retirement income

If I Had a Million Dollars…
photo shows a road through a wooded area with "RETIREMENT" painted in yellow on the pavement

It’s a premise we’ve heard in songs and any number of written works. “If I had a million dollars…” It’s a great prompt—sometimes serious, sometimes humorous. I’ve decided to take a crack at my own entry into the million-dollar discussion!

I had the privilege recently of meeting a young person who shared their goal of retiring at age 30. I was struck by the ambition, shared by many in the FIRE movement: its mantra is “Financial Independence, Retire Early.” So here I am thinking about a million dollars. What I have to say is all about the numbers. Money and numbers are how we fund the life in which we act out our values, plans, and dreams.

Wondering what it takes to retire early? It’s not a universal formula, but we can take the idea of accumulating a million dollars of invested capital as a decent proxy. In this scenario, one has to be able to imagine someday living on, say, a $50,000 a year. But it also requires a willingness to endure the ups and downs of ownership. They are just part of any long ride in the markets. (And keep in mind it would take a far bigger number to retire on today’s low interest rates on stable forms of money!)

Two factors really affect the path to retirement. One is how we spend and earn along the way; the other is inflation.

First, because financial independence is all about our resources exceeding our needs—income exceeding outflow—reducing your needs is one way to get there sooner. The other side of the coin is finding ways to maximize your human capital in these working years, getting paid more for your labor. So the first best investment might be in yourself to improve your earning power. Fewer expenses, more income—more money to invest for retirement.

Second, inflation will affect how the path to retirement unfolds. Inflation risk is the extent to which our money loses purchasing power over time, so we have to take that into account as we plan for our future spending in retirement.

So let’s get back to the numbers. How much money would we need to invest each year in order to have $50,000 (in today’s dollars) as annual income in the future?

Let’s assume 3% inflation and 9% investment returns—neither of which is guaranteed—and 5% annual withdrawals in retirement. Starting from zero, we could be…

  • retiring in 7 years by investing $129,782 annually ($10,815 monthly)
  • retiring in 15 years by investing $51,529 annually ($4,294 monthly)
  • retiring in 25 years by investing $23,999 annually ($2,000 monthly)
  • retiring in 35 years by investing $14,349 annually ($1,196 monthly)
  • retiring In 45 years by investing $6,982 annually ($582 monthly)

These numbers are just one way to slice it. If you could live in retirement on $25,000 of today’s dollars a year, for example, take those amounts above and cut them in half. If you would want $100,000 a year, then double the figures.

We don’t know the future, and these calculations are not the future. But it’s a place to start toward a plan.

Clients, if you want to sort out your situation—or help a younger person get started—email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

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If I Had a Million Dollars… – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

Social Security: Facts and Feelings
photo shows a stack of Social Security cards

We have written from time to time about the role of Social Security retirement benefits in your plans and planning. I have new perspectives on the process, based on my new status: I’m a Social Security recipient! 

I’ve got two interesting and useful lessons from my process so far. 

First, in my separate discussions with two Social Security Administration employees, a piece of misinformation emerged. A written summary of a telephone appointment contained a major error, one that would have had negative consequences if left uncorrected. 

Second, working through the actual numbers, the arithmetic favoring one start date versus another was not nearly as compelling as I expected. Claiming benefits is often talked about in formulas, as if it’s always straightforward. Nonmathematical factors—and feelings—should therefore be given due weight, it turns out. 

Because of the first lesson, I feel even more committed to join each of you as you go through the actual application process. The information is murky, humans can make errors, we can lose pivotal details in the mix… But I would love to try to help make sure the process comes out as you would like it to. 

The second lesson underlines something we’ve always believed: your situation, your feelings, your preferences and vision for your cash flow needs absolutely must be part of the equation. Nobody knows the date going on their death certificate, so there is no way to “prove” in advance the “best” time to claim Social Security. 

What will work out best for you in your real life? That’s the question. 

Social Security is a significant fraction of retirement income for most people, so taking some time to examine and explore options well ahead of time makes sense. We’re here for that. If you are within a few years of retirement, keep watching this space: we will keep discussing what options are available in more detail and how we might approach the choices. 

Clients, if you are ready to talk about your retirement plans and planning, please email us or call. 

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Play the audio version of this post below:

Social Security: Facts and Feelings – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

Money Two Ways: Balances and Flows
photo shows an apple tree in an orchard

There are two ways to think about money. It helps to understand both if you want to be comfortable financially.

Balances. Balances are what we have: the number on our investment statement or bank account, our 401(k) value, or what our Roth IRA is worth. Some think a certain total is required in order to retire, to be financially independent, or to meet some other goal.

Flows. Flows are the income and the outgo, month by month or year after year. These include recurring items like paychecks or Social Security coming in, travel expenses or utilities going out.

While these terms certainly work, one of our favorite analogies is the orchard and the fruit crop. The orchard is like the balance; it’s what we own. The fruit crop is the flow. We like to say that if the fruit crop is big enough to live on, we don’t need to worry what the neighbor would pay us for the orchard.

What does this mean? That once we’re ready for retirement, for instance, we pay more attention to flows than balances.

So if Social Security and a pension more than meet your cash flow needs in retirement—if the flows run a surplus—you might feel comfortable financially even without a fortune in balances. On the other hand, if you spend more than what’s is coming in, you may feel financially stressed no matter what your balances are.

One of the key elements of our work for you is turning balances into flows. We think about the size of our retirement accounts all throughout our working careers. But in planning for retirement, we like to figure out how much cash flow can come out of those retirement balances. In other words, how big of a fruit crop could your orchard deliver?

Clients, if you would like to talk about your balances, flows, orchard, or fruit crop, please email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

Investing involves risk including loss of principal.

Want content like this in your inbox each week? Leave your email here.

Play the audio version of this post below:

Money Two Ways: Balances and Flows – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

If These Walls Could Talk (About Retirement)
photo shows four small model houses in the grass in decreasing size left to right

It’s generally a good thing when more cash is coming in than going out.

When our planned retirement income is greater than our expenses, we have the basis for a solvent retirement. The equation could be stated pretty simply: income > expenses.

The bigger part of our work and time and energy is devoted to striving to build your capital. More capital means more cash flow from your capital. We’re trying to get you access to the income you’ll need and want.

But lifestyle decisions may have a bigger impact on our finances, by way of expenses—that other side of our equation.

I recently decided to buy a different home, selling one I had originally purchased for a life chapter now ended. There is no sacrifice involved: the new place thrills me, although it is less than half the size of the old one. It actually feels like an upgrade to my quality of life.

The new place also features less than half the utilities, taxes, maintenance, insurance, and other expenses. Those add up to more than $1,000 in savings per month for me.

When downsizing helps you wipe out mortgage debt, that might improve your annual cash flow by thousands of dollars.

The effect of this lifestyle change on my retirement picture is amazing. Projected Social Security benefits cover a larger fraction of the budget. So a reduction in my need for income produces a much larger reduction in the capital I need to retire comfortably.

Reducing expenses means our money goes farther. Perhaps it means we can retire at a younger age or live with greater flexibility.

Clients, I still intend to work to age 92. And I’m looking forward to a new chapter where my living arrangements make more sense to me.

We are happy to talk with you about your retirement plans and planning, whenever you are ready. Email us or call.

The Worst State to Retire In

© Can Stock Photo / flashgun

It seems like everywhere you turn, there are opinions about retirement. We have not seen this particular bit of advice, so here goes.

After thought and study, we conclude that the worst possible state for retirement is… the state of confusion. Confusion may seriously impair the retirement experience.

• If we don’t understand the income potential of our lump sum balances, we may either be unnecessarily tight with our budget, or run the risk of winding up broke.

• Running out of money is a common and natural fear. Arithmetic guided by experience and knowledge may ease that concern.

• Decisions about Social Security benefits and pension payouts may have a large impact on financial security. The advice one gets at coffee break or at the water cooler may not be the best.

• Health care transforms for most people in retirement. Putting all the pieces together can be confusing. Medicare Part A, Part B, Part D, and supplemental insurance all enter into it. Personal health and financial factors play roles, too.

We advocate thoughtful approaches to major life decisions. A framework of solid information and the right arithmetic may help reduce confusion.

All in all, the state of confidence is a far better place to retire than the state of confusion. Clients, if you would like to discuss this or anything else, please email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Case Study: The Looming Retirement of Mr. & Mrs. C

© Can Stock Photo / lucidwaters

We recently were consulted by folks who are just a few years from retirement. Mr. and Mrs. C had a chance to make a major purchase that they had long considered and would really enjoy. Some people want a camper or a boat, others a cabin…you get the picture. They wanted our help to figure out if it would fit with the rest of their plans and planning.

The process we used to help them is the same framework we use to help people understand how retirement will work for them, financially speaking. Perhaps it will be of interest to you.

There are four kinds of numbers that figure in.

  1. Monthly outgo—how much will it take to run the household in retirement, to live as you plan to live?
  2. Monthly income—what are the pieces of recurring monthly income? Monthly pension benefits, Social Security, and rental income are in this category.
  3. Planned lump sum purchases or obligations to pay. This was the thing that stumped Mr. & Mrs. C. They had a chance to lay out some money that could improve their lives a lot, and needed to know whether it would work out.
  4. Lump sum resources available. Long term savings, 401(k) plans, IRA’s, investments, and money from planned sales of assets are the main categories here.

Fortunately, Mr. & Mrs. C have expected retirement income sources that should sustain their lifestyle in retirement. Once that was determined, we could move on to sorting out the best way to handle the purchase they planned.

There are tax considerations to withdrawing retirement plan dollars, cash flow considerations from taking on debt, and opportunity costs to cashing in investments. We framed the costs and benefits of each alternative so they could figure out what they wanted to do. If you would like to talk about your situation, please call or email us to set a time for discussion.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.