What is the least amount in your investment portfolio to retire?

Today we are showing you a simple step by step guide so you can calculate this on your own.

Least Amount to Retire 2022

Resources:

• Social Security Increase 2023 (What Retirees Need to Know)

Full transcript:

SPEAKERS

Alex Okugawa & Anthony Saffer

Anthony Saffer 0:00
What is the least amount that you need in your investment portfolio to retire? Today, we’re going to show you a simple step by step guide to calculate this on your own. Stay tuned.

Hey, there, it’s Anthony and Alex from one degree advisors. If you’re new here, we are certified financial planners, we help folks with all things retirement tax and investment. So Alex, let’s get into it. You know, we do a lot of videos about how people should save how to maximize their investments, tax savings today, we’re actually gonna go the opposite way. And talk about well, what’s the minimum in order to get to retirement? Yeah,

Alex Okugawa 0:36
I mean, let’s be honest, a lot of people don’t always care about all the fancy techniques and strategies, frankly, that’s why they hire us is to do those things. So I mean, a lot of people are really looking forward to retirement, they’re like, Alright, I want to get to that at that end goal there. And, you know, they want to know, okay, well, what’s like the minimum I need? Like, when do I know, if I’m there? I mean, we can help folks get confidence that they’re there with like a comprehensive financial plan and a coordinated investment plan. But you don’t always need to overcomplicate it.

Anthony Saffer 1:12
So determine the least amount that you need in your investment portfolio to retire, we’re gonna go through a simple framework here, and we’re gonna really focus on three things. So number one is what’s your income need?

Alex Okugawa 1:24
Yeah, I mean, this is kind of like your expensive expenses, what is the lifestyle that you want to live? Right? Some people need $10,000 A month, $15,000 a month, other people might need a lot less $5,000 a month, it really is a person by person decision. There are a couple of warnings here, you know, a lot of people are going to find it very difficult to go down in their lifestyle needs. So you know, we’ve met with people where it’s like, Hey, here’s how your projection looks. And it’s like, oh, well, I’ll probably live on less than retirement. And it’s like, Okay, do you really want to live the rest of your life like that. So that’s one thing to be careful of. I’d say the other thing too, when you’re considering your income needs in retirement is to make sure that you have a cushion, right, because we are projecting 2030 years into the future, there are going to be a lot of unknown variables. So having a cushion, meaning you don’t spend the very last dollar on your with your with your last breath, can give you a sense of security and confidence that you’re going to be okay,

Anthony Saffer 2:25
You want to ensure that you do have that standard of living going into retirement that you are planning accurately. So number two becomes what income sources do you have?

Alex Okugawa 2:34
Yeah, so once you know what your expenses are, and we’re about, we’re going to show a diagram how this all works. But once you have your expenses figured out, the next piece is to say, Okay, what kind of like guaranteed income sources Can I count on in retirement to either meet all of my need, or at least most of my meet? Most commonly, this is things like social security, or a pension. But here again, this is where I’d say things to watch out for and be careful of after we’ve done this for years and years and years, helping hundreds of families get to and through retirement is be careful of inflation, and cost of living adjustments with things like social security or a pension. You know, we recently posted a video which we’ll post above here, that actually shows people you know, okay, so social security supposed to go up in 2023, the benefit amount due to inflation, has it actually kept up with inflation. So explain why it hasn’t and things you need to look out for, especially as you’re thinking about your plan. And going forward.

Anthony Saffer 3:29
Yeah, in our experience, people were way under estimating inflation, or at least many were, and we tried to talk to them about, hey, when you project out into the future, inflation is much higher. Now we have to plan for that. Alright, number three is the investment portfolio itself.

Alex Okugawa 3:42
Yeah. And now let’s be clear, you don’t necessarily need an investment portfolio to retire. Let’s be honest. So if you have other income sources that can meet your needs, you don’t necessarily need this big investment portfolio to retire. Now, you may not want to fully rely upon things like social security and a pension to meet all of your needs. But maybe it’s possible depending on your situation. So let’s pull this up on the screen here. I’m going to walk us through an example of how this can work. Okay. So let’s say someone so security benefit amount is going to be about let’s say $3,000 a month. Okay? So these boxes that you’re seeing here, right, this is like your total expenses need, this is what you need to meet your lifestyle needs. So let’s say social security of $3,000 a month and let’s say it goes up just a little bit each and every year. Let’s say it’s gonna meet most of your need. Right? So security meets most of your need. And in this example, let’s just say your total need in the first year is $5,000. Okay, so what we’re left with is if this is 3k, and I need a total of 5k, the difference is $2,000 a month that’s my shortfall. That’s what I need my portfolio to replace. Okay, so my need is $2,000 a month. Well, with this information in mind, now we can backtrack. And we can calculate that minimum portfolio need, right? So let’s say $2,000 A month would be 24,000. A year, a lot of people might be familiar with the very common 4% rule. We’ve talked about this before on our channel. It’s not necessarily the Bible, but it gives you a good framework to say this is where I might consider starting and looking at in terms of a what’s called air quotes, safe withdrawal rate from the portfolio. So if we divide that by 4%, what that gets us is a total portfolio value that’s needed of $600,000. Right? $600,000. If I take 4% of that a year, that’s 24k 2k a month that will help meet my need of filling in the gaps. And now I have enough to meet my needs in retirement.

Anthony Saffer 6:03
And that’s simplified calculation as far as a 4% withdrawal rate, even though we just consider it a starting point, it does factor in increases through the years.

Alex Okugawa 6:11
That’s right. Now, you know, a couple caveats here is this doesn’t account for things like you know, unforeseen medical expenses, and that can be a huge derailment to people’s retirement, they also need to account for things like, you know, gifts, you know, because like gifts can be a big thing. And you’re in retirement, you making gifts to kids and grandkids. So watching out for this unforeseen expenses can be a big part of it

Anthony Saffer 6:34
all. And we’ve talked about inflation, and that should definitely be in the plans. But even things like big expenses, well, what if you need to put a new roof on your house, and it’s, it’s almost like these things, it’s not they’re not what ifs, it’s just when, and if we’re not planning for that from our monthly income, we need to be have that cushion to be able to supply the need.

Alex Okugawa 6:50
And again, today was a simple illustration of you know, what’s the minimum amount you need using just some basic numbers. But you may also want to consider looking at strategies where you take higher withdrawals in the early years of retirement delay taking Social Security. So you let your benefits grow. And then what that does is when you eventually take Social Security, let’s say maybe 70, that’s the maximum you can wait. Now you have the maximum Social Security benefits that are guaranteed at least by the government for the rest of your life, that can be a big piece. So one size does not fit all. This is a basic illustration today, but that’s where we help folks go into a comprehensive plan to say what makes the most sense for your specific situation.

Anthony Saffer 7:33
So what’s the minimum investment portfolio number you need to retire? Leave your thoughts in the comments down below, as well as suggestions for any future videos. And if you liked today’s content, please like and subscribe for more. Thanks for watching.

Transcribed by Otterai

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