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How Much Should I Save For Retirement By Age? 馃挵 Does Kiplinger's Retirement Method Work? - YouTube
Channel: Money and Life TV
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in this video we'll be exploring the
average retirement savings by age
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philosophy and talk about the pros of
that philosophy and some of the cons of
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the pitfalls of following that
particular mindset how's it going
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Internet so good to see you as always
honored to be here with you and share
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this information with you my name is
Mike the CPA on money in live TV we
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produce videos around finances investing
taxes and so much more if you look
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across the internet you're gonna find a
lot of different articles that talk
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about age targets or how much you should
have save for retirement by age and the
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one that caught my attention the most is
the one by Kip Winger on Kiplinger site
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it gives you benchmarks are a multiple
of your earnings to calculate you know
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to help you figure out if you're on
track or not if your age thirty you want
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to have it recommends having half your
salary save the day if your age thirty
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five one to one and a half of your
salary and you goes all the way down to
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age 65 where it recommends having either
eight times your salary up to fourteen
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times your salary every single article I
looked at had a multiple or benchmark
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table like this because what they found
is that it's really hard to encourage
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somebody especially if they've if
they're not familiar with with finances
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and how to calculate it if they have to
calculate the number of themselves they
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get really confused and they usually
don't even try it all so what they found
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is by giving somebody a benchmark or a
rule of thumb something to go on like
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something simple like this the average
person could comprehend it with very
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little financial knowledge so what I did
is I took the information from the
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article and I ran a scenario because I
wanted to see how it might play out
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using an example so I'll show you that
on screen right now and then I'll talk
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about my thoughts to see if that's feat
so if this information is actually
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feasible it definitely encourages and
motivates somebody to save for
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retirement but I think there are some
pitfalls with this approach of which
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we're gonna discuss in this video so we
just looked at a saving benchmark table
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but there's some other key assumptions
in this article that the author wants
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you to know about it says key
assumptions assumes household income
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grows at five percent until age 45
and 3% the assumed inflation rate
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thereafter major red flag here for me is
I don't think the average person's
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earnings is growing by 5% per year I
don't think that's realistic I might be
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wrong just saying but I don't think the
average person is getting a 5% raise
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every single year I think it's much more
realistic that people are only getting
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about a 2% raise per year am I wrong let
me know subscribers let me know in the
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bot in the comments section with what
you think is a fair salary increase
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number every year
it says investment returns before
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retirement or 7% before taxes and
savings grow tax-deferred the person
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retires at age 65 and begins withdrawing
at 4% of assets a rate intended to
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support steady inflation adjusted
spending over a 30-year retirement okay
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so this author thinks that once you've
done this this author is telling you you
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should be able to withdraw 4% of your
your account the investment account
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balance every year it's good and it
should last you for 30 years and it
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should keep you above board of inflation
so let's let's just see if that would
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actually transpire that way if there's
any other details you want to read about
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an article feel free to like I said
click the link and go ahead and read
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them for yourselves and please feel free
to share your thoughts in this example
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we're assuming the person has an average
annual salary of $70,000 and their 25
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years of age now obviously I know most
25 year old aren't making $75,000 but
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it's just an example that's all it says
and you can this salary doesn't matter
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here you could change this to be
whatever number you want the idea is
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we're gonna plug in a random income
number and follow through the formula
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the benchmark savings table we saw in
the Kiplinger article and see if it's
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reasonable so on this first line we
multiply this salary by the amount of
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income the person has so this is the
lower end of the range if you remember
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so we were just looking at these
benchmarks so that's that we're gonna
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look at the high end of the range and
the low end of the range so as you can
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see on the low line starting at 25 we
have zero say for retirement
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which is 25 I think is a good age
because that's around the age between 25
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and 30 or I think most people have to
begin thinking about retirement or that
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you
should be thinking about retirement and
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as you can see so by age 30 here's the
age by age 30 this person under the low
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benchmark they able to save thirty five
thousand dollars under to the hive inch
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mark if they're a really good saver they
had to save seventy thousand dollars and
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we can play this out throughout the year
so by thirty five they would have saved
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this much by age forty they should you
know according to the article they
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should have invested this much forty
five they should have invested this much
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and all the way at age sixty five which
is in the article assumes that's when
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this person or individual will be
retiring they should have saved anywhere
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from five hundred and sixty thousand to
nine hundred and eighty thousand dollars
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which is the nine hundred eighty
thousand dollars is is a multiple of 14
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times the person salary now I want to
point out here and it's not accounted
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for in these calculations but in theory
this person's income should go up or
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should go down over time well it should
go up it should they should continue to
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get raises I don't think in the
neighborhood of five percent per year
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but at least two percent per year so
that I it's not reflected here but the
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idea is that you would be making your
salary would be changing over time so
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you know you would have you your
multiple at these different age ranges
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would want to you'd want that to be what
your current salary is at that point
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that's an important distinction I have
to plan out here so once again depending
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on what your salary is at that age so
like let's say your salary age forty is
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80,000 or 90,000 that's what your
multiple times earnings should be at
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that point I put a link here in the
spreadsheet there's a free financial
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calculator I use all the time to help me
calculate these numbers right here and
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I'm going to show you what's behind this
here in just a second but there's a
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website it's called FN calculator our FN
calculator com
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so if when you when you ask me Mike
where did you get the numbers for these
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calculations I'm gonna tell you I got it
for my calculator like no joke it says F
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in calculator within the financial
calculator website I use the retirement
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savings analysis calculator this this
portion of the website this calculator
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to calculate the numbers you're seeing
seen here
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total my saved by age 65 so by using the
higher multiple if we're going I just
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wanted to use this amount the higher
version of them of the savings benchmark
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of nine hundred eighty thousand so we're
taking nine hundred eighty thousand here
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and we're saying that's the total this
person has saved by age 65 okay we're
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gonna assume an estimated annual average
rate of return to five percent after
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inflation estimated annual average
return of five percent which is in my
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opinion it's fairly conservative when
I'm doing retirement projections for my
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wife and I I like to stay between the
four and six percent range because I
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think that's a little bit more realistic
but really you could use any rate of
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return you want here and you could just
plug it into the calculator and it'll do
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the math for you if you come to this
website and check it out for yourself
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which I highly encourage you to do so we
know that this person using the
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benchmarks would have saved by age
sixty-five fourteen times their salary
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of nine hundred eighty thousand dollars
but what does that equate to into a
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monthly investment amount needed in
order to reach those amounts so what
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I've done is I've laid out a couple
couple different examples for you guys
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so you can kind of see how this would
work and the kind of money this person
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would need to invest to get those
results so if they're starting at age 65
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they would start they would getting a
five percent rate of return they would
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need to invest six hundred and seventy
six dollars a month if they're starting
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if they didn't start investing until
thirty they would need to invest nine
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hundred and four dollars a month if they
didn't start investing until age thirty
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five they would need one thousand two
hundred twenty-nine dollars invested per
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month and if they didn't start investing
until forty they would need to invest
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seventeen hundred dollars per month
roughly to eventually reach this
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benchmark savings rate of nine hundred
and eighty thousand dollars so now what
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does that turn into in terms of like a
monthly income let's take a look at that
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so what I've done here is I've assumed
that this person's gonna retire at age
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65 they have nine hundred eighty
thousand dollars saved based on the
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example we looked at so this row right
here I'm just showing different
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withdrawal rates of how much money they
wanted withdrawal from their investment
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accounts each year this row right above
it it says estimated amount of years the
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money will last
we got a typo there but si this row is
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all about how long this money might last
roughly roughly if this person withdraws
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the money at these rates so if they're
only taking out 2% per year
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this person's money can last for 50
years that there was drawing two and a
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half percent and the money can last for
forty forty years roughly etc etc now
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the article if you remember it claimed
that using this strategy a person can
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withdraw their investments at a rate of
four percent over a 30 year time span so
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let's let's look at that so first of all
if you're withdrawing from a balance of
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this at these different rates so at four
percent let's let's go with what the
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article said at four percent
this person's withdrawing thirty-nine
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thousand two hundred dollars before
taxes from this account now some of this
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money might be tax-free some of it might
not we don't know it just all depends on
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where the person invested their
retirement savings to do this in this
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example by withdrawing at four percent
they their money would last them
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approximately twenty five years give or
take twenty five thirty years maybe and
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they would be able to withdraw in an
average annual income of thirty-nine
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thousand two hundred dollars per year
what does that equate to into a monthly
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income as you can see that would be a
three thousand two hundred and sixty six
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dollar monthly income per month based on
these figures okay
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the article also speaks to the fact that
the person will receive Social Security
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which assumes that they will which I
think might be a dangerous assumption I
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think there was gonna be something in
place but I don't know what it is I
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don't know if I'm gonna receive Social
Security or how much from the same
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website there is a Social Security
calculator on here where you can drop in
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your average annual income it'll spit
out how much per month you could
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potentially receive from Social Security
super helpful I like that's so that's
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what I used this person could receive
$1,900 a month roughly from Social
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Security if Social Security's still
around so to print it all in perspective
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this person would receive three thousand
two hundred and sixty six dollars per
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month from their investments and 19
hundred dollars per month from Social
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Security or roughly sixty two thousand
dollars per year now there's a couple
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variables we don't
no in this example one when it comes to
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retirement planning that's what makes
retirement planning challenging as one
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we don't know how long we're going to
live
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nobody knows - we don't know what our
exact expenses are gonna be at that
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point in time we don't nobody knows for
sure
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third we don't know the exact rate of
return we're gonna receive so there's
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multiple variables those are just some
of them there's more than that
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that play into these calculations which
makes retirement planning somewhat
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challenging but overall I think this
article does a good job of encouraging
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people to save for retirement and gets
them thinking about retirement which i
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think is fantastic well I think the
article falls short are some of the
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areas of improvement for for this
particular approach to retirement is
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that you have to really put really
consider if this projecting these
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numbers at this stage of your life right
now
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if this would be enough for you plate
run through these numbers see if it
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makes sense see you think of it's gonna
be enough so I personally think that
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this might not be enough because as you
can see overall this person has been
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working hard in saving their whole
investing their whole life now they're
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gonna have to live on less than that
which is the honestly that's the average
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approach to retirement these days which
I don't necessarily like I don't want to
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work my whole life and end up with less
that's to me that's not the wisest plan
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so what I also explored is if you wanted
to what if we did want to make sure we
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had at least our average income in our
working years in retirement what would
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it take what would we need to invest in
order to accomplish that so I'm going to
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unhide these cells or on take away the
color here so you can guys can see them
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so I ran a couple other scenarios in our
calculator to see how much we would need
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to invest per month in order to
eventually achieve a $70,000 year income
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and in order to achieve the $70,000 a
year income which we were receiving
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during our working years we would want
to have at least at least 1750 R 1
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million seven hundred fifty thousand
dollars in investments if we're getting
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a five percent rate of return and now
this would assume
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this would assume that we're not going
to get Social Security which to me if if
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you're planning this way you're I think
you're gonna have a much higher chance
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or success rate at retiring then if
you're assuming you're gonna get Social
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Security I'm showing you these numbers
not to discourage you but to give you a
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broader more realistic perspective of
what it would take in terms of total
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investments to replace your annual
income so as you can see then if you if
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you want to withdraw 4% from 1.75
million is 70,000 per year that is that
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is how much you would need an
investments to replace your income so a
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lot of times I think if you if you want
to see what it's gonna take to or
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replace your income and you want to use
the 4% withdrawal rule like if you're
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for example if your income is 75,000
just divide that by 0.04 and that's how
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much you would need an investments to
replace that I know the I know when we
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see these numbers it's scary it's very
daunting it's a daunting task to realize
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like oh my gosh how do I save that much
or how do I invest that much well it's
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just to encourage you to really start
thinking about this stuff right now with
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where you're at in life the sooner you
start investing the less money it's
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gonna take for you to retire the sooner
you start the longer your money has to
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grow using compounding interest and the
faster you're gonna get there so I would
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encourage you to take a broad look at
your expenses and see what you can cut
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most articles it talks about savings but
what they don't talk about is making
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more money and I've encrypted on many of
my videos I've encouraged people to
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focus on making more money because it's
really hard to have a decent lifestyle
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and be able to afford to save for
retirement
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unless you're focusing on increasing
your income over time and so I would
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definitely encourage you to do that get
out of debt as soon as possible it takes
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a lot of sacrifices to make this happen
but I assure you the peace the just the
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lack of stress you'll have knowing that
you have a solid foundation under your
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feet is gonna make your life so much
better mmm much better than if owning a
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brand-new truck or having all of these
expensive things but never having any
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fundamental resources for retirement
in the comment section below guys let me
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know your thoughts your comments your
questions about all this stuff let me
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know if you think this benchmark
approach that is written by several
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different several different websites and
publishers is realistic do you think
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there's a better approach to save you
for retirement
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if so what is it let me know all your
thoughts in the comments below and if
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you would like me to do more videos
around this area please let me know and
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also be if you enjoyed the video make
sure you crush that like button and be
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sure to subscribe to the channel if you
have not already I try to produce a new
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video on this channel about once for a
week around finances investing taxes and
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so much more with that being said guys I
look forward to reading your comments
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it's my favorite part about doing
YouTube have a great week everybody and
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use this information to live your life
on caves bye guys
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