Tom’s Advice is to Examine Your Lifestyle when Planning to Retire
Transcript:
Katie Nealis:
How do I figure out the income needed for my retirement?
Easan Arulanantham:
So when we do a plan, a lot of the times, we just start with what is your current lifestyle? How much money are you spending or spending to have your current lifestyle, and then we try and figure out what costs will be gone from that current lifestyle when he retires. So a lot of people will pay off their mortgage. And so that’s a big cost in their current lifestyle, they’ll be gone. And so sometimes people add costs, such as we want to travel more, we want to add $10,000 a year of travel. And so we try and figure out that current cost based on use as a baseline and then adjust with kind of their inputs, you know, their goals and dreams and what we can remove. And then you have a rough estimate of how much income you need in retirement.
Tom Vaughan:
Yeah, you know, it’s one of the biggest issues is by far the most sensitive number within the financial plan is how much you’re going to spend. Because it’s a big number, usually, and you know, it’s got to grow with inflation and those types of things. And, you know, having done those 6000 plans, one of the things that came up is oftentimes people struggle with that number, they don’t know what it is. And they really don’t want to sit there and dig through their checking account, or what have you and try to figure out what they’re spending. So one simple way to do it is to say, Okay, I take home X amount of pay after tax, right? And just simply, so an after contribution, the 401k, or whatever. And do you save any of that or not. So if I take home 50,000, after tax, and after putting money in a 401k, and what have you, and nothing ends up in my savings over a period of time, then I’m spending 50,000 a year, if 10,000 ends up in savings, then you know, I’m actually spending 40, alright, because I’m building up my savings.
So sometimes there’s some kind of macro ways to look at it, or at least get kind of close. It doesn’t have to be exact only because it’s not going to be the same all the way through your retirement anyway, it’s just a starting spot. And then that’s why the doing it every six months, you can kind of see what’s happening and continue to look at that. And we can kind of tell right, I mean, I know Eastern, I have worked on these plans quite often. And somebody says they’re spending 75, but we just watching, you know, all the other things falling down. And it’s probably spending more, so we’ve made me adjustment, or they just keep you know, building up assets, that means they’re probably spending less so you can tell over a period of time without having to break out the budget and do a line item thing and what have you if you want to that’s great. There’s nothing wrong with that. But there are some simple ways to figure that out. It is the biggest number in the plan.
Easan Arulanantham:
Do you think people really start to figure out how much they need in their first couple years of retirement rather than it’s hard to predict when you’re still working?
Tom Vaughan:
Yeah. Here’s the problem with that, though. I agree with that wholeheartedly. You really probably don’t know for sure until you’re into retirement a little bit, but you’re trying to decide to retire, right? And in order to decide to retire. You got to get at least a little close on that number. Because if you’re way off, one of two things are gonna happen. You’re if you’re overestimating how much you’re going to spend, then you might think, Oh, I can’t retire and you actually could, because you’re not spending that much or the opposite. Oops, I retired too early and I really am getting kind of pension. Unfortunately, I don’t know that until you’re later on in life. But so you do want to get kind of close to it. But really, yeah, it gets clear, much more clear as you go through the first few years of your retirement. That’s That’s exactly right.