Reduce Debt Increase Wealth

Retirement Planning

May 08, 2022 MIsterchuck Season 3 Episode 112
Reduce Debt Increase Wealth
Retirement Planning
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Show Notes Transcript

Why plan for retirement social security will be enough to live on, I hope. Don’t plan on having someone else to take care of you, plan on taking care of yourself.

 Article Links: By Julia Kagan

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Hello, I'm your host, Mr. Chuck, a retired accountant turn truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence, determination. Retirement Planning, why plan for retirement? So security will be enough to live on, I hope. don't plan on having someone else take care of you plan on taking care of yourself. And why should you even consider retirement planning when most of my listeners I know, are trying to get their debt under control. Even if you have a lot of debt, and you're struggling to make ends meet, he still should be making some money contributions to retirement. If you have a 401k at work, and the employer has some type of match, you should do at least the amount that gets you the most on the match. So if your employer matches the first 4% of your contributions, then you should be making a 4% contribution, the employer matches it. So that's 8% of your salary. It does not have to be included in your budget, because it's already common out of your paycheck. If your employer doesn't offer any retirement plan, then you need to do it yourself. And that case, he may need to be putting money into a traditional IRA that needs to be included in your budget. Because it's not already been deducted from your paycheck. And you have to make those contributions on your own. along your way, before you start making your contributions, the more your contributions will have to be every 10 years you put off putting money into retirement plan, that dollar amount will triple. So if he can start out doing $100 a month, if you don't do it 10 years down the road, it's got to be $300. If you still don't do it 10 more years, it's got to be $900, he can see where this going. The longer you wait, the more you have to make your contributions. And the harder it becomes. Because that dollar amount is getting so large. So the younger you are time is on your side, the older you are, Time is not on your side, and you're gonna have to make a much larger contributions. That's why starting early, starting early in life, and continuing throughout your working career to make contributions, you're gonna be much better off. Now, when do you get started. If you graduated from high school, and you decided you're not going to college, you should get started right away your first job where you're making a good amount of money, say you, if you're going through some type of Prentice ship, once your apprenticeship is done, and you're working full time and making decent money, that's when you start putting money into a retirement plan. If you're if your route is going through college, as soon as you graduate from college and you get a career job, not working part time at a bar or restaurant or whatever you do to earn money while you're in college. But once you start that career job, the first thing you should ask your employer is when do I qualify to be part of your retirement plan. And then soons your qualify, he start, you set it up and you start making contributions. If your employer has some type of match, the minimum amount you need to put in is the maximum amount that your employer will match. So for example, if your employer will match 4% on your contributions dollar for dollar, you should put in at least 4% of your income. If they're gonna match 3% You should put in at least 3% If they're gonna match 6% You should put in at least 6%. Why? Because if you don't, you're leaving money on the table. That's the benefit your employer is given you take the maximum advantage of it. Second, once you get started early. Never ever withdraw money from retirement plan, do not take loans from a retirement plan, because that only hurt you when it's time comes to retire. Leave it in there, let it grow. Now I have a couple articles in my show notes and ones from Investopedia. Five steps to help you towards a safe, secure and fun retirement. And another one from our government is the top 10 ways to prepare for retirement and and that's a PDF. I'm not sure if that's gonna be a link or not, probably not. But the first one is that before I get started and knows, maybe you're not thinking retirement the right way, if you're thinking retirement is he just quit working, and you sit at home, and you do nothing. Maybe sit on the front porch and a rocker and spend the rest of your life doing nothing. That's not the correct way to think about retirement. Unless you have a log cabin in the woods with some acreage with see, you know, some nice land, good scenery. Can you get the money to pay for all that and it's all paid for and you can sit on the front porch and do whatever you want. Go for it. But other than that just quit working and staying home and watching TV you're on board fairly quickly. Let's think as retirement as the greatest vacation of your life. And I getting this from my financial planners newsletter. Vacation might last one to two weeks. But retirement could last as long as 30 years or more. On that basis, you could think of retirement as a 1560 week long vacation, you take longer time to plan a vacation than you actually stay on vacation. And in this case, your planning is gonna be much less than the time that you're on this 1500 week vacation. But what you need to consider, you probably want the plan to be retired a long time. For a couple both age 65 There's a 50% chance that at least one spouse will make it into their 90s. The advancement and medical technologies eventually extend that in the future. So whether you expect to retire in five years or in 50 years, think long term. The money you had to start retirement might be the most you'll ever have. With paychecks no longer coming in, you have to withdraw funds from retirement account to supplement Social Security and any other pensions you may have a retirement fund as smaller than N appears. That's because of state and federal income taxes on withdrawals. You may spend more when you're retired and may seem otherwise. But hobbies movies dining out travel, health care and possibly assisted living might have you spend the more overall than you do today. Health care and assisted living are probably be your biggest expenses. Now I'm not talking health care, health insurance. Of course, you're gonna have Medicaid, Medicare, and that's gonna help. But you're gonna be going you got to be older, you got to be going into a doctor more, there's more things going wrong with you. More problems, more cost. So you need to consider your health, how healthy you think you're going to be. And the type of problems that you might encounter when you're 75 or 80 years old. And you can get an idea by how did your parents live? For example, my father passed away when he was 66. My Allah my mother lived to be 89 I'm I'm hoping to be somewhere in between there. I know as I get older might have some small amount of dementia. Maybe I'll need somebody to take care of me. Maybe not. But we need to plan for these things. plan for the worst and hope for the best. Financial markets returns carry risk investing is key to help your goals but avoid the temptation to take on more risk than you are truly comfortable with in an effort to pay. Play catch up. The higher potential returns you seek will be greater your risk will be that's people getting closer to retirement or once you're in retirement, your financial investing should be to maintain your capital maintain your principal amount and not necessary get a large return. Because if the market drops, it may be five, six years before it goes back up. And that's a long time if you need the money on a monthly basis. So how much money do you need to retire? There's no one size fits all formula works here, but one way you can begin its explore. His question is to reverse engineer your retirement, estimate the annual income you need, and then consider the following money from pensions and Social Security's income from part time work or a second career. Income from non retirement savings, consider rate of return accessibility, and your need for cash reserves. Income from any inheritance you might receive, and don't plan on that. Whoever you think you're going to inherit from, may spend it before they pass away. The remainder is the amount of income you need now review your income sources and how they should change in the future. Ask yourself, when will I stop working completely? How long might any inheritance or non retirement savings last? When they're talking about non retirement savings or meaning money that you have invested or saved? That's not in a retirement plan. I have money in retirement plan, I also have money in a non retirement plan. So why are you saving on your own? Well, because so security at the best is only going to give you 40% of what you normally make on the average. So if you're gonna retire and live off, so security, you're gonna have 60% less income to start off. So if you can save some for the future, you can make that up. Your goal should be to have about 80% of your current income with 40% would be from Social Security, another 40% would be from your own IRA, or savings accounts. And that's just a general guideline. It's not going to be seen for everybody, and everybody's needs are different. If you start into retirement with no debt, you're gonna be a whole lot better off. If you can stay debt free. While you're in retirement, you're gonna be able to do more things and have more fun, do the things you want to do, instead of sitting home, on the front porch, or in the living room watching TV being bored to death. If you don't want to save for retirement, then you're going to have to deal with that when the time comes, or somebody in your family is going to have to deal with it when the time comes. Now my first article These five steps will help you towards a safe, secure and fun retirement. Retirement Planning is a multi step process that evolves over time. Have a comfortable, secure and fun retirement, you need to build a financial cushion that will fund it all. The fun part is why it makes sense to pay attention to the serious and perhaps boring part, planning how you'll get there. Retirement planning starts with thinking about your retirement goals, how long you have to meet them, when you need to look at the types of retirement accounts that can help you raise the money to find your future. As you save that money, you have to invest it to enable it to grow. To surprise last part is taxes. If you receive tax deductions over the years for the money you contributed to your retirement accounts, then a significant tax bill awaits you when you start withdrawing those savings. There are ways to minimize retirement tax hit while you save for the future. And to continue the process. When that day arrives, and you actually do retire. Understand your time horizon is number one. The longer you have, the more risky can take period. The older you are, the less time you have. So once you understand that you're investing should go in relation with that. If you're young and have 30 years until retirement, you should have majority assets in riskier investments such as stocks, there will be volatility, but the stocks have a whole route historically outperform other securities, such as bonds or long time periods. The main word here is long, meaning that at least more than 10 years, set the years would be great. The older you are, the more your portfolio should be focused on income diversification of capital. This means a higher allocation and less risky securities, such as bonds that won't give you returns on stocks, but be less volatile and provide income that you can use to live on. We also have less concern about inflation, as 64 year old, who is planning on retiring next year, does not have the same issues about the rise and the cost of living as much as a young professional who just entered the workforce, you should break up your retirement plan into multiple components. Let's say a parent wants to retire in two years, pay for a child's education at age 18 and moved to Florida. From the perspective of forming a retirement plan, the investment strategy would be broken up into three periods. Two years until retirement contributions are still made into the plan. A multi stage retirement plans must integrate various time horizons along with the corresponding liquidity needs to determine the optimal allocation strategy. It should be rebalancing your portfolio over time as your time horizon changes. And that's where financial advisors can help you to determine retirement spending needs, what bills are you going to have to pay on every month? Well, a mortgage or rent, utilities, food, clothing, transportation, just like when you're not retire, it's the same expenses, they may be reduced, because you may not have debt, if you own a home, and you don't have a mortgage, you own a car, you don't have a loan, so could be reduced. But at the minimum, it's gonna be the same expenses you have, every month that you currently have, no matter what your age is. The biggest difference is if you have children, that children are gone, because the expenses are going to go down, because of be spending less money on food, less money on clothes, but your your housing costs should be about the same. Calculate after tax rate of investment returns, I'm not going to go into that. assess risk tolerance for versus investment goals. Again, the younger you are, the more risk he can take, because you got a longer time period to recover. If something goes down, like the market, the older you are, the more conservative your investments should be. Because if the market goes down, you don't have the time to recover. And you want to try to have more of an income type investments and stay on top of estate planning, I failed to do that, that's for sure. Estate planning is what's going to happen to your assets when you pass away. Hence, the estate is what you leave behind. If you have your funeral arrangements taken care of and maybe even paid for it, because you can buy insurance policy. Now, that will pay for it when you pass away and have everything out in writing. What you want. Where you want to get all that taken care of and is paid for is simple for everybody. That where you want your excess money to go. Maybe you want part of it that goes to some charity, maybe you want part of it to go to your colleagues that he attended. Maybe some of it would go to your spouse, maybe some that would go to certain siblings or children. Maybe you want none of it to go to one and all that that goes to somebody else. That's what you would put in your will and that's what they're talking about estate planning. Okay, now the 10 ways to prepare for retirement from the government PDF. Start saving, keep saving and stick to your goals. Know your retirement needs. And that's a guesstimate. If you're 25 years old, what are your retirement needs? You have no clue. He don't know what your current needs are. But I can tell you put $100 a month into a retirement plan. And whatever your needs, are you gonna have the money to take care of it. contribute your contribute to your employer's retirement savings plan. Number three, learn about your employer's pension plan. Number four, consider basic investment principles. So you need to continually up and study and learn about these things. So you got to learn about your employer's pension And then you're gonna get some basic investment principles understood, and don't touch your retirement savings ever, or take loans out. And if your employer doesn't have a plan, ask your employer to start a plan, put money into an individual retirement account, if you don't have anything at work. And find out by your Social Security benefits, which you can go to my security, my social, and find out that kind of stuff. So I'll be back in one moment with my final thoughts. If you listen to this podcast on an app, please write in review. If you know somebody that might benefit from listening to this podcast, please refer them to reduce debt, increase You can find it on Facebook, our wherever you listen to podcasts, start planning for your retirement as early as possible. The younger you are, the better off you're gonna be. And start thinking about your retirement, not as I'm gonna quit working, but start thinking about it as it's a fake Keishon. What am I gonna do when I retire? And the more things you want to do, the more money you're gonna need, just to meet your daily living expenses. So security will only provide you 40% of what your income you make today. And that's an average, it may only be 35%. Or it could be 60%. But for most people, it's somewhere around 40%. You need to make up the difference, up to at least 80% of your working income. And how are you going to do that? Well, you have to say, invest in yourself, invest in your long term vacation, when you can stop working for a career and start vacationing for a career. So the start the starting point, and determining how much money you need is how much money does you spend on the monthly base for the necessities? It's everything you need housing, transportation, food and clothing, and a little bit of entertainment in there. What are you spending today and multiply that times 10. If you're 35 years old, and you're spending 4000 a month on just those items, and you have zero children, you're gonna probably be spending eight to 10,000 a month for the same thing. Where's that money gonna come from? So security is not gonna provide 100%. So you got to take care of yourself, and you got to save in order to do so, long term investing. Whether you're struggling to pay off debt today, you're struggling to pay those bills. There's really no reward and making contributions to their retirement today. No reward today, the reward will come when you retire, and you start your 15 160 weeks vacation. And you wondering, I cannot afford to do anything. What happened? What happened was you didn't start saving for your retirement early enough. So don't plan on having somebody else take care. Have you plan on taking care of yourself and you'll be happy you did so when the time comes and enjoy your 30 year vacation. I know I will. I'm looking forward to it.