Recently retired and unsure if my 401(k) and IRA will provide a stable future. i need an approach that will align with my risk tolerance and financial goals, i set aside $1m to achieve this. Do you suggest i get into stocks or buy a rental property?
If you’re new to investing or have a more complex financial situation, It can be helpful to work with a financial advisor who can provide personalized guidance and help you make informed investment decisions.
On the contrary, even if you’re not skilled, it is still possible to hire one. I am a project manager and my personal port-folio of approximately $750k took a big hit in April due to the crash. I quickly got in touch with a financial-planner that devised a defensive strategy to protect and profit from my port-folio this red season. I’ve made over $150k since then
Most Americans find it hard to retire comfortably amid economy downtrend. Some have close to nothing going into retirement, my question is, will you pay off mortgage as a near-retiree, or spread money for cashflow, to afford lifestyle after retirement?
Agreed, the role of advisors can only be overlooked, but not denied. I remember in early 2020, during covid-outbreak, my portfolio worth around 300k took a slight fall, apparently due to the pandemic crash, at once I consulted an advisor in order to avoid panic-selling. As of today, my account has yielded big fat yields, and leverages on 7-figure, only cos I delegate my excesses right.
this is huge! mind if I look up the advisr that guides you please? only invest in my 401k through my employer for now, but enthused about diversifying my investments for a prosperous financial future
The decision on when to pick an Adviser is a very personal one. I take guidance from ‘Natalie Lynn Fisk‘ to meet my growth goals and avoid mistakes, she's well-qualified and her page can be easily found on the net.
Currently working overseas but will return to my home country in the near future. I'm a landlord. I invested in property at the age of 22. Value has soared and renting out. Will live on the rental income I receive and live with my aging parents for the time being. At 60 I can withdrawal from my superannuation (401(k)). Have savings and eligible for the Australian pension at 63. In the future I may downsize, sell the property and buy cheaper property and add the left over money from the sale to savings. Lots of options for me. The way I see it if you have $1m at some point, that’d be enough to create a portfolio that would pay you between 50k-70k in dividend income...
I've been saying the same thing for years as you age time gains value and money loses value. I retired at 62 and moved to the Philippines after I recovered from a work place injury. No stress, no rent/mortgage/debt, cheap to live here, eating healthier and the wife here treats me like gold. It doesn't just depend on saving, To optimize financial outcomes, individuals can seek guidance from a qualified financial advisor who can provide tailored advice and strategies to minimize expenses and maximize income.
@@devereauxjnr I completely agree; I'm 60 years old, recently retired, and have roughly $1,250,000 in outside retirement funds. I have no debt and very little money in retirement funds compared to the total value of my portfolio over the last three years. To be honest, the Fin-advisor's can only be neglected, not rejected. Simply conduct study to identify a reliable one.
@@loud9090 My advisor is NICOLE DESIREE SIMON , a renowned figure in her line of work. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market
@@user-3456rtu she actually appears to be well-read and educated. I just did a Google search for her name and found her webpage, I appreciate you sharing
Tammy Montano I show my children these videos. One of them is interested and seeks them out herself (she’s about to be 13 in a few days) and the other thinks it’s annoying... either way, Im grateful for the internet. I think it was Jim Rohn who said, “A job can make you a living and self education can make you a fortune.”
Very helpful, we have been following this basic 4% rule our entire working career as our way to know what our savings goal is. If you know know how much you need, you dont know how much to save, if you dont know how much to save, you have no way of knowing if you are saving enough/too much. Glad I found your channel! I wish all young working people would follow you and set up their goals and budgets early in their earning years so they have the time for their investments to get them where they need to be financially. Most of them just spend everything and dont save early enough.
Marko, you are God sent! I'm a mid 40s divorced guy making $75K a year. I lost EVERYTHING in divorce and never thought I could recover financially. But now you've given me hope. My goal is to maximize my 401K and Roth IRA options. Ideally, I'm aiming to invest $25K every year. I plan to work 20 more years at my job. That's $500K before earned interest. I'm VERY excited for my future!
When I look back over these past 40 years of my employment, I never thought the world today would look as it does now. In retrospect, I am really glad I stayed in the public sector all this time because when I retire in the next one to three years (assuming I make it), I will get a pretty decent defined-benefit pension for the rest of my life.
@@WhiteBoardFinance Indeed. Individuals nowadays are a great deal more responsible for providing their own nest egg, which requires constant exercise of discipline and regular evaluation of long-term goals.
Love how you never touch the principal! Pretty cool that after 20+ years of living your life without working you still have the same amount invested that you started with!
This is waaay to simplified. He hasn't shown that you won't get 4% per year. You have to withdraw enough to END UP with 4% after taxes. So you will most likely have to take out 5.5 to 6%. So the IDEA he is presenting is ok, but the numbers are off. He's doing it backwards. 1. Figure out how much you need AFTER taxes in retirement 2. Figure what tax bracket that will put you in 3. Add those taxes back to amount in #1 4. Reverse calculate to determine how big your nest egg will need to be at retirement. Example: 1 = $60,000 2 = 15% tax bracket (most likely) 3 = $60,000 x 1.15 = $69,000 4 = 25 years x $69,000 = $1,725,000 That is $225,000 more than the amount obtained using his method.
You're not alone bulletcore. I didn't really start until I was 50. I'm 63 now and doing my best to catch up. I may not reach my goal retirement amount but I will be better off than if I did nothing.
He is talking about maintaining the balance but you can still use it in a simple method. You can take out 4% per year and it will last 25 years (account balance reaches 0) without accounting for any growth or losses. So if you are older when you start taking it 25 years may be long enough.
My credit rating sucks, because I have absolutely no debt. That is a major key for retirement. Investing in exchange trade and standard mutual fund with dividends around 5% helps a lot. If you have a car loan, when you finish paying it off, start putting that same amount into your savings account, or invest it. When you get a raise, add that amount to pay off your mortgage early.
I'm planning to retire in 2027, I'm investing 20% of my monthly wage into super so my wife and I can live fairly well. Like George below we own our houses outright and no debit at all, I keep a monthly expense spreadsheet so I know exactly how we spend our money . This is how I planned it from my early 20's.
Marko, some points to ponder: 1) I believe the 4% rule is based on a 60/40 stock/bond allocation. 2) timing is everything - if the withdrawal starts at the start of a bear market a safer withdrawal rate would be 3% or lower. 3) a Stanford U study showed that for older retirees that social security payments and RMDs (which are between 3 & 4%) would provide adequate income.
Good information. Just remember that it assumes at least 6% interest on investments (which are never guaranteed but possible) and no more than 2-3% inflation (again not guaranteed but historically average). I am not sure how many people are comfortable throwing all their investment savings into the stock market. The safer approaches will not get you 6%. Everything is relative and never guaranteed, but having this type of basic understanding is critical to anyone looking at retirement.
Agreed. If you are seventy years old, you should be in a low-risk equity / bond /cash-equivalent portfolio. It's unreasonable to expect a 6% return for the general geriatric.
Right: that's why I'm preparing different scenarios considering for example mean returns about 3-4 %. and some period of increasing inflation, in order to be more cautious. Anyway the model you can apply is the same presented by Marko, in case also "dynamic" with different returns and inflation year by year.
All good info. Just wait till your turn 70 1/2 then you will be required to take minimum distributions ( though you wont have to spend it, maybe put in a high interest savings? ). You lose more of your "nest egg" to grow off the interest
The math makes sense but the problem is that although the stock market has averaged some 10%ish historically, there is no guarantee at all it will stay that way. There are many global challenges that can severely impact the economy in the next 30-40 years but right now we don't know how this will pan out. Things like overpopulation, climate change, population ageing are major worldwide concerns so there is really no way to estimate how the economy will develop long term and thus the stock market. I think the safest way to invest for retirement is to try and build up a sizeable real estate portfolio that you pay off before retirement and will give you net cash flow every month which you can survive off of. On top of that you're building up 401k and roth. This way you're putting your eggs in multiple baskets and spreading risk. I wouldn't bet my entire retirement plan on a 401k or roth which are mostly stock investments.
Excellent explanation! We've been doing this for the last two years, but I figured it out by the day. I write down every penny we spend and then average it out. We are always way under what we could be paying ourselves so after watching this I feel really good! Thanks!
Your videos are great. This information is not news to me. But I still enjoy listening to you explaining this and confirming my strategy and way of approaching this topic. Keep em coming!
Your a very smart young man, no doubt you will reach financial freedom. I have a TSP Roth, an IRA and other investments totaling 1 million. I keep another million in cash. Retiring at 62 and Im 54. My annual income currently is $240,000.00 gross. Oh yes, I save an additional $36,000 a year. I am maxing out my Roth but keeping the rest cash. No debt other than 120000 on my 15 year mortgage at 3.5%. Ive been told the cash amount is crazy but it gives me comfort after the 2008 fiasco. What do you think? Thanks
thanks for sharing. by the way, even though without this theory, To spend only 4% of total asset plus 3% inflation=7% of total. If stock earning can hit 7% per annual, of course it won’t hurt your principle because the earning can offset the expenditure. it’s just a simple math. The main point is how to keep the average annual earning at 7%, may be keep in high yield stock and ETF, mix with high growth stock.
I think overall your video is good, except in retirement, your 6-10% return is assuming the whole portfolio is in stocks. Most people I follow recommend a balanced approach nearing or in retirement, say 50% stocks or 40% stocks depending on your risk tolerance. While there are maybe a few tweaks, the overall idea is sound, imo.
My mom is retired and 90% in stocks. 10% cash and money markets. She has more dividend income than she knows what to do with. Never eats principle unless is a good tax move. If you invest in high quality dividend stocks market fluctuations won’t bother you. Also living modestly but splurging for experiences helps too.
The democRATs want schools to be just the way they are, to educate kids to be dumb workers when they grow up, and teachers are just the right tools to use.
Great analysis Marko. I'm hoping you can explain this to me. So according to the 4% rule, your nest egg will last you at least 30 years but may not last you indefinitely. However, as you had pointed out, your nest egg generally will have grown over the years since markets/bonds return around 8% and thus greater than the 4% you are withdrawing. You would think that as time goes by and thru compounding effects, the nest egg would actually increase so why is there that issue of money running out at 30 years? As the trinity study has pointed out as well, the 30 year mark seem to be a sure deal but after that, there may be a risk of money running out after that. Yet in the same study, they said the average retiree after 30 years have averaged up to 3 to 6 times their original nest egg so that supports the notion that a nest egg GROWS not diminishes if you are consistent with the 4%. 3 to 6 times vs running out of money after 30 years, that is a huge discrepancy. What gives?
I agree, the only part that does not make sense is "last only 30 years". After 30 years it should be higher then when you retired. Unless you have a medical emergency and withdraw higher then 4% to pay bills. Then I could see it running out
Nice job presenting Marko. Couple touch points though. Understand that most retirees net worth will be in qualified assets and will be REQUIRED to draw more than 4% 2 years beyond RMD age. Also, why would you not want to touch principal? Legacy plan for qualified money other than ROTH not really the most efficient. I'd hate to wake up one morning at 89 and realize I have a whole lot of assets I should have enjoyed in my 60's and 70's when most people still have the ability to. Create an income plan with maximizing withdrawal with least risk of running out. Sequence of return risk is real and will definitely change the composition of a portfolio in withdrawal. 6-10% assumption would require heavy equity positions. If you retired early 08', no way you are emotionally strong enough to stay full equity while withdrawing.
The one thing that has always confused me in the calculations is the inflation part of it. You can predict that you will have $1million saved by the age your 65 if you contribute $x each month and it earns on average x% interest each year. 4% is what you say your withdrawal rate will be at retirement. 4% of 1million is $40,000 , I can live off of 40k a year... in 2019 yes, but can I live off of 40k in 2049? I don't think so. That means you need to figure out what 1million dollars today will look like in 2049, then that becomes your target number. $1million today with an inflation rate of 3% yearly, will have the same purchasing power as $2.4 million in 30 years, 2049. That would also mean your 4% withdrawal rate would be $96k in 2049 That's a big difference and should change how much you're saving for retirement. Am I correct on that observation?
Another idea, is to have your biggest item paid for, your house! Zero house pmt, and be debt free. Even with inflation, having no debt only makes sense. Minimize your cost of basic living 👌🏼
correctt, imo, we better not fit our later annual expense to our savings nominal when we retire. But we fit our savings nominal to our later annual expense. That's why we need to calculate our average annual expense first, then calculate it with inflation rate due to remaining years before we retire, then divide it with 4%. That nominal should be our savings nominal in order to follow this 4% rule If your annual expense is about $40k and the remaining years before retire is 10 years. Then, your annual expense will be $59,2k when you retire. Therefore, your nominal savings when you retire should be $1,48 million to follow the 4% rule.. CMIIW
The 6-10% average return is a bad place to start. Someone in retirement should not be invested heavily in the stock market. Their investments should be in lower-risk, income-producing securities. Retirees don't have time to come back from a 20-30% drop in the market (like in 2008).
That's the thing though. I am 27 right now. I have created a financial road map. But I wanna retire before 40. I wanna break the cycle. I don't wanna retire on 'retirement age'.
Lyle, I hope your not one of those young millennial liberal turds wanting a handout from the gov't. "pay off my student loan", "raise the minimum wage", "we need more taxes" etc etc!! Otherwise, I'm sorry to say bud you will not make!! (I am a successful 40 year old who worked hard, played hard, and saved hard, yet never made six figures in my life and yet I am proud to say that IF I choose to, I can afford to work part-time for the rest of my working years)
Great video. For those reaching their investment goals, always consider wealth preservation as a method to assist in shielding your money from a significant market correction. Transition from aggressive to moderate, then perhaps low risk. Even the most renowned financial analysts cannot seem to agree on the fickle markets. 2.5% low risk on $1,250,000 is still $31k per year. Then add some liquid savings and government pension......and there’s your 50+k.
I love that the 4% Rule also shows that you don't need a multi-million net worth to retire. Just a respectable amount of assets and they will outlive you so you can pass it all along after you die. And when you calculate in other income sources like Social Security, Pensions, rental income, side hustles, etc. you don't need a whole lot
For me, I've worked out I need $900k in retirement ($36k/year x 25 times annual expenses). At $36k/year ($3k/month) I will be pretty comfortable and I plan on retiring in a lower cost of living country (ie. Thailand). By that point my mortgages on 2 properties will also have been paid off which will be rented out, which will also aid in additional income during retirement.
MARCO MAN YOU ARE AMAZING! i moved to canada 3 years ago i work 7 days a week i am getting married in almost a year kindly make a video of saving as much money in 6 months by cutting whay kind if expenses. I came from a third world country and people here can do whatever if they work hard in countries like canada or USA i can’t even imagine buying a 6k car backhome even working 7 days.
What sort of portfolio does the 4% rule assume? (100% stocks? 50/50 stocks and bonds?). Also how do you adjust your withdrawal as the market changes? Let's say for example after you retire, there is a year where stocks fall by 10% -- would you just withdraw 10% less?
This 4% rule is true, but there is a special risk called "Sequence of Returns" risk that could happen if you retire right before a major market downturn (think retiring in 2008 right as the market crashed). While the market came back in subsequent years (it always bounces back over the long term), the withdrawals made early in retirement before the bounceback come from selling diminished assets, e.g., you need to sell more stock to get the needed income. If that happens right at the start of retirement, it can have a big impact on your lifestyle.
Yes, you have to be flexible. Should you encounter this unfortunate situation, suggest working a bit longer or reducing cost of living to ensure you don't draw down your principal.
Safe withdrawal rates already handle the sequence of returns risk but that risk is why actual safe withdrawal rates are a few percent lower than the rates you get if you assume constant returns. You might find Guyton's paper on how to reduce the effect of sequence of returns risk interesting, it's at www.onefpa.org/journal/Pages/Sequence-of-Return%20Risk%20Gorilla%20or%20Boogeyman.aspx .
I appreciate you breaking it down to the lowest common denominator. I have no money awareness so all of your videos are extremely helpful. One thing im still unsure of is where do I physically find the market value you mentioned (that 6-10% example)? Again, idk nothing about nothing...yet
I found out my FIN (Financial Independent Number) from our Financial advisor we are currently mid 20's and if we want to retire around the age of 60-65 we are sitting at about $1.5 million we would need to save after inflation. Really glad we have set up and advisor to help manage our money and help invest for the future. I would really recommend anyone speaking setting up with an advisor have heard many stories of individuals who have waited to long and have no way of being able to save for a retirement because they thought it was an age. If you start as young as possible it is way easier to have smaller amounts of money in savings go a longer way when done properly. Not falling for low 1%,2%, or 3% mutual funds, all while taking a higher percentage in other expenses such as high percentage credit cards most around 19%, mortgages rates 3-5% if not more interest rates you end up in the negatives if you have high debt including credit cards, finance loans, mortgages. How do you think they make money off you so you loss money in the end, hence why the big banks made billions of dollars last year invest not with the banks but in the banks who always make money.
Marko, excellent presentation. Da man will want his pound of flesh (taxes) when you withdraw your 4% (unless it's a Roth). Can you do a video of RMD? I'm going to start next year and it's as clear as mud. Thank you
Good math. I retired last year with a projection of needing 40k in retirement. With 32k from SSA and a 400k IRA currently earning 6.5% dividends, I feel I have a good plan, even with inflation. I hope everyone listens and has a plan.
I've worked on Wall St for past 20 years and have a degree in finance As you approach retirement your retirement portfolio must slowly reallocate towards a more conservative approach. Leaving 100% of your retirement nest egg in equity in retirement is dangerous because your shelf life may be short and stocks can be very volatile. Just look at 2007 - 2009. If that happened to you in retirement and you were in your 80s and needed to sell to cover a surgery, etc you would be taking a huge realized loss. Very dangerous.
Marko, I wanted to retire at 55. But like got in my way and my wife (now xwife) didnt want to wait she wanted a new car, a Time share in Florida. Enough for my story. I now have over 100,000 and from a way to generate a nice income selling covered calls. Tesla is at $700 or 70,000 for 100 shares. An out of the money call can be sold for 1500 for a one month period. At expiration the call expires worthless and I can do it again. 1500 x 12 = 25000 in a year. Sell a call further out of the money will reduce the risk of being call out but reduces the income.
Yes. When using 4% of end of year balance, one cannot exhaust balance under any circumstance. We take our 4% on January 1st. Like you said, it increases each year. Our uncertainty is the components with the portfolio. We write OTM calls on SPY. But we could do stocks or etfs. These would be dividend aristocrats similar to your portfolio. An example is PEP. Marko, your thoughts?
It seems like all of these retirement calculators over estimate the amount needed to live on at retirement. At retirement you should NOT have a mortgage, a big house, a car payment, student loans, or raising kids. My parents and grandparents (when they were alive) lived on a lot less than $70k a year (inflation taken into consideration) . More like $25k a year (and this is in California). The key, by the time you reach retirement: live simply, live free of debt, stay healthy. Retire in an area that isn't expensive.
Cost of living for your grandparents was a different story back then. Cost of housing has gone up dramatically (especially in California). If you have kids the cost of college is probably ~ 7 times higher than when you went to school. If you plan to help them out that's going to eat into your savings or lifestyle. In reverse, if you lived more simply and debt free you'd probably have a much more comfortable retirement. I agree with retiring in an area that isn't expensive, but I'd debate buying a house right now vs renting and putting more into retirement at a young age. Your investments more than likely will out grow the investment you make on your home. Now with the lack of tax deductions for mortgage it doesn't seem as great to purchase (depending on what part of the country you live in).
Great job overall but a major rule you left out was inflation on your principal. So if in 30 years you retire with 1.25 million as you said, that 1.25 million with 3 % inflation will only be worth 514,000. So your lecture transitions into an example of 500k principal which is convenient because in today terms people can ask themselves how they could survive on 500k now with their current lifestyles. What's your thought?
100% correct. But your lifestyle tends to get cheaper as you age as well. Not defending inflation, just saying that the older you get the less you spend typically.
If we go by that amount, the 500K, the 6% or more gain, etc. You really don't need life insurance, right? My plan is to invest on ETFs. Forget about Mutual Funds. Maybe Marko can make a video on ETFs. Good job, Marko!
Here is what I have never understood about the 4% rule, and I've never seen it addressed. Marko, you say you can withdraw 4% and "not touch our principal". But shouldn't we be drawing down our principal? Otherwise, we will live for another, say, 30 years after retirement and eventually die with our starting balance, in real terms, in the figurative bank. So who wants to die with their life savings in the bank? Instead, shouldn't we be slowly consuming the principal balance and die with, maybe, 20% of the original balance, a number reflecting the fact that none of us knows when we're going to go? My wife and I will have no heirs, and I'm not enthused about giving large sums to nieces and nephews.
