15 Retirement Questions Answered

[00:00:00]Hey folks, had the opportunity over the weekend to participate as part of a panel on a financial literacy workshop discussion that spanned all ages. There were college students that were involved all the way up to people that have already retired and just looking for perspective. So today, what I'd like to do is go through a list of about 15 questions that were asked in that session because I do believe those will benefit some of you as well because a lot of us have some of the same questions. So on that note, let's just go ahead and get into it. When I look at the questions and how they're going to break out, they're going to break out into three broadbucket categories.

[00:00:40]First, there's going to be the big money questions, and those are going to be the questions about how much do I actually need and so on. A lot of the questions that we ask in different ways over time, but again, I I think it's important for you to have some perspective as you start to analyze your own journey. The second focus is going to be on income, health care, and major expenses. Because even though we have a plan and we have enough saved or we feel like we have enough stave save saved, there's still a lot of things that happen. And I want to go through some of those questions as well. And number three, I just want to talk about things that are related to lifestyle, family, and work [music] because as I mentioned in many other videos that I have that retirement isn't necessarily the goal, it's just a transition. And I want to address how I manage that transition and give you some nuggets of thought that are going to help you manage your own transition. So on that note, let's start with the big money questions. Question number one is, do I actually have enough money to retire now? And this is the million-dollar question, literally, no pun intended, that most people that are looking at or endeavoring to retire have because we think about retirement as being this place where we save a bunch of money, we get to where we need to be, and then we don't have to worry about it. But the reality is is it's a little bit more complicated than that because everybody has a unique set of circumstances. Some people can have a million dollars and it doesn't work for them and they don't they need more than that. Some people as I've shown in other videos have as low as $200 $300,000 and they're able to retire comfortably. So the idea really becomes what are the expenses that you have on a monthly basis and you can take those expenses add those up and make sure that you have enough to cover those monthly expenses for an extended period of time. But the other piece that I think is more important is retirement today is different than retirement was when we were kids. When we were kids, it was about sitting on the couch with the gold watching TV all day and just being old.

[00:02:46]But now that's just not the case anymore. Now people are working in retirement. And I'm not talking about the stressful job that you already have.

[00:02:54]But I'm talking about they might go and get involved in the gig economy doing Uber, Door Dash, or something like that for a couple of extra dollars. It might go to a a Walmart or some type of store, a Starbucks that actually gives you health care and so on. And we'll talk about that a little bit later, but retirement looks different for different people. So, the answer to do I have enough money to retire, it comes down really to what is your lifestyle like?

[00:03:19]What kind of life do you want to lead?

[00:03:21]And if you want to live a more expensive lifestyle in retirement than you live now, then you're probably going to need a little bit more. And there's no quick answers to the early retirement question, but there is perspective that helps you get the planning right to get to the place that is that you want to be. The qu next question in this in the big money questions is at what age can I realistically afford to retire? And again, this is really going to depend on your specific set of circumstances.

[00:03:48]There are a whole plethora of different options that sit out there. There's people with big pensions. There's people with little pensions. There's people that have saved their whole life.

[00:03:57]There's people that haven't saved.

[00:03:59]There's people that have cut their expenses to such a degree that they are able to live on a lot less than maybe they were making when they were working. And so it creates a different set of circumstances. But I think the big thing is when you start looking at what age you retire, it's really going to depend on the lifestyle that you want, the expenses that you have, and how far you want your dollars to go. And I and you start looking at things like when am I going to be eligible for my 401k? Do I have a 457 plan? Do I have a pension? How far am I from social security? My wife and I just had the conversation yesterday that and it surprises us that we're the brokeest that we're ever going to be in retirement because I have 457s that are going to be able to be accessed later in the year. We have 401ks that are going to be able to be accessed in a couple years. Then we have social security. So there's when I look at my floor, there are different things that are impacting my floor which will help offset some of the cost of living as well. So again, take a look and do that analysis for yourself and and get into thinking about it in terms of what's the life that I want to live and how do I fund that lifestyle. And it doesn't all have to be money that you had in your 401k. It could be from other sources like a rental property or a part-time job or something of that nature. The next question, and again, these are all the big money questions, so if they sound related, they all are because the answers are going to be similar in so far as what you need to retire. And the next question is, how much can I safely spend each month without running out?

[00:05:43]Now, there's a bunch of different theories out there, and there's a bunch of different philosophies. And I know one of the big ones out there is the 4% rule. And every time I talk about the 4% rule, two things happen. One, somebody will explain it a little differently than I understood it before. Number two, you'll find that there's revisions to the 4% rule because it was based on a 30-year retirement. So, it's going to depend based on how long your retirement window is, what your expenses are, and how much you have saved, and h again, how long what is your life expectancy.

[00:06:17]And there are calculators by life insurance companies that you can find, and unfortunately, I don't know any of those offhand or I would tell you, but there are calculators that are online that are designed to help you understand what's your life expectancy. Different people are have life expectancies of different amounts of time. So take a look at that. Get an idea of how long you expect retirement to last. Take a look at some of those income streams.

[00:06:41]And then I suggest working backwards.

[00:06:43]Work a little bit backwards to try to figure out what is it that is going to get you to at least that 30-year window, 25 year window, whatever the case is.

[00:06:53]Again, somebody who retires at 70 is going to have a completely different set of circumstances than somebody who retires at 51. But the other piece of that is at 70 you're not going to have your health. You're not necessarily going to have the ability to move in the same way and do some of the same things that you did. So always look at it from the standpoint of how long of my go-go years do I have left, my slowgo years, and then my no-go years do I have left in order for me to live the life that I want to live? And I know a lot of us are going to say that we want to live or I'm sorry, work until we're 70 years old.

[00:07:28]But the reality is most people don't because of health or because of a layoff or because of some factor that's maybe in their control and sometimes out of their control. But think about it in that term. The next question is what happens to my retirement if the stock market crashes right after I stop working. And this is a big one and something that needs to be talked about a little bit more are what I call the sequence of returns risk. It's not what I call, it's what it's called, the sequence of returns risk. Because what that basically lays out is that if early in retirement, the market crashes, the impact of that over the life of the retirement of your retirement is greater than if it were to happen later. Now, the best idea that I could come [music] up with as it relates to that is put together what I call my emergency buffer. put together 6 months, 12 months of expenses, not salary, not what you're making now, but of expenses that you can have in a high yield savings account or something like that, just so you have access to some cash to help offset that.

[00:08:32]Because if you keep your money in the market longer, what you find is that it doesn't just come back, it goes far and high beyond whatever it is that you had immediately inside the accounts in the beginning. But you want to be able to guard against that. So just to have enough money to be able to say, I could go sit on the couch with my gold watch and go off into perpetuity. That's great assuming everything is perfect. We all know that things aren't perfect. The market fluctuates, but you always want to have a little bit of cash and not necessarily in a savings or checking account because the interest on that is low. But if you put it in say either safer investments, I know I have some of my stuff in bonds, I have some of my stuff in a money market, and then I have the rest of the stuff invested in equities and mutual funds. But take a look at just having a couple of different buckets so you don't find yourself retiring and losing an exponentially negative amount of your your retirement savings early on because again economic volatility happens and it happens when we least expect it. Nobody saw 2008 happening. I'm sure there's going to be somebody in the comments that says, "Oh yeah, I saw it coming."

[00:09:42]But the reality is nobody predicted it.

[00:09:44]If it did, then it wouldn't have been a global catastrophe because then we would have planned for it ahead of time. But again, that sequence of returns risk is real. The next question and the big money questions is will inflation destroy my purchasing power over time?

[00:09:59]The answer to that is yes. But the dollar does not stay the same every single day. And again, I'm not an economist and I don't claim to be an economist, but I do recognize the fact that things in life are either getting better, they're getting worse, and they very rarely stay the same. And when you look at the inflation numbers, those are year-over-year numbers. So, right now, inflation is at, let's say, 4.2%.

[00:10:26]That means you have 4.2% less purchasing power on average than you did last year.

[00:10:31]And so instead of buying $100 worth of uh food, milk and cheese or bread, milk, and cheese, you can only buy $96 of bread, milk, and cheese. And that with the with those same dollars. So always think of your dollars in today's dollars and tomorrow's dollars. And one of the best ways to hedge against inflation is to have equities, to have stocks, to have your money invested.

[00:10:54]Because remember that the value of a stock is based on the value of a company. And as the company continues to grow through inflation and other types of pressures and the global currencies start to adjust, so do the values in your equities. I suggest speaking to a professional about this that could give you a more detailed answer. But the reality is the inflation risk is real.

[00:11:18]One of the biggest challenges we had for CO besides people being sick of COVID was that we had a retire not retirement but inflation that was 8%. [music] And 8% inflation means you could buy 10% less with those same dollars. And if you planned on a stagnant set of dollars, then that's an issue. That's one of the reasons that when people come to me and want to sell me annuities, I don't like annuities because annuities don't grow the same way that investments do. But annuities are safe. So there's different circumstances for different people. But take a big look at that because inflation is one of the biggest risks for retirees, whether it's early retiring or late retiring. And the last one under the big money questions is can I still retire if I got a late start saving? And the answer is yes. I talk about my journey a lot where I had fits and starts. I was saving money then I bought a house. I was saving money then I got divorced which wiped me out. Then I started again started making [clears throat] different types of decisions. And between 38 and 51 I was able to get myself to a point where I was able to retire. And I I hope what is conveyed here is that I have retired fairly comfortably. I'm not rich, but I'm not broke either. I'm in a place where I'm able to do what I do when I want to do it and feel pretty good about it. And I'm not necessarily constrained by my finances even though I did start late. So the thing is and I mentioned this in the seminar in the workshop is one of the most influential pieces of information that I heard as I was looking at doing my YouTube channel was you just got to press record. The thing is is you have to just start putting money away at the end of the day. We can complain about starting late. We can complain about market conditions. We complain about anything. But the reality is you want to give yourself a chance to get to where it is that you want to be.

[00:13:12]And you don't give yourself a chance if you just make excuses because you're afraid to take a step. Take the step, put some money away. You could start late, still retire. Now, you may not retire at 51, but the reality is less than 1% of Americans retire at 51. But if you want to retire at 55, even 60.

[00:13:29]And I'll tell you that as I look at these videos from CBS News and some of these other places, you're starting to see that people that are even older are having a more difficult time because they didn't start early enough. So, as they say, the best time to plant a tree was 20 years ago. But the best time to start saving is right now if you haven't saved already. So, the answer is, can I still retire if I started late in saving? Yes. Do it. Get after it. You just got to press record.

[00:13:57]The second section I want to talk a little bit about is just around income, healthcare, and major expenses. So, the next question that that came up was when's the best age to claim social security? And that's a tricky one because different people have different views of social security. So, here's a couple things I'm going to mention to you that I also mentioned in the workshop. And by the way, I'll put a link to the Facebook live video of the workshop so you all have a chance to take a look at it. It's long. It's about two hours long. And I just warned you ahead of time. There's about 30 minutes in the beginning where they were waiting for people to show up cuz parking was bad. But take a look at that. I'll put that in the comments. But I'll tell you the same thing I told them is that a lot of people, particularly people that are millennial and Gen Y have a lot of concern about social security. And everything that I've read about social security does not say that social security is going to go away completely.

[00:14:54]But what they do talk about is the fact and the high potential that benefits are decreased because the way social security works is social security is a trust fund that's paid for by your payroll taxes, your social security taxes. And what's going to happen after I think it's 2033 or something like that and again take a look, check the math, get the receipts, but is that the trust fund is going to be deleted. So that amount of money that's sitting there and that's growing is going to be deleted.

[00:15:26]But you also have to remember that social security isn't just payments to retired people. It's also Medicare. It's also disability benefits. It's a whole host of things that dip into that social security to make sure that our floor as Americans doesn't get much lower or get doesn't get too low to where we end up in in too bad of a situation. And as we look at an aging population, you have higher issues or bigger higher issues around long-term care and things like that because now we're dealing a lot more with issues of dementia and long-term care and so on. So I don't think it's going to go away. But I do think that when you are doing the analysis of your whether or not to take social security at 62 or to take it at 70 is really going to depend a lot on your financial situation. One of the advice pieces of advice that my colleague BM wealth who was also on the panel mentioned was that look at try to look at your social security as a bonus so as you do your planning around your stocks and your equities and so on. Now that all sounds good in theory but I don't know that I necessarily subscribe to that for everybody but I do think it's something that you take a look at.

[00:16:38]Maybe if you go to ssa.gov gov and you look up your social security calculation, maybe you take 20% off of that just to see what it is and then you plan around that. I've always believed plan for the worst and hope for the best because it's better for me to be pleasantly surprised than to be disappointed and calculate that into do I need to take it at 62, do I need to take it at 65, do I need to take it at 70? The thing that I think is really important to understand is that it goes up by about 8% per year every year that you don't take it. The other piece of that is there's also an inflection point. So if you live to a certain age, then the amount of your benefit over time is going to be the same anyway. But take a look at your life expectancy and go online and find a calculator. Again, I think a lot of these either consultants or and I don't know if the Social Security Administration has one, but a lot of these organizations will have a calculator that show you where's the inversion point. If I'm if I live until 85, then I get the same amount whether I retire at 62 or 70. But if you and again, it's a whole calculation. So, take a look at that. But I do think that it's going to be based on your specific set of circumstance just like everything else in retirement quite honestly. The next one which is critically important in this income, healthcare and major expenses category is how do I cover med health care costs if I retire before I'm 65? Now this one takes a little bit of planning and I've talked about this in other videos and I'll mention it again, but I think the biggest thing that a person can do the first step is go to your plan talk to your HR department. go to your ask them to look at the plan rules for your benefits plan and see if you are eligible for retirey health. I had a comment in one of the videos where somebody went and they had that conversation. They found out that they did have access to retirey health and that could be clutch because then you're able to play pay group prices, group plan prices for health care as opposed to going out into the marketplace. The other thing that's really important and I know that there's a lot of conversation around it and there's a lot of people that have been priced out but the Affordable Care Act depending on your adjusted gross income you still are may be eligible for subsidies and so on and there are strategies that you can employ to reduce your adjusted gross income so that way Medicare not Medicare the Affordable Care Act still is affordable for you. But that that's another good option. And then the third option that I think is clutch and often overlooked is finding a part-time job at a place that pays benefits for part-time employees. Because here's the reality, folks.

[00:19:24]Health care is never free. You could work for an employer and they may cover it, but usually employers that cover health care, they pay you less. So it's the cost is going to come from somewhere. But if you go out and you work, I think Starbucks does it and a couple of other places, they give benefits to part-time employees. Costco I think does and it gives you the opportunity to get it at a reduced rate maybe doing something that sure it's not a passion for you but it helps you live the life that you want to live because I'll tell you from my own experience shift work is a lot easier than executive level functioning all the time because number one when I leave work I'm done but take a look at those because there are options out there you just got to look for them and there's organizations out there's companies that are designed to help you help retirees ries get healthcare. There are places like I know a guy that I watch Joe loves retirement. He talks about he went to the Indiana Farm Bureau and he was able to get benefits. So, it's something that you need to research. And the other piece of that is if you can calculate an estimate of what you think your premiums are going to be and you're starting saving early enough, you can take money and put that into a specific fund into a specific bucket or as they say, put it into a specific envelope. I don't suggest envelopes, but you get the idea that are going to save and then continue to grow over time to help you offset some of those costs in retirement because it becomes a line item on your monthly budget and your monthly expenses. So, as you're analyzing your expenses, you can take a look to see if you can afford to do it then. So, again, as you can see, it all kind of comes back together. Now the the next one talks about how much cash should I keep in savings as opposed to keeping invested.

[00:21:09]This is a tough one. I think there's different ways to park your money besides investing. So I high yield savings accounts are good. One of the things that I did right after COVID when interest rates went up was I had some money in a money market mutual fund that paid out about 5% per month. And it was beautiful because I was getting checks that were $7 $800 every month because I had money that was sitting basically in a cash fund, mutual fund that were paying me out. But there's a bunch of different options, but I suggest that everybody have at least 6 months of expenses parked away somewhere that's safe that they're not going to have to worry about for a period of time. And once you do it, it's like the Ronco rotisserie. You just set it and you forget about it and you let that money sit because what you want to be able to do, going back to the sequence of returns conversation we had earlier, you just want to be prepared in case something happens or if there's a big expense, those of us that own home, I talk in another video about how my air conditioner went out. I talk about how I had a problem with my home guard insurance. not home insurance, but the emergency warranty insurance. And I felt like they were giving me the shaft because they didn't want to pay.

[00:22:32]And so now I have to pay $3,500 for a plumbing issue on my rental property.

[00:22:37]But I always keep money on the side for my rental property. So that way for these types of things, I just didn't expect it to be $3,500.

[00:22:46]But I say all this to say that ultimately you want to have at least six months of money of expenses put aside.

[00:22:55]And I would keep that in a fund that you that's liquid that you have access to, but that's going to continue to grow because the big thing that you want to consider is you always want your money to be working for you. If your money is not working for you, it's working against you. As they say, it's you're either with me or against me. And it's the same thing with money.

[00:23:14]Then it's the next question was how much of my retirement income will go to taxes.

[00:23:20]This is a a tricky one because you're gonna have to pay taxes and the tax rate for investments and so on is different than regular payroll taxes and it's really going to be adjusted based on your adjusted gross income. Now different states have different tax schedules. So some states have flat rate taxes. So if you pay state taxes of 5% then it's 5% across the board. With California as an example, we have a graduated tax rate. So you have you end up with what's called your marginal tax rate. That's because you're taxed at one rate for $0 up to let's say $20,000 and you're at a different rate for 20,000 up to whatever the the tax rates are. And so it creates a marginal rate because it almost takes the average of those rates.

[00:24:09]And if anybody can explain that a little bit better, let me know. But taxes are another big risk for early retirees. And I suggest that you take a look at your tax situation and talk to a tax professional because there are ways and strategies that you can employ to keep your adjusted gross income as low as possible so you don't get hit with taxes. But don't just think because you keep the money in the 401k and it's growing taxfree that you don't get hit later on because there are what are called required minimum distributions when you get I think 72 73 something like that where you have to take a certain amount out and that's where a lot of retirees get hit with their biggest bit of taxes. Again my goal isn't to know everything and it's not to tell you everything and bring all truth to you but it's now that you know these things exist. These are things that you can go and you can ask somebody or as I say you better ask somebody. You can go and you can ask a tax professional, you can ask a financial advisor, you can ask all these folks. And this is why it's so important to have conversations with professionals. And then the the last one under income, healthcare, and major expenses is how will I pay for long-term care or health care needs later in life?

[00:25:22]Folks, I'm just going to say this. One of the best things that my wife and I did is we invested in long-term care and we have a hybrid plan. We paid a certain amount over a 10-year period every year and that money came straight out of what we had invested. This is the last year that we're going to have to pay it. But what it does is it doesn't cover all necessarily of your long-term care costs. There's nothing that does.

[00:25:46]Medicare doesn't cover it all. And the places that Medicare or Medicaid put you aren't necessarily the places that you'd want to spend an extended period of time. But it helps offset those costs when you get in that situation. And folks, we're living longer than our parents. At the end of the day, we're living longer than our parents. And we need to make sure that we cover that.

[00:26:08]And that's a cost that's out there. So take a look at the different long-term care options. and there's a bunch of different types of plans and you find something that's affordable for you that makes your lifestyle. But if you wait until the time comes, then you're at the mercy of social security, Medicare, Medicaid, whoever your whoever helps you out at that time. And one of the largest growing homeless populations in America are people 65 and older. So, it starts to give you some sense of here's what the reality is. And it may be different and what some of us want to believe. And I get it. Some of us don't want to do it. But the the fact of the matter is at some point we're all going to get there because we're all going to age. And we want to make sure that we're prepared to the degree that we can prepare for that time. I'd rather prepare for it now while I have a couple dollars and some cents than down the road when things start to get a little bit dicey. And sometimes that long-term care can even care for things. Let's say you have a stroke or you have something where you need to get some rehab hospital may help with some of that. But again, take a look at that. Now, the last set of questions that I'm going to go through and this this is a short list, but are going to be lifestyle, family, and work.

[00:27:25]So the first question under this section was what will I actually do with my time when I stop working? And folks, I think one of the most important things you can invest in besides your financial investments is your portfolio of purpose. Just think of it this way. Ask yourself two questions. The first question is when I'm 90 years old, what's the story I want to tell and what can I do now? I was asking somebody, let me go back. Then the other question is, "What would I do if I won the lottery?"

[00:27:56]And start doing that. Now, it's funny. I challenge each of you to ask five people, "What would you do if you won the lottery?" And I guarantee you, most of it's going to be because they're going to say, "I want to get a big car. I want to get a big house. I want to get a big watch. I want to get a big material something or another." But at the end of the day, most of the stuff they would do, whether it's going on vacation, spending more time with their family, living their best life, they can do that now. So you start if you start building your portfolio of purpose and you start doing things now that you want to do as you get older then eventually when you get to that point it becomes a no-brainer.

[00:28:31]I started my career as a HR person after creating a personal mission statement and once I created that personal mission statement I became a counselor at elementary school. Then I went into recruitment then I went into HR and then I retired. But now I spend my time as a master gardener. I spend my time doing stuff out in the community. I spend time on this YouTube channel. So, there's a bunch of things that you can do, but again, you have to think about it ahead of time because if you wait until you get there, then you're going to be like everybody else on YouTube talking about, I don't know what I'm going to do when I'm retired. I'm depressed and I'm going back to work. But why retire if you're going to go back to work? The the second one in this category is, does it make sense to work a fun or part-time job in retirement? I think it absolutely does.

[00:29:14]I could tell you that the stuff that I do, it feels like work even though I'm doing it for free because I've won the game. So, I'm not trying to make money off of people. That's why I do my chats with Sabado. And if you're interested in having a one-on-one chat with me for free, just go to my website, www.asksabado.com.

[00:29:32]We have a free 1-hour conversation. And again, it's free and I don't try to charge you anything on the back of it, but we just talk about your circumstance and help you get comfortable with whatever it is you want to get comfortable with or g help gain some perspective. But I think I don't think there's anything wrong with that. Going back to school, getting a part-time job, doing something you've always wanted to do, doing something fun. Some people want to work in nurseries and so on. I think it's absolutely appropriate because it keeps your mind going. And then the last one is, how can I fin how can I financially support my adult kids without putting my own retirement at risk? And the easy answer to that is you just need to set up boundaries. At the end of the day, if your kids have a failure to launch, is that really your issue? No. Because I would hope that you would have done the things that you can to prepare them, given them the game when they were younger, let them know what the expectations are, help them in the areas that you need to help them, but at some point they're going to have to figure it out. And as Gen X, that's what we had to do. I spent my whole life figuring stuff out. And I'm sure a lot of you have, too. And I know we feel sometimes that we're doing a disservice if we don't take care of our adult kids.

[00:30:37]But at the end of the day, if you can't take care of yourself, then you're no good to your adult kids. So, take care of yourself. Make sure you have what you need. And if you have extra on top of that, sure, you can help them out, but don't put your retirement risk for your adult kids. I wouldn't do that. People that are successful don't do that. Teach a person to fish and then give them a boat and let them go out on the ocean and fish for their own fish. But if you're out there trying to be captain savable, bro, for your kids, then guess what? You're going to end up in a bad situation. I'm not saying that's necessarily a bad thing helping your kids, but if it's putting you in a difficult situation, you tell me what kind of situation it is for you. So that's all I had in terms of the questions that I wrote down from our meeting, but I would suggest that if you have questions, please put them in the comments because if we get enough of the same question or if the question's compelling enough, I'll put a whole episode together and we can talk about it. Because at the end of the day, it's not about me. This channel isn't about me. It's not about my vanity. It's not about me trying to be important or know things. I just happen to have won the game and want to help other people out because I realize that through the course of my life, a lot of fortunate things happen. And I'm just a regular dude caught up in the mix. And I want to help others that are also regular people caught up in the mix find their path to living their best life as well. Because again, it's never my expectation that everybody retire early. But it is my expectation that you live your best life. So, you'll see in the comments, you'll see a link to the Facebook page where you can see the whole conversation. There'll be some additional questions on there that I didn't capture. And you'll also get a if you have a opportunity or you see an opportunity to get in front of people and you have a group of people you want to get me in front of or even online, I'll hold a virtual town hall just to have some of these conversations. But I'm not going to go out and search out the group and so on because again, it takes a lot to to pull this information together. And my goal is just to help you with perspective. So if you have a group of people that may benefit from hearing it from me, let me know. I could make it work whether it's in person or virtual depending on the dynamics of the circumstances. So, on that note, I'm going to go ahead and cut this one out.