John and Jane have saved diligently and planned meticulously, but uncertainty looms. Can they retire? Can they maintain their desired lifestyle without the fear of financial ruin? These questions drive the discussion as we stress-test their retirement plan.
Step 1: We start with the “rough draft” of their financial plan, which outlines their goals, assets, and income sources. It’s a snapshot of their current financial landscape, a starting point from which we can chart their retirement journey.
Next, we discuss their retirement lifestyle, monthly expenses, and aspirations for travel and leisure, which helps us understand what retirement means to them and guides our planning process.
Step 2: With their goals and financial details, we move on to the next step: cash flow analysis. This is where we see how their income stacks up against their expenses throughout retirement.
As we crunch the numbers, patterns begin to emerge, driven by milestones like paying off their mortgage and the start of their Social Security benefits. But perhaps most importantly, we confront the reality of their withdrawal rate.
At first glance, withdrawing nearly 9% of their portfolio in the first year of retirement seems unsustainable. But as we delve deeper into the projections, we see how expenses decrease, income sources kick in, and the trajectory of their portfolio begins to stabilize.
Yet, uncertainty still lingers. What if the market takes a nosedive? What about inflation? What if healthcare costs skyrocket?
Step 3: That’s where the Monte Carlo analysis comes in. By running thousands of simulations, we gain insight into the probability of success and the severity of failure.
We explore the impact of potential risks, from Social Security cuts to higher taxes to unexpected healthcare expenses. And we consider the flip side, the potential windfalls that could bolster their financial security.
retirement planning isn’t just about numbers. It’s about peace of mind, the confidence to embrace the next chapter of life without fear or regret. And as we wrap up our discussions with John and Jane, we’re reminded of the power of preparation, the freedom that comes from knowing that no matter what the future holds, they’re ready to face it head-on.
=======================
Learn the tips & strategies to get the most out of life with your money.
Get started today →
Get access to the retirement software I use in this video and more →
🔔 Make sure to subscribe here to be notified for future videos!
_ _
👥 Make sure to connect with us on all socials below →
⏱Timestamps:⏱
0:00 – Step 1: Rough draft financial plan
4:27 – Step 2: Assessing cash flow
8:37 – Graphing the cash flow
9:53 – Step 3: Stress testing
12:22 – Straight line projection
14:51 – Probability of success
19:24 – Other potential stressors
Other videos we think you’ll like:
About Root:
Worried about retirement?
Start here: …(read more)
LEARN MORE ABOUT: IRA Accounts
CONVERTING IRA TO GOLD: Gold IRA Account
CONVERTING IRA TO SILVER: Silver IRA Account
REVEALED: Best Gold Backed IRA
Planning for retirement can be a daunting task, especially when it comes to ensuring that your financial portfolio is able to support you during your golden years. With a bit of proactive planning and strategic decision-making, you can set yourself up for a comfortable retirement. Here are three simple steps to ensure that your portfolio can support you throughout retirement:
1. Start by determining your retirement goals and needs: The first step in preparing your portfolio for retirement is to have a clear understanding of your retirement goals and financial needs. Consider factors such as the lifestyle you want to maintain in retirement, any healthcare expenses you may incur, as well as any other financial obligations you may have. By having a clear picture of your retirement goals and needs, you can better tailor your investment strategy to meet those goals.
2. Diversify your portfolio: One key strategy to help ensure your portfolio can support you in retirement is to diversify your investments. By spreading your investments across different asset classes such as stocks, bonds, and real estate, you can help reduce the risk of significant losses in any one investment. Diversification can also help you take advantage of different market cycles and potentially increase your portfolio’s overall returns over time.
3. Regularly review and adjust your portfolio: As you approach retirement, it’s important to regularly review and adjust your portfolio to ensure that it remains aligned with your retirement goals. This may involve rebalancing your investments to maintain your desired asset allocation, adjusting your risk tolerance as you get closer to retirement, and considering income-generating investments such as dividend-paying stocks or bonds. By regularly reviewing and adjusting your portfolio, you can help ensure that it is well-positioned to support you throughout retirement.
In conclusion, preparing your financial portfolio for retirement requires careful planning and strategic decision-making. By determining your retirement goals and financial needs, diversifying your investments, and regularly reviewing and adjusting your portfolio, you can help ensure that your portfolio is able to support you throughout your retirement years. With a proactive approach to managing your investments, you can set yourself up for a comfortable and financially secure retirement.
What is the risk ratio of these portfolios?
Great videos!
A couple housing expenses to consider in retirement are insurance and HOA dues, along with taxes they will increase over time.
This video is too slow and drawn out- I just can't watch it.
My advice to everyone is this : if you want to grow big this year especially in your finances. Be willing to take risks. Saving is great but taking risks puts you on a pedestal where you wouldnt have to worry about savings as you do now. Thanks to Mrs Espinosa Claudia, my portolio is doing really great and im proud of the decisions i made last year.
Dave Ramsey will be so happy with that 8.8% withdrawal figure if it can be sustained throughout. But I do agree with the explanation. It does seem doable as long as this scenario and lower withdrawals and higher inflow of money is met
Car every 5 years? My car is model 2011 , maintenance is only oil change.
The problem I have with the Monte Carlo simulations that I’ve used before (with USAA, Fidelity, First Command, and Pinnacle) is that I don’t think their worst case scenarios are bad enough. So what if you did 10,000 runs; what are the parameters within that black box that we can’t see?
How does the 4% rule stand up against having two well diversified etfs that grow their dividends year by year? That way, they live from dividends versus selling 4% of their investments?
You make very clear videos. Based on these videos and various calculators I am much better prepared for my eventual retirement. I always knew it was beneficial to have a federal pension + social security but I now understand how beneficial it will be. And yet, we all worry about health care and ending up homeless, sigh. Thanks for helping alleviate some of those catastrophizing thoughts. Cheers
Where are you accounting for long-term care costs, like assisted living or nursing home care?
Thoughts on selling out of the money covered calls within ROTH IRA to generate income or invest in covered call ETF's like JEPQ/JEPI that return about 9% dividend?
To be realistic, I'd prefer a deep dive that includes advisory fees. Presuming that a good plan adds value, it still has an expense and that could affect the overall outcome.
I live in Singapore, I wonder if your retirement academy can be applied to other jurisdictions?
Great video James. Very similar situation to ours in about 5 years time with similar goals. We will definitely be travelling. Here is a thought. Taking 3-4 big trips a year for $20K is costly and can be stressful (think long flights, packing, go-go-go). Rather, pick a region and go live as an Expat for 6-12 months. Living expenses in Asia, South America, many parts of Europe can be 1/5 to 1/2 as much as the US and many countries offer Retirement Visas allowing you to stay for a 1yr+ with proven retirement income/assets starting at age 50. Local regional travel also tends to be frequent, easy and cheap. Additionally, it gives you a better chance slow down and absorb local culture, language, and food. Lastly, many countries have inexpensive country health plans you can pay into with a standard of care as good as the USA. Summary: Your living and travel expenses could be less than $30K year! Happy Retirement!
This is one of your best videos. A lot of detail, and clearly explained.
I really like your process, best I have seen on YouTube. The only place I see that you may be missing is related to home ownership. Every 25 years your home needs a new roof, which is a big dollar item. Then the HVAC system every 10 years, another big ticket. How about your house needed new carpet, paint, furniture, applicances, etc. I don't see you adding money every so often to provide for them.
I had initially planned to retire at 62, work part-time, and save money, but the impact of high prices on various goods and services has significantly disrupted my retirement plan. I'm worried about whether those who experienced the 2008 financial crisis had it easier than I currently am. The volatility of the stock market is a concern as my income has decreased, and I fear that I won't be able to contribute as much as before, potentially jeopardizing my retirement savings.
This content is extremely helpful, giving me refreshing peace of mind and knowing that I can rewatch your talks to stay grounded. It keeps me on track making sensible lifestyle choices, balancing financial security AND more difficultly spending money whilst we have the health and motivation to do so, THANK YOU
I understand this is a rough plan but assuming zero housing costs after mortage is paid off is missing a big expense home maintenance assuming 1 to 4% of the home value per year that is $7500 to $30,000 or $625 to $2500 a month that is a pretty big chunk of change