know what you thought. For Big Al Clopine, I’m Joe Anderson. We will see you next time, folks.
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