How Much Do You Need to Retire?
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- เผยแพร่เมื่อ 2 ธ.ค. 2021
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Today, we cover a method for calculating how much you'll need to save for retirement.
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This channel is for education purposes only and does not constitute financial advice - Richard is not responsible for investment actions taken by viewers. Please seek out a registered advisor if you require assistance (while Richard is a registered portfolio manager at WDS Investment Management, he does not provide advice through The Plain Bagel, which is not affiliated with his employer).
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Happy Friday everyone! The first 1,000 people to use this link will get a 1 month free trial of Skillshare: skl.sh/theplainbagel12211
Ohhhh, today is Friday. I forgot. I thought it was Tuesday.
@The Plain Bagel in secondary share market someone is there to buy ,due to that price is shoot up.company give money in the form of dividend. If they reinvest the share price go up. How? But hypothetically what if there is no demand when there is profit? It become similar to gold where someone is there to buy which create a demand,but assets is not productive. Because company is not provide dividend, in that case it come speculative. Could you please answer my question
That end of the video explanation was very useful! Well, now I need to find 1M$, KEKW
Ha, jokes on you. Someone told me all I need to do to retire is to take out $5,997 in credit card debt to complete their course 💸💯📈
Seems legit, where do I sign my social security number and grandmother's real hair color?
@@suprtroopr1028 rahhh, im pretty sure ull just need to put in ur grans hair colour😂
Duff is da man
@@cjhnsn20 haha thanks
@@basileldose1719 aiom
You know you're too into investing when you see living longer as a risk :D
LOL
Well said haha.
Well, if you've got food stores for 2 months. That's going to be just fine, if you're expecting to die of thirst in the next week. It's really not your greatest concern.
But if you've got no more pressing concerns, and are otherwise secure in your position... 2 months of food does seem like it's not going to be enough to get you through life.
This is really true. When I get friends or family asking me "what's the point of planning for retirement if we die tomorrow?" I told them if you die young then at least you will be free from financial obligations. The problem is IF you don't die young, you face a higher risk of living with illnesses (translating to medical bills) and the need to meet personal basic needs at the same time. It worries me if I have to struggle to live at that age.
guess it's time to be a sensible investor and lower this risk
Best finance channel on TH-cam and it’s not even close.
Great information that’s definitely needed. One comment is that I think you should use annual spending instead of annual income for the calculations. It doesn’t matter how much you earn it matters how much you spend. Plus it would get people thinking about their budgets. Thanks for the great content!
Yea my parents strategy was to have lots of kids to take care of them...
Same here. Then they were horrible and none of their kids want anything to do with them so now they're 50 without a dime of savings lmao
if you consistently practice going hungry and sleeping in the cold, circumstances can no longer scare or manipulate you
Ascetism at its best
That's worse than prison
Diogene
@@billvigus3719 No, being hungry, sleeping in the cold, getting shanked and sodomized would be worse than prison.
@@the_real_glabnurb uh, ok
Plain Bagel is the only channel I follow where the phrase "this is not financial advice" feels like it actually means something
Is that a compliment or insult?
@@r_s_p_t1096 Compliment I think
I would consider this as insult tbh
Depends on which channels this guy follows and how good Plain Bagel is compared to them
See 2 minutes 15 secs for context
@@r_s_p_t1096 seems like he means a lot of people say it in their videos with a wink wink, nudge nudge attitude, fully hoping that their audience will definitely do whatever they're saying. So when he says it, it's out of actually giving good advice and saying these are suggestions but if you really want professional advice, go to a licensed professional who can help you plan and manage an account i.e. a scam artist.
Wise words for everybody. I started planning many years ago and I should have started planning earlier. But I ended up with two pensions, social security is one of them, which are almost what I was making when I was working. On top of that I own my own house. I have no bills. Additionally I'm putting a little money aside. However, I see people my age who are also retired that are struggling. That's why taking this advice is so very important.
I simply don't expect to live until retirement. Maybe global warming or some war will finish me, considering my country history.
But I still watch these videos for fun.
Congratulations, I hope to end up in a secure financial position in 40 years too 😭👌🏻
@Octillionare okay, you got me. I should have said no mortgage. Guess I have to get up pretty early in the morning to pull a fast one on you. Lol
A flight to Switzerland and euthanasia treatment only costs about £6,000 I've already met my retirement goals
Some other guys just needs a rope. Even more economical.
Great episode Richard. It is a complex topic for anyone at any age and you provide a well structured explanation to get started. I enjoy your old school videos the most and this definitely felt like a throw back to your old school days.
That oldschool Bagel hits different - the hiphop beat in the background and straight shooting info aged like wine 🍷 no wonder channel growth has been significant!
this is awesome brother
The best thing you can do is live below your means, obtain employable skills, save up an emergency fund, and invest as much as possible in a low cost, broadly diversified index funds. I'm lucky enough to have obtained a job with a pension but I'm still trying to max his/her Roth IRAs and do 10% into our 403b. It's tough and we make sacrifices but it will be worth it in the end.
Something I have rarely seen discussed in the reduced income needs is the reduction in taxes and retirement contributions. In the USA, my salary is reduced by 7.8% for Social Security and Medicare. I won't pay those (or they will be a lot less) if I don't earn a salary in retirement. I also won't contribute to a 401k or IRA...All told, the 120K income example should be reduced by at least 10% right from the start, before including other income sources, likely reduced housing expenses, and costs of supporting children. It should be easy to get to 75%.
I would also like to add that once you are over 55 (might depend on state) you will get an extra exception on your property tax in addition to the homestead exception.
I have a Roth 401k at work plus Roth IRA and health savings account the majority of my retirement income will be tax free .
Great video.
Helle dear how are you doing
This is so helpful. It’s nice to have some ideas about how to calculate the amount that I need to put in my 401k.
You north americans have a huge advantage. You know you cannot rely on your government. Over here in Europe the most tricky part imho is to estimate how much one can live off government retirement in 2060. It is simply impossible to gage
How is that an advantage?
It makes planning easier. I may be able to live reasonable without investing for retirement or barely surviving. Planning for the pessimist case, this means I will save way too much while I am young and die rich. Planning for the optimistic case may cause me end up in poverty.
In NA the two cases are much closer togethe
Lol it's funny you think it's better that the best of outcome is as bad as the worst outcome in Europe
I think you do not understand. I now pay a hefty 20% of my salary towards a retirement system that I do not have any clue whether it will pay me enough in 35 years. Investing the same amount myself, I could do a lot better. Even considering we do not have tax advantaged retirement accounts
@@foobar9220 yikes
Plain Bagel talking about being able to retire. What a kidder. Next he'll be saying we can buy a house at some point in our life.
lol
Retired at 55 on an investment “pension”, living now in Spain, ex U.K., in 12 years the state pension kicks in at 10k each, investment income is based on a 750k portfolio drawing down 7% house already paid for
Love how "personal" this personal finance video is! So many TH-camrs present a "1 size fits all approach," but as always you present the more nuanced and important view that retirement really depends on your situation, goals, family, and so many more factors. No clickbait, no surprised faces, just pure quality information! Please keep being you!
I do not know why I got completely different numbers for the example plugged into the computer, PV = 3,451,652 after plugging in 1,300 for N, 2,45 % for I /Y, 7,500 for PMT and 0 for FV? Also I do not know why he uses this calculator not the specific one for the retirement (to which there is a link on the page as well) 🤔Thank you for the great video.
I think it is most important is to understand what your expenditures are today. If you plan on having loans in retirement, then so be it, if not, then that can be removed.
Understanding what you are spending today, and then assuming you will have the same spending in retirement, at least the first 10 years.
Whatever this number is you should have 10x when your retire. This video says 12x, and so be it.
I use this method as it is easy to compute. Not understanding what you are spending today, will give you no insight into what you need when you retire.
After you understand what you are spending today, have it under control, and put some away for retirement, then, and only then, is it time to talk to a professional to do all the fancy work.
Thanks for the video, I’m learning to become a CFP in Canada found this video helpful.
Great video. I'm also Canadian and get thrown off by your pronounciation of Nest EGG. Is that an Ontario thing?
For me I don't really need that much to retire.
Depends on how much does a good rope cost in the hardware store.
Yikes!
good idea
when house market takes 20% in a year, and the s&p500 takes 30%, can we still say the inflation is around 2%???
Keep investing. A 30% crash a year from now would probably bring it back to around todays levels.
It depends on what time frame you use.
Over 100 years it's around 4%
@@juliantheapostate8295 we'll all be dead in 100 years
Asset prices aren't included in CPI (inflation) calculations. This is why you should do your best to purchase and pay off your home before you retire so that you have control over your housing cost.
Depending on where you out the stress in the sentence, the video's title could have very different connotations.
For anyone who's young and feeling like this is too big and too far off to meaningfully plan for, the best thing you can do is make a goal to max out your TFSA (for Canadians) every year. That works out to $500 per month from the age of 18.
Don't sweat it if you can't do it, or if you take a few years out when money is tight. But try to stretch to make it, and then leave it alone. You can even set up automatic deductions from your bank account every paycheque, and then automatic investment into something simple and low cost (funds like VEQT or XEQT). Don't chase fads.
As you make more money later on, try to increase your saving/investments, whether that's RRSPs, purchasing a home, or something else. Just regular savings and investments from an early age will put you in a good spot when you get closer to retirement and can better imagine what you'll need. If you put that off, you'll have to save more later on to make up for the little you didn't save when you were younger. The longer your money has to grow, the more you'll have when you retire. It's also less risky than trying to save a lot quickly when you're older.
Everyone needs to understand how compounding returns work that really long time is A GOOD THING!
If you took a single penny and doubled it everyday, by day 30, you would have $5,368,709.12. Real returns are less but it illustrates how something tiny becomes HUGE.
@@YKSGuy 100% daily return is quite the challenge though XD
Just kidding. I think you don't really appreciate the power of compounding until you actually start investing, and even then (in my case not a very long time) it may still not be so evident. Picking any CAGR calculator and comparing 30 to 40 years end values is mind blowing (all other variables equal and in line with historical averages).
Water is also wet and fire is hot 🙃
There's a reason why life expectancy retirement assumptions are higher than the average age: Average life expectancy is most commonly references the average life expectancy at birth. This is not the same as the average life expectancy given that someone reaches retirement age, which is much higher. Applying the average life expectancy at birth to retirees would lead to grossly underfunded retirements for most people.
Interesting there was i expecting him to talk about shifting your stocks to an annuity. Is this something people do in North America?
67 as an age of retirement? Life is way too short for that. Life expectancies are dropping quickly in the US. How many years of quality life are you gonna have if you retire at 67? Any? Furthermore, inflation is going through the roof, and the pressing need to face significant existential challenges in the coming century, such as climate change and resource scarcity, will surely increase tax burden for coming generations. Social security? Probably gone in a few decades. Basically what I'm saying is, don't expect this problem to solve itself on it's own. I think we should all be extremely proactive about trying to retire ASAP, otherwise we will likely retire when we're dead.
Life expectancy in the US is mostly dropping due to drug related deaths, which occur in younger cohorts and so have a disproportionate impact on the final figure. Obviously, that's awful, but if you personally don't have a problem with drug addiction, then you are still likely to live into your 80s.
It really depends on where you want to live, what your lifestyle is at retirement, tax considerations, children, no hard fast rule. Awesome video.
I am 38 and I can't tell you how much I wish I started earlier. Now I am playing catch up rapidly. Doing the FIRE movement, making over 100k a year but living like a broke college student on a bare bones rock bottom budget. It really works well and investing in good ETF stocks maxing out TFSA (If you're Canadian) is the way to go. Working from home the last 2 years has saved me a ton of money. I feel these last 2 years have made up more than a decade of doing nothing. I regret it but now I want to retire asap.
To all you younger ones out there: Start asap, you will be happy you did in years time.
what do you do for work?
How does this affect your personal life, family etc?
@@carbine5421 I am a software dev
@@maximedekeyser5238 Easy to adjust. Once you make radical changes and cut out all the things that are non essential you just adapt. I think of it as once I reach an end goal then you can take your foot off the gas. Had I started in my 20s I wouldn't be in this position so it's my warning to all the younger ones.
@@jacked6 And how does your wife/kids react to these changes?
All I know is The Plain Bagel's kids are set for life!
Yes, new Plain Bagel Video :)
good
I don't plan to "retire". Financially, I believe it's better to plan for living eternally, but working less. I view it as incorporating my retirement into my young age and not working my ass off. Of course I'm still saving money, but it's just to afford more and more "quality time" as I get older. I'll use CPP and OAS (if eligible) to afford to work even less at retirement. I don't like the idea of doing a very stressful job in exchange for a high salary, because that high salary will never rejuvenate my organs. I firmly believe that if you take it easy but keep working indefinitely, you're maximising your life expectancy and your enjoyment of life.
Aaaahhhh... "Let's assume inflation is 2%."
We were so young. So foolish. How could we have known?
I’m factoring 3.5%, what do you think the real number is for say the last 40 years?
This is a good wake-up call for young people to start early. Thanks Richard ♥️
Pensions, social security LMAO , first time Plain Bagel made me laugh.
What was funny about that?
@@ZTheMoki that they will exist when we hit retirement age in any meaningful way.
@@St34mPunkPrivateer Agreed - people need private retirement plans
Right, I had a good laugh when PB joked that pension plans still exist.
@@St34mPunkPrivateer they will exist when we retire.
Hey could you expain CDR's (Canadian depository receipts)? They are now offering a few american listed companies on the NEO exchange in Canada. It would be great to hear your opinion on those. Thanks for all the great content!
All my money is in the market... 99% after bills. I lost over $30,000 this year...
I'm guessing that you are trying to pick winners and losers in the market. Losing lots of money is very consistent with that, my invested money over the same time period has gone up nearly 20% this year. I didn't try to pick winners or losers, I invest in the whole market through broad-based ETFs.
@@Green__one followed mama cathy... so sad
Stop following scam artists. Buy low fee Vanguard ETFs like VTSAX, VTI, or VT. By getting the average market return you'll end up with way above average results. 80% of actively managed mutual funds underperform the market BEFORE fees, so even the so called "experts" are shit at picking at stocks
if you're trying to pick stocks follow graham's advice, read the intelligent investor, understand the ways to pick undervalued stocks within the book, and stick with a sound strategy throughout your investment career, it involves a lot more work, however if done right you will beat the market, if you can't do that (the work part) then just stick with holding a diversified index fund forever, getting an average market return is better than getting nothing at all. also avoid meme stocks
Beautiful video. I have studied retirement planning extensively and approve :)
These numbers often don’t seem relevant to me. For eg I sink every spare dollar onto my mortgage. As a result, my ‘lifestyle’ is extremely modest. When the mortgage is cleared in a couple of years, should I assume I’ll start blowing my money and thus need to save more for retirement to maintain my new habit ? Or should I assume I’ll continue living as is my current habit and thus scale down my target for retirement?
Rule of thumb is save 15% for retirement. If you're putting all savings to mortgage after you've paid it off work on saving the 15% (higher is better). Retirement is about ensuring you have enough to cover expenses and medical costs and some big items (new car, new roof, etc.) for the next 40 years.
If your mortgage has a low interest rate, it could act to hedge against inflation risks as it will allow you to buy real assets with the money you're throwing at it now.
I deliberately don't pay mine down more than the minimum. If interest rates rise, I'll just clear it off with a lump of cash. Think about it
@@billvigus3719 Bill I think if you divide your age by 2 that gives a better rule of thumb.
So a 30 year old puts away 15%, a 40 year old, 20%
@@juliantheapostate8295 this is something I have thought about but in my job, I see many people who have paid the minimum on their mortgage in order to invest in other property. It works great - until it doesn’t (often caused by job loss and unable to find new work fast enough) and they lose all of it with nothing to show for years of work. I think I fear that outcome more than I regret lost opportunity in investment.
@@juliantheapostate8295 and if you want to retire by 40 or 50 at the latest?
Two million dollars is the goal to stop working. For good.
Benjamin Franklin never retired...he worked into his 80's. I want to work until I can't.
I don't see the link to the calculator in the description. Help?
When the example is basically your life exactly, so you don't have to actually do the calculation on your own >>>>
I think your calculations focus too much on current salary and not spending rate.
Real title: "how much do you need to accept death?"
@The Plain Bagel in secondary share market someone is there to buy ,due to that price is shoot up.company give money in the form of dividend. If they reinvest the share price go up. How? But hypothetically what if there is no demand when there is profit? It become similar to gold where someone is there to buy which create a demand,but assets is not productive. Because company is not provide dividend, in that case it come speculative. Could you please answer my question. If there is buyer the price is going up . Company is not giving money in secondary market rather than dividend.even price will fall if the company is good
I get that knowing your salary is an easy number to find, and probably works for the average person, but it just seems that it would break down for people who save a lot or people who save nothing. It seems strange that just because I got a 20K promotion, that I now need all this extra retirement money, when I'm just saving and investing the difference from my previous salary.
Yep this is the absolutely the wrong way of calculating it. Always look at spending not income, the two are not at all related. Based on his version of calculating that promotion you talked about is a punishment not a gift. The worst part is, spending is not that hard to find. There are a few very easy ways, the easiest is usually to just look at the contribution slips for your savings/investment accounts. You'll be given those once a year at tax time anyway, subtract that from your net income (also calculated at tax time every year), and you know how much you spent. Ideally average it over a few years to deal with one-offs. Based on my numbers 80% of my pre-retirement income, would allow me to spend double what I do pre-retirement, sure I might like to travel, but I still don't think I need to double my pre-retirement spending.
A lot of people will fall for lifestyle inflation, those people do need it. It is a save way to see what you need, if you don't think it's accurate you could make more than one estimate.
The vast majority of people adjust their spending based on income. If they get a 20k raise, they'll spend 20k more. Much of our modern economy is predicated on this fact. For those people, they need to adjust their retirement spending to account for the fact they'll be spending more every year
I have seen so many videos in this topic, but this one was the best! Great work!
damn he really said 2% inflation 😭
It's very very simple! The more the better. Thats it.
@7:08, why isn't the real return simply 4.5 minus 2, or 2.5%? I've never seen that formula before (edit : nvm - I did a bit of googling, the equation is known as the Fisher Relation and it's a slightly more accurate version of the rule-of-thumb that I'm used to). Thanks, very educational !
I like how economists reinvented the wheel and now refer to a simple division operation as "Fisher Relation"
The video is just telling you that if you earn 4.5% return on investment and inflation is 2% then you really only have 2.5% REAL return on investment. You can change the numbers to whatever you feel is more realistic. But the REAL return of investment is the net amount after inflation.
@@toxic_narcissist . Nothing was reinvented. This is common sense. Read my other reply.
WIth 7% inflation where I live and no job at the moment, I think I'm gonna get rekt lol
Unemployment has practically never been lower...
I love that you call "living longer is a risk". What a depressing view of life ;)
Everything is a risk. Even taking a breath is a risk. *Looks on the news* Hmm. I might need to find a new, not-yet-political risk to start using...
@@SangoProductions213
How about just waking up from bed is a risk or even doing nothing is a risk…yeah nilaus’ right it IS depressing…lol *sighs*
the risk isn't being alive longer, it's running out of money and dying when you could have lived longer if you had more
How about a responsible view of life. Outliving your money is not a good thing.
Cringe
I'm just gonna comment on this background it's fire! Can I ask what it is? Just 2 different color back light?
Yep! With a simple white backdrop :) appreciate the positive feedback!
Not trying to be a pessimist here, but annual levels of inflation in the US and Europe are going to continue to be much higher than 2%
So long as you have market exposure, I don't think inflation would be too much of a problem? If the price of goods rise, the value of the company selling them should at least partially compensate the inflation. You could also invest in company selling products/services with non-elastic demand? I don't know the relation between company's valuations and inflation so I'm probably wrong.
@@democrrrracymanifest that's true for growth stocks, but how about value stocks? Their business don't change much with increased interest rates. They might have their value fall by a bit at the announcement of the increase, but I don't think they would loose out in the long term.
@@democrrrracymanifest but saving is discouraged during inflation, therefore wouldn't it be best to increase the interest rate during times of inflation? I know in reality its the opposite but I don't really get why.
Also, being diversified doesn't mean you have to hold growth equity, especially when talking about a retirement account. I'd rather have a mix of value stocks and energy company stock if I'm close to retiring, rather than taking the risk and getting tech stocks. That way you have market exposure, and limit the impact of inflation (especially with the energy companies) but dont get as affected by a recession or a general drop in the market.
@@democrrrracymanifest Sometimes I just wish I could buy some series I saving bonds, but there is nothing similar to it in Europe.
Thank you so much, Plain Bagel! I've been considering my investment strategy for after I graduate (loan free, mind you), and I've always been wary about the loose math I read from the FIRE movement. Now I can have a little more accuracy to my needs than the 4 percent rule.
Look into dividend growth investing. Can be done with etfs/mutual funds and or individual stocks. Changed my perspective on investing and the goal of FIRE. No selling of stocks involved
@@walnutinvesting689 Overall DivGro takes longer that's why is not so discussed in FIRE. Personally i prefer it too, if you manage to FIRE on dividends you still have the option of relying on the 4% rules should things not go as expected, you would still end up better, but takes more efforts that basic DCA into 1 ETF.
@@zampy15021993 yeah I mean you could live off dividends through etfs but it would require a lot to do it using a VOO or VIG. wouldn't get that super crazy dividend cagr. Or even just convert your hypothetical 1 million dollar voo portfolio into dividend stocks at that later point just before retirement. Just a thought.
@@walnutinvesting689 What the hell is FIRE??
@@MrSupernova111 financial independence retire early. Although I prefer the word freedom instead of retirement
1. Forecast medical expenses.
And it's gone.
That's why it's important to eat healthy and exercise now
@@billvigus3719 Thank god for eating healthy and exercising, made my genetic disease go away lol!
@@benbelair7381 what an ignorant statement. The leading cause of death in the US is heart disease. Diabetes Mellitus Type 2 is another significant cause. Most causes may have genetic factors that play some risk (various cancers) but environmental factors are more significant across all diseases regardless of genetics. If you learned or researched even on a rudimentary level you'd realize being healthy (exercise, diet, stress management) is the most significant factor to preventing disease, getting over a disease, and living longer. But sure, great comment 👍
@@billvigus3719 You good?
Why would you ever touch your principal? Why not just spend the dividends/reinvest the left overs from each payment?
if u get sick u re fucked up
Mark - many people don't think it's necessary to die with the same amount of money as when they started retirement. For them they'd rather draw their investments down which also means that they don't need as much in their retirement accounts as those who want to preserve principal.
If your portfolio yields 2% (like an S&P ETF) you would need roughly 2x the principle than the ones who 'erode' their portfolio
@@zampy15021993 When you are ready to retire, transition into funds/stocks that payout 5-10 percent…
Dividends are not magic. They come from your total returns. If your stock pays a dividend of 5%, it is no different from withdrawing 5% of your portfolio.
4.5% nominal return????? What????? What kind of portfolio only gets that? That's a pretty pessimistic base assumption, right? What's that based on? S&P 500 averages 10-12% and fixed income is 2-4%, no? Shouldn't even a really conservative 50/50 portfolio average 7%?
It will be from the 100 year Barclays Capital Gilt Equity study
I just realized that Richard is predicting he'll have a mustache at age 45.
Never enough when you need them
Lol 2.4% inflation...remember that. We'd all take that number but let's admit it seems pretty ridiculous if you have bought anything in the last 18 months.
Yeah but the market returned 30% in one year which is also ridiculous. Real return is what actually matters, generally is positive, but the 2000s where a pain.
Don't forget to max out your 401k contribution match. Guaranteed instant 100% investment returns don't come around too often.
Easy. For my country its 1 million on average.
Its kind of sad knowing you have to do all kinds of mental gymnastics and smart & conservative investments to secure your retirement. You would think that getting a pension should be enough lmao
These days, that is scads easier than when I was in my 20s. A good spreadsheet programs and/or a few simple programming languages these days makes doing simulations a snap compared to doing them 30 years ago (expensive, hard to use tools 30 years ago when I did my first serious retirement planning).
If only pensions were a more common thing like they used to be
@@treyshaffer They are just about.
Background music is annoying.
In this economy? 58 rounds of 12ga 00 buck and a cool mad max car.
so your telling im going to work till i die.
Love the straightforward answer to this. It's so true that without a goal, you can never score. It's incredibly important to sit down and figure out an estimate.
So how much ?
this is nothing compared to my master plan: living off of my children
Also, keep in mind that you have 35 years to reach that $1M goal, which if you live frugally and invest in index funds is actually not that farfetched.
What is farfetched is thinking that 1 mil is enough to retire in 35 years.
@@zdenek3010 It's not? What would you suggest then? 🤔
@@zdenek3010 that 1M is pre-inflation, so it's equivalent to 1M today.
1million today, at age 65, would be optimistic. 30 years from now, you better have 3 million, or a very good steady stream of income.
@@josephmaschak8652 That's a bit much, innit? 😅
I just calculated my current monthly net costs (including a bit of savings for e.g. medical bills, travelling etc), slightly reduced as I'm currently renting and can always move into my family home, and uplifted by inflation yearly until I retire, and then added up the retirement needs...not a nice picture, I'm around £1.1m :/
My retirement plan is eating pizza and drinking Coke until my heart gives out.
EXTREMELY DIFICULT retirement calculator. And there are so MANY OUT THERE THAT ARE SO MUCH BETTER. Damn man, couldn't you link to bankrate or something similar
I understand that the goal here is to present a a very high-level overview, but linking desired post-retirement income to income is fallacious. It should be linked to spending, which is not that hard to estimate with data most people watching this channel have even without tracking it directly (income - taxes - savings). Someone with $100K in post-tax income saving $50K per year does not need a bigger nest egg to retire than someone with $60 in post-tax income saving $10K per year. They'll just need less time to get to the same number.
well at leats you have some passive income and living way below your means
I thought the 4.5 percent return you used was after inflation, but then later in the video, you said it was before inflation. If that's the case, then most people can't retire because they will not be able to build a big enough nest egg with such a pessimistic return.
The 4.5% figure is the rate of return that you might expect of your investments in post retirement as you shift your savings from public equities for fixed income (bonds). Nothing to do with inflation.
@Supernova Even in retirement 4.5% return on investments is abysmal. 5% is conservative enough. And yes that .5% is huge. Maybe it depends on your country. In the US 10% return before retirement and a range of 5-8% in retirement is what's used.
@@ariefraiser140 . That's subjective as we can't predict the future with certainty and you choose the level of risk acceptable to you. But I side with the video on 4.5% rate of return in a post retirement environment - especially when you consider today's interest rates on fixed income. Shooting for 8%+ rate of return in a post retirement environment comes with a lot of risk. To each its own.
@Supernova It's actually not that subjective. There's been an entire study around the optimum amount of money to withdraw from your retirement portfolio without running out of money. This is where the 4 % rule comes from, and it uses a conservative 5% expected portfolio return. It is admittedly US base.
@@ariefraiser140 . I have a degree in finance. I don't use rule of thumbs to forecast cash flows or future value. If you think you can get an 8% rate of return during retirement then go for it. But no one is going to offer you a higher return without higher risk. When you see your portfolio get cut in half like it happened in 2008-2009 because you demand a higher return you'll be singing different tune. Good luck!
Ok w,not bad...
Bottom line no matter what you've saved it's not enough. I'm just trying to save enough so that I can live without starving when I can't work any more.
I need to retire very much.
The music is very distracting and makes it hard to concentrate on the words.
Would you consider making a video on different options investors can chose to do with there dividends and there implications. For example if an investor plans on reinvesting dividends should they do them the second they receive the distribution or should they use dividends to rebalance there portfolio. Maybe you could also talk about total return etfs and if maybe there a better option. I feel like this could be a cool video because something I was asking myself a lot when I started investing was what should I do with the dividends I was receiving
Check Ben Felix, he has a little more in dept videos on single topics including dividends, rent vs buy, etc. He's also CFA (i think) and usually cite sources and studies he uses.
I am not in any way affiliated with him, i just like his videos as much as these.
I think one easy correction you can do here is to not use the 70%-80% of your pre retirement net income, because that value only makes sense for certain people. For example if you are saving 40% of your income each month and still have no shortages, then you might as well, calculate with just 50%. Alternatively it's a good idea to do some book-keeping for about a year (or in general) to see what costs you have each day. That way you can do a detailed analysis on how much money you actually need (and in addition also find stuff which you might want to stop wasting money on, like realizing that smoking isn't just bad for your health but also bad for your money).
And then there are certain other things which might just destroy all these calculations and assumptions. I mean if you are already 60 years old, the video might be totally valid - just that now it's too late to do anything. If you are 30 however, and you assume that you might retire in 30 years, there is so much that can happen in these 30 years that a "normal" retirement at 60 seems rather unlikely to me. Medicine will keep improving. Sure, nothing big to expect in the next 5-10 years or so. But 30 years is such a long time, that it's very well possible that people get 120 by then, or don't die by age at all (check "Longevity escape velocity"). This also means that you might still be totally healthy and eager to work with 80, and it might also mean that these state funded programs will not pay until much later - or at all. This "at all" is especially true for countries where it's already on the horizon that the systems are collapsing (when the money is not invested but instead a younger generation is paying for the older, and due to demographic change there are not enough younger anymore).
So...it's always good to save money to have more freedom and options later on but I don't think you should expect assumptions like this to work out if the goal is like 20-30 years away.
... yeah this is uh.. depressing. :(
If you make a consistent long-term savings plan, reaching 1 million dollars in 30 to 40 years is not impossible. It will require living below your means, but the compounding interest will do most of the work for you.
The median of people retiring today have about $200k in retirement accounts. Most of them actually do retire comfortably. While it can seem unattainable to ever retire with millions, don't be depressed about it. Most retirees actually have far less and do just fine. Although Mr. Bagel is a good guy trying to help, he still is from an industry that typically benefits by encouraging people to invest more & from being worried about not having enough. Investing benefits us even more. My message is to not get hung up on the numbers and save & invest what you can.
@@Cyberspine I'm aware, I've done the math myself and living below your means for 40 years, never going out, never traveling, not having fun in life. Working for 40 years and living below your means forever means retirement is possible.
But it's depressing how you get there.
@@synapseeinherjar4031 That seems exaggerated to me. An annual deposit of 4,000 USD with an 8% return is enough to reach one million in 40 years. Depending on where you live, your retirement is also supplemented by a public or a private retirement plan, so you will likely not need to save that much.
One of the big numbers from my budget I always forget to subtract when calculating my monthly retirement needs is my current savings. That is a huge part of my current budget but it won’t factor in at all in retirement.
I did this at first too and was like... Oh God, this will be impossible!
Then I realized my mistake, and still hard, but waaaaaay easier! Also, if you have funds in a Roth or HSA then you may also have less taxes, so that's another expense that can potentially be lower.
Good point!
Love the Kerbal background music
I prefer without the music. It’s distracting.
450.000 $
Question, how about people who want to retire with enough money to work on passion projects that create money too, such as music or writing?
The thing I'd say on ideas like that is there's no guarantees passions will take off beyond just being a hobby. There's nothing wrong with pursuing your hobbies, but do so at your own peril if money is what you see out of it. Plus, doing a hobby as a job can harm your passion for it.
treat it as a bonus (which you can either invest or splurge whatever profits you make at your discretion). That way you do it because you want to, and not because you have to.
I still follow this example and think of a scenario where the only money I would have is my 401k if i retire at the age of 65.
Plus I have no intentions on retiring at 65 even if thats what im preparing for, since I still want to work as long as I can so i have something to motivate me.
In my end I would rather over prepare than under prepare since you never know what happens in the future.
If you fail to plan, you are planning to fail. Great video on a very important topic, Richard!
More than 7
Well that was depressing
Unfortunately you and numerous others always gloss over #3 which is how much you need in annual retirement income. It's a hard number to figure and often people watching this stuff are trying to figure it out as it is a base number that factors critically into all other calculations. But sites/videos just gloss over it and mention the 4%/25x rule while not actually talking about real world examples/studies that illustrated actual retirement income req'd. Getting a decent thumbsuck estimate of req'd annual retirement income is that absolute hardest part. And guidance on how to go about that is slim to none. Understandably because it is variable. However it's not as though we don't have generations of people we can poll to provide a better estimate.