441 First Principles Retirement Planning
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Welcome back, amErica to sound retirement radio, where we bring new concepts, ideas and strategies designed to help you achieve clarity, confidence and freedom as you prepare for and transitions. The real retirement. And now here is your host, Jason Parker.

America, welcome back to another round of sound retirement radio. So glad to have you tune in the episode number four hundred and forty one before we get started, that I always like to start the day by renewing our mind. And i've got a verse here from luke, a chapter to fourteen, verse twenty eight, suppose one of you wants to build a tower.

Won't you first sit down and estimate the cost to see if you have enough money to complete IT? And then something fun for the grandkids. Why did the crawberry turn red? Because they saw the turkey dressing.

I did the turkey across the road. I was thanksgiving, and I wanted people to think that was a chicken. What if I told you that having a net worth of three million dollars was not enough to retire in today's podcast? We're going uncover how this could happen.

We're diving into first principles thinking and how it's applied to retirement planning and then focusing on what I believe to be the most important foundational number for a successful retirement at the end of today is show. I'm also gona give you some questions that you can ask your spouse after the relatives leave, and you have time to think about retirement planning over a slice of costa s pumpkin pie. These questions are going to be available at sound of time and planning dotcom.

Just click on episode number four hundred and forty one before we get into the retirement details, let's take just a quick minute and discuss what are first principles and explore how first principles have been applied in a completely different industry. First principles are the core truth I can break down any further. They help us solve problems by stripping away assumptions and focus in on the basics.

Before we get into how to apply first principles to retirement. Let's look at a completely different industry and a great example of first principles. Traditionally, people accepted that batteries for electric vehicles were prohibited, timely, expensive trading IT as an unchangeable fact.

Then, under elon musk leadership, the people at tesla chAllenge ed this assumption by breaking the problem down to its most basic elements. They analyzed the cost of raw materials like lithia, nico and cobalt, and discover that the materials themselves were pretty inexpensive. The real issue was with inefficiencies within the battery manufacturing process.

So by rethinking the problem from the ground up, tesla was able to innovate new battery designs and processes, significantly reducing costs and making electric vehicles more affordable. So just as tesla revolutionized battery costs by questioning assumptions, we can rethink retirement by breaking IT down the first principles. What do we really need to retire? This kind of first principles thinking is exactly what we need to apply to.

Retirement planning is asking, what is the most important thing we need to focus on? And then drilling down to the most basic elements as you prepare for retirement at its core, retirement is ultimately about one thing. Income is about ensuring you to have enough income to support the lifestyle.

In spending, you invision. The sooner you create predictable recurring income, the sooner you can step away from a job with confidence. Some people achieve this by investing in income generating assets like real estate, but most retirees rely on social security, pensions and their retirement accounts, such as four o one case and I R S, for a future income replacement.

The key is having a plan for when to start this income and how to transition these retirement accounts from accumulation vehicles to tools that provide steady, reliable inflation adJusting income. Retirement is all about cash flow. It's about having enough money to cover your expenses.

Without income, there is no retirement. You can have a high net worth, but no income and still be unable to retire. You can have a great budget and know exactly how much you're spending, but if you don't have income to support that spending, you don't have retirement.

For example, I recently met with someone whose net worth exceeded three million dollars, but all of their assets were tied up. And raw land, while valuable, the land didn't produce an income, which meant that they couldn't retire unless they sold IT. And this old strates just a simple truth, if you don't have income or assets that can quickly and reliably generate income, you just don't have retirement oh, and some people say, well, they just sold the three million dollars of land, they could retire.

They're absolutely right. And so once they settle the land, then yes, they can retire because you'll have an asset that can produce income. But as long as they hold the land, they don't have income, they're not retiring. It's one thing to retire. It's another thing to retire comfortable ly and worry free.

And ultimately, what people are wanting to do before they retires to create confidence and they don't unretire prematurely, only to discover ten years injury retirement that they haven't saved enough to produce the income that they need for the remainder of their lives. And I recently created a youtube video to demonstrate how a married couple with one point four million dollars saved could stress test their financial plan using the retirement of budget calculator. The goal was to help answer the critical question of how they saved enough to retire.

This video had some interest comments, including, man, if you can't live twenty years on one point four million, you seriously need to reevaluate ate your priorities. Another person said, I don't know how this is even a question. Yes, you can. And then one, the other person said, do you really need ask such a dumb question?

Many people don't have one point four million dollars saved, which may cause them to respond in a way that seems flippant while having a million dollars save may seem like a lot of money, the real question isn't about your network or your retirement account baLances. It's about how much income can that one million dollars generate and how long will that income last to know if you saved enough to generate a lifetime of income and create worry free retirement, you need to understand how much you're spending. When IT comes to retirement planning.

There are two back of the napkin methods you can use to estimate whether or not you've saved enough. Number one, start by totally all of your liquid assets, including things like I A S for one case, T S P for fifty seven planes, roth iras broker accounts. And then let's say you've saved one million dollars across all these accounts.

So next you're gonna take, you're going to multiple your savings by four percent. And this is going to provide you at with an estimate of how much income you can withdraw annually. Of course, if this makes some assumptions that you're going to have sixty percent of your portfolio stocks and forty percent of your portfolio on bonds and that your retirements not going to last for more than thirty years.

So if you had a million dollars that works out to forty thousand dollars per year, the next thing you do is look at your social security statement to estimate your annual benefits. For instance, if mr. Jones expects to have two thousand dollars per month, and ms.

Jones has one thousand dollars per month. Their combining social security income would be three thousand dollars per month or thirty six thousand dollars per year. And then you take your forty thousand dollars of investment withdraws and you add in the thirty six thousand dollars so security income.

And so in this scenario, the couple could estimate seventy six thousand dollars per year in total annual income adjusted for inflation over a thirty year retirement. Now the second way that you can do this, and this is actually my preferred weight, because I think IT really gives you confidence in, because IT starts with the spending part of the equation. So the second method, you're going to create a budget and calculate how much money you're gonna to a live each year comfortably.

For example, let's say you need seventy five thousand dollars annually. Next, subtract your social security and come from your total expenses. So you take your budget of seventy five thousand dollars and you subtract out thirty six thousand.

That's the social security. So many of three thousand dollars month. So security gives you a gap of thirty nine thousand dollars. That thirty nine thousand dollars represents the portfolio with jews. You're gonna.

So finally, you take that thirty nine thousand or a shirt fall and multiply by twenty five, which results in nine hundred and seventy five thousand dollars. And this represents the amount that you'll need in investable assets to cover the shortfall through portfolio with draws for a thirty year retirement. Again, assume in the year invested sixty percent stocks in forty percent bonds.

Both methods highlight the importance of knowing your expenses and income sources. The first method starts with your total savings to estimate income, while the second starts with your spending needs to determine how much you should have saved to support that spending. Either way, these quick calculations can give you a rough idea of whether you're on track for a secure retirement in one more number that I think you'll find helpful when looking at retirement planning is to understand your secure income score.

To calculate your secure income score, you're gonna to create a detailed year by year spending plan, this and your expected retirement. And then you're also gonna want to mark expenses as either essential or discretionary. Then you can add up all of your lifetime of guaranteed income and retirement and compare IT to your lifetime of essential expenses.

If eighty percent of your essential expenses are covered by guaranteed income and you have twenty five times your annual portfolio withdraws, saved and invested, you should feel pretty confident that baring any black swan event or a bad long term care or health care event, that you should be up to retire and have a lot of confidence that that plans gonna work out. Well, of course, this is probably the most important financial decision of your life. So I recommend meeting with a financial advisor who specializes in retirement, who can offer valuable experience and insight and can maybe help you see things from a perspective that you hadn't thought about her or hadn't considered.

The key to good retirement planning is he wanted to be ongoing. You create the initial plan, but then you're going to want to update the plan over time to make sure that are on track for achieving in your financial goal. The plan will help you evaluate future decisions.

The process of ongoing planning will help you course crack as necessary. And well, hope you have a lot of confidence, says you make your way into and through retirement. And so before I gave you some questions to ponder, a here's a few quotes that I thought you might enjoy.

Susie armin says a big part of financial freedom is having your heart and mind free from worry about the what eves of life. Dave ramsey says a budget is telling your money where to go instead of wondering where I went epic. As says, he is a wise man who does not grieve for the things which he has not, but rejoiced for those which he has.

And theatre roseveldt. If you could kick the person in the pants responsible for most of your trouble, you would not be able to sit for a month. Also just a quick update.

I wonder to let you know we released a couple of new features in the retirement budget calculation. The first one is called budget snapshots and similar to the way that we've created network snapshots. So you could every month go and just see how you see how your network is changing over time.

The purpose of the budget snapshots is to be able to look backwards to understand what you were spending in the past. And I always thought I would be valuable to understand, you know, how is inflation truly impacting your plan? And that's with a new budget snapshot feature allows that allows you to see.

You know, if you are spending in a thousand dollars a month and groceries before and now you're spending fifteen hundred dollars a month and groceries, you can see how that changes over time. This week, we're unveiling a new future that let you evaluate how the anticipated reduction and social security that's projective for twenty thirty five could affect your plan. So visit retirement budget calculator dot com and explore how this change my influence, your strategy.

okay. I've written now thirty three questions to consider with your spouse. They're organized by the following categories. You've got spending habits, lifestyle choices, emotional connection to money, family and giving, philosophy and planning and personal reflection. And i'm going to give you a few these questions from each category.

If you want the entire list, just visit sound time of planning dot com and click on episode number four hundred and forty one. So category one, spending habits. What spending is really essential? Should there be a limit to on the number of times the amazon delivers to our house per week?

Are we currently paying for subscriptions that we had to use lifestyle choices? Would you be willing to move to a less expensive area? How important is IT to own more than one vehicle?

Emotional connection to money, do you feel like you have plenty, or is or never enough? Do you ever feel guilty about money? If so, when family and giving, if you had to choose between taking a personal vacation or helping the kids financially, which would you choose? When have you enjoyed giving money the most? Is your specific giving?

You remember, under financial, physical, y and planning, how do you feel about having an emergency fund? And how much should I be? And under personal reflection, what's the best purchase you ever made and why when you're a child growing up, what do you remember about money? As you reflect on today's episode, remember that successful retirement planning starts with understanding your income and signing them with your spending goals. By breaking down the complexities of retirement into first principles, you can create a clear, actionable plan that builds confidence for the future, whether it's evaluating your secure income score, prioritizing essential expenses or answering questions we've shared, these steps will guide you toward a more intentional and fulfillling and retirement. So if you're ready to take the next step, try the retirement budget calculator to stress test your plan and gain the clarity you deserve.

Thank you for tuning in to sound retirement radio for articles, links and resources from today's show is a sound retirement planning duck com if you enjoy the podcast, share IT with a friend and give us a five star review ready did to kick start your retirement planning head over s to a retirement budget calculated dot com assistance with investment management explore our services at Parker dash financial dot net information and opinions expressed here are believed to be accurate and complete for general information only, and should not be construed as specific tax, legal or financial advice for any individual, and does not constitute solicated for any security or insurance products.

Please consult with your financial professional before taking action on anything discussed in this program. Park your financial, its representatives, ability for investment decisions or other actions taken on the information provided in this program. All insurance related discussions are subject to the claims paying ability of the company.

Investing involves risk. Jason Parker is the president of Parker financial L L. C and independent fee based wealth management firm located nine three zero bh ore drive, northwest sweet two zero one silver dail, washington for additional information called three six zero three three seven two seven zero one or visit us online at sound retirement planning dcom.