A CERTIFIED Financial Planner revealed how to prepare for retirement success, and he said the key lies in answering three questions.
Ari Taublieb posts videos weekly on YouTube to teach his subscribers how to manage money and set goals for early retirement.
He aims to help people retire with “total confidence” and said many clients worry about correctly projecting their future budgets.
Taublieb defines the age range for early retirement as 50 to 65.
“These are the people going, ‘I’ve worked hard, I’ve saved, I’ve invested, I just want to make sure I don’t retire too early,'” he said.
While some retirees are parents who want to give their kids financial cushions, others may not need as much saved at the end of their life.
TOO EARLY?
Taublieb said folks must strike a balance by finding the right time to retire and a comfortable spending limit.
He used two of his clients, Luke, 60, and Mary, 57, for a case study to illustrate uncertainties and how to prepare for retirement.
Luke and Mary had $25,000 saved, an IRA with $450,000, and a 401k with $400,000 and a 5% match.
They also had a Roth IRA with $50,000, a brokerage with $42,000, and a home with a $95,000 mortgage.
While Luke’s yearly salary was $85,000, Mary’s was $110,000.
Taublieb said the couple was “pre-tax heavy” meaning they’ll have to pay taxes on their IRA and 401K accounts once the money frees up.
HOUSE RICH CASH POOR
He also said Luke and Mary were house rich and cash poor.
“On paper, their net worth looks really good, but they don’t want to move and still have expenses, so they’re still working,” he said in his video.
He used his parents as an example, explaining how they still work in their 70s since they own a $6 million home in Malibu.
Taublieb noted some future retirees may not want to work their jobs for that long.
In Luke and Mary’s case, they wanted to retire together, with enough money to travel.
“This couple did not know if they were in an amazing spot, a horrible spot, could they make this happen, when can they make this happen,” Taublieb said.
He advised them to figure out their recreational employment number.
THREE QUESTIONS
Taublieb defined a Recreational Employment number as the amount of time someone’s willing to work because they genuinely desire to.
He asked Luke and Mary for their worst-case scenario of how long they’d want to keep working.
They said 68 and 66 were the latest, and then he asked how much they wanted to spend to gauge their budget.
They said around $5,000 a month and an additional $10,000 annually for vacations.
Taublieb posed a final question as the most crucial one for them to consider.
“Would you rather spend a lot more or retire earlier? What would you prefer?” he asked.
He revealed Luke and Mary would still have $4 million if they retired at 65 and noted they could spend more since they didn’t have kids.
Taublieb stressed how for those who have $1 million, determining expenses is far more crucial than figuring out how long to work.
“If you’re spending it down too quickly… you’re going to run out of money, and it’s not going to be very fun,” he said.
Taublieb also said it’s important to consider if markets don’t perform well or if there’s an unexpected healthcare expense.
Retirees get support from programs like Social Security, but it’s still worth planning and ensuring they can enjoy retirement.
MORE RETIREMENT
Certified Retirement Consultant (CRC) Drew Blackston also offered his expertise for a 66-year-old divorcee with $350,000.
The New Jersey resident told him she received monthly Social Security payments of $2,904.
Blackston said she had a huge advantage since New Jersey doesn’t tax on Supplemental Security Income.
Read why BlackRock’s CEO thinks our country faces a retirement crisis.
Also, another CFP explained the difference between an IRA and a Roth IRA.