Do You Have Enough Money to Retire? A Hypothetical Example

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2 ай бұрын

How do you know if you've saved enough money to retire? In this video, we'll walk through a simple example of a hypothetical retiree to show how you can calculate if you have enough saved. I generally like to figure this out in two steps:
1. How much after-tax money do you need to fund your retirement?
2. How much is enough to fund that after-tax withdrawal?
For most, using a safe withdrawal rate between 4-5% is usually appropriate.
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Пікірлер: 22

@jondienst Ай бұрын

There are budgeting apps that track income and spending. We use an app to track everything so we know exactly the monthly spending and trends.

@marvs2515 Ай бұрын

Can you take the standard deduction after retirement? And if so, shouldn't that be taken into consideration for how much one can withdraw from retirement accounts?

@sophoswealthmanagement Ай бұрын

Retirement won't impact your choice of standard vs itemized deduction.

@dandolsberry6442 Ай бұрын

While I like this concept - I think another factor is big. In a spousal situation, delaying the big earner means only 1 of 2 have to live long. Also, 'guaranteed' inflation protection SS is big. Now, cons - 'guarenteed'. How secure is SS.

@rda9441 Ай бұрын

I am hearing 3.3% is more of a safe withdrawal rate and will help maintain $$$ for more years without running out. Would you agree? What is a good retirement balance to have at 50 years old if you want to retire at age 55 with expenses at 90k long term?

@sophoswealthmanagement Ай бұрын

Morningstar came out with a 3.3% safe withdrawal rate in 2021 thanks to low interest rates and high stock market valuations. In their most recent update, their safe withdrawal rate was back at 4%. Bill Bengan has updated his original analysis to include more asset classes and determined 4.7-4.8% is the new safe withdrawal rate. When you're retiring at 50 it's a little harder to say since the money will need to potentially last so much longer (the safe withdrawal rates are based on a 30 year time horizon). It also depends on your other sources of cash flow and the amount/timing of social security in the future.

@johngill2853 Ай бұрын

A safe withdrawal rate assumes you will not run out of money 3.3% is definitely safer than 4% But 2% is safer than 3.3% What is exactly your goal? A big piece of the puzzle is how much of your spending could you cut in worse case scenario

@teekay_1 22 күн бұрын

@@johngill2853 People need to keep in mind they will tend to spend a lot more money early in retirement rather than later.

@bruced.370 Ай бұрын

Wish more realistic numbers were used. Why not use $1M in SS? Ridiculous correct? 🤑

@Bob-yh7ir Ай бұрын

Budget? I am flabbergasted by the number of people who do not know where their money goes or how much they spend. Everyones situation is different but you have to know your numbers before you can make any informed decision. We track our in and out and have for many years. We KNOW what it takes to run our household, keep the lights on and then we look at mock travel scenarios we have taken, adjust as desired for the spend and add that to our desired spend in retirement years. Then we add a little buffer for those unknowns that may crop up from time to time like a 1000 car repair and such. Also have to think forward a couple years when the tax credits, rates and deductions will go back to what they were pre 2019. About half the std deduction and if you punch above the 12% bracket today, that is going to be 15% again. That will catch many by surprise I think.

@sophoswealthmanagement Ай бұрын

Yeah, I usually advocate looking at your tax returns from the past few years and comparing your take-home pay after taxes to how much you saved so you can impute your true spending number. In my experience, people drastically underestimate their true spending when they are new to budgeting or try to estimate their retirement expenses.

@jeangreen432 29 күн бұрын

100K and taxes 15%??? I wat to live on that planet!!!

@sophoswealthmanagement 28 күн бұрын

Lol you do! If you are single and over 65 earning $100K with a standard deduction then your effective tax rate for 2024 is about 11.2%. It would be even lower if some of that $100K was social security! Maybe you're thinking about tax brackets, which is what your last dollar of income is taxed at. That same person I just mentioned is in the 22% tax bracket. But that's not really that important, it just means each additional dollar in income they earn is taxed at 22%. The important number is their effective tax rate because that tells you how much in taxes they are paying. In this case it would be a little over $11K. Not $15K and certainly not $22K!

@jeangreen432 27 күн бұрын

@@sophoswealthmanagement Let's say the $100K is all SS. Once you are over $35K in taxable income, your social security income/benefits are taxed at 85%. The federal tax bracket for single on $85K for 2023 is 22%. the calculation: $85,000 - $16,550 @65 stndrd ded = $68,450 x22% = $15,059. What am I missing? (recalculated the stndrd ded ;o), a 2nd time, lol! )

@sophoswealthmanagement 27 күн бұрын

@@jeangreen432 You are assuming that all your income is being taxed at your marginal tax rate. It is not. So let's continue your example. With taxable income of $68,450 the first $11,600 of taxable income is taxed at 10%, so that's a tax bill of $1,160. The next $35,500 is taxed at 12%, so that's another $4,266. Then the remaining taxable income of $21,300 is taxed at 22% which adds another $4,686. The total tax bill there would be $10,112.

@jeangreen432 26 күн бұрын

@@sophoswealthmanagement sounds good, thanks!

@teekay_1 22 күн бұрын

@@jeangreen432 Well, another problem with saying $100K as "all social security" is not realistic since no matter how much money you put into social security the maximum benefit in 2024 is $58,476/year assuming you start taking SS at age 70 and you maxed out your social security most of your life.

@teams3345 17 күн бұрын

Not a good analysis.

@bradk7653 Ай бұрын

You hypothetical situation is not even possible, you assumed a SS benefit of 50k, with someone claiming SS at 67 the max they could get would be a little under 46k, and very few people actually get the max. Your example would be much more realistic if you had presented a SS amount of 35k or 40k.

@sophoswealthmanagement Ай бұрын

You are correct it's higher than the theoretical max someone at 65 could get! I wanted to make it a simple example and exclude other sources of income and don't see total income of only 35-40 that often so I went with a higher number for illustration purposes. I just didn't want to go too into the weeds with interest, dividends, capital gains, pensions, etc..

@kerrybyers257 Ай бұрын

No need to explain. “Let’s pretend” should have been enough to follow the story’s main point for most viewers. There will always be folks without imagination.