Retirement Answers

Jacob: 00:01

One of the biggest questions that most people have is is how much do I need to have to retire? And you really can't know what that answer is until you know how much you spend. And this is not uncommon. We don't know if we spend $5,000 a month, $8,000 a month, $15,000 a month. It really depends on where you find yourself.

Jacob: 00:21

Welcome to Retirement Answers, a podcast built to answer your most pressing retirement questions. If you're someone who's either thinking about retirement or already in retirement, well, you're in the right place. Hey there. My name is Jacob Duke, and each week, I'll be walking through different tips and strategies to help you succeed in retirement. So let's go ahead and get started with today's show.

Jacob: 00:44

Hey friends, and welcome back to another episode of Retirement Answers. So I've got a question for you. Are you wanting to retire in 2024? Are you dead set on retiring in the next twenty four months? Or are you just trying to see, is this even possible?

Jacob: 00:57

Is it possible for me to retire in 2024? Like maybe you think you're just so close, you can see that starting line. Wait, did I just say the starting line? I thought retirement was the finish line. I thought it was the end goal.

Jacob: 01:10

Well, that's what many people think and kind of view retirement as traditionally. But if you've listened to me for any length of time, know that I believe that retirement is something that you're going to enter into. It's less about what you're ending and more about what you're starting. Think of it as you're retiring to something and not from something. Now I can go on and on about this, but that's not the purpose of today's show.

Jacob: 01:33

Today, we're gonna be talking about what you can do in these last twelve months leading up to your retirement in 2024. And the reason for even talking about this is I've had a few questions lately come in from listeners stating that their intentions are to retire in the next year. And they're all asking very similar questions. They're asking, hey, what can I do in these last few months, kind of this last sprint to make sure that I'm ready? I'm scared that I've missed something.

Jacob: 01:57

How do I know I can do this for sure? What happens if things go poorly economically or in the market in that first year? And these are all really important questions. So I wanted to put some thoughts together for you today around this to hopefully give you reassurance and also confidence as you move forward. Now, if you're not retiring in 2024, don't go anywhere because these same ideas can be even more impactful for you if you're two, three or four years out.

Jacob: 02:22

Don't think you can start planning too early. Okay, so that's what we're gonna be talking about today, but first I have two things for you. The first one is there's a listener survey that I told you about last week. If you've not had a chance yet to go fill that out, please go fill out that listener survey so I can collect feedback from you, the listener, and hopefully make the show better for you in 2024. My goal is always to provide the best retirement ideas and tips to you in the most helpful way.

Jacob: 02:48

And if I can do that better, I wanna know about it. So that's what that's for. Now, the second thing is this. This is the fiftieth episode of Retirement Answers. And it's really crazy for me to say that honestly, or even to think about that.

Jacob: 03:00

I started this at the beginning of 2023, really with no idea of how this would go or if it would be helpful for people or if I could even do this consistently. And you've showed me the greatest support as I started this endeavor and I'm very grateful for you listening each week. It means a lot to me to know that I'm helping you at least in some small way, grow your confidence around retirement and hopefully live out your retirement dreams. So thank you so much to each of you for your ongoing support and your feedback. I love reading your emails.

Jacob: 03:28

I love hearing from you and here's to 50 more episodes and much more retirement planning content here in the future. So with that, let's go ahead and highlight this week's listener review. This week's listener review comes in from DRA one Herald two, and they give the show five stars and they say this is a very informative and helpful. It's very clear explanation of considerations needed for making good decisions. Thanks again.

Jacob: 03:52

And I appreciate that review. Thank you so much for giving me feedback on that and glad you're finding the show helpful. So with that, let's go ahead and jump into today's show. So as I mentioned, I've had a few listeners writing me lately asking, hey, what can we do right now to ensure successful retirement in 2024? Or what can we do just kind of in these last few months?

Jacob: 04:10

But also before I jump into that, I wanted to share a quick client story with you. This is a couple that I've been working with for a couple of years now, and we've been crafting and creating their retirement plan to give them confidence to pull that trigger and go for it. Well, they just retired and they moved to Florida and I could not be more happy for them. And every year around this time, always send out Christmas cards to my clients and just share personal update of me and my family and all the fun things and changes that have happened throughout the year. And I got a card back from this particular couple this week, and it says, great family photo.

Jacob: 04:41

May the spirit of Christmas bring each of you peace and joy. And I'm gonna leave out their names and they say, Jacob, thanks so much for making our dreams come true. And to be quite honest with you, that final line got me. It's a reminder to me of why I do what I do. Now, to be clear, I think they kinda got it wrong.

Jacob: 04:59

I don't believe that I made their dreams come true in any way. In fact, they made their dreams come true. They're the ones who did all of the hard work. They saved, they invested, they were diligent. I didn't do that.

Jacob: 05:09

They did. All I did was give them gentle nudges. I shared ideas with them around how to improve their investment portfolio, showed them how to save money on taxes and give them confidence to retire because of the plan that we built together and so on. So I didn't have as large of a part of this and maybe they think now they might feel that way, but the reality is they're their own heroes of their own story. I'm just a guide along the way to make sure that they don't get too off course or make any major mistakes.

Jacob: 05:36

So how does this all tie into what I'm trying to share with you today? Well, we just went through these five steps that I'm going to tell you about with this particular couple to give them the confidence to finally pull the trigger and go for it and live out their retirement dreams and move to a different state and be closer to family or friends and the things that are important to them. So with that, let's go ahead and jump into five things that I think you should do before you retire in 2024. All right, the first step that you can take to retire here in the next twelve months is to audit your spending. One of the biggest questions that most people have is how much do I need to have to retire?

Jacob: 06:11

And you really can't know what that answer is until you know how much you spend. And the reality is most people truly don't know how much they spend. In fact, this is not uncommon. We don't know if we spend $5,000 a month, dollars 8,000 a month, dollars 15,000 a month. It really depends on where you find yourself.

Jacob: 06:28

So the first step in all of this is we have to understand how much we're spending on a monthly basis. So what do I recommend? How do I recommend doing this? Well, I say take a twelve month timeframe. I say take twelve months, either the last twelve months, or if you're a year out, take the next twelve months and figure out how much you spend over the course of a full year.

Jacob: 06:47

Now, month is probably gonna be different because of different things such as holidays or birthdays or whatever it is in terms of gifts or travel or trips that you often do. Every month is going to have a different kind of spending amount relative to what you do normally during a year. And so what I like to do is instead of say, what's your monthly spending? I like to say, what do you normally spend on a full year? Because there's so many one offs that happen.

Jacob: 07:10

And the reality is, is they're not one offs. We think they are, we think that the AC unit is going to break and we've got to fix it, but that's going to happen every so often. And if it's not the AC unit, it's something else. So we just have to have in our minds that we're spending a certain amount of money. And I like to figure this out over a twelve month timeframe.

Jacob: 07:25

So if you're really close to retirement, you have not done this yet, go back and see what you've spent over the full last twelve months. Don't leave anything out. Don't say, oh, that was a one off because there's always gonna be one off. So leave that in and then say, hey, my total spending amount was $80,000 My total spending amount was $120,000 Whatever it comes out to be, figure out what that number is and say, is that more or less or close to what I think I will be spending in retirement? Was I spending less than normal that year?

Jacob: 07:54

Or was I spending more than normal for whatever reason? And kind of get a gauge of, is this gonna be an accurate spending number moving forward? So the first step in all of this is to audit your spending and get a good idea of it because most of us really just don't have a good grasp of what we spend. Now, what I don't mean by this is, you know, don't put a budget together and don't start executing a budget every month because that's not real life. Especially if you're close to retirement, maybe that's a good thing early on in your career, early on while you're younger and trying to build your wealth, but at this point, a budget's probably not what you're operating by.

Jacob: 08:24

So don't institute a budget for yourself now in these last twelve months and start going by that because that's, I wouldn't think of that as a real thing to kind of go by. I would rather say I'm just gonna spend like I normally do, and I'm gonna see how much that adds up to be. So that's my first recommendation. Go ahead, audit your spending, learn what you're spending every month, Add that up, total that for the year and say, that's my annual spending amount. And then determine is that going to be higher about right or lower than what you think you will be spending in retirement.

Jacob: 08:54

Okay. The second item on my list here in terms of steps to do is going be take inventory of your assets. You needed to know where they are. You need to know how much you have, you know, the account types that you've got all these assets in. Are they liquid?

Jacob: 09:07

Are they illiquid? What's the tax status of all these different accounts? You know, do we have a bunch of tax free, tax deferred or taxable? Are we invested in only dividend paying stocks? Where are your assets at?

Jacob: 09:19

How are they allocated? Because what I find is I onboard and work with a lot of clients is they've got a lot of accounts everywhere and it creates a lot of confusion, right? You've got five different bank accounts at five different banks. You've got, you know, four different IRAs spread out and they're all different amounts. And you've got two different old 401ks, you've got a current four zero one ks, all these different things really add complexity and confusion to your situation.

Jacob: 09:40

And what I've found is simplifying things gives you more confidence because what you, what you're actually doing is you're creating clarity for yourself and then clarity creates confidence. So a quote by Leonardo da Vinci says simplicity is the ultimate sophistication. Like I think keeping things simple and doing things in a simple way is actually harder than doing things in a confusing or kind of a chaotic way. Right? We can have all these accounts different places, but the hard work is actually consolidating them, rolling them over, transferring them, getting them all in one place and consolidated nice and neat.

Jacob: 10:12

Number one, helps you know where all of your money is and how much you have. And then also it removes any stress or any particular anxiety that might be from, I've got stuff everywhere and I don't know what it is or how it's all working. So simplicity is the ultimate sophistication. Yes, it requires hard work to get to that spot, but that hard work creates clarity for you and clarity will ultimately create confidence as you enter your retirement years. So that's point number two is take inventory of all of your assets if you have not done so yet, and then find out what's your plan to consolidate those and simplify things to give you more clarity moving forward.

Jacob: 10:47

The third tip I have for you today is to diversify your investments. Now, from an investment approach standpoint, everybody has a philosophy on that. Not really giving you investment advice here. I'm just saying that in general, diversification is going to lower your risk, right? Many of us have company stock that we've earned throughout our years, particularly if we're working at a company that hands out company stock, or maybe we have a particular company stock in our investment portfolio that we just really love.

Jacob: 11:11

Maybe we love Tesla, or maybe we love Exxon or maybe we love Amazon, whatever the company is. Maybe we own a bunch of that particular stock because we believe in it. Now, the hard part is I'm not gonna tell you not to believe in those individual companies. What I am gonna tell you is that there is risk in owning just singular companies or even just a handful of companies. Right?

Jacob: 11:31

We're betting on those particular companies being better than the market over the next five, ten, twenty years. Now, with that risk potential upside return, also comes the downside that's possible there as well. So your volatility is gonna be a lot larger whenever you have individual companies. So at this point, in terms of being that close to retirement, my opinion is you can't afford to be picking stocks or trying to own individual stocks that you either just like or have biases towards. At this point, your goal is less about growth and less about trying to make as much money or get the highest investment return possible.

Jacob: 12:08

And it's way more about wealth preservation. So risk is necessary, right? To preserve your wealth long term from an inflation and the longevity and maybe outliving your money standpoint. So that's maybe a different conversation for a different day. And I've done episodes previously on that.

Jacob: 12:24

So risk is necessary, but we need to take the right types of risks. Now, what does that mean? Well, I think you should own stocks absolutely in your portfolio, but we need to do it in the right way. We need to be diversified in how we do that. We need to have probably a global investment allocation, US and international.

Jacob: 12:39

We probably need to own growth stocks and dividend stocks. We probably need to own large companies and small companies. And so by doing this, you're building out a cycle proof portfolio, if you will, and says, well, if large companies do well, well, own those. If small companies do well, yes, I own those too. If international does better than US, perfect, I own that.

Jacob: 12:58

And by doing this, you're going to lower your risk. You're gonna decrease your volatility, and then you're not gonna have as much anxiety around your accounts going up or down in value. Yes, you're still taking risks because you're owning the stock markets, but you're not owning individual stocks, which is an additional risk added on top of that. So that's tip number three, diversify your investments where you can, if you can. Now pay attention to taxes if you've got particular holdings in a taxable account that would be negative consequences of selling that and rediversifying it.

Jacob: 13:27

But if you've got retirement accounts, you've got individual companies or stock positions in those retirement accounts, Typically it's gonna be a wise or prudent move to diversify out of those individual companies and buy almost the full market, use a globally diversified portfolio because your primary goal is no longer growth, it's gonna be wealth preservation. The fourth step you can take if you're trying to retire in 2024 or in the next twelve months is to create your retirement income timeline. So what does this look like? Well, I would just say, it really simple. Grab a piece of paper, draw on that piece of paper where you wanna retire in terms of your age.

Jacob: 14:02

So write down, draw a line across it and say, 62, that's my retirement age. Now, when am I turning on social security? Well, that's gonna be at 67. So draw another tick mark at 67. Now what about my pension?

Jacob: 14:14

Do I have a pension at all? Does that begin at 65? We'll need to make a tick mark at 65. Say pension's gonna start here. What about Medicare?

Jacob: 14:21

Well, that's gonna start at 65 unless you're working past then and then they'll change, you kinda go with whatever date you ultimately retire at. What about distributions from my portfolio? When am I gonna start those? When do I need those? Which accounts am I gonna be pulling those distributions from IRAs, Roth IRAs, taxable accounts?

Jacob: 14:39

What about RMDs? When are they gonna start from here? Are they started at 73 or are they gonna start at 75? Well, that's dependent on your year of birth. So building out this retirement income timeline, which I've talked about before, helps you know when you're gonna be receiving income and where it's gonna be coming from.

Jacob: 14:56

So it kind of visually lays this out for you. So you're not in the dark on, oh, well maybe I'll start social security this time because I guess I'll need money then. Well, if you've audited your spending and you know how much income you'll need each month throughout retirement on average, you can start building this out and say, need $5,000 a month and 3,000 is gonna come from social security here at 67. 2,000 is gonna come from my tax deferred account, my IRA. And then if I need anything else, that's gonna come from my either Roth or taxable account.

Jacob: 15:23

So that what that does is that helps give you confidence in knowing, hey, I'm gonna have income when I need it. And I know where those sources of income are gonna be coming from. So that's what's most important here in terms of building out your retirement income timeline. It's gonna give you a framework, a very simple framework that you can draw on a piece of paper. It gives you guidelines to kind of to visually see things by.

Jacob: 15:43

And then finally in all of this, you can make sure that your withdrawal rate is not too high for too long. Now, we've all heard of the 4% rule perhaps, and there's different opinions on that, or is that accurate or what has changed over the last thirty years before, you know, after this rule was instituted or kind of developed. So my thoughts on this are a 4% rule is that, you know, if you take 4% of your assets and if you invest your assets correctly for the life of your retirement, you'll never run out of money. Well, that might be true, but here's the reality. If you're trying to delay social security and you're trying to wait for a pension to turn on and you're retiring before those dates, you're gonna have to live a percentage of your portfolio most likely than 4%.

Jacob: 16:23

It just depends on how much you have and what you're spending. But most of people have to spend more than 4% in those years, what I call the gap years to pull from their portfolio. Now, why I say make sure your withdrawal rate is not too high for too long, is because I realize that it's just reality. You're probably gonna have to take more than 4% early on if you're waiting for social security or delaying that, but once we turn social security on or other fixed income sources on, we've got to make sure that your withdrawal rate from your portfolio is back down below that 4% number so that we can offset some of the higher distribution percentages we had early on. So it's kinda, it's more of a fluid kind of decision than it is just a set rule that's engraved in stone that you've got to follow for the rest of your life.

Jacob: 17:05

This is more, I guess, fluid or custom than that. It's not like we can just put you in a cookie cutter strategy and say, Hey, we're gonna do this the rest of your life. Now just go execute it. Every year's gonna change. Your life's gonna change.

Jacob: 17:15

Your health circumstances are gonna change. So build out that retirement income timeline. And then once you've got that built out and you're seeing how much you need to take from different accounts every year, at least in the first five years and the next five years after that, make sure that your withdrawal rate is not too high for too long, but don't be afraid to have a higher withdrawal rate for a couple of years here and there to meet your needs until other income sources come into play. So that's number four, create the retirement income timeline. And the fifth step I've got for you here might be one of the most important ones.

Jacob: 17:44

In fact, I typically think that it is, and it's to build cash. Now, why would I build cash before retirement? Well, frees up so many opportunities for you. It frees up the opportunity to pay taxes on Roth conversions. It gives you a sleep at night factor to know you've got X amount of cash sitting at the bank.

Jacob: 18:00

If things go poorly in those first couple of years, it gives you the opportunity to know that, you know, I can go buy a new car if that's something I've got to do. And honestly, it just gives you the confidence to know that I can withstand market volatility because I've got cash sitting at the bank that's not going up and down at the stock market. Now, by building up cash, what you're actually doing is you're building up bucket number one. If you heard me before, know, I do it like to do a three bucket income strategy where bucket number one is cash, bucket number two is bonds, treasury, CDs, fixed income assets. And then bucket number three is our long term growth assets.

Jacob: 18:30

Those are gonna be your stock funds. But the purpose of doing that is we wanna build out an income plan for each stage along the way. We wanna have money for the short term, money for the midterm and then money for the long term. And each of those different buckets has different investment goals. So when the stock bucket is going down, we don't have to worry because we know that money is not needed this year.

Jacob: 18:48

That's why we have our cash bucket, right? So building up cash or building up bucket number one in that final two, three or four years, and if you're in the last twelve months, this is very important, but building up that cash bucket in those last few years before retirement is gonna be huge for your confidence level and knowing that I don't have to rely on all of my stock holdings to do well every single year, because I've got this treasure chest of cash that I can pull on at any given point. Now, in addition to this, we've got to consider, Hey, what is my income level at while I'm still working? Right? Because this might mean instead of maxing out your four zero one ks, it might mean, Hey, I'm only going to contribute to my four zero one ks up to the match make and sure I get the free money.

Jacob: 19:27

But above that, what if I stopped saving to the four zero one ks, which is a tax deferred asset. If you're trying to defer those taxes into the future to save taxes while you're working. A question you have to ask yourself is, is it worth paying the taxes now instead of doing a Roth conversion in the future? Right? So question is, do I need to save cash, pay the taxes on it to actually get the cash in my bank account?

Jacob: 19:49

Or is it better to put that money like I have been into the 401 ks and then worry about building cash sometime after the fact? So that's something to evaluate, but think of it this way. Think of it as by paying the taxes on the income while you're still working and earning it, you're essentially doing a Roth conversion now that you're not gonna have to do in the future. Now, the tax rates are gonna play an important role in this. If you're in the 35% tax bracket, well, that might be different because you could do a Roth conversion next year in the 12% bracket, right?

Jacob: 20:20

But it's something to consider. So I don't want this to be like, Hey, you absolutely must do this. It's something that you should evaluate. One way or another, I think building cash for those first few years of retirement is gonna be crucial because having after tax liquidity to access is gonna help your confidence and kind of comfort level as you ease into this thing called retirement and kind of what the next stage looks like. So it gives you peace of mind knowing that regardless of the environment around me, regardless of all the craziness that will continue to be around me, I've got cash that I can go to and pull on when I need it.

Jacob: 20:52

So that's the fifth step, build cash as you get close to that retirement date, because that's gonna give you a sleep at night factor and it's gonna help you with some of the other tax planning strategies that could be important to you in the future. All right, so just a quick recap, number one, audit your spending, know what you're spending every year, and then be able to factor that into your retirement income plan. Number two, take inventory of your assets, where they are, how much you have, the tax statuses of those accounts. The third step is to diversify your investments. This eliminates or reduces unnecessary risk.

Jacob: 21:23

There still could be risk there obviously, but you're eliminating the part that is unnecessary. The fourth step is to create your retirement income timeline. This gives you clarity around when your income will start, when certain things will be coming in and how much you're gonna have to distribute from your portfolio and in which years you're gonna have to do that. And the fifth step is to build cash. Like I said, might be one of the most important, but having cash to pull on and access early in retirement will give you a peace of mind and a comfort level that will help you stick to your other investment plans.

Jacob: 21:52

So those are the five steps that I think can help you retire in the next twelve months or here in 2024. So hopefully these things build your confidence in these final months leading up to your retirement. Remember, you're not retiring from something, you're retiring to something, and you should be excited about that. Again, please click the link below to fill out the listener survey. It only takes a couple minutes and I would greatly appreciate it if you did that for me.

Jacob: 22:13

Thanks so much for listening to this week's episode of Retirement Answers. I look forward to talking with you again next week. Hey, it's Jacob again, and I wanted to extend a quick offer to you. If you have a question and you would like to have it answered here on the show, please email me at jacobretirementanswers dot net. And I'd love to answer that question for you right here on the show.

Jacob: 22:34

Also, wanted to remind you that nothing discussed in today's episode is meant to be financial, legal or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.