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Cracking the Code: How Much Money Do You Need to Retire or Stay Retired Comfortably? ( Part 2)

Financial advisor in Vero Beach FL helping pre-retirees and retirees learn how much money they need to retire comfortably.
In the first part of our series (last monthโ€™s article), “Cracking the Code: How Much Money Do You Need to Retire or Stay Retired Comfortably?” we covered the fundamentals of income planning and asset protection.ย  We discussed the importance of reverse engineering your retirement plan by starting with your ideal scenario and evaluating your budget needs for basics, lifestyle desires, and potential challenges like health issues or economic downturns. We broke this into two main areas: Certainty of Income and Asset Protection. Certainty of income involves ensuring a predictable and steady stream of funds to cover your retirement expenses, while asset protection focuses on safeguarding your assets against life’s uncertainties through tools like insurance and estate planning. This month, we’ll dive into Strategic Growth and Taxes.

Strategic Growth

Many people tend to start with this first.ย  โ€œAs long as my money grows at X%, we will be fine.โ€.ย  This is very flawed logic.ย  Each of our dollars has to have a job in retirement.ย  As I mentioned above, for income planning, we need predictable income sources to fund the necessary expenses.ย  For emergencies, we need an adequate amount of liquid cash that is readily accessible. For protection, we need to assign dollars and/or other financial vehicles when difficult things happen.ย  After all of those dollars are put to work for those purposes, we can then have the freedom to invest for longer-term growth.ย  The word โ€œfreedomโ€ is very important.ย  As we accumulate during our working years, we have the freedom to let our long-term investments and savings grow because our working income is taking care of all of our needs.ย  Therefore, we have the freedom to allow our investments to do what they need to do to benefit our future selves.

During a financial downturn, the late Charlie Munger, Warren Buffet’s partner, was once asked how worried he was that their holdings were down by nearly 50%.ย  His answer?ย  A quick no-hesitation โ€œZero!โ€.ย  How is that possible?ย  The market had no effect on his lifestyle or financial survival because he had the freedom to allow their investments to do what they need to do.ย  Temporary periods of downturn are inevitable if you will be or are investing in the market.ย  These are necessary for future growth in an economy.ย  You may not have billions of dollars, but the reality is the same for all of us, just perhaps on a smaller scale.ย  You may find you have zero appetite for risk or very minimal appetite for it.ย  That is okay as well.ย  There are plenty of ways to grow your money for the long term that can fit within your financial resources and appetite for risk.ย  I have witnessed many people go through their whole retirement without taking any stock market risk and have great retirements.ย  However, it is important to consider that having some dollars working to have long-term appreciation can be an integral part of fulfilling some people’s future needs and desires.ย  My point here is that you must find your freedom point before making those decisions, otherwise, you will find yourself stressed every time you turn on the financial entertainment news.

Taxes

Last but certainly not least, you must make sure you evaluate all of the above decisions through a tax lens.ย  Taxes are a potentially huge drain on your finances if not planned properly.ย  This goes for your income planning, investment growth, and estate planning.ย  Like it or not, we have a partner who is selfish, โ€œUncle Sam.โ€.ย  He will take his entitled cut every time.ย  Our goal is to pay as little in taxes as possible.ย  Itโ€™s devastating to see people unknowingly and unnecessarily pay the IRS more than they should.ย  The tax code is complicated, even more so in retirement, compared to our working years, unless, of course, you own a business.ย  Nonetheless, taxation in retirement is an entirely different animal and will bite if we donโ€™t have a solid plan that takes it into consideration.

Conclusion: Determining exactly how much money you need to retire comfortably is a complex question with no one-size-fits-all answer. It depends heavily on your desired lifestyle, health, and longevity. However, by carefully considering income generation, asset protection, strategic growth, and tax implications, you can build a retirement plan tailored to your specific needs. Remember, retirement should be a rewarding chapter in your life, not a financial burden.

Nearing Retirement or Already Retired and Have Questions?
Determining how much money you need to retire comfortably is just the first step. Let’s work together to create a personalized financial plan tailored to your specific goals. Contact us today for a complimentary consultation.

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