977: Three Steps to Determine if You Have Enough to Retire by ESI of ESI Money on Safe Withdrawal
This is optimal finance daily episode. Nine seventy seven three steps to determine if you have enough to retire by SL of Yes. I MONEY DOT com. And I'm Dan. I'm your host and welcomed optimal financial daily where I read to you each and every day from some of the best personal finance blogs on the planet and we always like to hear your ideas for future your shows so if you have topic requests please do share them at old podcast dot com. That's L. D. PODCAST DOT COM and before we get to today's post. I WANNA thank thank fundraise for their support. fundraise enables you to instantly access high quality high potential private market real estate projects from high-rises in DC. To multifamily family apartments in L. A.. And each real estate project is carefully. Vetted and actively managed by fundraisers team of real estate pros. fundraise is the future of real estate estate investing so visit fundraise DOT COM slash O. F. D. that's F. U. N. D. R. I S. E. DOT COM slash ft to have your first three months of fees waived for now. Let's get right to our posed as we start optimizing your life size three steps to determine if you you have enough to retire by ESI. Of yes I'M MONEY DOT com. I've posted a ton on retirement including how to retire early whether a million dollars ours is too little to retire or not and how three million dollars is not enough to retire but those posts tend to be how to's with general suggestions today. I'd like to get more specific and provide a roadmap for those wondering if they can retire or not a way for them to calculate their numbers and see where they stand so with that. Let's begin detailing the three steps to determining if you have enough to retire. Step one estimate your retirement expenses this step sets the baseline for what you'll have to overcome to retire if you've had a budget throughout the years and or attract your spending in any way estimating your retirement expenses will be easy. You probably already have a good sense of what things cost. And may have years of exact spending data to us in setting retirement costs. We have over twenty years of spending saved in quicken so this was a breeze for us. If you don't have any historical oracle results you'll need to get some eventually so set up a system like quicken mint et Cetera to track spending and get some actual data until then you can estimate by looking at past Checkbook Checkbook Bank and credit card statements simply list. What you plan to spend by category food clothing home entertainment etc over? The first three years of retirement beyond three years is difficult. Estimate you can do this by year. Quarter or month and use whatever format works for you paper spreadsheet computer program at Cetera. We use a spreadsheet enlist costs by category and by month then at the end of each month I save a new copy of the previous month. Sheet Lop off the month that has passed and set that new projections based on more current Info. This gives me a completely up-to-date budget every month and allows me to make adjustments where needed easy peasy doing this. You'll get an annual annual spending number. This will be your retirement. Target step to determine how much retirement income you can generate calculating retirement income can be difficult since there are so many variables that go into it. L. Focus on the basics that likely applied to most people these are one total assets less any debt on them. Obviously obviously the higher this number the better to the amount of income these assets can generate or said another way the income generating return rate on these assets. Three whether or not you want to draw down your assets in retirement for example using the four percent rule. We've discussed here quite a bit. Seem I post how to retire on a million dollars dollars or less if you want more specifics and for extra income from a side hustle. Once you know these you can get a decent projection of retirement income. I'll run through a few you examples to show what I mean. High income generating assets. Let's begin with Bob and Sally who have the following finances two million dollars in assets. It's half in real estate and half index funds. The real estate earns eight percent in income per year while the index funds are in one point five percent in dividends. Here's what Bob and sally could earn and retirement. If they didn't want to draw down their assets they would earn ninety five thousand dollars per year. That's eight percent on the one million in real estate and one point five percent on the one million in index funds. If they did want to draw down their assets they would earn one hundred twenty thousand dollars per year eight percent on the one million in real estate and four percent withdrawal on a million in index funds. Not Bad right. They have a good amount of assets and a good return rate especially on the real estate which allows them a healthy retirement income come lower assets and lower returns now. Let's look at Ben. Ensues financial setup one point five million dollars in assets all in index funds the index funds. Earn one point five percent dividends. Here's what Ben and Sue could earn retirement. If they didn't WANNA draw down their assets they would earn twenty two thousand five five hundred dollars per year. That's one point. Five percent on one point. Five million in index funds. If they did want to draw down their assets they would earn sixty thousand per year four percent percent withdrawal on the one point five million in index funds. Their assets are lower. And they don't have any that generate high return rates so their income is much lower than in the first example the low assets and low returns. Now let's look at what Bert and Sarah have available. Seven hundred fifty thousand dollars in assets all in index funds the index funds are in one point five percent in dividends. Here's what Bert and Sarah could earn an retirement. If they didn't want to draw down their assets they would earn eleven thousand two hundred fifty dollars per year one point five percent on seven hundred fifty K. and index sons if they did want to draw down their assets they would earn thirty thousand dollars per year four percent withdrawal on seven hundred fifty K.. In index funds fewer assets and lower returns equal lower retirement income low assets low returns and a side hustle. Now let's see how things change if you add in a side hustle so same example as the last one bird and Sarah have available seven hundred fifty thousand dollars. In assets assets all in index funds the index funds earn one point five percent in dividends. Only this time they also have a side Hustle that earns them twenty thousand dollars a year. Here's here's what Bert and Sarah could earn and retirement. If they didn't want to draw down their assets they would earn thirty one thousand two hundred fifty dollars per year one point five percent on seven hundred fifty K.. Okay in index funds plus the side Hustle of Twenty K.. If they did want to draw down their assets they would earn fifty thousand dollars per year. Four percent withdrawal on seven hundred hundred fifty K. in index funds plus the side Hustle of Twenty K.. Big Difference from their non side-hustle results This is why having a side hustle can make such a huge difference. It's in retiring both faster as well as with more retirement income. I think you get the idea. There are a myriad of different outcomes based on various levels of assets and what those assets assets could earn. This is why you need to use your own numbers to calculate your specific returns. Once you do calculate your numbers you'll then want to add in any other income from pensions annuities post retirement work businesses part-time work etc to get your total retirement income step three compare income to expenses expenses. Now compare the numbers from the first two steps. If income is greater than expenses. You are ready to retire. Of course you want to leave yourself some margin of safety so the wider the spread the better if the expenses are greater. You still have some work to do. Options include one save more from your current income and add to your assets to redeploy assets to get a higher return rate one that gets you closer to covering expenses or even puts you over the top and three develop new sources of the battery income or make current ones higher for example start a side hustle or invest in one. You already have so. It turns off more income. Once you get to the point where income is higher the expenses. You have enough to retire. Certain you just listened to the post titled Three Steps to determine and if you have enough to retire by Esi of Esi Money Dot Com and thank you again to fundraise for their support. COME BY FUND RISE DOT COM Slash Zhou. FD To have your first three months free. Private market. Real estate has historically provided excellent ongoing cash flow even as it supports long-term growth private market assets sets like these are a strategy for diversifying beyond public market investments and even other kinds of real estate like publicly traded reits and fundraise is the future of real estate date investing the platforms innovations power and investor. I model by eliminating the bloded costs and middlemen that have traditionally weighed down real estate investing saving investors time time and money. That's why it's frequently mentioned as a recommended tool in the blogs that I narrate here unparalleled transparency and real time reporting that you see how the development of specific civic properties impact your overall portfolio so come check it out visit fundraise dot com slash O. F. D. that's F. U. N. D. R.. I S. E. DOT com slash slash F._D.. To have your first three months of fees waived and that's it for today thank you so much for listening. Have a great rest of your day and I'm going to see you back here tomorrow. Where your optimal life awaits?