Transcript:
Easan Aruanantham:
I’ve always thought about retirement at 65. And I’ve kind of got stuck to that age. But now that I’m in my late 50s, I’m starting to think about what if I retire early? Or what if I retire late? What would that effect be on my retirement?
Tom Vaughan:
Yeah, so this is a question that comes up quite often, we’ve dealt with this on a regular basis, you know, when can I retire? And how does that work? And this is what a retirement plan is all about. It amazes me, how many people just retire, you know, I’ve run into people and you ask them why they’re going to retire? You know? Well, I’m 65. That was the most common question, I don’t hear that as much as I used to, because planning has become more common. But it is kind of amazing, you know, they know some things, I’m going to be able to get Social Security, and I’ve got this money, but they don’t really know if it’s enough. And what the you should know, if you’re going to pull the plug on some career, that might be hard to get back to potentially, by the time you figure out that you don’t have enough money, or there’s some big downturn that came that you weren’t expecting, you might not be able to get back to that career. So I’d want to know up front, and that’s where kind of the, the MonteCarlo simulation comes in on the financial planning. I’ll give you an example. Here, we can share, share the screen. Let’s share it this way, this looks better. There we go. And so what we’re looking at here is just you know, sitting down with a 50 something year old, wants to know, can they retire, you know, early, right?
Here’s the parameters, you know, I want to spend this much I’ve got these these assets, I’ve got this income, here’s what my Social Security looks like, you know, and so, you know, can I retire at 62 instead of 65? Right? That’s the question. So we put it all in, we run the Monte Carlo simulation, kind of push this button. And here we go. 48% probability of success. So basically, your retirement at 62. With those parameters is a coin flip. coin flip, yeah. Again, add a coin and flip it and see if you’re gonna make it or not, because all of those red ones there where you ran out of money before you ran out of time. That is a bad scenario. And if you look, they don’t happen right away, which is even worse. That means now you’re at before you run out of money, which are even harder to get back into the workforce and those types of things. I want to know this when I’m in my 50s, making this decision early, this is the way to do it. And so this is we go through the process, what do you want to spend? You know, what are some of the assets that you have? What do we have for outside incomes, like Social Security, and pensions, those types of things, right. And we run the MonteCarlo simulation. So that’s number one. Now, we might take a look at that and say, Okay, so 62 is still of interest, still very interested, burned out on the career wants to make sure we retire earlier, have a better long term retirement, maybe we look at kind of negotiating, you know, the amount of money that’s going to be spent, right. And so if we lower the projected amount of money that we would spend, and we look at maybe a different little bit different lifestyle, and sometimes it’s not a huge difference, it can be like a 10% difference, 10% less, right, and you can retire at 65, instead of working those 62 Instead of working in those last three years. And so then we run the Monte Carlo simulation again, and we push the button. And so at this lower, you know, income level, oh, there we go. Okay, so, if you want to retire at 62, right, retire early, then we have a scenario where you got 96% probability success, yep. If you’re able to spend this lower amount.
Easan Arulanantham:
If I, you know, retire later, I can spend more money per year. But if I want to retire younger, I’m gonna have to kind of lower that out out our spending. And so I think people got stuck to the age 65 was, you know, we had a pension, people with pensions kind of had this fixed income that they knew about every month. And so, but now, most of our retirements are market dependent, and so it’s a little bit more kind of variable.
Tom Vaughan:
Yeah, exactly. I mean, now, what we’re showing you here is a scenario that doesn’t work at 62 doesn’t mean yours. Well, you could be in your 50s. And we run it you could be at 96% with the exact amount of money you wanted to spend because you have enough outside incomes and or assets. Right? We’ve seen that. We’ve seen these plans, but it’s really important to know that before worry you get there and before you do anything. Now, this particular example that we’re using here is a person who’s in their 50s. Looking to retire at 62. Right? Yep. So let’s just say that’s five years from now you’re 57. Like me, all right, so I’m 58. I forgot. What that means is I’ve got this five year period, I’m looking at this, it will work, I can retire at 62. But I’m going to have to spend a little bit more less money than I was hoping to do. But you still have five years. So you could really be motivated, maybe to put more money away to save more money. And we’ve seen this a lot people in that last 10 year stretch before retirement, because man, I’m going to try to get enough money put away and saved up. And we can figure out what that is, we can tell you, Okay, you need an X amount more money to make it work, at least in terms of MonteCarlo simulation, to get to a situation where you can retire at 62 with the amount of income that you were targeting originally. And we’ve seen people do unbelievable things in that environment, and really, really save and go for it. And, you know, and invest and do all these things that might make that happen. Right. And so I think that that’s what makes this so powerful all together. It’s just the understanding of what works, what doesn’t, what doesn’t work, yes or no, that doesn’t work. What does work? Okay, good. And then how much would I have to save to make it work? Because I still have time. This is not a person who’s retiring next year or what have you, right, in this particular question. So it’s a really, it’s a great question. It’s a really powerful piece of what we do. This is where you can change your the rest of your life. Yeah, really. I mean, basically, come see us talk about these things, and be able to really, you know, understand where you’re at, what you can do what you need to say, to kind of get where you’re going. And it’s fairly well defined. It’s not just some random thing, or just Oh, yeah, that sounds good. Maybe that’ll work or what isn’t it MonteCarlo simulation. It’s pretty powerful. We’ve been using it for long enough to be impressed ourselves. And hopefully you’re impressed by it also. So anyway, that that’s, that’s what we would look at as far as an answer to that question.