The Earliest MOMENT You Hit Financial Freedom | Survival Threshold
ฝัง
- เผยแพร่เมื่อ 5 ก.ค. 2024
- 00:00 Intro
00:24 Retirement Rules - Fidelity & Rule of 4%
02:20 Die With Zero
03:49 Survival Threshold
04:43 Example - Traditional Retirement
06:53 Example - Early Retirement
07:54 The Goal
Some of my favorite books: amzn.to/3KF3tlr
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Disclaimer: Please note that this video is made for entertainment purposes only and not to be taken as financial advice. Always make sure to do your own research.
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Thanks for watching, I appreciate you!
I'm a father of two who bought a house last year. For me, it was a major turning point! In addition to feeling the effects of the economic downturn, I'm lucky enough to enjoy a respectable monthly income from wise investments that I've made. I have therefore meticulously prepared for my retirement following my children's graduation from college.
Wow, interesting indeed! Currently I'm in need of investment ideas or tips. Earlier this year I hesitated and failed to take any action until now. However, I'm determined to try something new as I am very open to various investment ideas . I want to be retired in my forties or fifties. I really wish I can achieve what you have achieved and I believe it will happen
It is essential to comprehend the complexities of investing. Having a trustworthy support system, such as a financial adviser, who can advise you is crucial, especially when choosing assets.
Thanks for the advice but it's hard to get a trustworthy financial professional around here. See what you have accomplished I would like to know your specialist.
I operate with (Alex martin tarlor) an investment specialist who partners with a licensed wealth management firm.
You can do a search of him on net and reach out directly to him for more info
3:10 Well-rounded information is worth a few hurt feelings, especially for something this important.
I want the last check, I write to bounce.😂
Looks like 50k subs is coming soon!!! I'm cheering for you.
I had to go back and watch your video from a year ago with your review of the book. Glad you took a minute to compose yourself, but you did a nice job summarizing your overall thoughts within the last minute or so of the video. Regarding this current video, like you said, the big X Factor is trying to figure out when you would pass on. I just wouldn't know how to plan around that with all the variability. I think there is something to be said though for sharing more with your heirs while you are alive versus waiting until you are gone. I think the answer might lie somewhere in between such that you share more now, but still leaving a cushion for yourself until you pass.
Personally, I use the 4% rule without factoring social security and came up with just shy of 2 million as my target number. Based on my current savings rate and expected market returns I'll likely hit that number in my late 40's or early 50's. My expenses are going to hit the floor though since my children will be out of the house and the house will be paid off, so I really dont think I will need that much money. My mortgage plus my child rearing costs plus my retirement contributions comes out to about 60% of my gross income. Also since I have roth assets my taxes will be lower in retirement as well. I'm pretty sure I'll die holding investments, but I dont care. Id rather die with investments than not die when I was 'supposed to' and have nothing left to spend!
Loved the book Die With Zero. Great book that balances saving money and maximizing total life enjoyment.
Thanks Erin! This is a topic Iʻm really interested in and trying to wrap my head around since I’d like to retire early but could live to be 100 like both my grandmothers. It’s good to hear different perspectives. I hope inflation doesn’t ruin my plans…
Thank you for showing now the amounts changes when you change the assumptions
Fantastic video. Thank you!
Haha right, life expectancy..but final years in a nursing home for a few years vs dropping dead from a heart attack at home is a vastly different cost model..:)
I'll stop off at the pharmacy on the way to the nursing home - zzzzzzzzzz. Night, night!
Less regulation in the US if you stop off at the gun store!@@hogroamer260
Hi Erin. Newly subscribed viewer here. Thank you for making something complicated a litter easier to understand.
You are so welcome! 🙏 welcome to the channel!!
I dread lack of control at very old age and extremely high medical expenses. If only we can choose precisely when we die …
That's me. And kudos to you for being mentioned. I'll put that on the list of books to consume. But I think I am of the same mindset as the author of that book.
Funny, I am in the 1/3 of people where my assets are increasing in retirement. Now starting my 7th year and it continues to increase. Why I did 8 cruises in the past 12 months. I can do it so why not!
Things sure get interesting when you're talking about operationalizing Die With Zero. Nailing down your time of death sounds pretty hard to do. It seems as the years go by, life expectancy keeps rising. So the final part of the equation, mulitply by 0.7, seems like it might creep up to 0.75 or 0.8 over time, and not sure if that time is now, in five years, or ten years. IF the goal of retirement is to enjoy it without worrying about running out of money, then wouldn't it be easier just to spend more and give lots to charity nearer to the end, when it's easier to ballpark your expiry date as you get closer? Trying to estimate all of this using a straight line formula (constant spending) seems kind of tough over 30+ years... Almost forgot again, thx for another excellent video.
Great content Erin!
The 401k calculator built into my work's retirement plan is soooo weird. The numbers all looked suspiciously low considering the assumed inflation rates and expected returns, so when I had a meeting with them and asked, they said that it was working in today's dollars rather than in dollars at retirement age. They said they use to not do this, and kept getting called out by younger clients saying that the numbers were impossibly high to meet, so instead they use the assumed inflation rate as a negative on the investment balance to give retirement numbers that clients could relate with better. It has no effect on how much clients had to save, but they got a lot fewer complaints about it.
Point being, talk with your retirement account company. I'm sure this is all spelled out in the fine print somewhere, but a 10 minute conversation made it so much easier to understand what their tool was attempting to do, which made it much more useful when comparing to my own projections.
Erin, Maybe it would be helpful if you demonstrated the use software with a Monte Carlo calculation. I know Fidelity has this tool, but I am sure that there are many others. Thank you for the great videos.
The thought of dying with zero is absolutely terrifying to me.
I appreciate all the formulas for what they are. However, I am just working to ensure that I can cover my expenses ( I know my # ) and then have a cushion that allows for choices in retirement. I suspect that just like over the past several years, my interests will continue to evolve in retirement and I want to be able to explore them without constraint. This means having a cushion that can absorb travel, hobbies, and other interests while still making sure all my base expenses are fully covered without concern.
I am still trying to figure out what "financial freedom" means. For a long time, I felt we had enough money to do what we wanted and buy what we needed. We live a simple life. The home is paid off, and we have income property. We have enough to live out the remainder of our lives in relative comfort, and we are pretty content. Is that financial freedom?
3:27 I can see it both ways; however, I feel that I'm inclined to leave little to my kids. The studies about second and third generation wealth evaporating says something about money earned being valued more, and more likely to be used wisely. One of the first gifts to mankind was work. there must be something more to it then just a way to keep us busy.
I felt like I reached financial freedom/independence long before I actually achieved a net worth of $1 million. I had a job, was getting good money at that job and the only debt I had was the mortgage on the house. I would always pay off my credit card at the end of every month too, which I've always tried to do since getting my very first one. Provided you have the right mindset about finances, you may feel free, like I did, long before you actually are because you know your good habits will allow you to succeed.
❤
Yeah, I felt pretty good at a "lean FIRE" number (~$500k). And really, even at $100k I felt pretty comfy, since that was hypothetically enough to cover multiple years of unemployment, which is pretty nice when you haven't even been working for that long after leaving college. This mostly manifested as me not doing any unpaid overtime (as a salaried person). Compared to coworkers, I was pretty aggressive about maintaining the work/life balance that I desired.
I'm still aiming for $1 million, but now I'm taking my time with part time work because I have enough and I don't really feel like working that hard anymore.
Financial freedom is defined as when you don't need a job to maintain the lifestyle you want. You said you have a job. Nothing wrong with working as long as you want - particularly if you enjoy your job. But you are not financially free unless you are able to live comfortably without factoring your income from your job.
A glaring omission here is that retirees need to work on drawing down retirement accounts (in order to make use of it) and also converting their overall portfolio to more liquid assets, such as money in the bank accounts as they age. If you are fully invested or overweight in stocks, then it may be illiquid if you’re not willing to sell stocks with substantial unrealized losses or substantial unrealized gains. Without liquid assets (or being willing to either take huge losses or pay high taxes on huge gainers) then an investment account is abstract and not usable money.
If you save a significant percentage of your income, your retirement calculation should not be based on you current income. Otherwise you would have to save more for retirement every time you get a raise. It should be based on what you actually expect to spend in retirement when your kids are grown, the house is paid off or sold, and you do not save money for retirement anymore. In my case that is about half of my current income.
No one ever says it should be based on income. It should always be based on expenses (which hopefully are at least 15-20% lower than income). If you think you can manage on half of your current expenses, you are perhaps not thinking of significantly higher Healthcare expenses when you are older. You are also not thinking of a few retirement years initially when you travel a lot.
You couldn’t have said it better. 37yrs into my career my income has risen to 90% more than I need to live on. And having zero debt I feel reaching that magic 7 figure number should be more than adequate.
We are only taking 80% of the interest our Annuities make monthly that puts us at about 92 K a year with S.S. The risk is what will the rates be in in a few years . So we build up the Annuities a bit in case they go down , We also laddered the maturity dates on all 5 ..
Remember, you can immediately dismiss any source that uses your income as a proxy for your future needs. Income cannot in any way be used as a predictor of spending. As soon as anyone talks about how much I need to save based on how much I earn, I walk out the door. They obviously don't have a clue what they're talking about. The only way to have any idea how much you're going to need or how much you're going to spend, is to look at spending habits. Now current spending is not necessarily reflective of future spending, but you can use usually make estimates to see how much you're spending will likely increase once you're out of the workforce. Whereas no such adjustments can be made to income to have any meaningful usefulness.
I ran the numbers on my “survival threshold” and I was amazed that they correlated well with those I got from my Schwab Preferred Client team. I waited until I was 72 to file for Social Security and I have a 25-year military retirement as well. Since I worked until I was 74 it appears I have comfortably over-saved for retirement even considering our current economic state. I really like your channel, nice job.
Thank you 🙏 and thank you for your service!
You left 2 yrs of social security on the table. One’s payment does not increase after 70.
First comment! as usual, great content. 🤑
If you continue to save and invest when you are retired, it is very difficult to run out of money. If you are collecting SS, this is not hard to do if you have decent assets. About $1 million invested in stocks and bonds could yield 4-5% in dividends and interest of, say, $45,000. If you get $30K in SS and take $30K from you investment returns, you can live a decent life and still save $15K a year. With capital gains on your stocks, you will save even more. This adds up over a 30-year retirement.
My goal in retirement is to not ever worry about money and be able to help out family if they need it. If I die early and leave money to my family, I'm perfectly okay with that. The idea of being on a strict budget in retirement sounds awful to me.
It's great!!! I paid off my son-in-law's truck for Christmas, 2 years early.
Would like to see video on RMD'S. Please
I love the concept of die with zero, unfortunately it's simply not possible. The issue is that without any idea what the future markets will do, you never know if it is safe to take out a larger amount now. By the time I know that I'm going to have lots of money left over, I'll be too old to enjoy spending it. It's easy to see the problem if you throw a numbers into a calculator that shows historic returns, or Monte Carlo simulations. The positive scenarios end up looking logarithmic where they really take off 30 years in, but the negative scenarios can also take off then. And without waiting that 30 years, you'll never know which one you're in.
Life expectancy, early/late retirement didn't play into my calculation as my critical mass was calculated so as to maintain and actually grow the principle over my lifetime. Life expectancy played into my decision on when to collect Social Security. Social Security covers my expenses now, but I will have an even greater cushion when I collect it at 67 or 70. I will be leaving a legacy so not concerned with spending down to zero.
I knew of Bill Perkins from watching high stakes poker and read his book because I loved his table personality. I was not disappointed and have recommended it to many people since. Curious to know what you found so off-putting.
"Some of my issues" -- Erin
Spend more now when you expect to earn more down the road....BOOOM !!! Erin's head just exploded on this part of the book. LMAO
I saved up a portfolio with budgeting to live on less and invest the rest. Why would I change now that I am retired? My dividends are more than I need, so it will be the rare event when I decrease instead of increase my principle.
I just paused the video. Calculated my survival rate and it's the exact amount I have in cash investments (excluding house and car)!
But that's not how you are going to lose all your money. That will happen with healthcare costs and having to pay huge deductibles. The older you get, the higher your premium.
One needs to define financial freedom. Financial freedom to me is FU money, although not JL Collins' definition of FU money, but Gordon Gekko's basic definition in 1987 being $50m-$100m liquid, "rich enough to have your own jet. Rich enough not to waste time," which today is $135m-$271m. I would weigh not wasting time over owning a jet, though, especially today where you can charter private or membership private. I don't think $135m-$271m is actually FU money today, because that seems too low for me. $1bn is truly FU money.
Good perspective. I have a $70k pension and will get social security, probably at 67. I am only 45 and when I use the 4% rule, I normally try to use 30-40k per year, which is what I would like to spend in addition to my pension. I have 1ml in 457/401k so I feel that I am good to retire now, but the long time horizon is a bit scary. But I know SS will be there to supplement in 22 years, which will probably make it all work fine. Thanks for the video and looking at different ways to compute it.
You’re saying you could retire right now at 45 years old and get a $70k pension? That’s nice.
My circumstances are somewhat similar with a shorter time horizon. You should be fine with SS eligibility in 22 years with your financial situation. I'm 56 and retiring in December with $1.3m in a 401K and a $72k pension for 5.5 years then my pension drops to $51k but is adjusted annually by a modest cost of living increase and I'm eligible for SS in 5.5 years. I'm extremely confident in my retirement financial future. Those who have a retirement pension and modest expenses almost always score high (%90+) on the Monte Carlo simulation.
@@brandon8531 yes, 70k, and I can take it now. I am very fortunate. I think I will pull the plug sometime between May 2024-Jan 2025. lots of life ahead!
I know it is a niche- but I would love to see this formula with a pension involved. As a military wife you have probably run the numbers a bit. Maybe as little as 20k a year?
I will do it :-)
What if you only need social security to pay your expenses?
"Maintain your lifestyle".Well,I think if you made sacrifices to build wealth thru out the years,You should also be prepared,if in doubt,to make a few during your retirement years.I think lifestyles completely change for a lot of people in retirement years.The spending just seems to be less and less the older you get,from the average working class people I know.I'm talking everyday,Average people,not,people that are loaded.
I knew a 30yr woman that insisted she did not Want to live past 65! We told her that will change as she nears 60? I know 2 older women with Higb Incomes, they have No Savings and insist they will never retire and work until they die? Whatever... ?
I think working until you die is going to become more normal, not just cause lots don't have a choice, but many who do will want to because it gives their life purpose. Even still, they will probably cut back on their hours at work.
It's s I much easier to be irresponsible and make those stupid claims.
I feel like actually aiming to "die with zero" would just lead to a lot of anxiety. Sure; you can potentially spend more, but are you really getting the benefit of that additional spending when you have a hard time sleeping, wondering if you're going to make it?
It's easy if you can live on Social Security. Then everything else is gravey. But, not my plan.
I had the same reaction as you to Die With Zero. I understand the calculus, but the vision, or the target to spend that money on is not something consistent with the lifestyle i have and want. (Outside of charitable giving)
I use to abide by the die broke mantra back in the day, but found it wasn't a very secure feeling.
Thanks for all your videos!
I was wondering if you might do a special edition video for military retirees, perhaps during Armed Services Week in May, or Veterans Day in November? Things like having a significant pension, great medical coverage, etc. and their effect on retirement, along with the pension’s effect on Social Security taxes, RMDs, planning for if the spouse outlives the retired military veteran, etc. all seem to adjust the calculus for retirement. Typically I just see traditional “TSP and pension” videos on this topic but there are a lot more differences to impact planning, as I listed above (most working in favor of the service member, but also planning for spouse outliving the service member also should be taken into account).
I love this idea! And quite honestly I didn’t know there was an Armed Services Week in May, I will aim to have the video up during that week!
@@ErinTalksMoney It is May 13-17 this year, I misnamed it (too early in the morning lol), Armed Forces Week, but thanks for taking this up!
Whenever you ask people about a savings goal to reach financial freedom, it takes the focus off the real goal which is cash flow. Your presumption is that 100% of cash flow must come from investments. And that would mean you only have one stream of income. People should strategize to create several different income streams.
Many calculators are for "dummies." I think anyone without a financial advisor should know Social Security, pensions, rental income, etc. Couny toward they money you will need in retirement.
Just convert everything into an annuity if you really want nothing left.
big brain take: there is no magic number. it's simply a mindset and level of comfort with managing money.
I listened to the audio book version of "Die with Zero" and the message was not for me. I would be in too much stress and unable to live a comfortable retirement knowing my money would eventually run out. Even though I have no kids or heirs to pass down my wealth, I would rather have the option to be outrageously generous and have something to look forward to in my "no-go" years. .
Have you seen people in their "no-go" years? It's often not pretty. I would NOT optimize for having a ton of money at the end-of-life stage. A ton of money doesn't do much good when you're struggling to walk without falling over.
For me, the main takeaway from Die with Zero was to be more aggressive about spending right now, since my prior path would have probably had me accumulating >$10M before expiring, and being completely unable to spend it down in a sane way. Instead, I'm taking the foot off of the gas early and taking advantage of the wealth I've built up by working less (and maybe not at all in the future) starting in my late 30s.
@@ordinaryhuman5645 My plan has a lot of money and peace of mind throughout
Do the calculators, like the 4% rule, take into consideration the tax implications of withdrawing money from retirement accounts? For example, taxes are owed when withdrawing from a traditional IRA
No, they do not. How can they, not knowing your individual tax situation (what other income you're making, where you live and what the tax laws are there, etc.)
No, they do not. How can they, not knowing your individual tax situation (what type of income(s) you make determines tax rate, where you live and what the tax laws are there, etc.)
Makes sense. They should add a disclaimer though. Say you need $100k of income and it's going to be taxed at 15%. You'd need to withdraw ~$118k to have $100k after taxes
I've not read "Die with 0", but it seems to me to be a rather negative way of thinking. It almost seems to be coming from a scarcity mindset, or YOLO, or short sightedness. It also assumes your medical care costs are going to remain the same, with nothing in retirement savings to improve your quality of life in your final years.
"Dying with zero" sounds fine on the surface because there isn't even a next generation in my immediate family. We don't have kids or any nieces or nephews. So legacy planning isn't a factor. "Dying with zero" still sounds pretty risky though...I mean it's easy to miss the mark...
I don’t think anyone has ever seen a hearse pulling a U-Haul.
Maybe my daughter with her inheritance.
Funny about the Die With Zero guys, that video was one of my favorites, and I've shared it with family members. These thresholds and formulae always make me raise my eyebrow, because it assumes you are going to spend what you save. I still don't understand why people don't just do dividends and spend that, and never touch their principle. I retired with 900k invested, 300k house, no debt, and I make 60k a year from dividends before penalties and taxes. my principle grows, my income increases with divvy increases, and I plan to sell my home and put that in divvies to rent all around the world starting late next year (that's when the last kid leaves). I just wish more people would think outside the box because it benefits us all with different situations... I guess I just feel alone :P
Because trying to save up enough that you can live entirely off the dividends and never touch the principal means one of two things. Either you have to save up massively more money, or you have to live incredibly frugally. Neither is ideal. When you saved up all that money, unless you have a specific plan for it at end of life, it's a huge waste not to spend it. You can pretty much double your spending if you're willing to eat into the principal versus if you insist on only touching dividends. Also, looking to the many videos and articles about the complete irrelevance of dividends. Dividend investing in itself doesn't make any sense, only total return actually matters.
@Green__one Or both. When you retire early, you can roll your 401k to an IRA, and even a modest 500k IRA will net you 3k a month before tax and penalties (and there are ways to avoid the penalty). Also, I'm not a baller. I prefer a smaller home since the kids have left, and finding a cheap part of the world (or U.S.) where the dollar does great (i.e. Italy right now) means I can sell my home and drop that into dividends. That plus savings nets me another 3k a month. 6k a month may be considered frugal, but die with zero folks never get enough sleep at night worrying about how they are going to pay off their debt, or how their loved ones will fare once they are gone. I guess it is a worldview/mindset thing in the end.
@@Green__one Also, I've done this for a year and dividends don't seem irrelevant to me.. total return only makes sense if you are going to sell, and I've had some excellent performing dividend stocks that I just let keep growing (why sell and pay tax on it?)
@@miked3340Total return only makes sense if you want to sell, correct, but the point is that NOT selling is an incredibly stupid and wasteful way to live. You are denying yourself a HUGE amount of potential income for absolutely no reason.
I personally disagree with the die with zero folks as well, but the "die with millions in the bank folks" like yourself don't seem to realize that you could actually be enjoying those millions along the way.
@@Green__one Well, I guess we can agree to disagree. The nice thing is, I can change my mind at any time, and I may as I get to the end of my life with RMDs. The Die With Zero folks (as you are not one of them) don't have that option. I'm just not a wasteful spender, try to be a good steward, and not interested in baller life. That doesn't make me incredibly stupid, I don't think, I have my hot tub, my condo, I play D&D twice a week (VERY cheap), have a car, but I hate driving, so I typically uber (I like being chauffeured), play my pub trivia, participate in hiking groups, and charity activities. I'll sometimes attend theater, but not movies (my tv/couch is way better) What else do I need? I don't smoke, drink, drugs, etc... I just got back from a 3.5 week trip to italy, and planning my next getaway. Please, enlighten me on what I should spend it on?
I definitely don't feel the need to spend all my money in retirement. I would be glad to leave some money for beneficiaries or charities. Also, I want to focus on serving poor and needy people in retirement rather than living a self centered life full of vacations and thrills.
You can balance the two. Also, a word of advice, if you are good at your volunteer work, they will try to keep piling on the respoisibilities, just like at your old job.
One thing I have noticed about most online calculators is that they don’t factor in your current savings rate. If you are investing 20+% of your earnings, to keep your same life style you need less than 80% of your current income in retirement. Joe Kuhn had some good videos on retiring early and is currently living it.
That is a great point ! My wife went back and calculated our last 3 years of what we spent from our bank account and credit card. We also increased that number by 10% just for any cash we may have spent and misc. spending.
you must be using the wrong online calculators. All the ones I've seen include your current balance, your current monthly/pp/annual savings with percent increase per year.
@@hanwagu9967 I’m not really sure what you are saying. On the input side yes they take it into account, but on the “how much you need” side they usually just use your yearly income.
Yes, saving has the benefit of both a good retirement tomorrow and less needed in retirement as well! Although I think it is still important to have a decent liquid savings in retirement to last at least a few months, so you can weather temporary dips in the market by just not withdrawing that month if needed (won’t avoid the large corrections but does help some to mitigate the sequence of returns risk).
@@mrsamtheman80 I would boost those liquid numbers up quite a bit if I was you. 2-3 years worth is where a lot of people believe you should be. When they say the “market recovers in 2 or 3 months” they are talking about from bear to bull market not peak to peak. The peak to peak market corrections take much longer sometimes up to a decade.
Erin we need to know what Married people Need as both My Wife and I have 401K.
Plan separately, just in case.
I am not a huge fan of Die with Zero book. But, it seems to be getting a lot of play on financial TH-cam channels.
4:15 A loose run at figuring this zero formula has me needing about $630k for a projected 20 years of retirement. I have our investments as hitting the $390 - $425k mark by retirement. Thijs does not include my pension which should be about $42k/year or SS for an additional $24k/year. These equal another $1.32M over that same 20 years and both should continue after our investments have been tapped out. I expect that by the end of 20 years one or both of us will be gone and also expect that $66k should be enough for the survivor to continue as we probably would do little traveling in our 80s and early 90s.
I figured that based on expenses, not income.... Hope that makes sense.
SHOCKING !! Erin is going to be more conservative then she needs to be. LOL
Bet ya didn’t see that plot twist coming 😉😂 I don’t want to run out of money!!! I’m darn conservative!!
@@ErinTalksMoneyWith your lifestyle, you don't need ANY retirement savings
You and your husband will be comfortable on Social Security and a pension.
One thing that is also over look a lot of those health care places that you live in. Most have it if you pay for 2 or 3 years. And out live your money. They let you live there for free
If our society continues, I do hope to leave money as a legacy that continues before a meteor or Jesus arrives.
Is that number based on gross income or take-home pay? 1 yr I Grossed $60K but only took home $31K? 20% went to Roth 403b then taxes ect? I am Single, no kids, I want my last check to bounce! 😂 all the anal ysts have me to live poor and have my IRA grow to over $1 Million! And Die Rich? No! I want to enjoy my Retirement?
Completely irrelevant. There is absolutely zero correlation between income and spending, and as such there is no point to looking at income when trying to figure out how much money you need for the future. The only thing that matters for how much money you need is how much you're going to spend, how much you made in the past doesn't have any bearing on it whatsoever.
The quickest way to know when a so-called financial professional knows nothing about retirement planning is when they spout numbers based on income instead of based on expenses. You know right away that they know nothing about their craft, and should be completely ignored. Just walk out the door.
Second