The big fantasy football draft is this weekend, and the whole family is coming over on Saturday for our annual tradition. Aunts, uncles, cousins, siblings, parents, and grandparents will all be pitted against one another, and I'm sure there will be a lot of trash-talking. We're getting Chipotle.
Jesse, 12 years old, has recently started taking weightlifting classes. Despite weighing seventy pounds dripping wet, he is focusing on improving his bench press, squat, and deadlift. He has been advised to consume 27 grams of protein daily to support his training, so he's diligently checking all the nutritional labels.
Senay came back from Gainsville over the weekend. She forgot many things when she went to college, so she returned with her car filled to the brim.
Dalanee is going up to Chicago for another procedure for her migraines today. Hopefully, I have good news by next week. Below, you can see Penny giving her goodbye cuddles.
Do you know that some people are still working when they actually are in a position to retire?
Did you know that some people are about to retire that have no business doing so?
Let's look at several scenarios and decide whether or not the individuals involved are financially able to hang up their boots.
Scenario #1
Bob and Paula are both 65 years old. Bob is still working and makes around $65,000 yearly as a Pet Food Tester, and Paula makes $105,000 as a Dog Surfing Instructor. Clearly, they are big animal people.
They have saved around $1,000,000 in their retirement accounts and another $100,000 in the bank. They own their home without a mortgage, worth around $400,000. They are both in decent health and have longevity in their families.
Right now, between the two of them, they bring home about $120,000 a year after taxes (or $10,000 a month). They can save at least $3,000 a month in the bank. So, can they retire?
Yes. If each person takes their Social Security, they will get around $4500/mo. They can also both go onto Medicare. While $170 will come from each of their Social Security payments for Medicare, they won’t have to worry about paying for health insurance.
Assuming they invest the $1,000,000 in a portfolio of stocks and bonds with at least half the money in stocks, they can safely withdraw $4,000/mo. This totals $8500/mo in gross income minus $800 in taxes, which gives them $7700/mo of spendable income.
Considering they are taking home $10,000 a month now and can save $3000, we know they can pay their bills and not take much of a lifestyle hit. They also have a nice emergency fund in the bank.
Social Security will grow at the pace of inflation, and spending will naturally decrease between 65 and 80 percent (40% by government estimates).
Scenario #2
Joe and Joanne, ages 62, are both still working, making about $150,000 in combined income. They bring home about $8000 a month after taxes. They cannot add anything to their savings and sometimes need to take a little from their bank account. They have a small mortgage on their $500,000 house, which will be gone in five years.
Their retirement accounts total around $700,000, and they have $50,000 in the bank.
Joe’s Social Security at 62 is $2200, and Joanne’s at her current age is $1800.
They want to retire early because their jobs are killing them. They want to "finally enjoy our lives."
Can they retire? Nope.
By taking their Social Security early, they get 35% less than if they took it at their "full retirement age" at 67. They can’t go on Medicare until they are 65, so they have to worry about health insurance, which could cost upwards of $1000 a month.
They can safely take a $3,000/mo check from the IRA with their savings. That’s $7000 a month total minus taxes, which equals $6400 ($1600 less than their monthly income). Not only would their lifestyle be radically altered, they would be in serious trouble from a long-term perspective.
If they live until 90, that is almost 30 years of living off their savings. They have worked for forty years, for goodness sake. It is unrealistic to be retired almost as many years as you worked.
Scenario #3
Ron and Rita, age 65. Fortune Cookie Writer and Stuntwoman.
Ron SS= $2000
Rita SS= $2400
$500,000 in retirement accounts, $100,000 in the bank.
No mortgage.
Their take-home pay is $5200 a month. They have learned to live below their means and are cautious with their money.
Can they retire?
Yes. They have many options because their budget is around $4000 a month. They will have more than they need, including the $2000 a month they can take from their retirement accounts and their Social Security. It is more than their take-home pay now!
I cannot emphasize this enough. If you want to retire earlier, you must trim your budget. This means no house upgrades, very little traveling, cooking most of your meals, and keeping an eye on all purchases.
I’ve found that someone without debt can earn $3500 a month if willing to live an extremely simple life. It may be a simple life, but we already live in paradise.
Blue-collar clients often can retire earlier because they have learned to live on small salaries. They have built up the habits necessary to live on their retirement income. At the same time, I work with many professionals, making well into the six figures. They are used to doing what they want when they want, frequently not even looking at the price.
That is a recipe for disaster. Without millions saved up, it is almost impossible to reproduce a $300,000 salary in retirement.
Let’s review the main points.
You probably can’t retire at 62.
Social Security increases by 8% per year if you wait.
Medicare kicks in at 65.
You will need more than $500,000 to get you through thirty years of retirement.
Put as much into your 401k as you can. Seriously. Go online right now and increase it. (
Keep your money working in stocks and bonds, with at least half in stocks.
Budget, by far, is the most significant determining factor for your retirement date.
Be Blessed,
Dave
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