This Rich Couple WON'T Make It Through Retirement
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- Опубликовано: 8 фев 2023
- Earning wealth is a blessing, but you can still screw it up. This couple was only a few years into retirement, and their advisor told them they weren't going to make it. Here's how they messed up...and how they fixed it.
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Patrick King is a fee-only financial advisor in Atlanta and the Founder of Prana Wealth. Over his career, Patrick has helped CEOs, all-star athletes, Grammy-winning artists, and many others build their wealth, retire sooner, and create a legacy. Patrick enjoys yoga, mountain biking, golf, travel photography, and Clemson football.
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Anyone that retires with 1 mortgage much less 2 didn't have a very good retirement plan to begin with. It's not what you make, it's what you spend.
Amen
So true. Not to mention, the mortgaged houses do not generate cash flow - sounds more like liabilities than assets in this case.
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Another great video. The big lesson here is that retirement planning isn't just about saving enough. It is also about preparing for life in retirement. A key component of that is understanding your expenses throughout retirement AND eliminating unnecessary ones. Eliminating one's mortgage can cut expenses in half. I made that a priority during my working years. So instead of needing $80k/yr I only need about $40k/yr. That number is a LOT easier to generate from a portfolio. Add in Social Security and that takes the burden off the portfolio even more, extending the retirement runway.
Great point, SV. There's a transition there, for sure. It's way easier if you have foresight like you did!
Thanks for passing along the hard lessons learned.
You bet! Thanks for watching!
Damn, I feel sooo much better, Thanks you for the video
Solid video Patrick!
Thanks, Michael! I hope all is well and life is good, my friend!
Great video, thank you!
Glad you enjoyed it!
We did a similar thing where we sold our vacation home five years ago and saw our numbers skyrocket. We will purchase or build a retirement home in the next decade but now when we want to ski we rent or Airbnb it!
Don’t bother to buy, just get a hotel when vacationing. Retirement homes are a money pit unless you are uber rich.
Great job
Savings is only one piece of the retirement puzzle. Expenses are just as important
John -- one more lever that everyone kind of forgets about is income. If you can figure out how to bring more in, that never hurts (unless you just go ahead and spend it!).
Rather than selling the beach house, why not rent it out via VRBO or Airbnb? That would likely offset the expenses from the second house that was throwing off the numbers and they'd still have a beach house.
Then they're not retired, they're starting new careers as innkeepers.
Bingo, this immediately came to mind as well. Or, if you don’t want to deal with the hassle, just rent down there when you want to go. It’ll be cheaper
This is actually a great thought. However, people who buy vacation homes and plan to rent them out tend to be living there during the high seasons. It's a lot less lucrative if you only rent it out during off-seasons. The best VRBO-ers I've seen run those properties like a business.
It's funny thinking that someone/couple with $3 mil would find it hard to live out the rest of their days and run out of money. Goes to show how it's all about lifestyle.
Absolutely true, Vinny G! It's like a financial version of Parkinson's Law -- expenses will expand to fit the income allowed for them!
Thurston Howell III would never be in that position
LOL -- he found some much cheaper beach property by accident, I guess. 😂
Good video. John and Ann need to make further adjustments to their lifestyle IMO if they want to remain financially independent throughout an expected life longevity into their late '80s or '90s. Assuming they can offload the extravagant mansion in Dallas for a reasonable price, then they may be able to pay off the mortgage on the second mansion in Galveston. That would leave with a net worth of ~$2MM in pre-tax accounts. SWR of 3% equates to $60k before taxes or about $50k after taxes. Out of that $50k will come real estate taxes and insurance on the Galveston property of at least $10k. So they need to cut their spending from $7,500k/month after housing to about $3k/month and then pray that they don't have any out of pocket medical expenses (because based on the video they have not even thought of that). $3k/month isn't enough for luxuries such as travel, tail gates, extravagant vacations, etc. Essentially, John and Ann did not plan and save accordingly throughout their working life and now will either have to adjust their lifestyle accordingly or go broke.
#1 goal in retirement = PAY OFF THE HOUSE!
Huge error on their part. Can't retire with a mortgage. They have 2. Even worse
@@ImVeryBrad I was a little scared at first when listening bc I’m like wait, this might be us. Then i was like oh man, they have two mortgages while retired? Yikes. Ok, not us. I can move on with my plan….🤣
We are in our mid 60's and have $3.2m in cash assets in 10-year US Treasuries Notes which average 5%. Additionally, the Spouse has a retirement annuity that pays $62k annually. Total combined SSI of $48k per year. One small real estate investment that pays $20k annually. In addition to $3.2 in treasuries, the spouse has a $620k real property fund that appreciates that we can roll over or cash out every five years. We bought a house for cash on a tropical island in Europe where it costs 60% less to live than in San Diego, California. This results in a total income of $280+ per year before taxes, which is the U.S. federal income tax on the bonds. Our new country does not tax U.S. retirement income or bonds. We have no mortgage debt and spend $6k per month on our other living expenses. Tell John we have $220k per year excess income to party in Europe of reinvest in bonds. Tell John to screw the market, too risky and subject to cap gains if he needs the money. Tell John to fly out to see his family twice per year or fly them to his new home with the excess of $220k in income he has each year.
They could have used a management co to Airbnb one property . They could keep the property, make a profit and have tax advantage from having an investment property.
When I plug 3.2 mil @ 7% avg rate of return into an online calculator over 30 years, withdrawing $21,000/month, they should still have a few hundred thousand left in investments by the end of that period. Is this wildly off from the results of a Monte Carlo simulation? If not, is it that their property expenses are just ridiculous? They're otherwise only spending $7500/ month, right? Their mortgage balances don't seem to suggest $13,500 in monthly property debt. That said, it is probably not ideal to carry mortgage debt into retirement in any case.
Right Capital for the win!!! 🏆
That's right, Slim Dawg! RC is really bringing the heat these days. I've pretty much ditched MGP at this point.
Having 2 houses sure would be pricey, another option would have been 2 condos instead, much easier than home ownership. Much of their expenses should be covered by Social Security, I'll bet they'll get $4500/month
Jay -- just like my trainer told me once: "You can have anything, but you can't have everything."
They could afford a condo in Dallas as a weekender.
7500 month is ridiculous
I would be interested in knowing how they are doing today. If this occurred a few years ago, they probably also took big stock market losses.
@V p -- this is really just a case-study. I'd never want to put any real client stories out there. I'd hate it if any actual clients (past or present) thought that I'd make a video about them.
I am assuming John probably spends a LOT of money.
i live modest, but I live debt free :)
Always a formula for success, Michael!
Hopefully they have a ton of stable value in the IRAs at this point. I have enough to go 8-years. And for crying out loud, pay off the house. I paid off mine in 2015.
Peter -- it's been a strange time with these ultra-low interest rates we've had (until very recently). Every once in a while, the math says that keeping the mortgage -- and letting it inflate way over time -- actually produces better outcomes. It's all case-dependent, though. Stay tuned for next week's video!
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Lifestyle, the end.
Would have rented out the home they sold.
Being a landlord is a huge headache.
I enjoy your videos. And you're cute. ♥️
😊 Thank you, TW!
Wow, I guess channel not for me. I own an old farm house. Paid everything off and live ok on $7,000 a month. Poor babies had to sell one of their homes?? At minimum should have been more reasonable. My heart is breaking.