Easan Arulanantham:
I read a article that said, around a quarter of respondents to a golden Sachs survey said they plan to retire before 55. On what big changes do I need to make if I’m going to retire a handful of years sooner than I originally expected?
Tom Vaughan:
Okay. Yeah. It, it’s kind of funny, I’ve seen an awful lot of news talking about how many people want to retire early. Personally, I’ve been doing this for 35 years, that’s been something that’s been going on for as long as I can remember. Generally speaking, that’s kind of a great thing to think about, you know, being able to retire early, right? Very difficult to do. So. And so a lot, oftentimes, people can’t do it. I mean, they might want to do it, it might be 25. And think I’m retiring at 55. And they get to there and they realize life got in the way you got, you know, kids in the house and mortgage and all these things, and didn’t, you know, become the, you know, as rich as you thought you would be, you know, when you’re younger? So I’d say that there’s a couple of things that you have to think about, there’s you, first of all, can you do it. And so that’s where I think financial planning, MonteCarlo simulation, and those types of things come into play, where you can test that out, because you’re now asking your money to last longer, right the rest of your life, whatever that might be, is, you know, such as 85, or 100, or whatever it is that you think you might live to, when you retire at 55 versus 65, your money has to last 10 years longer.
And so, and you have 10 years left to accumulate money, as far as that goes to. So that’s what makes it super difficult. That would be one thing I would consider. The other thing is, and again, it depends on how old you are, when you start considering this, you cannot get to your IRAs, or 401k, Ks are all these other type of savings assets prior to 59 and a half. So if you’re going to retire at 55, and you want to get into those assets, you’re going to pay a penalty to do so there is a thing called the rule 72 T, which allows you to take money out of those retirement assets. And if that’s all you have, that works quite well, but it has some restrictions. And if you have some time, it’d be better off building up some assets outside the IRA. So maybe you give up a little bit of the contributions to the 401k. And put that money into kind of a regular taxable liquid account, just to bridge that gap from 59. You know, from 55 to 59 and a half. Never cut back your 401k past the point of the match, right. So if your whatever your matches, get that because that’s 100% rate of return. But past that, you know, there’s there’s some things you might want to consider if you’re going to retire early, make sure you have some assets outside of retirement plans, in my opinion.
Easan Arulanantham:
So for like retiring early, you, basically if you start to think about it, you should be really ramping up your savings rates, if you’re really seriously considering it. I think now there’s so much real wealth of information about retiring early. Yeah, a lot of people talk about it. And you see these stories where people are saving 50 to, you know, 70% of their income just so they can retire early.
Tom Vaughan:
Yeah. And sometimes that’s what it takes, you know, depends on how early you think of that, and how, what time you have left before this early retirement age. And I think it goes on both sides, you’ve got to restructure possibly, your life to be able to save, I mean, that’s a huge savings rate, like 5060 70%, right. And you got to keep that mentality, at least for a portion of your retirement. You know, you got to keep that low cost mentality. I think what you’re looking at personally, is I’m willing to trade my some of my lifestyle and live a simpler life, in exchange for not having to go to work every day. I think that’s fair, there’s nothing wrong with that. It’s those people that say, Okay, I want to spend $400,000 a year, I’ve saved up a million dollars, I want to retire at 55 I hate to tell you, if you do the math on that, you know, it’s not going to work, you’re not going to get to 85 With that money, you’re gonna spend it all out.
So, again, it’s just kind of finding that balance as long as you’re willing to kind of trade now, if I have $10 million and I’m 55 Because I was part of a startup okay those work right but the numbers have to work as far as that goes and and what your what you’re willing to spend has to fit really well within the assets that you do have, cuz you’re not going to get so security until at least 62 And maybe even 70 depending on what you end up doing. And so, how do you get by for all of those years and such too so it does take a mentality shift and and you’re trading off one thing for another for most people. It means training off some extra lifestyle benefits. In order to have a lifestyle benefit of not going to work that’s that’s okay