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Are You 2 Years From Retirement? Do This NOW!
Retirement is a significant milestone in every person’s life that requires careful planning and consideration. If you find yourself just two years away from retirement, it is essential to take certain steps now to ensure a smooth transition into this next phase of life. Here are some crucial actions you should take as you approach your retirement date.
1. Evaluate your financial situation: The first step towards a successful retirement is assessing your financial standing. Consider meeting with a financial advisor who can help you analyze your savings, investments, and retirement funds. Together, you can develop a realistic budget that aligns with your retirement goals and make any necessary adjustments to your financial strategy.
2. Determine your retirement income sources: Take an inventory of all potential income sources you will have during retirement. This may include your pension, 401(k), IRA, or any other investments you have made. Understanding how much income you will have available will allow you to plan your expenses accordingly and avoid any unpleasant financial surprises.
3. Calculate your retirement expenses: It is essential to estimate your future expenses to determine whether your retirement income will be sufficient to cover them. Consider factors such as housing, healthcare, travel, and leisure activities. Be conservative in your estimates to ensure you have a buffer for unexpected expenses.
4. Explore healthcare options: Healthcare costs can be a significant burden during retirement. Research and understand the available healthcare options for retirees, such as Medicare, supplemental insurance, or long-term care coverage. Evaluate which option is most suitable for your needs to ensure you are adequately covered without breaking your budget.
5. Pay off outstanding debts: Entering retirement with lingering debts can add unnecessary stress to your financial situation. Begin clearing any outstanding debts, such as mortgages, car loans, or credit cards, to secure a more stable financial foundation. Reducing or eliminating these liabilities will free up additional funds that can be directed towards enjoying your retirement years.
6. Create an estate plan: It is never too early to start thinking about estate planning. Review and update your will, establish power of attorney, and designate beneficiaries for your assets. Including these important elements in your retirement plan will provide peace of mind and ensure that your affairs are in order.
7. Consider your living arrangements: Assess whether your current living situation aligns with your retirement goals. If needed, start exploring housing options that better suit your needs, such as downsizing to a smaller home, moving to a retirement community, or considering a condominium. Adequate planning in this area can help you optimize your living expenses during retirement.
8. Develop a retirement plan: With retirement just around the corner, it is crucial to create a comprehensive retirement plan. Outline how you envision spending your time, set realistic goals, and consider any hobbies or activities you would like to pursue. Having a clear plan in place will help you transition smoothly into this new chapter of your life.
Retirement is an exciting and transformative period, but it requires careful preparation. By taking these steps two years before your anticipated retirement date, you can ensure a successful and fulfilling retirement journey. Start today, and enjoy the peace of mind that comes from knowing you have thoroughly planned for your future.
The important bit that is missing in this comparison is the 'return above inflation' vs 'return'. 5.3% money market return cannot be compared to the long term average of 7% ABOVE INFLATION of the S&P500. Sure, sit on cash if you want stability as you retire but you have to acknowledge you are going backwards due to inflation.
Nice white board. Miss the PVC pointer!
Josh, how would you suggest allocating at 4.5 years from retirement??
I retired 2 months ago. I've been moving more and more to conservative holdings. Currently about 75% conservative, 25%VTI (Roth and some IRA). Conservative is a blend of liquid money market, short term CDs and Treasuries, and some in a 6 year MYGA at 5.65%.
I been forced in to retirement at 38 years old lol!
4:08 This a majority of individuals thank god my wife and me are not like this or we couldn't survive a home invasion and maintain life after me losing my career and eyesight because we planned for unexpected and lived below my income and we maintained only living off social security disability for the past 5 years and if we can do that no one can make excuses or justify there finances and financial habits!
Kosh, love these detailed videos!! Im assuming this is for new money going into a money market fund and not selling a portion of the 30% bond portfolio at a loss?
Never heard of 1000mods. Been listening to a live concert on YouTube. Haha man they absolutely rock!
SWVXX (Schwab Value Advantage Money Market fund) is paying 5.2396%/yr today on a 7 day yield, with ZERO RISK. Looking at things historically, it's insane that we can get that in a MM fund. We are less than two years away from retirement, planned for end of June 2025, and we will both start SS in July 2025.
I sold all equity positions on Aug 30 and moved us to 100% in SWVXX that day. Good thing I did, all positions I exited are down from my exit points. That move enabled us to avoid the market rout of September and early October. Powell said that interest rates will likely remain high through 2024, so I'm in NO hurry to get back into equities.
This is a short term defensive move until the markets calm down and start showing some clear direction. When they do (and who knows when that will be), I'll reinvest likely in VOO, VT, VTI, maybe some QQQ, maybe some SCHD, maybe some SCHG or VUG, and a good portion in a bond mutual fund or bond ETF (looking at a number of bond fund alternatives currently, such as VWINX). I am trying for a good return while limiting the risk of a 100% S&P portfolio – but the high interest rates, inflation still stubbornly high, and market volatility are making it rather difficult to map out a path right now… so we are just sitting 100% SWVXX for the time being.
Incidentally, the 5.3% return with 10.5% volatility you discussed shows a 99% probability of success in my Monte Carlo runs, with zero failures until I am 81 – but the portfolio value steadily decreases through age 85 to only about HALF of the current portfolio value. Changing the plan to all S&P 500 (basically 100% in VOO) grows the ending portfolio value to 200% of the current portfolio by the end of the plan, still with 99% probability of success.
Save cash (in money market acct) to lower your income to qualify for Obmacare (if under 65) so take out minimum 401k and savings…use cash for expenses. Reinvest dividends in 401k and gradually diversify to dividend-paying stocks/etfs…such as SCHD,JEPI, JNJ…etc.
Excellent Josh, you absolutely cannot take a big hit on the first year or so of retirement.
Josh the problem I have is that a Money Market is not an option in my Fidelity 401k and I am retiring in 3 months. I have got defensive with a 50/50 portfolio, but I work for a large tech firm and their 401k does not offer any money market accounts. There are 197 stock or bond funds you could join, but nothing with a interest rate like a MM. Very frustrating. I am now abou 60% in bond funds and 40% stock in my 401k. They do have the Wellesley fund, just fyi.
At higher expected returns, you should expect a higher standard deviation. So the bad years would be worse. 3 times out of 1000 you are out of the +/- 3 std deviations. I keep at least 5 years of retirement spending in money market or short term CDs. The rest is invested for growth. Right now is uncertain as it ever has been, interest rates have tripled in the last 3 years, economy is headed to recession.
I’m looking to retire next year when my home paid off. I have a 401k through my work and am currently at 60/40 on my financial advisors advice even though he knows my retirement plans. I still haven’t regained my losses from 2020. What you say makes total sense to me and don’t understand why he still wants me so heavy in stocks!
Thanks!
Scanned thru. Could not find what to do
For the 30% bond portion of the portfolio buy 1, 2, 3, 5, 7 year Treasury Notes and hold them to maturity. Can't lose your money and when the Fed cuts rates your still earning the 5%. When the Fed cuts rates the stock market will go down, but you have 7 years for the stock portion of your portfolio to recover. Watcha think Josh???
What's the advantage to this when you can simply lock up a 10 C.D ladder in the 5.50 to 5.75% range?
Thanks!
I sold some equities in July and put the money into money market funds. I don't see a big reason to go longer on duration while the yield curve is inverted.
With a money market fund, you wouldn’t have a symmetrical standard deviation.
Stack cash!
The Mike is working great, which one is it?
Bingo. I'm building 2 years of cash in my tier 1, at money market rates. My tier 2 is a balance between bonds incl. international bond funds and strips, and preferred etfs. The goal is 1 year in tier 2. I'm also including the Schwab balanced fund. My tier 3 is the remainder incl growth stocks and funds, incl etfs to resemble the 7 twelve portfolio, or my closest approximation.
I have watched almost all your videos Josh. We love your humor.
What happens when the fed drops the rates and MM's/CD's/T-Bills go to near zero? Especially if they do it for as long as they just did.
So are you saying put your 401k contributions into MM sans match , then what asset allocation would you keep for what’s in your 401k nest egg ? Much more conservative or leave at 60/40 or 70/30 for growth ?
Retired for a couple of years now and keeping 5 years of expenses in money market and cash, balance mostly in index funds and energy stocks. So far so good.