They would have to have absolutely no debts. On that income, ACA should be heavily subsidized. Taxes would be minimal. Would still need to find a way to keep some money on the side for large one time expenses.
It's interesting to note that the number one factor is how much you spend. In virtually every scenario, it comes down to expenses. That's why being debt free well before retirement is so important. There's an old adage. "It's not what you make, it's what you spend." That's true today. We all know that the scenarios are full of speculations/guesses/assumptions. There are no allowances for one-time expenses like a car or major dental work. You could spend 10 hours going over all those possibilities, and the answer really wouldn't change much. Divorce, health issues, and emergencies can all derail a plan IF you have very little room for error. I doubt many people would want to retire with so little certainty. This video gives people a baseline to use and really underscores the role that inflation plays in your finances. While I don't think inflation is as high on retirees, especially people over 75, it certainly can cause problems. Just look at a person who retired 25 years ago, in 1998. The average SS payment in 1998 was just over $500. That number has increased with COLAs , but it hasn't kept up with true inflation. Bottom line is to not depend too much on SS if you want to thrive in retirement. It should be a part of your plan, but don't expect it to give you a high-quality lifestyle
Something not made explicit is whether they only use income and never touch the principal. Here, at 67 they have 0. That means they spent down the entire 500k. If they had to go into principal that is a huge deal and should be underscored. One must realistically plan and decide whether and when to use principal. Touching principal before you receive a pension or SS is a serious decision. Moreover, planning to save a portion of the gains to build principal is perhaps a great way to address inflation.
Great video. I stumbled onto your channel a week ago and have really enjoyed your content. I've looked at the past 29 years of market returns for the SPY and ran my own model with buying ITM puts each year to avoid big drawdowns. I came up with an annual adjusted return of around 8%. You'll spend a fortune on puts and would obviously make out better in the long run if you were unhedged (around 12%), but you'd be glad you had protection in years like 2000-2002, 2008 and 2022. It's a strategy I'm considering in my early retirement to make my money last longer. I've been selling options for a while now but running the numbers has opened my eyes to buying protective puts.
Yeah, there are a lot of unknowns in this scenario. Is the mortgage paid off? If so, that makes a big difference. Does he have a pension and or a 401k along with the $500k cash? Health insurance? Medicare kicks in at 65. He may not need to reduce his expenses as much as you say, making it very plausible to retire.
I didn't see where you calculated inflation or investment returns, I used a calculator on vanguard and it said this amount would last 20 years with inflation and investment returns. Anybody can say $500k lasts ten years if you take $50k a year, that is simple math, 500÷10 is 50... but the investment grows with the market, that's the point of doing the calculation that we can't do in our heads and I thought the point of this video. Also, the stock market average return for the last 100 yrs is 10% and 7.3 after factoring in inflation
Drew, again I like your videos, but almost closed this one and was disappointed. How come you never address what types of accounts the $500k is in? Are they taxed/non-taxed? Are they Roth or brokerage? Wouldn’t this make a huge difference if they are taxed like a traditional or 401k?
Brandon, thanks for the comment. This is a shorter video and really just wanting to give an overall picture. The longer more in depth videos go through tax qualifications and investment allocations. Thanks for hanging in there!
With this small amount, I don't think it would make a lot of difference. With these simplistic scenarios, I just always assume that takes and insurance are included in the total expenses.
@@jdollar5852just for arguments sake.. in this example of 2500/ month (30000/year) income, that’d put you in a 12% tax bracket (non-marginal). That’s $3,600 in taxes for the year with NO other income in a taxable 401k account. As drew even says… he wants to be EXACT! 🤷♂️ (married filing jointly)
@@yourfinancialekgI DO like these real life examples you are depicting! 👍 I’ve subscribed and will continue to look for these. And give you a hard time along the way. 😂
I think the video is great and clearly shows a simplified example. My only comment is why not take more money out in the first 12 years since that's when spending and health to do more will be highest. In the example the income almost triples at 67? Maybe you've done this so the principal keeps earning interest to last longer?
You better move to South America or Eastern Europe….. I retired in Spain and I spend 92k last year…. I am not rich but I live comfortably, if I had to do it on 2,500 per month I would definitely have to move.
Can I retire at 64 with 750k, 42000 in expenses incl some travel working seasonal at 24k take home pay to age 71, assuming I kick the bucket pronounced bouquet, at 91? Heck Bob Barker kicked his bucket at 99. No one lives forever as his age was right. I am assuming a 7 pct inflation rate and SS at 67.
If SS is $2800 today, will it be the same in 12 yrs (as assumed here)? Also assume the $500k is in brokerage…at that level, seems much of it would be in a 401k and subject to taxes..so is it really $500k post-tax?
You can retire with zero dollars. One has nothing to do with the other. I've been tretired for 7 years and haven't spent a dime of my retirement savings.
This plan seems doomed. Nobody that made enough to save that amount could live on 2500.😂 Maybe this fictitious person doesn't have a wife or a house or a car and he rides his bike or walks places from his rented room. Also, sequence of returns risk could easily crush this.
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This is good news for me. I have a little over 500,000. I'm 56 planning on retiring at 57. And I will have a pension of about 1300 a month.
They would have to have absolutely no debts. On that income, ACA should be heavily subsidized. Taxes would be minimal. Would still need to find a way to keep some money on the side for large one time expenses.
Fully agree
Yes!
It's interesting to note that the number one factor is how much you spend. In virtually every scenario, it comes down to expenses. That's why being debt free well before retirement is so important.
There's an old adage. "It's not what you make, it's what you spend." That's true today.
We all know that the scenarios are full of speculations/guesses/assumptions. There are no allowances for one-time expenses like a car or major dental work. You could spend 10 hours going over all those possibilities, and the answer really wouldn't change much.
Divorce, health issues, and emergencies can all derail a plan IF you have very little room for error.
I doubt many people would want to retire with so little certainty. This video gives people a baseline to use and really underscores the role that inflation plays in your finances. While I don't think inflation is as high on retirees, especially people over 75, it certainly can cause problems. Just look at a person who retired 25 years ago, in 1998. The average SS payment in 1998 was just over $500. That number has increased with COLAs , but it hasn't kept up with true inflation.
Bottom line is to not depend too much on SS if you want to thrive in retirement. It should be a part of your plan, but don't expect it to give you a high-quality lifestyle
Something not made explicit is whether they only use income and never touch the principal. Here, at 67 they have 0. That means they spent down the entire 500k. If they had to go into principal that is a huge deal and should be underscored. One must realistically plan and decide whether and when to use principal. Touching principal before you receive a pension or SS is a serious decision. Moreover, planning to save a portion of the gains to build principal is perhaps a great way to address inflation.
yes I was wondering about that as well. But his effective return is 3% = 15K/year. Pretty tough to live off that.
Great video. I stumbled onto your channel a week ago and have really enjoyed your content. I've looked at the past 29 years of market returns for the SPY and ran my own model with buying ITM puts each year to avoid big drawdowns. I came up with an annual adjusted return of around 8%. You'll spend a fortune on puts and would obviously make out better in the long run if you were unhedged (around 12%), but you'd be glad you had protection in years like 2000-2002, 2008 and 2022. It's a strategy I'm considering in my early retirement to make my money last longer. I've been selling options for a while now but running the numbers has opened my eyes to buying protective puts.
Thanks for watching and commenting!
Yeah, there are a lot of unknowns in this scenario. Is the mortgage paid off? If so, that makes a big difference. Does he have a pension and or a 401k along with the $500k cash? Health insurance? Medicare kicks in at 65. He may not need to reduce his expenses as much as you say, making it very plausible to retire.
No pension or other assets outside of 500k. Thanks for commenting!
My favorite video of yours
Thank you!
What "stock market average" since 1955 gets 6%? The S&P500 has averaged 10%+ in that timeframe.
The problem with any “average” in the market is that you can pick any time frame you want to prove your point.
I didn't see where you calculated inflation or investment returns, I used a calculator on vanguard and it said this amount would last 20 years with inflation and investment returns. Anybody can say $500k lasts ten years if you take $50k a year, that is simple math, 500÷10 is 50... but the investment grows with the market, that's the point of doing the calculation that we can't do in our heads and I thought the point of this video. Also, the stock market average return for the last 100 yrs is 10% and 7.3 after factoring in inflation
Terra, thanks for watching and commenting!
I hate using stock market “averages.” Who lives to be 100? You can pick any time frame to prove your point.
Drew, again I like your videos, but almost closed this one and was disappointed. How come you never address what types of accounts the $500k is in? Are they taxed/non-taxed? Are they Roth or brokerage? Wouldn’t this make a huge difference if they are taxed like a traditional or 401k?
Makes a huge difference!
Brandon, thanks for the comment. This is a shorter video and really just wanting to give an overall picture. The longer more in depth videos go through tax qualifications and investment allocations. Thanks for hanging in there!
With this small amount, I don't think it would make a lot of difference. With these simplistic scenarios, I just always assume that takes and insurance are included in the total expenses.
@@jdollar5852just for arguments sake.. in this example of 2500/ month (30000/year) income, that’d put you in a 12% tax bracket (non-marginal). That’s $3,600 in taxes for the year with NO other income in a taxable 401k account. As drew even says… he wants to be EXACT! 🤷♂️ (married filing jointly)
@@yourfinancialekgI DO like these real life examples you are depicting! 👍 I’ve subscribed and will continue to look for these. And give you a hard time along the way. 😂
I think the video is great and clearly shows a simplified example. My only comment is why not take more money out in the first 12 years since that's when spending and health to do more will be highest. In the example the income almost triples at 67? Maybe you've done this so the principal keeps earning interest to last longer?
You better move to South America or Eastern Europe….. I retired in Spain and I spend 92k last year…. I am not rich but I live comfortably, if I had to do it on 2,500 per month I would definitely have to move.
And that’s without a mortgage and no car payments other than insurances ..
Thanks for sharing!
Can I retire at 64 with 750k, 42000 in expenses incl some travel working seasonal at 24k take home pay to age 71, assuming I kick the bucket pronounced bouquet, at 91? Heck Bob Barker kicked his bucket at 99. No one lives forever as his age was right. I am assuming a 7 pct inflation rate and SS at 67.
7% inflation????
Do you really expect your expenses to double every 10 years .
@@sergiosantana4658 yes at current levels.. We are at 14.pct real inflation.
This all assumes your expenses continue to go up throughout retirement which statistically has been disproven.
Very true!
That is if their is no down years and they don’t need a new roof a furnace a car,……………………
True
Debt Free is the Key before you consider Retirement. Most people aren't going to be able to retire at 55, me thinks!
Debt freedom is huge!
Great video !! I mean he could retire at 55 on $2500 a month renting a cheap room, no debts, frugal on food, etc.
Thanks for watching!
Sound a miserable retirement to me
@@unknowndriver6652 for sure but that’s reality for millions of Americans
@dantheman6607 if you have 500k in savings ypu you aint renting a room
I would imagine this assumes that he has no mortage. It's paid in full
Was wondering if you factored in any penalties for early withdrawals from the investments prior to age 59.5?
I was assuming a rule of 55 which has no 10% penalty
If SS is $2800 today, will it be the same in 12 yrs (as assumed here)? Also assume the $500k is in brokerage…at that level, seems much of it would be in a 401k and subject to taxes..so is it really $500k post-tax?
You have to add a COLA of around 2% if you are adding an inflation rate. I always assume that taxes are included in expenses
Retire in Philippines. $2,500/mo is good enough to retire comfortably.
Overseas video coming soon!
6% is what they tell you but in reality, it's more like 3%.
dang. My mortgage is 2700.
True
Easily for me
I would love to retire to a foreign country but all my choices are pricey. Think Western Europe.
Very true
You can retire with zero dollars. One has nothing to do with the other. I've been tretired for 7 years and haven't spent a dime of my retirement savings.
what do you live off of?
TLDR - NO
This plan seems doomed. Nobody that made enough to save that amount could live on 2500.😂 Maybe this fictitious person doesn't have a wife or a house or a car and he rides his bike or walks places from his rented room. Also, sequence of returns risk could easily crush this.
Thanks for watching Bob!
I'm that person
It could have been gifted funds. No debt. Also has a 401k and a pension, which would mean more than 2500 a month. Cola is not factored in.
No. You cannot. Sorry.
Thanks!
@@yourfinancialekg you're welcome. I wish I had better news.