Transcript:
Easan Arulanantham:
Should I be looking when planning for retirement to be replacing my income? Or should I be looking to cover my current expenses? You know, how should we planning? You know, by looking to say I have $84,000 of income? Should I be looking to replace 80% of that? Or I only need $4,000 A month to live? Should I just be looking to cover that much?
Tom Vaughan:
I’ll use different numbers. But so the thing that comes to mind, I’ve got $100,000 worth of income after tax, let’s say, and I’m living off of 80,000, right? Should I be covering the $100,000, or the $80,000, in terms of my planning process? Well, where’s the other 20 going, it’s going into some kind of savings, most likely, maybe it’s going into your 401k. And those types of things, it’s still good idea to try to save if you can, and retirement. But usually, it’s not coming from this outside source. But some people have a lot of outside sources, big rents and things, but for the normal scenario, and so really, I think covering expenses, is really what you’re looking at there, more than kind of replacing your income, they can be kind of close. Because, you know, I one thing I’ve run across that I think is a bit of a myth, a lot of people look at retirement is that oh, I’m going to have, you know, I’m going to spend a lot less money in retirement. And, you know, just because, you know, maybe more conservative, I’m not seeing this happen.
One thing that guys go down is the amount of savings. So there’s no 401k contributions going on anymore. So that’s a savings. But that’s, you know, not an issue. And then the second thing that, you know, clothes and gas, and we actually saw, you know, she looked through CPI numbers for different ages, you can see where kind of money goes into different directions, depending on age. And having said that age, we saw some increases based on age, health care, group travel would grow in theory and retirement. So I think you want to identify, you know, the expenses in retirement, and then try to see if you have enough assets and outside incomes, to cover those expenses. I mean, using Monte Carlo simulation to determine whether or not that’s going to be possible.
Easan Arulanantham:
You might be cutting some expenses, but other expenses go, you know, let’s say you’re an avid golfer, your, your, instead of hitting the course, only on the weekends, you’re gonna probably be hitting it on the weekdays now, too, and so there’s other costs that noose with the extra time that you have now they’re going to increase.
Tom Vaughan:
I’ve had lots of golfer clients, they golf every day, you know, six days a week, they’ve just, you know, that’s what they do, they get up and, you know, go golf, and they’ve got a social network there. They’ve got, you know, some exercise, and it’s, you know, so exactly right. And so there’ll be some more money spent on some of these things that you’re not spending on now, as far as that goes. But I think, you know, identifying upfront, it depends on where you are, right? If you’re in retirement, that’s a different scenario, you’ve already got some idea what your expenses are, if you’re not in retirement, then you kind of want to project what those expenses are going to be. We put that into the plan. And then we really look very closely for the first couple of years in retirement to see, hey, is this actually right?
Are we spending a lot more or less or you know, what, what is going on as far as that goes, and, and being able to just kind of get that, you know, expenses covered in the most tax efficient manner, and taking from the assets that have the least long term impact to you. So you know, you don’t want to sell your great things to try to live off those expenses. If you can avoid it. Hopefully everything you have is great. That’d be perfect. But doesn’t always work that way.