For me it was a combination of portfolio balance, the Monte Carlo simulations, having no debt, and being sick of work. The last one was the one that initiated the analysis, the others are the ones that said "yes you can".
6:10 - I realize this was for illustration purposes, but at age 65, on Medicare, your healthcare expenses do not “go away”. They might drop by half if you are lucky. Or if you’re currently managing your 1040 income to get the ACA healthcare premium tax credit, your healthcare expenses might go UP dramatically.
Ours went up bc my husband’s union used to pay for his health insurance and now he has to pay Medicare part b premiums which aren’t free. He did get a Part D drug plan and they offered him a Medicare Advantage plan but he doesn’t know if he should get rid of it and go on a supplemental plan G. These premiums are never going down. When I go on Medicare then I will have to pay for part B premiums. Right now we pay $30 a month through husband’s union. It’s not going to be free. Everything keeps going up in price. P.S. my neighbor who is turning 65 is paying $1500 a month right now. We were only paying about $70 a month for 2 people. Health insurance is very expensive.
"this is me paying for higher healthcare expenses because I'm not yet 65. when I go to Medicare, those expenses will go away." true. Medicare itself will be an expense, but for the majority, it will be less than paying ACA. he never said healthcare expenses go away. and yes, for illustrative purposes.
I retired last year. I'd been planning it for five years, and part of my process was creating my own retirement spending spreadsheet. I incorporated various factors -- dynamic inflation and ROI, and progressive withdrawals -- based on an initial withdrawal amount and then RMDs from age 74 on. up to 100. Each time I've listened to you, I've opted to incorporate another small tweak to my methodology. Last time, I incorporated randomized ROI percentages; this time I've incorporated an initial 4% withdrawal until RMDs kick in. Since I have built-in randomization, I can repeatedly recalculate withdrawals and balances to simulate a sort of Monte Carlo effect. While not perfect, it gives me a better glimpse at my future situation than I would have had before I listened to you. It definitely reinforces my confidence that I'm on a good trajectory for the future. Thanks for the added boost of confidence.
Would you be willing to share your spreadsheet? I am creating my own and have a good start but could definitely use further insight and ideas to add to it.
Always appreciate the perspective, James. As an aside, Rithotz Wealth Management's Josh Brown (Ritholtz was recently named one of the top Wealth Management firms in the nation) gave you-James Canole-a shout out in his email newsletter. He said you were a TH-cam Ninja and crushed it in this format. I've gotta say that I agree. Keep up the good work!
Ooooh, the youtube "comment advertisement" for a financial advisor. Never use an advisor who is slimy enough to try and trick you into checking them out.
Ritholz, Josh Brown, Ben Carlson, etc - been following them for years. THEIR stamp of approval is huge. James, I hope you are growing a client base and doing well, you are really on point with your messaging and non-mystical approach.
Thank you, James. Excellent information as always. Retired early and initial withdrawal rate is higher for me until social security kicks in. Still need ongoing modeling to plan Roth conversions and best time to start S/S. I plan on checking each option every year as we go. As you say things change and it’s just a matter of having options to deal with the undesirable stuff as it happens. Thinking if things start to go badly (low returns/high inflation) to simply adjust things (spending) before the retirement death spiral can start. Good and continued planning can help avoid the worst from happening (in most situations).
Retirement shouldn’t be such a complicated and oftentimes confusing process. Unfortunately, we have a system where only those who are on top of EVERYTHING do the best. Even then, it’s no walk in the park trying to navigate through every facet of what’s supposed to be the happiest time of one’s life. It’s too bad that for many, retirement is ‘work.’
James, your informative videos have helped me understand and become more confident in my financial status as I look forward to retirement in the near future. Thanks!
The home as an asset - so many plans ignore it. For example, as a potential means of funding long term care, either by selling it if you are single, or downsizing/renting or reverse mortgaging it.
Great video. I have most of my expenses paid for and most of my expenses are discretionary. Variable distribution seem to have good guard rails. I'm doing 5% of my portfolio. If I fail, I cut back on expensese.
Thanks, worth noting that SS is best and cheapest longevity insurance, so plan to take it at 70. Also good for your spous typically and gives a bigger roll-over window. Secondly the sequence of return risk can be hedged with roll overs. If market drops 50%, you can roll over twice as much for the same tax. Cheers, Jef
Lots of other factors are involved that make the decision about when to claim social security really complicated. The biggest is the break even point, which addresses the “take less for a longer time verses taking more for a shorter period” issue . Health is another of many factors to consider, along with spouse earnings and age, pension potential, whether you are in debt, how many assets you have, etc. In addition, your kids get nothing from your social security when you die, but they inherit your remaining assets if you want them to. I have loved Devin Carroll’s you tube channel. He has taught me so much about this complex issue.
Adaptability to changing economic circumstances is hugely underestimated in standard retirement calculations. There is simply no scenario available that will leave me without excellent long term fall-back strategies in spite of being 100% invested with liquid assets in stocks. Have (in big terms) 1/3 annuities, 1/3 housing and 1/3 stocks. If I get wiped out in the market (very unlikely as I'm not a stock "gambler") I can easily fall back onto my annuities and just scale down my housing stock if I want cash on hand.
Thanks, James! Nicely explained… One question… is it valuable to re-do the Monty Carlo test every couple of years or so? If these past years have been a bull or a bear, your portfolio may have changed enough to move up your planned retirement date or push it back a few years…. How do you look at this and what would you recommend for tracking progress against your retirement readiness “date”?
I am frequently amazed talking with folks who just have no interest in putting in the work needed to plan their retirement. They would rather work several extra years than spend maybe a man-week or two to map out their expenses, assets, risk tolerance, and turn that into a good first cut plan. Tax optimization, and all those gory details can wait, but just figuring out your actual living expenses and throwing the 4% rule at it should be something people are doing for themselves by mid-career, but most just run screaming away from any sort of planning.
What if a retiree has a dividend portfolio and dividend is sufficient to retire on (along with SS etc) and div growth is more than inflation. What advice would you give to this client as withdrawal rate will not apply. Thanks
I played around and great to have such a tool although the inability to specify individuals with different timings (e.g, taking social security and different ages) is limiting.
An interesting thought crossed my mind while you were discussing sequence of returns. I often hear about having a few years of expenses out of the market. Normally the idea is to use this cash in the first few years of retirement so you don't have to worry about the market. But what if the first few years of retirement the market goes on a big run and you're account is growing like crazy. In that scenario, I would think that you would want to be taking money out as it's going up for expenses and then just leave your cash alone for when the market goes down. You could even pull a little extra cash to give you a bigger buffer for bear markets. It seems like that would be a way of insulating yourself from the sequence of returns risk, but maybe I'm missing something?
I also may be missing something but we retired in 2018, and have been making good returns. While watching our tax rates, started pulling money and putting in Treasury Bills and doing some Roth conversions. I'm not a wise or rich person but feel pretty good about current status. Also thanks for all the good information on these videos, appreciated!
From what I understand you are on track with your thinking. Google "bucket retirement strategy". You basically have enough liquid assets available to use during any market downturns. When the market goes back up, you replenish the "liquidity bucket".
That is part of my plan, keep a 3 year buffer in cash like (T-bills, CDs, MMF) assets. If the market is doing well pull out my withdrawal, if the market has a prolonged drop (greater than 1 yr), pull from cash. Not perfect but my mandatory withdrawals are low (< 2%).
That is exactly how it works. You are supposed to use the cash only when the market is down, and sell investments for expenses when the market is high. You would hold even more cash if you retire before Medicare to help keep your reportable income low to get subsidies for ACA health insurance, still the priority for a cash buffer is to be used in down markets.
When you work on something that only has the capacity to make you 5 dollars, it does not matter how much harder you work - the most you will make is 5 dollars.
Fortunately I have no debt, a great federal pension and will take SS at FRA and can afford higher risk been retired for 2 years and don’t plan on touching IRA/TSP other then Roth conversion
U kind of described the purpose of Annuities? Soc Sec, Pension and Annuity provide income floor you can not outlive? Even if portfolio is depleted you still have stable income Floor. Every month!
I don't think you have touched on this subject- If you can financially wait til age 70 to take the max Social Security, should you? If you take it earlier (what age?) then the money that you would have used from your savings (that social security benefit amount) is still growing while left in your 401.
Even with Medicare your retiree medical costs will likely be quite expensive. Premiums, drugs, supplements, out of pocket, maybe IRMAA etc . Could easily be thousands a year
Expensive, for who? Smokers, diabetics, beat bodies, sure. If Americans could just walk, quit smoking and eat a little less it would make a difference.
Yes, they do. Many TH-cam financial advisors scoff at them. I own a few as part of a diversified plan and was disheartened to find that they don’t have a great reputation among many advisors and also among people in the comments. THEN I read “Die with Zero” * and was relieved when Bill Perkins recommended having these in your portfolio. *highly recommend this book, btw
Step 1: Do you have $10M? Yes? Retire. No? Goto step 2. Step 2: Hire a financial advisor and ask him, yes or no, can I retire? Step 3: Did he say yes? Retire. Did he say no? Don't retire.
$1600 a month SSA and $50k saved as permanent emergency fund and absolutely ZERO debt and you can retire. You will be doing all free activities but you can stop working. What people like James never mention is this: They will not waste their time on clients with a portfolio below $500k. 2% of 1 million is $20k a year that THEY EARN. They get 10+ clients like that and THEY ARE SET NOT YOU. We dont need the $2million. They do.
$1600 SS and $50k saved - sure you can retire. Not what most would choose but you could retire. When costs double in 20 years you will be hurting. And 2% fee on $1mm portfolio is not even close; figure half that at best for the advisor.
There are actually many people who need help and don’t know what those words mean. It will be good for all of us for those who don’t know to learn and to become more self sufficient. Perhaps you are just too knowledgeable for this podcast to be of value for you.
For me it was a combination of portfolio balance, the Monte Carlo simulations, having no debt, and being sick of work. The last one was the one that initiated the analysis, the others are the ones that said "yes you can".
What tool do you use for monte carlo simulation? Thanks
You are ALWAYS so clear and concise. Thank you for covering this so well and for explaining what the perspective of Monte Carlo should be.
6:10 - I realize this was for illustration purposes, but at age 65, on Medicare, your healthcare expenses do not “go away”. They might drop by half if you are lucky. Or if you’re currently managing your 1040 income to get the ACA healthcare premium tax credit, your healthcare expenses might go UP dramatically.
Ours went up bc my husband’s union used to pay for his health insurance and now he has to pay Medicare part b premiums which aren’t free. He did get a Part D drug plan and they offered him a Medicare Advantage plan but he doesn’t know if he should get rid of it and go on a supplemental plan G. These premiums are never going down.
When I go on Medicare then I will have to pay for part B premiums. Right now we pay $30 a month through husband’s union. It’s not going to be free. Everything keeps going up in price.
P.S. my neighbor who is turning 65 is paying $1500 a month right now. We were only paying about $70 a month for 2 people. Health insurance is very expensive.
"this is me paying for higher healthcare expenses because I'm not yet 65. when I go to Medicare, those expenses will go away."
true. Medicare itself will be an expense, but for the majority, it will be less than paying ACA. he never said healthcare expenses go away. and yes, for illustrative purposes.
That's really interesting. In the UK, healthcare costs don't even feature in our retirement conversations.
@@iainamurray but is the care rationed? How long does it take you to get care? What is the quality of care?
Thank you for taking the time to create this video. It is helpful info and confirms my early retirement approach.
I retired last year. I'd been planning it for five years, and part of my process was creating my own retirement spending spreadsheet. I incorporated various factors -- dynamic inflation and ROI, and progressive withdrawals -- based on an initial withdrawal amount and then RMDs from age 74 on. up to 100. Each time I've listened to you, I've opted to incorporate another small tweak to my methodology. Last time, I incorporated randomized ROI percentages; this time I've incorporated an initial 4% withdrawal until RMDs kick in. Since I have built-in randomization, I can repeatedly recalculate withdrawals and balances to simulate a sort of Monte Carlo effect. While not perfect, it gives me a better glimpse at my future situation than I would have had before I listened to you. It definitely reinforces my confidence that I'm on a good trajectory for the future. Thanks for the added boost of confidence.
Would you be willing to share your spreadsheet? I am creating my own and have a good start but could definitely use further insight and ideas to add to it.
Great video James. Your videos are so educational and well presented. I have learned so much from your videos.
Always appreciate the perspective, James. As an aside, Rithotz Wealth Management's Josh Brown (Ritholtz was recently named one of the top Wealth Management firms in the nation) gave you-James Canole-a shout out in his email newsletter. He said you were a TH-cam Ninja and crushed it in this format. I've gotta say that I agree. Keep up the good work!
James and his partner, Ari, are getting shout outs in other youtube channel communities also! So well deserved; glad to see them getting recognition!
That’s awesome!
Ooooh, the youtube "comment advertisement" for a financial advisor. Never use an advisor who is slimy enough to try and trick you into checking them out.
Ritholz, Josh Brown, Ben Carlson, etc - been following them for years. THEIR stamp of approval is huge. James, I hope you are growing a client base and doing well, you are really on point with your messaging and non-mystical approach.
Great video. I have learned so much from you and Ari. Thanks for sharing!
Thank you, James. Excellent information as always. Retired early and initial withdrawal rate is higher for me until social security kicks in. Still need ongoing modeling to plan Roth conversions and best time to start S/S. I plan on checking each option every year as we go. As you say things change and it’s just a matter of having options to deal with the undesirable stuff as it happens. Thinking if things start to go badly (low returns/high inflation) to simply adjust things (spending) before the retirement death spiral can start. Good and continued planning can help avoid the worst from happening (in most situations).
Retirement shouldn’t be such a complicated and oftentimes confusing process. Unfortunately, we have a system where only those who are on top of EVERYTHING do the best. Even then, it’s no walk in the park trying to navigate through every facet of what’s supposed to be the happiest time of one’s life. It’s too bad that for many, retirement is ‘work.’
James, your informative videos have helped me understand and become more confident in my financial status as I look forward to retirement in the near future. Thanks!
Very well thought out video. Thanks for posting
The home as an asset - so many plans ignore it. For example, as a potential means of funding long term care, either by selling it if you are single, or downsizing/renting or reverse mortgaging it.
Great commentary and wisdom. Rational and easy to understand
Thanks, James. Great video.
Thankyou so much it is so helpful and understanding Thankyou
yet another excellent video. thank you
Great video. I have most of my expenses paid for and most of my expenses are discretionary. Variable distribution seem to have good guard rails. I'm doing 5% of my portfolio. If I fail, I cut back on expensese.
Very informative thoughts, James. Definitely good food for thought.
NO debt. That is the key.
No debt, and have your health insurance covered. Mortgage and health insurance is easily $2500 a month. Huge when you can get rid of those.
@@larryeaton4263how do you cover for heath insurance when retiring?
Beautifully explained. Best explanation in layman's terms ever.
Love your succinct thoughtful explanations. Thanks 😃
Thanks, worth noting that SS is best and cheapest longevity insurance, so plan to take it at 70. Also good for your spous typically and gives a bigger roll-over window. Secondly the sequence of return risk can be hedged with roll overs. If market drops 50%, you can roll over twice as much for the same tax.
Cheers,
Jef
Except for the point that it is supposed to be insolvent by 2034.
Lots of other factors are involved that make the decision about when to claim social security really complicated. The biggest is the break even point, which addresses the “take less for a longer time verses taking more for a shorter period” issue . Health is another of many factors to consider, along with spouse earnings and age, pension potential, whether you are in debt, how many assets you have, etc. In addition, your kids get nothing from your social security when you die, but they inherit your remaining assets if you want them to. I have loved Devin Carroll’s you tube channel. He has taught me so much about this complex issue.
Thanks James for the great information!
Adaptability to changing economic circumstances is hugely underestimated in standard retirement calculations. There is simply no scenario available that will leave me without excellent long term fall-back strategies in spite of being 100% invested with liquid assets in stocks. Have (in big terms) 1/3 annuities, 1/3 housing and 1/3 stocks. If I get wiped out in the market (very unlikely as I'm not a stock "gambler") I can easily fall back onto my annuities and just scale down my housing stock if I want cash on hand.
Thanks, James! Nicely explained…
One question… is it valuable to re-do the Monty Carlo test every couple of years or so? If these past years have been a bull or a bear, your portfolio may have changed enough to move up your planned retirement date or push it back a few years…. How do you look at this and what would you recommend for tracking progress against your retirement readiness “date”?
I am frequently amazed talking with folks who just have no interest in putting in the work needed to plan their retirement. They would rather work several extra years than spend maybe a man-week or two to map out their expenses, assets, risk tolerance, and turn that into a good first cut plan. Tax optimization, and all those gory details can wait, but just figuring out your actual living expenses and throwing the 4% rule at it should be something people are doing for themselves by mid-career, but most just run screaming away from any sort of planning.
What if a retiree has a dividend portfolio and dividend is sufficient to retire on (along with SS etc) and div growth is more than inflation. What advice would you give to this client as withdrawal rate will not apply. Thanks
Exactly
Great points ❤❤❤
What do you think of the Honest Math Monte Carlo application?
I played around and great to have such a tool although the inability to specify individuals with different timings (e.g, taking social security and different ages) is limiting.
Tried it very limited. I would say pay $100 for a better tool.
In my view, NewRetirement is much better.
Brilliant
An interesting thought crossed my mind while you were discussing sequence of returns. I often hear about having a few years of expenses out of the market. Normally the idea is to use this cash in the first few years of retirement so you don't have to worry about the market. But what if the first few years of retirement the market goes on a big run and you're account is growing like crazy. In that scenario, I would think that you would want to be taking money out as it's going up for expenses and then just leave your cash alone for when the market goes down. You could even pull a little extra cash to give you a bigger buffer for bear markets. It seems like that would be a way of insulating yourself from the sequence of returns risk, but maybe I'm missing something?
I also may be missing something but we retired in 2018, and have been making good returns. While watching our tax rates, started pulling money and putting in Treasury Bills and doing some Roth conversions. I'm not a wise or rich person but feel pretty good about current status.
Also thanks for all the good information on these videos, appreciated!
From what I understand you are on track with your thinking. Google "bucket retirement strategy". You basically have enough liquid assets available to use during any market downturns. When the market goes back up, you replenish the "liquidity bucket".
That is part of my plan, keep a 3 year buffer in cash like (T-bills, CDs, MMF) assets. If the market is doing well pull out my withdrawal, if the market has a prolonged drop (greater than 1 yr), pull from cash. Not perfect but my mandatory withdrawals are low (< 2%).
That is exactly how it works. You are supposed to use the cash only when the market is down, and sell investments for expenses when the market is high. You would hold even more cash if you retire before Medicare to help keep your reportable income low to get subsidies for ACA health insurance, still the priority for a cash buffer is to be used in down markets.
When you work on something that only has the capacity to make you 5 dollars, it does not matter how much harder you work - the most you will make is 5 dollars.
Fortunately I have no debt, a great federal pension and will take SS at FRA and can afford higher risk been retired for 2 years and don’t plan on touching IRA/TSP other then Roth conversion
I think I made it to step 2
U kind of described the purpose of Annuities? Soc Sec, Pension and Annuity provide income floor you can not outlive? Even if portfolio is depleted you still have stable income Floor. Every month!
When you say 50% intermediate U.S. bonds, do you mean owning actual bonds, or owning a bond index?
Are you on Rumble?
I don't think you have touched on this subject- If you can financially wait til age 70 to take the max Social Security, should you? If you take it earlier (what age?) then the money that you would have used from your savings (that social security benefit amount) is still growing while left in your 401.
Even with Medicare your retiree medical costs will likely be quite expensive.
Premiums, drugs, supplements, out of pocket, maybe IRMAA etc .
Could easily be thousands a year
Expensive, for who? Smokers, diabetics, beat bodies, sure.
If Americans could just walk, quit smoking and eat a little less it would make a difference.
In the UK we call it Draw Down. Do Annuities exist in the US?
Yes, they do. Many TH-cam financial advisors scoff at them. I own a few as part of a diversified plan and was disheartened to find that they don’t have a great reputation among many advisors and also among people in the comments.
THEN I read “Die with Zero” * and was relieved when Bill Perkins recommended having these in your portfolio.
*highly recommend this book, btw
Medicare is a lot more expensive than people expect.
How much more?
Step 1: Do you have $10M? Yes? Retire. No? Goto step 2.
Step 2: Hire a financial advisor and ask him, yes or no, can I retire?
Step 3: Did he say yes? Retire. Did he say no? Don't retire.
Rethink to 2 % if you are near retirement
Where's the guns?? 🤩
$1600 a month SSA and $50k saved as permanent emergency fund and absolutely ZERO debt and you can retire.
You will be doing all free activities but you can stop working.
What people like James never mention is this:
They will not waste their time on clients with a portfolio below $500k.
2% of 1 million is $20k a year that THEY EARN.
They get 10+ clients like that and THEY ARE SET NOT YOU.
We dont need the $2million.
They do.
But here you are soaking up the valuable information… Clearly he provides value
Depends on your lifestyle, goals, where you live, if others depend on you, etc.
$1600 SS and $50k saved - sure you can retire. Not what most would choose but you could retire. When costs double in 20 years you will be hurting. And 2% fee on $1mm portfolio is not even close; figure half that at best for the advisor.
This can only work if you have a paid for home and health insurance. On this plan you are likely to crash and burn.
James should have bought SQQQ on the way down.
If a financial planner is making you 5% one might as well just buy CD’s. 🤷♀️
1. Withdrawal rate sustainability.
2. Straight line projection.
3. Monte Carlo simulations.
No idea why this has to take 20min.
There are actually many people who need help and don’t know what those words mean. It will be good for all of us for those who don’t know to learn and to become more self sufficient. Perhaps you are just too knowledgeable for this podcast to be of value for you.
@@suzanneemerson2625no
I did not pick the title "3 simple steps" @suzanneemerson2625
are you single?
retirement planning is overrated. its a conspiracy to make financial advisors wealthy. just retire. do it. and never buy an annuity😂
Sounds like a plan for homelessness