Ep 115 | 4 Retirement Questions and Answers

Wondering how much you need to retire? Should you pay off debt before saving? How much should you save each month? In this Q&A episode, I discuss your biggest retirement planning questions to help you gain clarity on your retirement planning journey.

What you’ll learn from the episode:

✔️ How much money do you need to retire?

✔️ Should you pay off debt before saving for retirement?

✔️ How much should you save each month?

✔️ When should you start taking Social Security benefits?

Got more questions about retirement? Use the link in the show notes to submit yours for a future episode! Need a personalized plan? Book a free Q&A call, and let’s find your retirement answers together!

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Transcript

Today's episode is q and a, answering all of your questions. I plan on making these types of episodes a regular every three to four months. So if you have a question, use the link in the show notes if you feel like your question might be more specific or personalized. It can't be covered in this type of an episode.

Please jump on a free q and a call. Let's answer that question for you, and also what it would look like to work together. Diving into the questions for this episode. The first one is. One that is very commonly asked. I'm sure you've asked it, you've heard somebody ask it. It's, how much money do I need to retire?

This question comes with a lot of different answers and I, I'm gonna vaguely give what financial planners do. I think it's great and fine. Kind of alleviates, but it gives you no control on. Manipulating that number. Typically a financial planner will say you need 70 to 80% of your current expenses, of your current income.

I think they use a couple of both of those in calculating that. If you take your annual, your times it by 70 or times it by 80, this is how much you need every year. Times that by 25, that gives you your fi number. What does FI stand for? It is financial independence, which means that is when your investments are creating enough to support you in what they have determined a safe withdrawal rate is.

And that's 4%. I know there's different discussions about that now, but this 4% has been out and about for a long time. To give you a my answer. For how much money do you need to retire today? If you are five to 10 years away, even if you're 15, think about yourself now as opposed to a 20 or 30-year-old.

If the 20 or 30-year-old is answering that same question, I would definitely go with the financial planner idea. We're just gonna do a quick, simple formula. And you know, that would depend on if they have all of those, you know, assets and things, you know, supporting family, whatever it might be. But that's where it gets kind of sticky, 

because the closer we are to retirement, the better we understand our spending and our expenses. Or I hope you do once you are able to understand what it takes to run your household. Times that as an annual expense and then times that by 25 that gives you your number. Now, if you've not done any work on your expense, you know your spending, your expenses, that gives you a lever to press.

You know, how can I work with that? How can I move that? Do I need to be spending on all of these things? But also the other consideration is you are closer to retirement. You know what your health is like. You know what your desires are going to be in retirement, a little more specific, and then understanding how those are going to impact your budget.

That becomes an annual expense. We need to factor those in. Why should I send you to retirement? With just what you're spending now, if you really want to go. Travel abroad for, you know, three, six months. If you have something that it, it just becomes the idea. You've gotta really got, get into what our expenses are.

I'm, you know, am I going to have, so being able to, number one, understand your co, your expenses, what it takes to run your household today, what new expenses will you have in retirement? Creating that into an annual income. How do you do that? Well, you figure out your monthly expenses times it by 12, and then to get your FI number, we're gonna times it by 25.

That gives you a starting point. Gives you a starting point. In next week's episode, I'm gonna dive into more specifics about all of the levers to pull all of the things that you have control in manipulating. Instead of just looking at this really huge savings amount and you're nowhere close, 

well, how am I supposed to close that gap? That's exactly what I do in my VIP session as we start outlining what you've got going on and how to close that gap, so that gives you the power. While a financial planner is not wrong, I just think there is a more. Dialed in way to give you a number and then help you manipulate that.

Not about just going out and making more money, not about just saving more money into your retirement accounts. We can be a little bit more specific on doing these three things, plan these three things for retirement, you know, and it helps us close the gap. It gives us power, it gives us a lot more control.

All right, next question. How do I pay off debt and save for retirement? Also asked should I pay off debt before saving for retirement? Okay, that second question, should I pay off debt before saving for retirement? I'm gonna give you a hard no, I'm gonna give you a hard no. So to the first question of how do I pay off debt and save for retirement, it comes to a balance.

We've got to be able to cover both of these and exploring number one, the first question we just talked about, and recognizing that debt is a monthly expense. If we reduce debt and we don't carry that forward into retirement, that's less we need to quote, have saved for. There is a caveat to that, that we do need to manage debt as we move into retirement and have a plan for that debt in retirement, but I'm not gonna go in that today.

Recognizing that getting rid of debt, paying off debt, decreases our monthly expenses, therefore decreases that FI number now, saving for retirement. Markets typically return on average, for the long haul whether it's 10, 20, or 30 years, roughly, it's about 10%. You know, some years you're gonna see 20%, but other years you're probably gonna see less than that.

When you're in the market, you're in it for the long haul. And then strategically, you'll have to look at how to pull that back as you're headed to retirement. But of course, that's another subject. Recognizing that you're going to earn roughly 10% on your income in a given quote year, 

sometimes it's higher, sometimes it's lower. But on average, that's all we've got to work with. I would think about paying off debt that is higher than that and maybe kind of figuring out the balance of debt that is 10% or less and increasing that savings number at the same time. So kind of that balance.

Overall. To simplify this answer, I would structure a debt payoff plan. What are you paying off first? How much does that free up when that's gone? When that frees up that amount, and it might be a small amount of a hundred dollars, you wanna just keep going. If it's gonna free up like three, four, $500, consider having a plan to 50 50, 75, 25, 

create this, what I love to call boundaries rules that I love to already have in place before it happens when I pay off this debt. The what is going forward in the debt snowball is not a hundred percent, only 75 of it is, or only 50% of it is the other is going to go into my savings. Still not choosing to just spend it, 

I think that is the best choice. How you manage that is up to you, but really you need to exploring your relationship with debt. And how that is going to move forward into retirement. Go back and listen to episode 1 0 2. About that debt relationship and dive into that just to, you know, help you begin learning how to quote, manage debt.

I don't think debt management is talked about enough in private, you know, personal finances. It's something they do in business. There's a lot we can learn from business that we could apply, but I think having a plan for debt as you're headed into retirement. Understanding how that's going to serve you is really, really an important component.

All right, next question. How much should I be saving each month for retirement? Well, if you Google  they're going to tell you 15% to retirement, and then 5% should be going to your, what I call sinking fund savings buckets. I don't think that's a bad number. That's 20%. That's usually the guide, but if you feel like you don't have 15% to give right now, I'm going to say, you know, save as much as you can.

Definitely, we should be saving for retirement every single month at this point in our life. If you are over 40 and you don't have an amount taken out of your paycheck. For whether you choose a traditional 4 0 1, a traditional Roth or a regular Roth, you know, after taxes, those types of things. But choose an amount to be coming out of your check.

And as you are doing that plan on increasing that as often as you can. With every pay increase that hopefully you'll see pay increases. Most of us at this point in time, we might be topped out. So again, we gotta go back to looking at our expenses, looking at our spending. Saving is only money that is set aside for us to spend in the future.

And being able to think about that in that sense of, I want. My 65, my 80-year-old self to be able to have something to do, some money to spend. Maybe that will help you understand more easily why this number is crucial. How much should I be saving each month for retirement as much as possible, upwards of up to 15%, if not more.

Make that a goal to increase that. Even by maybe 2% this year. See what you can squeak out. I promise. A percent of your income, you won't fill it. Do a two, you might three, and so on and so on. I've talked about that before. All right, the last question in this episode. When should I start taking Social Security benefits?

To answer this question, it's really. Something for you to, number one, educate yourself and learn to then make the best decision for yourself. Most individuals do not understand there are different times you can elect to take Social Security, 62 is quote, early 65 is usually on point, and then. 70 is like the latest.

But if you log onto the social security website, get into your account, it will tell you how much you qualify for those different ages. And if those ages aren't pertinent, because you know, we know they change that age, it's not grandfathered in, but it's futuristic. So log in, it'll tell you right there.

You should have three options. Look at the difference. How much for waiting three years or five years will you get per month? More? That difference times 12 gives you a different annual income that will help you start answering this question of when should you start taking Social security benefits? I've heard people say, well, they like you to be taking Social Security when you get on Medicare, so they have something to deduct.

Heck, I can send them a, you know, I can send them a check. They can debit my account. Some of those things that you've heard people say disregard those. Jump onto the website. Look at those three numbers, see about how that makes you feel. There's different things that impact each one of us personally, individually.

Health-wise, ability to continue working, the amount of money we have saved, those types of things, and we can explore when taking these benefits would benefit us the most. Hopefully they, that made sense for that one. Really, I just want you to learn about social security benefits

I want you to go listen to episode 83 with my guest, Christopher Hensley. He is an expert for social security. Go listen to the discussion we have. I ask a lot of the questions I know people have had, you know, have been asking. Considering all of those things, add that in part of your knowledge wheelhouse of when you should start taking Social security benefits.

We've covered some deep questions today. If you want help with a different question, more specific and not have to wait for the next episode to jump out, please schedule that free q and a call. Also, anytime you have a question, that link for those questions is always there. Drop it in there.

I will put them in the next episode. We're airing in April for this episode. The next one will come out probably midsummer. So please, please, please drop your questions, and if you have found a benefit from this podcast, please take a moment to leave a review on your favorite podcast player. This will help everyone be able to find us that are, you know, over 40 trying to figure this out and covering all of those things that are concerning us about making it to retirement.

Thank you for listening. I'll see you next week.