I'm 61 with $1 Million In My 401(k). Can I Retire?

so you have a million dollars inside your 401k you want to retire at 60. you probably have some questions do i have enough can i retire and how long will my money last in this video we're going to look at various hypothetical scenarios some of the decisions you could make and how they impact the grand scheme of things and we're going to reduce this down to a probability so you have a very clear understanding of how these different decisions can impact your ability to retire at 60 with a million dollars inside your [Music] 401k hi i'm troy sharp ceo of ocarvis financial group host of the retirement income show certified financial planner professional and certified tax specialist so on the screen here here's our hypothetical couple jason and mary jason is 58 currently employed mary is retired live in the state of texas have annual income of a hundred thousand dollars jason wants to retire at the age of 60. so the first thing we have to identify is what are we well the first thing is how long are we going to live with the advent of medicine and technology science life expectancies keep increasing in this country so for this example we have jason making it to 92 mary making it to 94. we'd much rather plan for a little bit longer life expectancy especially if you're an average or above average health then plan for a shorter life expectancy so good numbers here then the goals so what exactly do we want to spend so in this example jason and mary they come in they say look we're pretty frugal we don't spend a ton of money we are concerned about inflation we're concerned about taxes but we think we can get by and about 50 000 a year the house has paid off we don't have any of those expenses the kids are out of the house out of college we're not supporting them anymore we just want a nice quiet retirement and in order to retire at 60 we assume we need to spend a little bit less now here's the big thing if this is what we plan on spending if we want to retire at 60 we have to keep in mind health insurance so when jason retires we see right here both retired before medicare 2023-2027 they're looking at about twenty five twenty six thousand dollars in health care costs this includes uh premiums for health insurance this includes co-pays deductibles prescriptions etc these are the average out-of-pocket costs for health care for a couple this age in the country that do not have health insurance through work they have to go in the private marketplace and buy health insurance health insurance is also one of those areas where we have to be concerned about massive inflation because we're seeing much greater inflation in the health care industry when it comes to your insurance premiums the cost of care than we are in the general economy so inflation in the health care arena can be anywhere from five to ten percent whereas general inflation economically speaking in this country is still under two percent so big disparity in inflation and planning for these for for the basic expenses okay so okay we're going to look at social security now for jason and mary so if he files a normal application at full retirement age 67 he's going to receive about 35 453 a year mary will file spousal benefits and receive 50 percent if she waits until age 67 which is 17 726 investment assets so jason here has a million dollars inside the 401k but he also has 200 000 outside of the 401k that he saved over time to help with retirement but the big one here obviously the million dollars in the 401k that's the big pot of money do jason and mary have enough can they retire how long will the money last so they're 58 want to retire at 60. they have a million inside the 401k 200 000 elsewhere and they simply want to spend 50 000 a year but remember health care is that big kicker can mary and jason retire so i'm going to hit this button this is going to run 1 000 simulations the main difference in these simulations is what are the investment returns that they experience in in all of their years of retirement so we're talking from 60 to 92 for jason and roughly the same amount of time for mary so out of a thousand different simulations if we run them about 90 percent of the time or 900 out of 1 000 simulations jason and mary pass away with money but we're going to look at some important factors that can definitely alter what the outcome is the first one we're going to look at is sequence of returns risk so this is very important sequence of returns is the order the chronological order when we retire and start taking money out that we experience various returns in the beginning years of retirement and for this purpose it's not just the beginning years of retirement but it's also throughout what is the sequence of returns is it plus 8 plus 12 minus 2 minus 6 or is it minus 4 minus 10 minus 2 plus 20 those are various sequences of potential returns and they have a massive impact on the final account balances and throughout retirement so this is this is really interesting because we're looking at 18 different trials here the difference in average rate of return between all 18 of these trials 5.1 and 5.2 percent so these are not one is averaging nine one is averaging three all of these eighteen trials the only difference in return is less than a tenth of one percent the only variable is the sequence that they've realized returns throughout retirement this is why investment management as part of a broader plan is so critical to success the very best scenario 2059 so we're talking 40 years out they pass away with 2.8 million dollars the very worst scenario 40 years out they pass away with a hundred and seventy two thousand dollars so we're talking a difference of over two point six million dollars and the only difference is the average rate of return was varied between five point two and five point one so the sequence that they realized returns as we see here changes and over time they change so really critical to understand the importance of managing the investment portfolio in the context of how much income we're trying to generate when we're generating that income how to keep up with inflation and with respect to taxes it all has to be managed together now we're going to look at the impact of different sequences of return and different average rates of return and how they impact the overall portfolio balance through time this is going to provide context to what we previously talked about so in the 500th out of 1000 simulations the investment returns in the beginning positive 8 negative negative 2 positive 18 positive 5 positive 3 positive 17. these are the account balances over time that reflect the ultimate performance on this series of portfolio returns now we're going to look at social security and the impact that has on income and probability of success throughout retirement oftentimes when people want to retire early 60 61 62 63 one of the first things i often hear is troy we want to go ahead and take social security the thought process is if i turn social security on now that's less money i have to take out of the portfolio but in reality what often happens is yes you're preserving portfolio assets today but because of the reduced social security it puts you into a position in your 70s and 80s where you have to take much more out of the portfolio because of inflation and the lower guaranteed income source so i want to look at the scenario for jason and mary so it ran another simulation i changed screens now we're looking at a probability if they take social security at 67 91 percent if they take it at 62 81 so a 10 percent reduction in probability of success if they take it here's full retirement age what we looked at age 70. now here's an interesting one deferring all the way out to age 70 for them only increases the probability by one percent in this scenario i would probably look at this one if it if i were in their shoes but when we look at this one jason taking it at 70 and mary at full retirement age 94 so jason deferring until 70 increases his social security to 43 961 one of the reasons that's important is because when jason passes away if he pre-deceases mary especially if he pre-deceases her at an unexpected early age there's only one social security check to go around the other one ceases to exist so by him deferring until 70 it increases the amount of amount of money mary would have in her plan for the rest of her life whereas if they just took it at full retirement age it's 35 000 he passes away her seventeen thousand goes away so he's leaving her with eight thousand dollars more per year by deferring until seventy additionally it is a higher probability of success so social security it's not a decision that you make without respect to every other aspect of your retirement it all interacts with one another like a set of dominoes you make a decision it impacts something else we need to make these decisions with investments taxes social security everything in contacts with in context with one another the third and final scenario we're going to look at is the impact of retiring at a different age and also wanting to spend more money in retirement and see how that impacts the overall probability of success before we get into this youtube likes engagement so if you leave a comment if you hit that thumbs up if you don't like it hit the thumbs down but that helps youtube say hey we should share this video with other people because there's some engagement here and if you want to stay more connected to us hit that subscribe button and hit that little bell icon and you'll be notified whenever we upload more content to keep you more connected to your money okay so as a refresher jason wants to retire at sixty spend fifty thousand dollars a year has one million dollars in the 401k an extra 200 000 outside what happens to the probability of success if jason wants to spend 59 000 a year well that extra 9 000 drops the probability from 91 to 70 percent well let's say jason looks at this and says you know what i'm willing to work a little bit longer let's put them out here to 62. okay if jason wants to work to 62 spending 59 000 puts it about 85 percent this is a good number but keep in mind this is only a snapshot in time the portfolio is going to change next year things are going to change throughout retirement tax changes are going to come various factors are going to disrupt this entire scenario over time so the most important thing isn't where we are today it's where we are over time are we trending up when we retire is it 85 86 89 are we staying level or is the are the probabilities decreasing if they're decreasing we need to make some adjustments we need to spend less we need to go back to work part time maybe whatever it might be staying connected you'll hear me say staying connected all the time on this channel this is part what part of what i mean it's not just where we are today it's what is the trend of where we are over time and what decisions are we making with the investment portfolio based on the economic circumstances with the tax strategy based on the tax law how are we adjusting and this is where the value of a financial advisor comes in understanding where you are and where you want to be in the various choices we can make with the investments with the the tax strategy with all the things that interact with one another in retirement can increase the probability of success over time let's say jason wants to spend 68 000 a year well 62 isn't going to cut it anymore okay in that scenario we might need to work a little bit longer okay so again 81 percent this isn't a bad number this means 810 out of a thousand scenarios we pass away with money but again it's not the be all end all it's just where we are right now we need to be connected we need to have our portfolio linked up to the plan and we need to understand as time goes on we may need to make some adjustments but by being connected we're in a good place to sleep a little bit better at night because we know it's not just about the money we have we're able to see to a certain extent into the future what all that money that we have means for our security when it comes to how much income we'll have can we retire are we retiring too early too late and then our team once we overlay a tax strategy on top of this typically these numbers are going to go up quite substantially as well the one limitation to this software that we use is it doesn't do a really good job with taxes but it does consider the conventional wisdom strategy when it comes to taxes which is what 99 percent of financial advisors or at least a large percentage in this country for years have recommended for their clients but overlaying a tax strategy on top of the investment plan and on top of the income plan absolutely can improve these numbers so long story short we need to be connected we need to understand how our assets and income are interrelated how social security works into that and then again how taxes we have a lot of videos about taxes on this channel how taxes can increase our tax strategy can increase our probability of success if you'd like for us to take a look at your personal situation and you need some help managing the investments with respect to an income plan and a tax plan and you want to be connected like we're talking about here today there's always a link in the description where you can click to reach out to us and we'll see if our team can provide some value for your retirement so share this video with a friend or family member if you like it again hit the thumbs up hit the thumbs down if you don't either way we look forward to seeing you on the next video

Channel: Oak Harvest Financial Group

Views: 467,776

Keywords: retirement planning, retirement planning at 50, retirement planning at 40, retirement planning calculator, retirement planning at 30, retirement planning india, retirement planning at 60, retirement planning demystified, retirement planning 101, retirement planning in your 20s, retirement planning singapore, retirement planning philippines, retirement planning at 55, retirement planning tips

Id: pvaaNANAU4M

Length: 14min 58sec (898 seconds)

Published: Thu May 27 2021