In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the income needed during retirement. It’s important to understand that spending needs in retirement will differ significantly from your current earnings due to various factors such as taxes, savings, and job-related expenses.
Listen in to learn about a comprehensive approach to estimating retirement expenses by identifying costs that will decrease or disappear in retirement. You will also learn about expenses that will remain constant or increase during retirement and the importance of examining your current net income and expenses to understand your spending patterns better.
In this episode, find out:
- The flawed approach of using online income percentages to determine your retirement needs.
- Identifying work-related expenses that will reduce or cease in retirement and their impact.
- Understanding the ongoing and possibly increasing retirement expenses.
- The importance of examining your current spending to estimate your future financial requirements better.
- The importance of having a detailed financial plan to ensure a comfortable retirement.
Tweetable Quotes:
- “How much income you're going to need in retirement comes back to how much you’re spending and how much you’re going to spend in retirement because everything's going to be different in retirement.”- Radon Stancil.
- “The sooner you start thinking about what your life is going to look like in retirement, planning for it, and putting numbers to it, the easier it is to make it a reality.” - Murs Tariq.
Resources:
If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!
To access the course, simply visit POMWealth.net/podcast.
We are talking through an important question today, and that is, how much income do I need in retirement? We think it is very, very important to start working through this before you retire. It's going to help you understand what your retirement is going to look like, help you start setting up goals for retirement, and that's working through it. So we've got a couple of different lists that we talk you through as far as expenses while you're working, and some of those naturally are going to go away. But some of them are going to stay as you retire, and we help you understand those too. I'd like to remind you that if you listen to the episode and you'd like to read about it, you can go to our website, pomwealth.net, go to the blog page. We have a whole article written on this very topic, and I think that might be helpful for you. Also, if you would like to chat with us, you can go to our website top right hand corner, click on schedule call, and our calendar comes up. You're able to see that. You can schedule a 15-minute call with us. We'd be glad to hop on and answer any questions that you may have. But before we get into this episode, we have a very quick disclosure. The information contained in this podcast is intended to provide general information only, and not to be considered individualized advice. Different types of investments carry different levels of risk. As always, please contact your financial professional for advice appropriate to your situation. Enjoy the show! Welcome to the Secure Your Retirement podcast. This is the place where high achieving professionals come to gain confidence on how to successfully navigate their transition into and life during retirement. There's no such thing as a passive retirement plan. To have a successful financial future, your plan must be actively managed. Each week, we will bring you action plans and expert interviews that will help you gain insights, learn fresh perspectives, and finally experience peace of mind about your retirement. Here to help you achieve your dream retirement and live the life you deserve are your hosts, certified financial planners, Raiden Stansell, and Merced Tariq. Welcome, everyone, to Secure Your Retirement. We are going to be talking today about a topic that everybody is concerned about when it comes to retirement and planning for it, and that is, how much income do I need in retirement? How do I figure my income? Now, interestingly, if you go on the web and you start looking for calculators about how much am I going to spend in retirement or how much do I need in retirement, a lot of times you put in your current income, and then it is going to say, well, if I'm making that, some of them will say, I need 80% of that in retirement. Some of them might say I need 90% of that, but that is really, in our opinion, not really the best way to do it, because let's say I'm working today and I've got a really good income, very likely I'm not spending anywhere close to that income. I have a lot of different things that are being taken out of my income, like heavy contributions to 401(k)s. Maybe I'm saving or doing other things. And so really, what we want to do is take you through how we help a client think about how much income they're going to need in retirement, and it all comes back to how much am I spending, how much am I going to spend in retirement? And that is really what I look for, not my income, because everything's going to be different in retirement. So what I thought we would do is we'll start off and I'll turn it over to MERS and we're going to talk about maybe just to help you start thinking this through, what are some things that maybe I will not be spending in retirement? And that kind of helped me will think this whole process through. Yeah, so we've got a list of things here and it's not an exhaustive list, but it gives you a general idea to start thinking about, well, what are things while I am working before retirement, things that I just naturally pay for without thinking twice about it? Hopefully, a lot of these expenses are going to either go down or completely go away when you do actually retire. And so I'll just walk you through the list. One is commuting costs. So depending on where you live, where you go to work. So for me, I've got a 10 mile drive to the office every single morning and then a 10 mile drive back actually a little bit longer because I go to day care to pick up my son and then back to the house every single day, Monday through Friday, right? So that is a commuting cost, which you may have a commute right now, and that's going to drop off. So and the cost of gas, the transportation, if you're in a bigger city, maybe subways and stuff like that, that's a commuting cost that not saying you're not going to drive ever again, but you may not be doing something every single day regularly like you are today. Another one is depending on what your work is and how you appear at work, your work related attire. So if you wear suits every day or you wear dress clothes every single day to work, once you retire, you may not feel like you need to do that every single day and you dress up for special occasions. Another one is professional development. So if you are required to maintain licenses or have certain amounts of continued education around what you do, there's some additional costs there that you may pay for or your employer may pay for, but that would be a cost as well that's going to hopefully drop or go down for you as you enter in retirement. The next one I think is pretty big is a lot of times in the hustle and bustle of working, we have to feed ourselves lunch and usually a lot of people are going to go out to eat for lunch. You just purely as a convenience and a time saving factor. So maybe your meal cost goes down a little bit because you're not you're not stressed for time and you just you're able to maybe make your lunch at home because you're not going into the office every single day. Another one is payroll taxes that are going to come off. So you know, a lot of times people think, well, I make X and so I need to make X when I retire. Well, there's a lot of things that come off of X, your total gross salary, one of the which is your payroll taxes. And so once you're retired, you're no longer contributing into those payroll taxes. A huge one is child related expenses. So hopefully by the time that you retire, the kids are out of college off the the family payroll and they're off on their own managing their financial lives and doing just fine. And so maybe that's an expense that that starts to wane or start completely comes off of your budget as well. Travel if you travel a lot for work or you have a larger commute or anything like that, hotels, meals, all those different things that come with work related travel. Any types of memberships that you have around work, those may go away. Another one that we forget about to go back to your, I need to make X to or I make X right now, as far as my gross income, I get paid a salary of this amount 100,000, 200,000, whatever it is, what is coming off of that if you're saving is your 401k contributions or IRA contributions. And so you do those contributions to prepare you for retirement to build up that nest egg. Once you finally do retire, well, you're no longer expected to be saving, although we see plenty of people in the retirement ages that are still saving, but you're typically not contributing to retirement type plans at that point. And for a lot of people, if you're maxing out your 401k and you make 200,000 a year, well, the you can put up to 30,000 to max out your 401k. So that's a large chunk of someone's salary. So if that goes off, then that quickly answers the question, well, maybe I don't need as much as I was earning. I don't need to match my salary in retirement because a lot of these things were going towards preparing me for retirement. And then maybe if you have, you know, a second house or other other major expenses that are associated with your work life, that may just go away or again, dwindle as you do enter into retirement. So one of the throw that list statute, it's not, it's not fully exhausted, but it's got a good quite a few common ones that will come off when you do decide to retire. And that can help you start thinking through what you actually need coming in the door when you do retire. I hope that you are enjoying the show. By the way, if you are in or nearing retirement and are someone who wants to gain clarity on what questions you should be asking, learn what the biggest retirement myths are and identify what you could be doing to achieve peace of mind for your retirement. Get started today by requesting your complimentary video course four steps to secure your retirement. To access the course, simply visit pomwealth.net/podcast. If you're new here or you haven't done this yet, this is definitely the first step to get started in applying these principles to your life. So head over to pomwealth.net/podcast and check us out. So what we will say to folks a lot of times in order to help you start thinking about this is it's an easy way to say this. How much money do you have net coming in the door every month? So if you get paid bi-weekly, let's say that you're what doesn't matter what your salary is. Doesn't matter about how much is going to the 401k. Let's say that you've got it and you've got $4,000 every pay period coming into the house. That's $8,000. Out of that, do you spend it all or do you save some of that? So if you say no, I put $1,000 a month in the savings and the rest of it I spend. Very easy to say I spend $7,000 today. But then if I go through the list that Merse just talked about and I say, well of that list, what things that are there today won't be there when I retire. So if I'm 60, I'm 55, and I'm thinking about retiring in five or 10 years, what's there today that won't be there in the future? And just go down that list that Merse just talked about. Now, as you're thinking things through, there are going to be things there that will continue to be there that are going to be in retirement. So let's just talk a little bit about a few of those things. Housing cost. Now, if your goal is to have the house paid off, that's great. That means you will not have a mortgage payment of principal and interest, but you still have housing cost. Well, what does that mean? I've got property taxes, I've got all of my utilities, like my electric, my water, my gas, my internet, all those things still stay there even if I pay the house off. Now, many times our clients might say, I'm going to have my house paid off at X, and that's going to be maybe five, 10 years into retirement. So what we do is we say, okay, well, the first for the first five or 10 years in retirement, we're still going to have that principal and interest payment. But then that's going to go away. And in our software, we're able to show that very clearly just kind of going away. Health care costs or health care expenses might change, meaning if I were paying a big amount of health insurance calls today, when I get on Medicare, that may go down. If I work for an employer, though, that covers 100% of all of my health care, well, then my health care may go up when I do Medicare. So we'll can talk you through what that looks like, or if I'm going to retire prior to 65, I may have to cover my own health care until I turn 65. We then got all of our daily expenses. We're still going to go to the grocery store. We're still going to address and close. We're still going to have household supplies. So we're not going to take those things off. They're still going to be there. Now, MERS talked about maybe not driving every day to work, but we're still going to need to drive, which means we're still going to have a car, which means we're still going to have some maintenance on the car. And we're still going to have a gas budget. That's still going to be in there. We're still going to have our insurances, our homeowners insurance, our auto insurance, if potentially life insurance, maybe long-term care insurance, all of those things are going to remain. I'm not going to have those FICA taxes or the payroll taxes that MERS talked about, but I'm still going to have taxes. So don't forget about that in the deal. Hopefully, by the time I get to retirement, I'm not going to have any debt. If I have a car payment, it's there, but hopefully I've gotten to a place where I don't have any of that debt out there. Those are like what I call the essential things, but then we might put in there some fun stuff, or maybe some wants, like, "I want to travel. I want to go out to eat. We're going to do a date night every week," or whatever. I don't care if it's a date night every other day, whatever it is, just say, "Hey, what kind of lifestyle do we want to live?" And then I can start to put that all together. The key, though, is whatever I come up with, I want to know, "What is it that I'm actually spending?" Not what I say my income is, because sometimes we can help you get your income to where you're really not paying any tax at all hardly, depending upon how your accounts are set up, and so that could really benefit you, because we don't care about so much income tax. We just care about what we're spending. Anything else on that, MERS? No, I think it's a good exercise to do, to understand. I tell clients this all the time, is that when you're working and you're earning a good income, you're checking the box of saving into your 401(k), and everything is working smooth. You swipe the credit card. You're never worried about how you're going to pay off that bill. You kind of get into autopilot, and a lot of times, we don't really understand where and how we're spending. I think a good exercise is kind of working through that. Even though it's not necessary right away, it's going to help you think through your planning for retirement and living through retirement. It's going to make the financial planners job a lot easier if you understand your expenses going into those meetings, and it makes your plan look smoother too. It also gives you something to dream about, and Raiden mentioned the wants. It gives you something to work towards. What do I want out of retirement? Whether that's the second home or the larger vacations we've been putting off, or picking up those hobbies we haven't had time for, the sooner you start thinking about what your life is going to look like in retirement, and planning for it, and putting numbers to it, the easier it is to make it a reality. One of the things that we do with all of our clients is we build out for them an actual income plan, a retirement-focused financial plan. If you are a person that's thinking about this, you're trying to figure it out, we have a way that we can really make it super easy. You can get it as an app on your phone once we build it out. You're able to see it. You can actually start tracking your income and saying, "Where is that money being? Where is it going?" and help you to understand how that looks. If that's something that you think you might want to talk about, feel free to go to our website, top right hand corner, click on schedule call. Our schedule comes right up on your account, on your screen, and you can just schedule a 15-minute call with us, and we can help direct where to go from there. We hope that this has been a little bit beneficial to help you think through this whole idea of income and retirement, and we look forward to talking to you again next Monday. All right, everyone. That wraps up today's episode of the Secure Your Retirement Podcast. If you found value in today's episode, we would love nothing more than for you to head on over to iTunes and give us a five-star rating and a review. Be sure to take a screenshot of the review before you submit it, and we'll send you a special gift. Our book, Get Off the Retirement Roller Coaster. Just email morgan@pomwell.net with a screenshot of the review to get your gift. Also, be sure to subscribe so you get notified of new episodes as they're released every week. And finally, please share our podcast with your favorite social network so more of your friends and family can benefit from this information. Always remember, you've worked hard to get where you are, and now you deserve to have a retirement that works hard for you. [BLANK_AUDIO]
