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