Wishful Thinking with Your Finances

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.

(Click the featured times below to jump forward in the episode)

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

More From Eric:

The host: Eric Peterson - Contact - Call: (515) 226-1500

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