How to Avoid the Risk of Working Too Long

Our topic on this episode of the Ready for Retirement podcast is about how you can avoid the risk of working too long.

Questions answered: How can I make sure I don’t work longer than I need to? What strategies can I implement to ensure I create my ideal retirement? What is the best strategy for your individual situation? 

Are you ready to start focusing on the things that truly matter when it comes to your financial future?

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Check us out here for more content to help you create a secure retirement: YouTube – Root Financial Partners

Key Points

• How can I ensure I don’t outlive my money?
  • Most concerns surround ensuring you don’t outlive your money, but we don’t want to just stop there.
  • Oftentimes having a strategy in place can tell you this, but what about the experiences along the way?
  • How can you make sure you don’t work too long and sacrifice what’s most important to you today?
• “We have two lives, and the second begins when we realize we only have one”.
  • Financial planning is to ensure we are supporting the lifestyle we want to do on the non-financial side.
  • Your financial plan should be rooted in what a successful life looks like to you.
    • Should I keep working? Should I keep saving?
    • At what point am I sacrificing the best years of my life?
• Listener Question Information
  • $1.75M in retirement assets.
    • $1.3M in a 403(b)
    • $450k in a lump-sum when retiring (can rollover into an IRA)
    • Pension: $1,250/month
      • $900/month
      • $350/month
      • We don’t know when these begin or if they’re in place.
    • Social Security
      • $3,140/month
    • Cash
      • $180,000 ($250k in 3 years)
        • Currently saving ~ $2,000/month
      • $36k from PTO upon retirement
  • The goal isn’t simply to be okay, but to understand if she can retire today and not work at the expense of what’s most important to her.
• What We Don’t Know
  • We don’t know the listener’s expenses.
  • Where will income come from? How can I recreate that paycheck?
  • How much can you create with the various income sources we have?
• Income in Retirement
  • What can your investments create?
    • Assuming $2M in investments.
    • 4% Rule (Guyton’s Guardrails)
      • Traditional investments begin by using the 4% rule and be reasonably assured your portfolio will last for 30+ years.
      • If we apply this rule, that’s $80,000/year that can be created when reviewing this framework.
    • Alternative Approach
      • If you adjust your investment strategy and follow certain guidelines, there’s reason to believe you can spend more (5.2% – 6%) and be reasonably assured you will have income for 40+ years.
        • This is assuming invested appropriately, but as a starting point, this can generate ~$110,000/year.
    • I am going to assume $100,000/year for simplicity sake.
• Additional Income
  • Of the $1,250/month from pension income, this $100,000 (investment income) in addition to ~$15,000 of pension income is $115,000/year.
  • $37,000/year from Social Security income (age 67).
    • Before taxes, $152,000/year can be a reasonable assumption of what can be spent in retirement for 30 + years (when invested appropriately and following certain rules).
• What won’t I have in retirement?
  • If your income is $180,000 today, let’s remove certain items from your income that won’t be there in retirement.
    • You’re no longer saving $25,000/year.
    • Assuming you’ll pay $30,000/year less in taxes today.
    • You’re no longer maxing out your 403(b) of $26,000/year.
      • $99,000 is how much you actually need to live the same lifestyle you’re living today. 
      • If you have $152,000 coming in from Social Security, Pension, Investments, etc. it appears you can certainly retire and maintain your standard of living.
• What Doesn’t This Factor?
  • What if you retire early? Where does income come before the pension begins?
  • Do we need to add on medical expenses? 
  • What about extra travel? What does an ideal travel trip look like to you?
  • Are there children you’re taking care of financially?
• Additional Considerations
  • Housing: Do you have a mortgage that will go away in the future?
    • You may be able to spend more today if certain expenses are no longer here in retirement.
  • Social Security: When does it make most sense to collect?
  • Pensions: Are my pensions adjusted for inflation?
  • Taxes: What income amount is coming in so I can pay taxes and maintain my desired standard of living?
  • Investment Strategy: How are your investments allocated in retirement? Are you invested in the right way for your individual needs?
    • The temptation is to do what’s worked well recently, but too often we only focus on this part of the market.
  • Tax Strategy:
    • Does it make sense to implement Roth Conversions?
    • Do you have the resources to allow you to pull funds from the most tax-efficient accounts?
  • How can the Rule of 55 be best applied to your current employment?
• Final Question: To what extent do I want to keep saving and to what extent have I already done enough to have the comfortable retirement that I want to have?

Timestamps

1:31 – Kind Reviews

4:29 – Non-Financial Side of Finance

8:25 – Listener Question’s Information

9:46 – When To Stop Saving?

13:42 – Understanding Your Portfolio Income (Maximizing Income)

16:17 – Recreating Your Paycheck

18:56  – What Will Go Away In Retirement

20:19 – The Retirement Smile

21:19 – Additional Retirement Considerations

27:03 – Negative Compounding

30:21 – Aligning Your Investments With Your Financial Goals

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