Today’s Prep:
Planning to “live off the interest” or be in a lower tax bracket in retirement? Eric breaks down some of these concepts and points out what’s realistic vs. wishful thinking on today’s podcast.
Equipping Points:
Some people might think these financial concepts are true, but is it really wishful thinking?
For instance, is it realistic to live off the interest and never touch the principal? Eric says this is where people confuse rate of return and interest. Rate of return is the growth on an asset, like a stock. The interest is money you receive for loaning your money to somebody like on a CD or bond. Eric walks us through the math of how much you’d have to have in order to live off of the interest. What you need to prioritize is generating income in retirement.
Some think they will be in a lower tax bracket once they retire. But this isn’t often the case. If you’ve saved all of your assets in a 401(k) or other type of qualified plan and want to maintain the same type of lifestyle, you’ll be taxed on that money. Not only that, but tax rates are likely to go up from here.
While the idea of caring for each other in old age might seem noble, is it realistic? There might be health barriers or logistical reasons why this might not be possible. It’s important to have a plan to cover healthcare needs and expenses.
Think you’ll spend less money in retirement? Think again! Even though you aren’t paying for the same things as when you were in your working years, you might find yourself spending more as you fill idle time. Things like hobbies and trips add up. When you’re not generating income, you’re spending income. You might spend a bit more in the early years of retirement as you do things, so it’s critical to have a budget or spending plan to know how much you’re going to spend.
While the market has been good overall for a while, we can’t always project it will stay that way. Have you stress-tested your plan? At some point, the market will drop. Will you be able to withstand some market volatility? You need to create safer, smarter places for your money to come from. That way, you have the time needed for the market to get back. Reach out to a financial advisor today to make sure your plan accounts for possible market downturns.
Listen to the entire episode or skip ahead using the timestamps below.
1:03 – Can you live off the interest?
3:30 – I’ll be in a lower tax bracket when I retire.
5:20 – Can we simply take care of each other in old age?
7:16 – I’ll spend less money in retirement.
9:00 – I’ll keep getting good returns from the market.
Today’s Takeaway:
“Income is what drives everything in retirement. So, how can I generate income from assets? Not just the rate of return or the interest I’m earning, how can I generate the most income in the most efficient way possible?“
-Eric Peterson
Subscribe To The Podcast:
Apple Podcasts - Google Podcasts - Spotify - Stitcher - iHeartRadio - TuneIn
Check out some other recent episodes
The Stress That Comes With Retirement
Eric discusses why this phase can be so daunting and offers strategies to ease the transition.
Read More
Finding Financial Silver Linings
Throughout our lives, there will be times when the markets rise and times when we experience downturns. Largely, we don’t have control over the circumstances we’re dealt, but we do have control over how we respond to those situations.
Read More
Unasked Retirement Questions You Shouldn’t Ignore
Tune in to this episode with Eric, as he breaks down some frequently unasked retirement questions that are very important to consider.
Read More
The Diverse Definitions Of Diversification
Diversification is one of those buzzwords you hear often in financial planning. While many people know it’s important, few are clear on what it actually means when applied to various aspects of their financial strategy. In today’s episode, Eric and Marc will bring you the diverse definitions of diversification.
Read More
The Use Of Technology In Financial Planning
As technology keeps advancing, it’s made our lives easier in so many ways. Tasks that used to need outside help can now be done on our own with just a few clicks. This shift has also brought more accessible online financial tools, but how accurate and helpful are they really?
Read More
Retirement Planning Conversations With Dorothy Parker
Dorothy Parker is one of the great writers of the 20th century. Her wit and prose have been appreciated by readers for generations. But are there any lessons we can learn when it comes to finance with some of Parker’s most well-known quotes?
Read More
Mailbag: Moving To A State With Income Tax And More
In this episode, Eric is answering your questions! We’ll cover a range of topics today, including key considerations for income taxes when moving to a new state, how to initiate financial conversations with parents or grandparents, and whether using a life insurance policy to save for a college fund is a wise choice.
Read More
What Is Lazy Money?
What is lazy money and why do you want to not have too much of it in your retirement portfolio? Simply put, lazy money is money that isn’t growing as much as it could be. Having your money grow and work for you is a key part of building a solid portfolio, so Eric breaks down some strategies to help get the most out of your money in this episode.
Read More
Retirement Planning Today Is Harder Than It Used To Be
Retirement planning simply isn’t the same as it used to be. From changes in life expectancy, the lack of pensions, and getting caught in the sandwich generation, there’s a lot to keep in mind when putting together your financial plan. Instead of taking advice from others who may have retired in a different era, it’s important to understand what strategy is right for you.
Read More
Social Security Variables That Impact Your Claiming Strategy
After so many years of paying into Social Security, you might feel ready to reap the benefits. But before you get too eager, it’s best to have a thorough understanding of the different variables and how to best leverage them.
Read More