Tom Talks about Money Needed to Retire
Transcript:
Katie Nealis:
What percentage of my final work earnings? Well, I need an overtime income.
Tom Vaughan:
What percentage of my final work income? And so yeah, so let’s say you’re making $100,000. And you’re going to retire how much you’re going to need in retirement. There’s all kinds of rules of thumb, you know, it’s 80%, and all kinds of things. One, you know, it’s kind of interesting, because in real life and experiencing with, I’ve watched 1,000s of people retire, I’d say it’s pretty darn close to your current income, unless you’re really, really trying to cut back or something along those lines. Because what happens is you save money all over the place. So if you’re no longer putting money into your 401k, for example, you’re no longer having to buy as much in the way of clothes, you’re not driving to work. So gas, you know, and mileage on car drops down. You know, those types of things. But you also kind of increase some of your expenses, you’re traveling a lot more, especially early in retirement, most people travel more. And you know, so there’s, there’s some compensating pieces there. I’d say it’s probably in that 80 to 100% range, on average, it depends. We’ve seen some people do, where they really cut back because they’re really, really interested in retiring. And they don’t have enough money. And they’re, you know, they’re smartly cutting back to say 50%. And, and they’re happy with that, because they just they’re so much happier to be retired, even if it means with less money. But on average, I’d say it’s really closer to 100% of current income, because that’s the lifestyle that you’re trying to replace. As far as that goes.
Easan Arulanantham:
Would you say it’s sort of income, more current expenses would be a better way of like thinking about it, since you’re trying to maintain how you’re living right now. And your income, though, like, tells you how you can live, but it’s expenses are really the bottom line?
Tom Vaughan:
Oh, definitely. The weird part is, in my experiences, people have a really, really hard time actually nailing down there expenses. And, and so I guess the one of the ways that I’ve seen that’s most successful, because it’s very easy to see your incomes because probably aren’t that many, it might have lots of dozens and dozens of expenses. Some of them are quarterly and annually a monthly, but your incomes, you kind of know. And so you take those incomes, and then if you can just figure out how much your overall savings grew. And just subtract that the rest is your expenses, that money disappeared. So if I have $100,000 worth of money coming in after tax, right, and I look and I built up my savings, but you know what I added to my 401k or savings account, say $20,000.
I just spent $80,000 last year, right? So that’s a fast way of kind of figuring that out. But ya know, that that makes sense. You know, and trying to, you know, if you really, really get into it, you can you know, and this seems like what everybody should do, right? hammer down all their expenses. I hardly ever see that work. Actually, almost ever, I do have some clients that are really, really into their spreadsheets, and using mint and different things to really track expenses, and they know everything. But boy, that’s like 1 out of 40, most people don’t know exactly what their expenses are any point time but they know their incomes. They know whether they’re saving, right, so those, those are areas that are a little bit easier to track. But yeah, it works out. But again, if you look at it, a lot of people are, you know, spending roughly 80% or more of their inflow. And so that’s kind of what you need to get in retirement to replace that lifestyle.