In this video, Ryan Wheless discusses about a common question rising: “Can I afford to retire?”. He talks about the financial considerations of a 61-year-old single lady, Sally, contemplating retirement. With $800,000 in her 401K and $100,000 in investments, Sally aspires to retire at 62, replace her $80,000 yearly income, and indulge in travel during her golden years. Ryan addresses her concerns about outliving her savings, market volatility, and potential reliance on others.
After analyzing her plan, it is revealed that she only needs $55,000 yearly to maintain her lifestyle. By budgeting $15,000 annually for travel, her success probability rises to 80%. The video offers valuable insights for those approaching retirement, emphasizing the importance of careful financial planning and adapting to changing market conditions.
Can I Afford to Retire?
Are you a single lady out there trying to figure out if you could retire well or not? Well, if so, this article is just for you. In today’s video, we will discuss the case of Sally, a single lady at the age of 61, who is trying to determine if she can retire with the resources she has.
The Changing Demographics
Before diving into Sally’s situation, let’s take a moment to understand the broader context. There is a major demographic shift happening in the country, where soon the majority of wealth will be controlled by women.
This shift is crucial because many times, when I sit down with couples, the husband often handles the finances, while the wife wants to ensure that the money is there and that she is safe and secure. However, there may come a point in time when the husband is no longer around, and it will be the wife’s responsibility to manage her finances. Additionally, many single ladies out there also need to be well-informed about retirement planning and financial decisions.
Sally’s Retirement Goals and Concerns
Now, let’s focus on Sally, the 61-year-old single lady who is contemplating retirement. She has some common questions like, “What can I spend in retirement? How long will my money last? What if the market goes down? How do I handle healthcare, taxes, and Social Security decisions? Do I need to do Roth IRA conversions? How should I plan for long-term care? And how will my decisions impact me in the future?”
Sally’s goals are relatively simple. She wants to retire at age 62, replace her current income of $80,000 per year, maintain her current lifestyle, cover her living expenses in retirement, worry less, and enjoy life more. She is also interested in traveling during her golden years.
Analyzing Sally’s Financial Situation
To analyze Sally’s financial situation, we need to look at her current assets and income sources. She has $700,000 in her 401(k) and $100,000 in an investment account. Sally has no pension, but her estimated Social Security benefits are around $24,000 at age 62, $34,000 at age 67, and over $42,000 at age 70. She expects to live until age 92, and her current expenses are $50,000 per year, even though she is saving $30,000 annually in her 401(k).
Mindset Shift: Decumulation in Retirement
One of the crucial mindset shifts Sally needs to make is from accumulation and saving mode to decumulation and spending mode in retirement. As she stops working and switches to retirement, her expenses will not be the same as when she was saving to retire. Sally’s retirement expenses will be lower than her pre-retirement income due to the absence of saving contributions. She only needs to replace $50,000 per year in retirement, not her current income of $80,000.
Probability of Success and Contingencies
Using different assumptions like inflation rates, market returns, and spending on travel, we can calculate the probability of success for Sally’s plan to retire. If she waits until age 70 to take Social Security, her probability of success is around 82%. However, there are various levers to pull to increase this probability even further. She could work a couple more years to build up her savings, reduce her travel budget, and optimize her portfolio allocation based on her risk tolerance.
Contingencies to Consider
Several contingencies may impact Sally’s plan. A market crash, lower than expected portfolio returns, inflation, and potential cuts in Social Security benefits are all factors to consider. Depending on the situation, Sally might need to reevaluate her plan and make adjustments. For instance, if the market crashes, she might consider taking Social Security earlier to reduce portfolio pressure.
Long-term care is another significant concern for retirees. While Sally does not have a pension, she does have her house, which could be used as an asset to fund long-term care expenses if needed.
Retirement planning is a dynamic process that requires continuous monitoring and adjustments. As life events and financial landscapes change, it is essential for Sally, and everyone else planning for retirement, to be proactive and work closely with financial advisors to ensure a comfortable and secure retirement. By considering different scenarios and contingencies, Sally can increase her confidence in her retirement plan and enjoy her golden years to the fullest.
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