How Much Does a Middle-Class American Need to Save for Retirement?
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- Опубликовано: 26 май 2024
- With a lifestyle that’s neither affluent nor average, how much does an average middle-class American need to save for retirement?
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Timestamps
0:00 - How much does a middle-class American need to save for retirement?
1:20 - What is “middle-class”?
2:11 - Our assumptions
2:48 - Middle-class living expenses
3:36 - Middle-class retirement savings
4:14 - Total savings needed for retirement
5:39 - How much they need to save each month
6:50 - Retirement savings is a concern
7:29 - What about the 80% replacement rule?
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-- About Patrick King CFP® --
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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Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My wife and I both spent same number of years in the civil service, she invested through a wealth manager and myself through the 401k. We both still earning after our retirement.
This is true. I'm in my mid 50's now. My wife and I were following this same trajectory. Last two years, I pulled out my money and invested with her wealth manager. Not catching up with her profits over the years, but at least I earn more. I'm making money even before retiring, and my retirement fund has grown way more than it would have with just the 401(k). Haha.
It's unfortunate most people don't have such information. I don't really blame people who panic. Lack of information can be a big hurdle. I've been making more than $675k by just investing through an advisor, and I don't have to do much work. Doesn't matter if the economy is misbehaving; great wealth managers will always make returns.
@@rogerwheelers4322 I think this is something I should do, but I've been stalling for a long time now. I don't really know which firm to work with; I feel they are all the same but it seems you’ve got it all worked out with the firm you work with so i surely wouldn’t mind a recommendation.
@@eloign7147 I definitely share your sentiment about these firms. When I was starting out, I checked out a couple of freelance investors online, so you could do the same. I personally work with “Colleen Janie Towe”, and she's is widely recognized for her proficiency and expertise in the financial market. With a comprehensive knowledge of portfolio diversification, she is acknowledged as an authority in this field.
@@rogerwheelers4322 Thanks for sharing this. I did my own little research, and your advisor looks advanced and experienced. I wrote her an email outlining my objectives and also scheduled a phone call.
Retiring in 20 years? Due to inflation, you may need upward of $3.6million to maintain your existing lifestyle, with the ongoing effect of high inflation, lower forecasted stock market returns or value, and stagnant wages. Achieving a secure early retirement could be more challenging than ever before.
An obvious way to invest for a recession is to buy shares in businesses that are likely to experience steady demand even in a downturn. Typically, those are consumers staple, utilities and healthcare companies. But of course, such decisions can’t be made by an average joe, a financial advisor is highly recommended in making this decisions..
You are right! Such considerations can certainly have a role, when I think about whether I ought to buy shares but I never purchase purely on that basis. I always have to seek the advice of my financial advisor who has help me gain over $1m in a well diversified portfolio that has experience exponential growth.
@@c.moellerI’ve been down a ton, I’m only holding on so I can recoup, I really need help on my investment portfolio. Please who is the financial advisor that guides you? Mind if I look them up..
Renowned for his proficiency and expertise in the financial market, 'John Desmond Heppolette' my financial advisor, holds a broad understanding of portfolio diversification and is recognized as an authority in this domain. Just research the name online, you’d find necessary details to with a correspondence to set up an appointment..
@@c.moeller Thanks for the information! He appears to be well-knowledgeable and accredited. I ran a Google search on his name and came across his website, thanks for sharing.
The (TACRS) estimates that the average Baby Boomer has $202k saved up for retirement. According to the 4% Rule, this would result in a $8k annual retirement income. do I pull cash from my 401k and buy a house, or spread my money in stocks for better cashflow?
We experienced the pinnacle of our era in a flash. Just like Rome, the corrupt administration will bring this nation to an end. My condolences goes out to those close to retirement and may be worried about pension, surviving the rising cost of living alongside poor regulatory policies
I’m 44 and looking to retire early. Very worried about the future of the economy and where we're headed, My wife finds it funny when I lament on inflation alongside rising rates. Would it be considered suicide to get into bonds now?
@@bradsandler3526 Markets are oceans not lakes. The aid of an institutional or basic financial managers cannot be over expressed. Take myself, having encountered quite a number of bad trades, I realized following my current Portfolio managerr, how entry, capital, exit, goal and more differ on each assets. Currently hold , I have a $122k portfolio averaging a 12% monthly roi in less than a year following - Yvonne Annette Lively -so I do know the importance of basic knowledge and delegation.
@@Ryanjcanfield Hold on, the portfolio manager with Morgan stanley? Was recently on a finup with Tate?
@@Ryanjcanfield Her website & resume seems detailed but sure is wild averaging a 15% mroi. I mean the Pm, Yvonne Annette Lively.
@@Ryanjcanfield Appreciate you. I'll look her up and send her a message. Hopefully, I could recover losses. How trustworthy are these coaches?
This is my fifth year after retirement. I’ve been following the 4% rule thing, but this isn’t really how hard I expected things to be. I still have about $460k to invest in stocks. Pls how do I take advantage of the market turnaround?
now you are retired and depend on your investment, it’s best you redistribute your capital. To simplify the process, you could allocate your resources with the help of a financial advisor.
Depends on a lot of factors, including your risk tolerance and cash flow needs. You might want to try the Risk Parity Radio podcast for retirement portfolio ideas.
I’ve got four traditional brokerage accounts. One earmarked for retirement with growth funds, one for medium term goals (think new car or house) with growth funds, one for swing trading, and one for shareholder perks (cruise line stocks so I get my on board credit). I was lucky to come across the ads of a company called "ferrochrome securities" They organised my wrecked finances and made me set priorities. Cumulative now I'd say I've grown over 220k with their help and still growing. Next goal now is owning my first rental property. The journey becomes exciting once you start. My advice is to anyone who thinks they're too old is to start today, right now. It's never too late trust me.
The key is living within your means.
Have a small easy to care for home, paid off, a reliable vehicle. Find things that are low cost but enjoyable.
I retired in 2016 at age 62. My wife retired two years later when she turned 62. Coming up on 6 years retired and we have not touched a dime of our retirement savings. How is that possible? Simple, we made sure we were debt free when we retired. It's amazing how far your Social Security Check will take you when you have no debt. It should be noted here that we purchased a band new Travel Trailer and a brand new Pickup Truck to pull it with when we retired. Paid cash for both. Took that money out of regular savings at the time. Just remember this one simple truth when it comes to retirement. It matters more how much you owe than it does how much you have.
Same here. Retired 6 years and have not touched my savings at all.
That's awesome, @Bernie ! Congrats on being able to retire debt-free. That solves a LOT of problems. When I look at the Census and BLS data, there are a lot of folks out there retiring with debt. You can make that math work, but it's so much harder. I'm personally debt-free and am a huge believer in that.
Thanks for watching and leaving a great comment! 🙏
Exactly! When you take paying for housing out of the equation, then being able to retire and live off of whatever income, should be doable.
YESIRRR you're correct
"Debt" and "loan" are both four letter words. Think about this.
Many people continually promise to make millions each year, but they don't create any plans for how they're going to do it, which investments they'll make, or which skills to learn. There are numerous opportunities to earn money and multiply it.
The first $100k is usually the hardest, but it gets easier once achieved
I made my first million in my 40s, I had to put my money to work, instead of day dreaming of an early retirement. I am currently 47 years old, retired, and have a seven-figure portfolio. My personal trader earns me about $500k a year. Just investing in the stock market and real estate was all I did. Since my investment has generated steady returns, I'm going to relax. Maintain your focus and keep going!
@@seanroger6954 It's so eye opening how most stocks can make you rich over the next few months alone with life-changing returns.
@@seanroger6954 well I’m over 40 and still far from having enough retirement funds, are there specific stocks that helped grow your portfolio? I tried day trading and it didn’t go so well, the research that goes into it is quite active.
@@kelvinjohnson3906 Expertise does play a major role in my investment journey and I was able to achieve this with the guidance of my investment cost Frost Hilda. Frost expertise helped build a portfolio that helped cleared all my debt, created a sustainable flow of income that’s fully funding my retirement all in 4 years. He ensures I earn irrespective of the market movements, in my first 6
months, He earned me a trade profit of $125,000 with an investment of $23,000 I'm very confident in the future performance of my portfolio.
I would say one important thing for financial success is be careful who you marry or who you partner with. A dissolution of either can play havoc with your finances. Basically, don't get anyone who relies too much on you for their happiness. Be careful you don't do the same. Have something beyond yourselves to dedicate your life to. A long and satisfying relationship goes a long way to assuring financial success.
The ending of pension plans was one of the worst things to happen to the American worker. Then comes stagnant wages and inflation. This along with the lack of financial education about investing (not everyone is knowledgeable about this or has access to a 401K). Its a race to the bottom.
I think it certainly didn't help. Moving away from pensions took the burden of saving and investing off the companies and put them squarely on the employees. In the meantime, we haven't been doing a good enough job of educating everyone on how to save and invest for retirement.
We learned in high school how to write a check and balance a checkbook back in 1980, and that was an elective. Nothing about investing. That was two years after the 401(k) was introduced and pensions started phasing out.
I’m a dividend investor My wife and I have invested in the s&p500, both through my TSP with the government, and through Fidelity in her 401-k.Cashed out 370k from the S&P and invested with a top web list Financial Advisor Until around 3 years ago we were 100% in the s&p after over 20 years.I'm retiring at the end of this month at 56, while my wife will retire next year at 54. We currently have 2.7 million in out tax deferred savings and still with investments in individual companies.
Wow this is really impressive...congrats on your success
you made that much from s&p500!! do you by any chance do referrals on your advisor?
@@mitchsapastein5593 sure! , she goes by Susan Kay Mack...she's quite known, search her up for her info
I was able to find her webpage and leave a mail after going through her credentials, i'm willing to make consultations to improve my portfolio
@@laurenkaran9140 these are spammers 🤦🏻♀️
They go on with these fake accounts having fake conversations to bait people.
Just ignore these phishers!!!
I'm retiring next year (I'm 55). I have never even earned the "median" income. Zero debt (house paid for). I saved, and I have very modest taste and lifestyle.
I started preparing in my early 20's. If you're behind the curve at age 55, you're too late.
Not because you can't do it financially, but because you lack the discipline and mindset to do what needs to be done. Or, you would have already.
Fred, in many cases, you're right. Some people do "find the light", however.
great job....100% agree
Great job Fred! Truth stated.
I just retired at 55 and live much as you describe. Income hovered around 55k.
I invested early as well. Played the long game. Fortunately I have a pension and inexpensive benefits.
Well, good for you!
Guess the rest of us will go die in the gutter...
@@kitsiewr Work harder.
I told both of my sons that even though they are only in their 20's that they need to start saving for retirement NOW. It's the money you saved in your 20's that you will retire on due to compounding & growth of that money. I started in my 20's & added continuously since so at 61 Years old I will be able to retire at 65 with no problem. Your wildcards are inflation, healthcare costs, taxes, the stock market & your spouse's spending habits.
That's great advice for young people. And yes -- choosing right right spouse can help or hurt those efforts! Sounds like you're a good dad!
The earlier you start saving for retirement the easier it gets . The older you get the more you think you should have started earlier .
Smart! mama
It’s great your kids had a parent to teach them these lessons.
Way to go. Starting early is such an amazing boost to your savings in the long run.
When it comes to investment, diversification is key. That is why I have my interests set on key sectors based on performance and projected growth. They range from the EV sector, renewable energy, Tech, and Health.
The best strategy to use in trading stock is to trade with a professional who understands the market quite well, that way maximum profit is guaranteed. Because I have learned along the way of my investment that research and analysis are important, note that experience is more needed than luck when it comes to the stock market.
I have been thinking about how to grow my reserve by 100% or more within months. I will be grateful if you can give tips or anything on how to make good market picks and how I can get my portfolio diversified and balanced to meet up my target
My consultant is *PRISCILLA DIANE AIVAZIAN* I found her on a BBC interview where she was featured and reached out to her afterward. She has since provided entry and exit points on the securities I focus on. You can look her up online if you care about supervision. I follow her trade pattern and haven’t regretted doing so
@@veramonique1724 Access to good information is what we investors need to progress financially and generally in life. here's a good one and I am grateful. Found her website and it was really impressive
Interesting I'm also a subscriber of *PRISCILLA DIANE AIVAZIAN* signals and if I were to rate her accuracy, I would say perfect
Early saving and investing money creates compounds growth, it's a beautiful thing.But it takes focus and discipline. You need to be focused enough to commit to a plan and a process.I’m a dividend investor, my wife and I have invested in the s&p500, both through my TSP with the government and through fidelity in her 401-k. Cashed out 370k from the S&P and invested with a full service broker.. Until about 3years ago we were 100% in the s&p after over 30 years. I’m retiring at the end of the month at 59, while my wife will retire next year at 54. We currently have 5.7 million in out tex deferred savings.
@Steve Nesbitt start now! Open a Roth IRA, go full risk/equities (VTI or SPY) and put as much as you can. The early years of investing are the golden years. Can take risk and the compounding will make you rich
@Linda Lagana Our Financial advisor is “Doreen Louise Dehaan“. She is a professional financial/Investment advisor. you can search her up on the internet where you can get necessary info about her and as well to connect with her.
go away scammer jesus LOL you clowns starting to get annoying :P
Make sure and do some Roth conversions, otherwise your RMDs will be horrific. Congrats, by the way!
I'm 63 and when in my 20s I thought 500,000 was enough. In my 30s I estimated 1 mil was enough. 40s and 50s I raised that to 1.5 mil. Now in my 60s our net worth is 2.8 mil and I have a hard time spending any of it. Zero debt and average annual income since 1976 of $40,000.
@135 boomer -- sounds like you've made the right moves along the way. That inflation will get you! But it seems you've stayed on the happy side of it. At some point, you may want to run some retirement calculations and see what you can sustainably spend. You can't take it with you!
Spend that money!
HEY OLD MAN I SUGGEST YOU GET INVOLVE WITH A YACHT CHARTER COMPANY AND TRAVEL THE WORLD BY SEA. GOOD LUCK
To me one of the largest goals is to have mortgage paid off before retirement. Having a low expense obligation is key. If I can couple that with no car payments and a healthy cash emergency fund, I think that I'll be in quite nice shape.
@mescetacy -- I've seen plenty of people make a mortgage work in retirement, but if you can go ahead and pay it off beforehand, that makes things so much easier. And definitely avoid any other type of debt if you can. I'm personally debt free and I can't say enough about how much peace of mind that brings.
That's exactly my goal as rent keeps climbing and a paid off mortgage is the way to go
Young people are locked out of the housing market, only people who have owned a long time/have substantial equity can afford to pay these house prices. I make 80k a year, have 55k in my bank account and can afford the mortgage payment on a small home at list price but I get outbid every time. I've been saving up a downpayment for 10 years and I'm starting to ask myself is this worth it running at a goal post that recedes as fast as I can run? I'm starting to think the FIRE strategy of rent a room in a house full of strangers, save a huge amount of money and live off a combination of savings and a part time minimum wage job in a pretty little town is more viable. I think the younger generation needs to assume they will be renting and save alot more to compensate for the much higher housing cost.
@@Weathernerd27 housing is a market. Occassionally, prices get way out of wack as they do in all markets. It is certainly frustrating and inopportune. Within a year or so, it is extremely likely that home prices will come back to reality.
@Progressive23 -- what you're talking about with housing prices is a real issue. I agree with @mescetacy in that prices are a bit "frothy" at the moment. However, just like stocks, prices can continue being overvalued for longer than anyone things. There's also a demographic issue at play here. As a cohort, both the boomer and millennial generations are pretty large in numbers. That brings up a natural supply / demand problem simply based on the number of people who want houses.
The FIRE thing is certainly one way to go. I have some friends who have been doing it for a while and it works. If I were younger, I think I'd certainly be more interested in pursuing something like that.
After retiring at age 56 (I'm now 68), my experience is that one would be best off investing in a small group of diversified low cost EFTs and MFs, as opposed to partnering with a financial planner. At least 5 years prior to retirement, start developing a yearly expense budget and compare it to actual expenses. Enhanced budget management skills is essential when entering retirement, since it's not a "wealth" issue, but instead a "cash flow" issue. Prior to actual retirement, seed to retire as all debt, if possible. Once in retirement, it's all about managing actual expenses versus retirement income and, for most, when an expense vs income gap occurs, utilize one's investments to satisfy gap needs.
I totally agree with what you said. I don’t have a financial planner and diversify my portfolio. I have no debt and am ready to retire. I lot of these videos say you have to have a million dollars to retire. Average retired people I know don’t have anywhere near that but are doing just fine in retirement. It’s all in how you spend your money. I don’t need the latest iPhone every year.
@@johnurban7333 People get caught up on "wants" rather than "needs" expenses. I get that. When we work, it's normal to get some pleasure from our efforts. However, for most, once in retirement, our reduced income may force us to look for simpler pleasures, like a long walk next to a still lake while looking at the colors of Fall (instead of a trip to Disney Land). Also, the large house, with all of its utility and maintenance expenses, was good while the home was full of children, but might not make sense if the children move away as they get older. Going out for dinner can change to visiting the same restaurant for lunch, at a lesser price for the same meal. Etc.
Starting to save early and having low expenses are key. I've been saving a little bit of each paycheck since age 20, now at age 35 my retirement account is slightly more than 1X my annual salary. I did a Excel spreadsheet calculation of what % of gross pay you need to save to retire at 65 and the result was 5% if you start saving at age 20, 10% if you start saving at age 30, 20% if you start saving at age 40 and 40% if you start saving at age 50. My parents are retiring with really low house payments because they have almost paid their house off and I want to do the same. I make 80k per year but I'm having a very hard time buying a house. The crash of 2008 wiped out most of my savings, it took until 2021 to save enough in my non retirement account for a down-payment and by then house prices had gone crazy. I bought a condo in 2021 but rapidly rising HOA dues and restrictive HOA rules have made me want to sell the condo as soon as I can break even/make a slight profit. I don't want to rent another apartment because apartment rents are so high I wouldn't be able to save much. I could save a decent amount renting a room in a house full of strangers but I hate living that way there is not enough space/privacy, you have to deal with messy housemates and the landlords have crazy rules. The last time I rented a room the landlord tried to force his religious beliefs on me and banned my girlfriend from the property even though she hadn't done anything wrong. Lack of affordable housing is going to keep alot of young people from retiring.
Sounds like your looking at the right things and have a really good habit, which is saving. I would suggest studying up on the FIRE movement (Financial Independence Retire Early) and watching some of the many videos that you'll find online. One channel I'd recommend is "Our Rich Journey". Their video's are really well done and they do a good job of explaining exactly what they invest in and where their money comes from. Finding ways to save money and investing it is the key. If you can find a partner, ideally a wife, but a girlfriend or just a buddy even, can make a huge difference, as long as you take the savings and invest it. The folks from "Our Rich Journey" took turns driving for Uber, to increase the amount they could save. I recently sold my house and bought a condo for cash, that's in a small town outside of the city I used to live in and invested the rest in dividend paying ETFs. Every month the dividends are rolling in and I'm putting them right back into buying more. Once I reach the point where my dividend income equals my job income + 3%, I'm ready to retire. The 3% I'll invest back into my dividend funds as a hedge against inflation, along with my wife's entire SS income, once we're old enough to collect. My SS income will be used for traveling and enjoying life. FIRE isn't sexy, like trying to buy the next Amazon, but it works 100% of the time.
Ok so see the issue? If u put money towards home instead of retirement then u set yourself up better now and then can start saving for retirement. However, many do this and just never start saving...kids, cars, job loss, etc etc
Several of my family members retired but with no where near the recommended amount of savings. Of course moving from NJ with average 8k to 12k in yearly property taxes to a more reasonable state with 1 to 2k in taxes helps immensely! I plan on doing the same thing myself. I'm amazed at how much the homes in my neighborhood are selling for, what used to be a starter ranch now in the 380 to 400 k range. That can buy a nice home elsewhere.
@bayonne alice -- where you retire can have a massive impact on your retirement! I've done a video on spending $10,000 a month in retirement and some commenters can't believe you'd need to do that. Of course, that's easy to do if you're near a big city.
Where are you moving to?
I'll do my best to save for retirement but I'm going to retire no matter what at age 65. People in my family live into their 80s but they tend to develop serious health problems around age 70 to 75 that drastically lower their quality of life. I want to retire when I'm still healthy enough to do stuff. If I run out of money then I turn to wellfare and medicaid. These government officials that are so eager to let social security die need to think about whether millions of old people on wellfare/medicaid is cheaper than saving Social Security/Medicare. Saving Social Security/Medicare is substantially cheaper. If the government thinks they can deny old people wellfare/medicaid then they had better get ready for civil war. The older generation didn't need to save alot because they had pensions and could sell their city house for alot of money/move into a smaller house. Alot of young people will never be able to afford a house at these prices they are at a huge disadvantage. My Mom retired without enough savings and she will likely run out of money in the next 7 to 15 years. I've told her you have 2 choices move in with me when you run out of money or sell you're 500k California house/buy a cheaper house in another state, use the difference to bolster you're 401k and be independent forever. She likes her warm sunny California house too much to move and I think she is in for a shock when she is forced to live with me in cold rainy Washington State. I don't plan on having a family because its to hard to raise kids when the cost of living is so high and I'm not sure the next generation will have a decent future/I can't bring a child into a bad situation. So basically there won't be anyone to take care of me in retirement, my sister is not good with money and she might have to live with me in her old age as well.
The first step to successful investing is figuring
out your goals and risk tolerance - either on your own or with the help of a Financial Advisor. If you can get the facts about savings and investing with a well detailed plan, you should be able to gain financial security over the years and enjoy the benefits of managing your income.
I think the pandemic have really taught
people the importance of multiple streams
of income, unfortunately having a job
doesn't mean security.
Successful people don't become wealthy
overnight. What most people see as a
lance wealth, a great career and luxury is a
result of smart work.
@@lilianazuluaga6504 It's not how much money you save in the
bank, but how much money you earn and
how hard it works for you. Money devalue
over time, investment is the best option as it
grows over time
@@danromero533 I think the key thing here is working with a
professional. Yes people have devoted their
lives to making profits in the market, but
those of us who haven't but are interested in
investing can simply work with them.
@@chrisjohn7823 Alright, so you know anyone?
Very thorough and explained well. Subbed :)
Thank you, Michael!
That would depend on how many times you've been married, the age of your children, how many you're still supporting and the kind of lifestyle you want. I know a septuagenerian who lives nicely off social security and a pension of $1,700 a month and another retiree who's ready to file for bankruptcy making six times as much.
I'm a retired nurse for months now and I'm yet to figure out a plan while staying at home, talking about crypto I think that should be a great idea.
How do I get to know more about this??
Most profit comes from capital gains from owning a business. It's good to have a multiple streams of income (investments)
@@anna_kendrick oh my gosh I saw that recommendation last week but I didn't bother chatting her up 🤦🤦
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Greetings from Saudi Arabia
I thank you for this, its very informative and something my parents cant really describe to me
I wasn't at all surprised by your conclusions as both of the subjects had been over spending and under saving for decades. A good retirement plan includes controlling spending and eliminating debt.
John -- when it comes down to it, the simple plan works every time: spend less than you make and save the rest. Lather, rinse, and repeat. 🙌
This is so helpful when calculating my own situation. I am 28 and my husband is 30, we have $100,000 in retirement at this point. We use Vanguard and are invested only in VFIAX, their S&P 500 index fund. Because our goal is to not beat the stock market but to just ride it until retirement we think we should be fine. Our other goal at this point is now to be saving for a house. We currently live in the Seattle area but cannot strand the cost of living. We plan on moving to either TN (where I went to college), KY or AR (where we have family) in the next 2-3 years. Our hope is to buy something under $200,000 and get a house payment below $1,000 a month. We realize that for us to attain our dreams we cannot afford to stay in a place with a high cost of living. This will also allow us to save more money for retirement and possible start the business we are envisioning.
We live in Tennessee and depending on where you choose to live, how much you put down and your lifestyle you can live here pretty cheap. I retired at age 34, 6 years ago. We bought a 2 bedroom 2.5 bath new construction townhouse in January 2020 and our mortgage is $646+$125hoa. We live in a great school district and a great neighborhood. Our total living expenses are well under $3000 a month for a family of 3. We travel often and I would say we have little limitations. In the last 3 years this area has gotten expensive but I have heard that is true of most places. I wish you luck and if you would like specific details about great areas let me know.
@@Scott-by9ks Thanks! That is great to hear. What part of TN do you live in? I'm making a list of places for us to research and eventually visit.
You have a long time horizon. Consider moving further out on the risk spectrum to capture greater investment rewards. Small company growth should be part of your plan.
@@rokyericksonroks Thanks for the recommendation. I will look into that.
It's so hard to plan life. Things happen. I was in a bad (not at fault) accident and the settlement barely covered a small portion of medical bills. I couldn't work for years. Spouses cheat and/or leave. Expensive special-needs children are born. The only thing you can depend on are these "surprises" happening. I wish you the best, just be ready for it.
Our strategy for retirement is working quite well, even with high inflation & low returns.
(1) Eliminate Debt: 15 year mortgage/paid off the house note in our 50's, bought cars we could pay off, in state colleges.
(2) Invest early and often: dollar cost averaging works, but build the portfolio sooner folks, so your money works as hard as you do.
(3) Build a cash reserve for retirement: 6 months is not enough, 2 years of expenses in cash is needed (3 years is ideal). Market is down use your cash, market is up replenish your cash.
It also helps to take a hard look at your monthly budget. Dollars in/dollars out, what do you need vs what you 'want'. Now invest the money you just saved.
I know it sounds like a pipe dream, but it's doable. We worked our tails off, like most of you, we just wanted something to show for it on the back end. Good fortune to you
@Robert H -- great comment. Anything is doable if you put your mind to it! 🙌
Hello Patrick, I've enjoyed your videos; you do a good job. I have a quick question about your spreadsheet though. I downloaded it, and it seems like there is a flaw in the logic. Perhaps I'm missing something, forgive me if so. On the Living Expenses tab, you calculate living expenses after taxes in first section, and then estimate percentage of that for retirement. Fine so far. Then in Portfolio Needs, you are using that (after tax) amount to calculate the income needed from investments, and the portfolio needed to support that. The issue I see is that those needs are after tax needs, and you don't seem to calculate any taxes on the portfolio withdrawals? Perhaps you are assuming all of the withdrawals are from a Roth? Otherwise it seems the calculations would assume too little is needed from the portfolio since no taxes are accounted for. Again perhaps I am missing something? Thanks!
Well done!! Easy to understand! Thanks
Thanks so much, Franklyn! 🙏
I've been fallowing Dave Ramsey's plan for a couple years now and have knocked out a lot of debt I feel like I have a 3 month emergency and have over 200k in my 401k and also have a pension plan as well so if I can work until 65 I should be ok. I'm 53 now and my advice to younger people keep your car over 10 years dont get into credit card debt and live below your means so you can live like no other when your older. Great video going to watch the next video.
Thank you, David! 🙏 I like Ramsey's approach to knocking out debt. That's huge that you've been able to do that! Thanks for watching and thanks for the great comment!
dont you mean you have 400K in your 200K?
Nicely explained - thank you. Lifestyle choices - and habits and values - in both saving and spending have a huge impact on financial security in later life.
Having both a father and mother born before the Great Depression, as does my wife, I was raised early to be satisfied with meeting needs, not wants. In our early married years of living paycheck to paycheck, those lessons were reinforced. That life style, coupled with higher two earner income in the two decades before we retired, has left us in a comfortable position now.
I feel we have successfully passed these values and habits on to our children.
That's so awesome, Michael. My girlfriend and I were talking the other day -- our grandparents lived through the Great Depression and their experience deeply impacted us growing up. Unfortunately, that shared experience isn't around much anymore. Congrats on passing some of those lessons along. 🙏
I could never reach those example numbers and I'm already retired. All I know during my earning years my household income varied from 40K in the early 80's to 110K in early 2000's. Paid off home ASAP and standard of living never changed, way below our means. I knew in 2004 my retirement was set though not official until 2021. I tried/ dabbled in different endeavors and failed miserably. Loss money but recovered by taking on manual work. All expenses are paid by 60% of pension. The balance + dividends are the cherry on top. My asset prices have rebooted by one year, like everyone else.
Just have 50 kids and love them all and support them all. One of them is bound to be a success and take care of you in your old age.
Loved the video. Your assumptions are well reasoned and simple to understand.
I would love to hear your thoughts on what many Americans are doing to put into place what you recommended for upper middle Matt. Namely, drastically cutting his cost of living to meet those targets.
In my case, I am investing in rental property to make up for the shortfall in the investment portfolio. Combining that with moving to a Central American country like Equator, Panama or Dominican Republic reduced monthly costs for an upper middle class lifestyle to aproximately $2500/month in 2022 dollars. The addition of that variable into your analysis makes s works out difference.
Of course, not everyone is willing to move to another country and experience another culture. I am different because that plan appeals to me and I have an adventurous spirit.
Your thoughts?
I think that more and more folks are considering retiring abroad for the affordability factor. It's interesting that this middle / upper-middle topic has gotten so much traction and comments. It's certainly something that isn't touched on in the financial media often. I think they're more focused on high-net-worth folks sometimes. I'll keep hitting on this topic in 2022, Enrique, especially the retiring abroad aspect. Thanks for watching and thanks for the great comment! 🙏
The biggest concern with retiring to Central America is the social stability and security, not an aversion to another culture. That’s a general trade off for cheaper countries, though not always. A BRIC or emerging country might be a better target.
Procrastinating and not starting one as soon as I was eligible was not the best move. It's really not that hard to open an account and manage yourself. And you can also have your brokerage manage it for you. If you're reading this, start now.
I'm excited for the next bull market! But yes definitely going to be making money during the coming recession!
@@patriciaroberts3719 My greatest concern is how to recover from all these economic and global troubles and stay afloat especially with the political power tussle going on in the US.
@@dewesclaire9660 As with any big financial decision, it’s important to keep your guard up for economic risks. However, smart planning, time management and seeking advice from a financial adviser can help keep you and your money safe.
@@kathrinevladamir6528 I agree with you. I ventured into stock with 109k and now I'm about 30k short of half a million dollars. Credits to Suzanne Stephens Ellis. She's verifiable
@@thanhzadau8237 Interesting, I just looked up this person out of curiosity, and surprisingly she seems really proficient. I thought this was just some overrated BS, I appreciate this.
My income was like Median Mark. I too was a mechanic. I started to live below my means when I was 35, and invested in a 401K plan and purchased cash flowing rental properties. I retired when I was 56 yrs old. I haven't worked in over 5 years. Wake up youngsters. Don't wake up 55 years old and decide to make a plan. Great video!
*ROCH DUNGCA-SCHREIBER* showed me great skills and knowledge about the market since I started trading with her company. I enjoy full profits and easy withdrawal with no complaints, trade with the best I say
Wow! this is truly fascinating to hear, please how do I meet this company's portfolio manager?
Cost of Retiring in Puerto Rico
Total monthly expenses should typically be a total of four times your monthly rent, so you can expect to retire comfortably in Puerto Rico on about $2,000 per month. Even the more expensive parts of the island are still less expensive than most major U.S. cities. Hard to match in any mainland state.
Eddie -- we were just talking about this last night. Puerto Rico has some fantastic tax advantages for anyone who might be retiring with a potentially large tax liability (such as the sale of a company). I should do more videos about retiring in PR / abroad...
@@PranaWealth Please do. Thanks!
I’m on my 5th “retirement” at age 52. I figured I’d get the awesome parts of retirement done while I’m young and strong.
I’ve been low income my whole life. If you live very simply, one doesn’t really need much to be comfortable.
Your video demonstrates the need to save part of your income and invest it properly for maximum compounding!! Great share!! New to your channel!!
Thanks so much, @Finance ABC's ! Saving early and often is never a bad idea! 🙏
@@PranaWealth 💪💪💪
Question: In what order should you spend your retirement savings? Tax free investments first followed by Tax deferred, etc?
OK, I think there's a big problem here: I assume the spending includes housing, either rent or mortgage etc. If it doesn't there's a problem. If it does, then it doesn't make sense for housing costs to remain constant (adj 4 inflation). They might for renters. But a house will be paid, probably, into retirement. Also, will expenses drop for kids when they're finally out of school? I think these expenses numbers are unrealistically inflated and too simple to be of any practical use.
I agree, but I have read that about 40% of people have a mortgage going into retirement, so that is not absolutely going to be wiped out for everyone by the time the quit (but maybe shortly after).
Also, who is only saving 5% in a 401K? I don't know anyone who is saving more in a stock fund (after-taxes fund) than a tax deferred fund unless they are earning a very high income and the tax-deferred fund is capped out. If you are earning $148K in income and don't have more going into a tax-deferred fund, that is plain dumb. At that point, you are in the 24% bracket and ROTH is mostly pointless and you will almst certainly be at a lower or equal tax bracket when you are retired, so go tax-deferred...
@@mjmdiver1137 Agreed but that cost is fixed and not impacted by inflation.
Excellent analysis and it is a great starting point. I question a few of your assumptions but again it is a great starting point.
The expenses rates, savings rates, current investments and so on are based on a portion of their salaries and are double for the person earning double. There are many factors that make this a stretch. The higher earner is likely saving more and spending less proportionately and therefore also likely has greater current investments.
The higher earner may find it far easier to live on less than 80% of their current salary than the lower earner.
The biggest question I have about all retirement forecasting model is the accuracy of the 80% model. A year before the pandemic, my older child moved out of the house after college graduation and about 6 months before the pandemic, my younger child went away to college. The size of the household going from 4 to 2 resulted in a significant drop in household expenses. When both children moved back in during the pandemic, their reduction in the family cost obviously was eliminated but there was a huge reduction in cost from not driving to work, eating out and so on.
My guess is that the cost of living in retirement should be half pre-retirement when the family size is cut in half, the mortgage is paid off, the cost of going to work is eliminated, and so on.
@Andrew -- thanks for leaving such a thoughtful comment! I had to make a bunch of assumptions here in order to present a case-study that wouldn't turn into a 2 hour video. 🤣 While Median Mark was pretty true to the median Census data, I think that Upper-Middle Matt was a bit of a SWAG. I think that someone that earns that much would have a little more saved and be able to reduce their retirement expenses by more than 20%.
However, I have seen plenty of clients over the years spend 100% of their pre-retirement expenses -- or more -- depending on how active their first few years of retirement. The "80% replacement rule" shouldn't be a rule at all, I suppose. I think the actual number will vary wildly from person to person. I also think that pre-retirement income level will also affect that number; those with higher earnings have a bigger opportunity to spend less in retirement.
The mortgage is a big issue with all of these analysis. Be sure and watch this week's video at 3:00 p.m. EST today. I tackle one of the mortgage questions and the results are surprising. It turns out, the way you pay off your mortgage can affect your chances of success in retirement. I'm curious to see what everyone thinks -- I'm sure I'll get a lot of feedback on it!
Great illustration there
Excellent subject
Thanks for the kind words, Mel! 🙏
I’m glad I stumbled on this. Investing has changed my perspective on how one can succeed in life. Working multiple jobs for money isn’t the optimal way to attain financial freedom. Unfortunately, we find this out later in life. Great video.
What do you suggest to be the best approach for someone looking to invest?
@@Willycheng590 It's not strange that learning the rudiments of investing can be somewhat difficult, that's why I work with Levi Clemans, a seasoned trade analyst who has made me resounding profit from investing in stocks and forex. You can get across to him
Leviclemans(a)Gmai
Lcom...Is he taking commissions for trades? Yes, I’m I still making money in the process? Hell yes!
@@edwarddick9673 I just looked him up and I’m impressed with with what I see. I left him a message already and awaiting his response. Thanks again.
I have a different issue as I’ve been following several videos on investing and taking huge losses. Can sir levi assist me?
I grossed 170,000 this year, but only brought home 100,000 after deductions. So you divide that by 12 months and that’s 8,300 dollars per month. Then you remove expenses of driving to work, clothes, lunches, etc…. Now with SS income I’ll draw 3330 per month and my wife (Never worked) will get half, so that’s 4950 $ per month x 12 = 59,400 dollars. With expenses dropping every year in retirement, I probably won’t even tap into current 1.4 million dollar 401k. My parents live off 45,000 $ per year and travel some. I think most people will be just fine. People should retire asap, instead of working until you’re no longer able too enjoy the fruits of your labor.
William -- sounds like you're on top of it! I think that most people will spend less in retirement than they do during their working years. This example was more of a thought experiment about what it would take to spend like that in retirement. I have seen more than a few folks spend more once they retired.
And you're right -- life's too short if you're not enjoying work!
More people need to consider an overseas retirement. I could live anywhere, but I've chosen the Philippines. I can rent a lovely modern condo on the beach on numerous islands for less than $600 a month. I can rent a great home in a gated community for $1,000 a month.
Agreed, I retired to Cuenca, Ecuador, located in the Andes Mountains, this year. I'm from Michigan so the mid-40s lows don't make me blink and the upper 50s - upper 70s highs are nice. When I want to experience warmer temps and beaches I'm only a half-day, $20 bus ride away. My $680/mo. rent for a nicely furnished 2-bed, 2.5 bath apartment includes high speed internet and electric......even more affordable yet still comfortable housing is available as well. Ecuador is super interesting on many fronts. The 9.0% interest on Ecuadorian bank CDs is nice too.
@@jonathanmccarthy6126 - I follow a couple of middle age RUclipsrs that live I Ecuador. It looks like a beautiful country with a lot of positives. They speak highly of the health care system. I'm planning a long trip, 2-3 months, there to tour and Scuba. Glad you found your paradise.
Very informative video 🙏🏾🙏🏾🇯🇲
Overall, the point is taken and made pretty well. Hopefully this helps people save more! I do think some of the assumptions are off (why would they save 5% in retirement accounts and 10% after-tax!?) or overly simplified (4% withdrawal rule), but the overall point is roughly the same.
Great points, Nick! As far as the savings go, I was doing my best to follow what it looked like people were actually doing based upon the median data. I'm not saying it was the most efficient way to do it by any means! I'm seeing a few comments like this -- I should have spent more time in the video explaining the assumptions around this.
Thanks for watching and thanks for the great comment! 🙏
I am curious to ask, why would you NOT save the 5% in retirement accts and 10% after? That is exactly what I had been doing, 5% to get my govt match, and the bulk in ROTH TSP or IRA as I am on the bandwagon of taxes are NOT going to go down in retirement as once thought, all signs point to them only getting higher. (I say WAS because I did that until the TSP created the ROTH TSP and we are allowed to put the minimum 5% in the ROTH TSP to get the match which is only put in the traditional TSP.)
As you stated, earnings don't represent spending. Upper-middle could be wise and live on 1/3rd of his income now at age 55. This does two things: excellerates the savings, and lessens how much is needed.
Jason -- if you can live on 1/3rd, you're doing a great job. That's a great (and simple) way to make sure you're on track. Thanks for the great comment! 🙏
One factor to consider is your largest monthly expense…your mortgage. This figure won’t be affected by inflation and hopefully you’ll have it paid off prior to retirement. Also, in many states people 65 and above get property and income tax breaks, further lowering your income needs.
Great point, SR! Watch for this week's video -- should be released at 3:00 p.m. EST.
True SR. But another fact of life that many overlook is that the US tax system is designed to bleed retired people into losing their real property.
Over the course of 40 years, a trivial property tax of $400 a year for a small bungalow in Florida in 1987 ballooned to $2,200. My parents example, demonstrated to me that long term, from retirement at 65 to death at 93, the state would eventually force my parents out of their home for lack of affordability of monthly expenses. Had I not stepped in to make up the difference, they would have lost their home.
Solution, get out. Many countries do not tax one's domicile. Equador and Dominican Republic come to mind.
Thoughts?
@@enriquecomemierda4745 True, but I would counter with 3 points 1) $2200 per year is under $200 per month, much less than a typical mortgage. 2) Tax revenue needs to come from SOMEWHERE. If your parents didn't pay it via property taxes as retirees they would have paid it through sales or income or some other tax. 3) The reason their taxes have skyrocketed is that their wealth (via home equity) has skyrocketed. If necessary that wealth can be readily tapped via a reverse mortgage.
I must not live in one of those states. My house is paid off but eventually I may have to move because my property taxes are up to $19,000 year and my pension is taxed. Zero breaks for seniors. (I live in Michigan).
@@sheneedsme $19,000 a year is insanity. That’s more that my total mortgage including taxes and insurance for a large home in a very nice neighborhood. Most states increase the size of their Homestead exemption for seniors. I know it can be hard to move, but you should at least consider it.
I'm an upper middle Matt living a lower class lifestyle. I've never understood why people think they need to spend so much money that they don't have enough for retirement.
That's a definite recipe for success! It's simple, but not easy for many, many people.
Clearly Upper Middle Matt should be spending the same as Median Mark instead of spending the same proportion of his income. That way he can comfortable achieve his retirement goal.
That would solve a lot of problems, Vishal! Great comment! 🙏
Life just doesn’t work that way. The more you make the more you spend.
@@wreckdiver61 that’s a choice
@@wreckdiver61 you don’t have to. We spend less than 1/3rd of our gross household income and that too in a one income household.
@@wreckdiver61 I save 75% of my take-home income. Although that will shrink to 55% once I have to move back to NY. And most of the people I know are more frugal than I am and make more money than I do.
I think one of the key factors is ‘when’ you retire, there is a big difference between. 58, 62 and say 67.
For sure, Derek. I'm a big fan of 65 just because of Medicare. However, if you've saved enough to make something pre-60 work, I get it!
@@PranaWealth I used to think that way UNTIL I experienced what happens to seniors with mobility issues who will need assisted living care as they age. If you are in great health for your age, make plans now for living into your 80s - 90s.
I would think that many people who still have a mortgage at 55yrs old will not have one at 65.
As I have gotten older, close to retirement, I can see the younger generations esp. have blurred the lines between wants and needs, a lot of this of course comes from the bombardment of social media marketing and creative marketing (think FB and how its knows what you were just shopping for), also ease of online shopping accounts, they store your cc info, "one touch" ordering, etc. I say go back to old school ways and get rid of all those "conveniences" that keep america broke. True needs are and can be quite minimal.
Barb, you're certainly right when it comes to the effects of marketing and advertising. What we truly "need" isn't nearly as much as we've become accustomed to. There's nothing wrong with having nice things, though, as long as there's a good balance between saving for the future and enjoying the present.
In summary, you only need in retirement after your savings spent. Possibly add a little to buy a vehicle, renovate home, etc. I’m in my early 50s playing “catch up”. I’m saving $1,800 per month into my retirement. I spend $2,500 per month (debt-free). The remainder I save elsewhere. If I need say $3,500 per month in retirement (added extra for incidentals), I’d need approximately $600,000 and my balance will remain. Less than $600,000 and my balance will reduce, which is fine as long as it lasts for at least 30 years. This video is right as most of us won’t need $1m+ unless you have a very expensive lifestyle.
I didn’t include spouse’s retirement either, which could mean I may spend even less!
Just be debt-free.
@Joseph J -- I'm not dogmatic about being debt-free, especially around some of these low-interest rate mortgages. That being said, I'm debt-free.
Nice pick, I’m compiling and picking stocks that I’d love to hold on to for a few years before retirement, do you think these stocks would do better over the years? I’d love to retire with at least $2million savings. Now you gotta rely on a pretty good diversification if you must stay green. Currently up 11% and being cautious. Still better deal than letting it sit in savings or checking earning near 0-1% interest.
Well up at 11% in this present market is impressive. I was wondering if investing in a cumulative ETF during this next decade is a sound investment. Or is it better to invest in a distributing ETF (even considering taxes)?
@@justingregory2965 ETFs are cool. My portfolio is very much diversified so it's not like i have a particular fund i invest in. You should probably copy a licensed person more so one with experience of the past bear markets. I copy a chartered financial analyst Karen Marie Emma" Been quite consistent. My portfolio returned $350k in Q1
@@donaldbrain5996 i am envious i've been in the red for too long even before the dip but would like to ask are you giving her your money or the money stays in your account?
@@stricklandpilman2123 You don't give out funds here. My account only mirrors her trades in real time that's the ideal for this system. The lady I just recommended is a renowned advisor and knows what the heck she's doing. Check her out and get in touch if you'd need help
@@stricklandpilman2123 m ever confident in Karen Marie Emmas ability to create expeditious future benefit. I made profit withdraw in December. A total of $570k for the final quarter. I used all of it to buy gold and resume investment with my original $200k cap
I'm trying to understand the disparities between what people say I should have saved by retirement age. Some say x12 annual salary and it seems with 4% rule it's just annual salary divided by 0.04. The problem I'm having is x12 annual salary comes out to a far, far smaller number than salary divided by 0.04. For example with 50k salary x12 is 600k saved and 50k divided by 0.04 is 1.3M, a difference of x2.
@BoredErica -- unfortunately, these methods are all rules-of-thumb that can get you in the ballpark, but may provide a more conservative estimate of what you'll actually need. You might want to check out something like Mint or YNAB to figure out what you actually spend, rather than rely on your (pre-tax and savings) salary. Once you find your actual spending numbers, you can adjust it by removing what you will or will not spend in retirement. Using that number with the 4% rule may give you a completely different savings goal.
Of course, you can work with a fee-only financial planner to help you with all of this. There are more nuanced ways to calculate this than the 4% rule. While this is what I do for a living, I also realize that I'm not a perfect fit for everyone. If Prana Wealth isn't a good fit, I'd recommend you use the XY Planning Network to find a planner who can help you.
I hope this helps! This stuff isn't easy, but stick with it! Thanks for watching and thanks for leaving a great comment! 🙏
Bored...the rule is 25x salary for the 4% rule.
I never considered really saving for a retirement. But I started working on establishing a passive income stream after an economics class in HS. Worked my tail off and put 60% of what I made towards that goal. Was not only able to retire at 36. But also eliminate financial burdens for some family also.
💞 Financial Freedom 💞
So, how do you fill your days now that you have nothing you have to do? Or is your income truly passive?
@@Dave-sw2dm have a few acres and a beautiful farmhouse in a rural area. Mostly playing with my dog, shooting at my private gun range, reading and looking after my elderly mother . When I have less people depending on me I'll be traveling the US and the rest of the world.
Pulling in around $175000 currently.
Life is Good
Mind sharing what you do to earn a passive income?
I retired at 59 and 3 mos. I've been retired 8.5 years. I've collected 534,000 from my ... Pension.
Most people in the Median Mark category wont have enough money in saving to match his month;y social security payment because they have no savings.
There are places where you can still earn a pension. Its the only way to have a secure future.
P.S. Those jobs usually have nice benefit packages, too.
And ditto on retiring debt free.
If you can find a gig with a pension, that's a huge bonus!
Great information! A question about the two example incomes: is the comparison based strictly on wages only, or do the numbers include the cost of typical benefits including healthcare?
Great question, @L Cee -- for simplicity, we're assuming everything aside from taxes and savings are being spent. So things like health insurance premiums and out-of-pocket costs would be included in that number. Hope that answers your question?
Thanks for watching and thanks for the comment!
@@PranaWealth thanks for clarifying! 👍
Anytime! In hindsight, I should have added more info to the assumptions section of this video rather than leaving them on the cutting room floor. Next time, for sure!
I am not sure where your getting your information or that my be I am not the typical Middle Mark. My monthly expenses have never been close to $4000 and I didn't save anything close to the 15% you have said "was typical". I am way past 50 now but at 50 I had about $275,000 saved in various accounts and I never made more then $62,000 in any year. My average income was closer to $48,000 - $52,000 over the period between my 50th and 60th birthdays. When I was retired (got bored went back to work) my monthly expenses was about $2900 and only $1000 was coming from my retirement account, which continues to grow at between 17% - 22% year after year. This year is to early to say but my guess in closer to 5% - 7%.
To me it’s the 80% of salary need assumption to maintain lifestyle that is often bad. Expenses and spending often go way down between 55 & 65 or when you retire. Many expenses you have while working or have kids at home or in college, you are paying a mortgage, FICA taxes, higher income taxes (esp for upper middle class incomes) go away or reduce when you retire. Of course everyone is different and needs to study expenses more. What is a significant expense now that won’t be later? What are expenses relating to time and working… ie. Eating out a lot, driving a lot to work etc, paying for services you could easily do yourself with more time, etc. I retired at 56 and planned to spend the same plus inflation as my last two years working- and almost 3 years in I actually spent significantly less - even with the much higher inflation and increased health care costs! I’m happy with my lifestyle and spend pretty much what I want. I think this happens to a majority of people esp ones who wait until their mid-60s or longer to retire. My key difference or secret is I earned like the upper middle person however I lived like median Mike all my life! No regrets. Getting 10 extra years to enjoy the fruits of my labor is a much bigger reward than what kind of car I drove or the clothes I wore, fancy restaurants, etc. A LOT MORE! I never cared about that stuff and it really was a win-win!!
unless I missed it, this didn't cover home mortgage expense. I am 59, and my home will be paid off in 4 years. Not having the mortgage is a big savings, but I fear the expense will be replaced with higher health insurance costs.
Rob -- the housing costs are embedded in the data. And you're absolutely correct -- housing costs do drop, but healthcare costs rise. It was funny to see that, while housing costs do drop, they didn't drop as fast as retirees' overall expenses in retirement. It was still the #1 budget line-item in these studies.
So the takeaway is, start investing early. I started maxing my Roth and 401 at 27. I’m 42 and could reasonably retire today.
Investing early always helps, Jason! Great job maxing out those savings! 🙌
Just saved! I'm 54 and obsessed with retirement. Only thing I'm adding is the COLA for spending for every year 65 + to Age 70, at least, when is last year I could elect Social Security. I think I'm good!
If you can delay without worrying about cash flow, it could make a difference!
@Prana Wealth thanks for the response! Actually... I'm Much better off than I thought. Relief!
Thank you
It all depends on you debt status and expenses, if you have a pension ect.....I think the biggest factor is debt, if no debt the 60-70K one can easily live on
@larriveeman -- having no debt sure does help a lot! Thanks for the comment! 🙏
I have no debt and built my million dollar+ house for cash and paid cash for cars but the problem is my property taxes-$19,000 year! My wife loves our house and never wants to move but those property classes are a killer, even with a decent pension of $55k a year.
@@sheneedsme hmm, maybe a downgrade would help
Excellent analysis showing the importance of starting early, living well below your means and having a savings rate well above the two example's low levels. Frankly, I can't help but wonder how these two are spending so much of their income each month and on what. Good grief, if this is "average" and "above average", who wants to be "normal"?
What is "middle class" anyway? It's often defined by income which is meaningless as shown by the examples that have largely over-spent away their earnings. In the past the parameters were lifestyle metrics, for example a 1400 sq. ft. home, a single base model vehicle, eating out on special occasions only and sending your children to an instate college while they helped pay their own way by working summers and during the school year while living at home. Somewhere along the way this has gotten bastardized into a home more than twice that size, not one but at least 2 oversized and fully loaded SUVs/Trucks each with $900/month payments, eating and drinking out multiple times a day and god forbid the kids lift a finger while getting their 5 year often useless degrees these days.
In reality the only things that really matter are your savings rate and disposable income as they are what drive a secure retirement and provide an enjoyable lifestyle both now and in retirement. Make no mistake, spending does NOT equate to happiness and only misery will follow if you fail to learn this simple truth.
well said
@@cstuartdc I prefer the TCJA that targeted the middle class. Folks like me pay no income taxes anyway thanks to our retirement contributions and advanced tax planning.
It is always the paradox that high earning people are ones with the knowledge and the resources to save more, usually.
Actually, the thing that matters the most is investment return. And, secondly, expenses while in retirement. You should find a retirement calculator and play around with the variables.
@@lvega5606 Without that savings rate, you're done before you even start...it's the most important determiner of building wealth. Try inputting increased monthly investments (PMT) and see the effect THAT has. You're return is your return as are your costs, both important but not the most important. Doubling, tripling, quadrupling, etc your monthly contributions dwarfs all other variables.
For myself personally, I don’t expect my expenses to be as high once retired. Children not in school and have moved out etc. Most of money is spent on children. I have planned for retirement and look forward to it.
Tanya, this is more common that you'd think. That's why I gently push back on some folks who think that expenses will automatically drop in retirement. For some, they will, but others will see that they spend about the same amount in retirement as they did before. As long as you track things and plan for them, you'll be okay. Glad you're looking forward to retirement! 🙌
My take away is people need to save more and earlier. Clearly given the amount of assumed savings in cash/non-retirement investments is not even consistent with the 10% the assumption. Middle Mark is saving over $7000 a year whereas the census data say he would typically only have less than twice that saved at age 55. So the average person is saving way less than 10% into various accounts. In fact a lots less.
5% into retirement accounts seems low. Would be interesting to see what it likely takes to hit those census numbers, say starting at age 25 or 30. In general depending on when you start, when you retire, and how markets have done, 15% to 20% is going to be much better. Though I know for many that is too hard - but in the end you pay the piper sooner or later.
My other take away, though this is kind of obvious, is that the more you make the less help you get (on a percentage basis) from social security. And thus the more you need to save from your income. Clearly, if SS is going to be half your retirement income (as an example) you can save a smaller percentage from income, vs if you expect SS to be a quarter of your income.
One way to get there is to increase your savings rate over time as (hopefully) your income rises. If you hold your spending more or less constant, or only let it drift up slowly, you can do this without much pain.
I am hoping you have a full and speedy recovery!
Thank you, @Rodc ! I'm pretty much fully recovered at this point. I know omicron is supposed to have milder symptoms, but I was pretty much laid-up for about a full week. Glad to be on the other side of that! 🚫🦠
You're spot-on when it comes to saving more and earlier. I know that it's hard to do that, especially if you've got kids that you want to send to college. The savings rates that I assumed here were kind of arbitrary. The data said that this age group tends to be cash-flow positive, but also hasn't managed to save enough. I think that you could split it up better than 5% to tax-deferred and 10% to after-tax. I just kind of picked that at random.
And you're correct about Social Security. It's nice to have, but you certainly don't want to rely on it. If you're earning around what Upper-Middle Matt does, Social Security will help, but timing your benefits perfectly will only marginally increase your odds of success.
Great comment as always! 🙏
It's really hard to say what the avg person has in saving. I think it's a lot lower than you think. I saw like 5-50k, When you remove the retirement word from the search. A lot of people will just work until they die or there not physically able to work, a sad fact. Median household income is usually not just one person. hopefully Median Mark had a union job with a pension. The higher paying jobs got rid of pension years ago. There are many things in life that will wipe out your 401k but not a pension or SS. I retired at 58 1/2.
Darryl -- unfortunately, I think you're right. In my prior "average American" videos, I was curious about why the average person was only spending around $47,000 per year in retirement. It ended up being much lower than what they'd made during their working years. I do think that people are doing their best, but probably not saving enough.
And you're completely right about the pensions. They're becoming more and more rare, unfortunately. Thanks for chiming in with a great comment! 🙏
@@PranaWealth Typically, there are different levels of compensation for employees who make 6 figures salaries. They would be given bonuses as well as stock options. I know I would not accept any offer without a comparable stock option. Compensation like that is meant to keep the employee through the vested period. They would also max out the 401k contribution since they would not be eligible to IRA and ROTH contribution due to the income limits.
There is another side to this - many people have extra assets that are not "retirement savings" that nevertheless will be quite useful. Some sort of extra real estate or a small business can be very useful when you are ready to retire.
@vinyl1Earthlink -- great point! Let's also not forget that home equity can be tapped via reverse mortgage. Of course, it would be ideal if we could avoid that.
I'm glad to see that you didn't get too sick with covid, hopefully you recover fully very quickly!
I have a question about the 80% "rule" as I may be a bit of an outlier. I understand most people stop commuting, buying clothes and whatever else is associated with working and those costs go down. But according to my numbers my expenses will actually go up in retirement. We will still need to pay what we do now, we don't have any commuting costs and my clothes budget (wife is retired but not collecting yet) is extremely low but now we will have to take medical (assume Medicare) and taxes into account where those are taken out of my paycheck now. Am I missing something?
Thanks!
@Vinny G -- great point here. Some people do spend less and others don't. I'm not sure if you've heard about the retirement "smile" -- where you spend more initially, slow down and spend less, and finally, spend more later in life. (The like looks like. a "smile" if you graph it out.)
That being said, I always use 100% of spending in retirement for my clients unless we make plans to spend less. I think either way is a valid way to plan.
Thanks for the well wishes! I'm pretty much recovered, but still have 2 more days of isolation to go. It is what it is. At least I caught it early enough so that I didn't drag it back home to my family.
Happy holidays, Vinny! Great to hear from you again!
I would do a monthly budget of your current expenses. Child care/college, mortgage, and other mid-life expenses go away for many. Many retirees downsize in home to both remove the upkeep issues and to not have the additional cost of a mortgage.
@@PranaWealth I never heard about "smile" but the concept makes sense. I don't see that in my future except maybe my line items for vacation, car payments and pet costs. All of these costs are small compared to my overall budget; yes they do add up but not enough to offset the taxes and healthcare expenses.
Happy Holidays Patrick!
@@neilfujiwara7198 Thanks for the suggestion! I do have a somewhat accurate budget, I've been tracking it for years and adjust it on an annual basis. I say somewhat accurate because I may be over on some things like gas and electric and a little low on others such as cable but overall I am aware of where they lie compared to my budget. And then there are emergency expenses that I don't capture like needing a roof or a very expensive car repair (I do capture some car repairs in the budget). Taxes where I live (NJ) are high and my PI in my mortgage is less than the taxes on a per month basis. We discussed buying a different house but I can't wrap my head in selling something that has a low mortgage amount (just refi'd at 2.875) to buy a smaller house with the same or more mortgage amount; taxes will be slightly less with a smaller house.
I'm pretty sure I'm an outlier when it comes to my retirement situation. I pay very little to commute, bring my lunch every day, very rarely buy fancy coffee 🙂 and don't need to dress up. I would imagine for a lot of people these would be a big chunk of money. When retired most of today's budget will be there plus like I said I will need to add healthcare and taxes into that budget. Things like a car payment or pet expenses may come and go and I'm sure some things will go down but I don't know if it will be a significant change.
Thanks, Vinny!
I have been living on SS monthly pension since my retirement in 2019. I have retirement saving of $800,000! Also take in consideration for paying Medicare, now at $170/ month, min. Tax of 7%, state tax, and the cost of buying supplemental insurance. You will be safe if you paid off your mortgage, no existing student loan or monthly payments for a new car!
so you are not even touching the 800000 of savings? nice
Assumptions are absolutely required for making estimations on retirement needs....and will ALWAYS be wrong...ALWAYS!
We still have to make assumptions based on some sort of data and using census data is just a way to start the discussion.
I don't believe in a static spending plan as most of us will tend to spend less as we age. Maybe use the 80% rule for the first 10 years and then drop that down to about 50-60% after age 75. The "4% rule" is pretty much outdated since bond rates are so low. I still think using a 4% withdrawal rate as a starting point makes sense.
2 things that I find appalling with people planning retirement.
Debt. People with a $2k mortgage, 2 car payments, student loans, and credit cards trying to plan retirement? Going into retirement with zero debt makes it so much easier.
No true understanding of what their expenses will be. There is absolutely no way to determine your requirements if you don't know what you'll be spending.
@J Dollar -- you're right. No plan survives first contact with the enemy. The calculations that I'm using in these videos are back-of-the-napkin level, so we know that a real retirement will be much more nuanced. And we know for sure that our assumptions will be off. I still think the exercise is worth doing to get a high-level idea of what's required for retirement.
Accumulating lots of retirement money is terrific. I always saved early and often,and we have a very comfortable retirement. But now I am in my low 70s and facing RMD's... these mandatory withdrawals can change the calculus by quite a bit, and must be considered in any discussion of retirement accumulation or planning.
You have to withdraw it. You don't have to spend it.
True, Alan! I have clients who just move it from their IRAs to their brokerage account every year. Uncle Sam just wants his tax revenue.
I will have to pay about $20,000 extra in income taxes this year as a result of the income from my RMD. That money comes right off the top from my net worth and is not insignificant.... If you have a $100k RMD and you are left with $75 k that stings.... And will give the Medicare tax penalty...
I'm often confused with the definition of middle class and upper middle class. It's often defined by individual incomes. So does that mean you need to double that income to define the middle class FAMILY incomes? This video uses individuals. I'm not sure whether that was just for illustration.
John -- I think a lot of different people have different definitions of "middle class", which is confusing as heck. I went with the Pew Research Center's definition, but I know there are others. At some point, I just had to make a bunch of assumptions to create these examples. I'm sure that reality varies wildly around these median numbers in the Census. I'll keep hitting on this topic in 2022. Thanks for the great comment! 🙏
It is all about being a responsible adult and running the numbers 10+ years out from retirement and adjusting the lifestyle accordingly - bit by bit. Just like your mix of aggressive vs. ‘safe’ investments gradually adjust so should the monthly budget.
I literally just retired at 55. Pre retirement income $150k right living off of $40k pension and still have a mortgage and doing fine. Just not touching 401k and not eligible for SS, will actually make more as I get older...lol. Feeling OK even tough only $600k in 401k. Point is living way under your means is key, I have zero debt except mortgage so after that just utilities and groceries is all we need.
David -- you're absolutely right. It's all about keeping that spread between what's coming in and what you're spending. Kudos for making that happen -- it's not easy for a lot of people. 🙌
I was able to do this in about 22years, a few of which were unemployed. On an engineer's salary. And I have my own house paid off. No kids. No expensive SUVs. Houses always bought with cash.
That's awesome, Phil! It's not sexy, but spending less than you make and saving the rest tends to be a successful strategy!
It's not about what you make, it's about what you keep!
You only need to pay off your mortgage by retirement as that is the biggest expense so you would then need less than 80% replacement, more like 70% and that is easily done if you plan. Housing cost are the biggest income need and getting the mortgage out of the way makes housing cost very low, just maintenance, insurance and taxes.
James -- having the mortgage paid certainly takes the stress out of things. However, digging into the data, it looks like there are a fair number of folks who are still paying the mortgage when they retire. Fortunately, it also seems like they're paying it off eventually over the course of their retirement!
A game changer in spending needs is paying your house off. For most people, it's 28-32 percent of their take homepay. If paid off, expenses drop significantly and people can retire more easily.
True. Also it makes a lot of a difference where you live. Here is California, even if you pay off your home, property taxes alone will be one of your highest expenses.
All upper class Matt has to do is live like Medium Mark and he’ll have twice as much money and can retire early. It’s all in how you spend your money. I’ve never made more than &45,000 a year but live very comfortably. Paid off my house 10 years early, pay off my credit card every month, get a new used car every 10 years, no car payments, have 401k my employer matches and savings. I don’t spend money for the adrenaline rush of having something new. I just buy what I know I’m going to use. Don’t have to have a new $1000 phone every year. I also went on an nice weeklong vacation to the Oregon coast. It can be done. Just takes discipline and a certain mindset. It always comes down to what you do with your money.
For a lot of people retiring in the next 10 years there is a good percentage who will have a pension, or military benefits which help bridge the gap. For younger generations, far fewer people have such benefits. It's going to require a lot more savings for the rest of us to retire.
@CaedenV -- that pension sure does make things easier. It really does make things harder for those of us who don't have one. Thanks for watching and thanks for the great comment! 🙏
Pension? What's that?
@@alansach8437 Sir that is for the government agencies and is FOUO
Nice exercise. My only critique is the expenditures go down over time according to EBRI so applying a 3% inflation factor to expenses and used it as income need is not accurate.
According to pension actuarial, a 70% replacement rate is appropriate so using 80% is too much. In reality must people retire with about 50% to 60% of their income. How?
In both cases, there is a 15% savings then about 15% in FiCA taxes then 25% for a paid off mortgage. That is 55% less income needed in retirement. Take 10% off as an error, you have most people retiring with about half of their working days income.
Sounds fair,
There was an article yesterday (I don't recall the newspaper :-( ) explaining that many retirees (of course not lower class) are not even touching their savings, on the contrary their nest eggs inflated recently with markets
Alberto -- great comment. I think a replacement ratio can vary from person to person -- and even vary during different parts of one person's retirement. For someone who hasn't done any budgeting, I think 80% is a good place to start and refine from there.
Thanks for watching and thanks for the great comment! 🙏
The option that most Americans don’t consider is living abroad. You can sell your US house and move to a country like Panama, Costa Rica, Philippines, Thailand, Indonesia, Ecuador, Belarus, Poland, Latvia, Croatia, etc. You can get a beautiful house for $100K and affordable cost of living. Cheap labor such as landscaping, cleaning service, laundry, healthcare. Cheap restaurants, health clubs, hotels, food, etc. Flights are cheap to visit the US.
The negative is getting out without losing your shirt in the sell off.
Also in the covid era a lot of what used to be bars, restuarants, hotels and even air service is sketchy or simply closed.
@rolback -- I'm hearing more and more interest from folks about retiring abroad. I won't be surprised if we start seeing that more over the next 1-2 years.
Younger me would've done that in a heartbeat, if nothing else except for the adventure of it! But the older me now probably wouldn't because I like being near my grandkids; but I do romanticize about it; maybe I can do a hybrid approach, part time living abroad...
Good short and informative video. However, the numbers you use for estimated taxes seems way low. I would think the median income should be around 15% and the upper middle income around 22-25%.
I guess the spending assumptions made in this video are based on your experience working with people's money. Wow! That's some spending! One of the benefits of having Depression Era parents--they instilled a savings ethos in us kids. Saving only 15% of one's income seems awfully low, especially after the kiddos are out of the house.
@T Wilde -- these spending assumptions came straight from the Census data. As far as the kinds of clients that I've worked with over the years, most of them were more similar to Upper-Middle Matt, but maybe with more saved. If you live in or near a big city, it becomes much harder to be frugal just because the cost of living is so much higher. I always feel like everything is half-price when I go home to visit my family in S.C.
As far as the 15% savings rate goes, I did my best to try and mirror the Census data. I had to make a lot of assumptions to keep the video from being an hour long! 🤣
You're right about having Depression-Era parents / grandparents. I think one of the things we've (sadly) lost touch with is the kind of struggle that they lived through. I know lots of Gen-Xers like me have been influenced by their grandparents who grew up in the Depression.
Interesting calculations. I believe you left out the important facts that a retiree will no longer need to save for retirement nor putting money aside for IRA/401K. Also their taxes should be quite a bit less. I don't believe these factors were reflected when you used the same expense pre-retirement numbers for the post-retirement expenses.
@Van Allen -- The expenses levels here do factor out taxes and savings. That being said, they do not assume that their retirement expenses will be less than their pre-retirement expenses, as many have pointed out. This was kind of a thought exercise to see what it would take to maintain that kind of spending levels in retirement. Great comment! 🙏
@@PranaWealth Thanks for your reply. That is exactly my point. The post-retirement expenses should be less based on those factors to arrive at real world numbers. Thanks again. Very informative channel.
Anytime! Thanks for watching and commenting! 🙏
@@vanallen1673 Kind of depends on the job and the commute and the lifestyle.
Controlling costs is arguably more important than saving. Pay off house around desired retirement age, solar or wind to protect against energy rate hikes, paid off cars, etc.. The projections you list for "at retirement" under the inflation assumptions really only apply to when one initially retires. The longer they live the more painful inflation becomes on a fixed income. Inflation defense is just as important as retirement savings in my opinion.
Ted, when it comes to retirement, the biggest lever that we have to pull are our everyday living expenses. That's the #1 determining factor of whether or not someone will have a successful retirement.
All I can say after watching this is wow!! And NO, the average American doesn't need this much to retire. I'm 40 years old and I retired 6 years ago. Of course this all depends on the lifestyle you choose but the short answer is no you don't need millions of $$$$$ to retire young. A cheap way of life will go a long way. My situation is not typical but it is not unachievable either. Good luck and God bless.
I agree, Scott -- it's all about choices!
I semi retired at 46 and fully retired at 50, when covid hit. Pointless mandates involving all day mask wearing and (future)company led vax requirements nationwide, made me realize that I wanted no part of this on going authoritarian regime being forced on the populace. Our home is almost paid off and my wife and I have focused on enjoying our home life as much as possible. Our day to day existence has not changed at all. The secret is to start investing in your 20s and live below your means. We also never wanted children, so that has saved us enormously over a 30 year period. We live in a red state where houses are still valued in a commonsense manner and we grow about half of our vegetables. Instead of focusing solely on saving, I would recommend that people focus on simplifying their existence. Our $180,000 4bdr, 2 bth home on .6 acre that we bought in 2016, would cost us around $1,000,000 in SoCal, which is why we no longer live in SoCal.
I always say, "The simple plan tends to work out more often than not." The pandemic really gave us a lot to think about and it's been interesting to see the intra-migrations between states over the last couple of years. Deciding to be content and simplify your life is really what all of this is about, in my opinion! Congrats on making things work and best of luck! 🙏
If every American stopped the debt game other than house and worked 40hrs a week starting at 22-25yo and saved a measly 15% of their income EVERYONE WOULD BE MILLIONAIRES. Wrap your head around that.
That would solve a lot of problems!
When one retires no more payroll deductions and saving for retirement ,easily 25 to 30 percent goes away…On has to replace 70 percent of income through SS and portfolio. I have been with Vanguard investing for over 30 plus years, like is good.
I understand that you are getting median data for different measures from different sources, and that people don't have consistent savings rate or income over the course of a career, but ir seems like there is a disconnect between the cumulative amount saved and the saving assumptions. For someone like "Mark" who is making almost $75K at age 55 and saving 15% of his income, it seems like he would have significantly more savings at age 55 than $143K. I have an early 50s family member whose annual taxable income over 27 years has averaged about $35K and has saved about 6% (own money) and maybe about 10% (including employer match at some points) in retirement accounts and almost nothing after tax and has retirement savings of ~ $210K now without having particularly strong investment returns.
@Julie travels -- great point! I did my best to reflect the same gap between after-tax income and spending that showed up in the BLS study. There could be a myriad of reasons that they could be cash-flow positive, yet still be behind in savings, relatively. It could be paying down debt, sending kids to college, or something else. Honestly, I'm not sure what's the best way to handle the discrepancy.
It's hard to figure out the real story from means and standard deviations, but I didn't want to just not tell the story. Thankfully for you and your family member, things are better than this!
Thanks for watching and thank you for the great comment! 🙏