Many believe you need millions to retire comfortably, but in this episode, Kevin explains why many retirees are actually better off than they think. Breaking down five key traits of successful retirees—modest spending, being debt-free, having guaranteed income, having solid healthcare, and budget flexibility—Kevin shows how these factors can make a huge difference in retirement planning. He also underscores the importance of individual financial planning and avoiding comparisons driven by media headlines. Check out the video to see if you might be richer than you realize!
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Hey, welcome to another episode of Retirement Made Simple.
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I'm your host, Kevin Lum. I'm a certified financial
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planner based in Los Angeles, and this podcast is dedicated to
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helping a million people retire without worry.
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As a quick reminder, every episode here comes straight from
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our YouTube channel. So this is just the audio so you
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can listen while you're walking, driving, or living your life.
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Let's dive in. Many of you watching are much
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richer or much better off than you realize.
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I recently did a video on a $2 retirement plan with
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a low probability of success, and then I walked through some
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of the changes that we made to help the plan be more
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successful. But someone commented on the
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video and said most Americans have way less money than
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$2. Are we all doomed?
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And it's a fairpoint because most of the financial media
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blares headlines that say things like you need $1 to
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retire or this headline saying $2 is chump change.
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Now I didn't read the article so I have no idea what the
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conclusion was, but the idea is you need millions of dollars to
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retire. Well you see it on my channel as
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well and other YouTube channels right?
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Most of the examples deal with high dollar amount and this is
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primarily because the most complicated tax situations and
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risk things like Irma and RM DS and asset location and
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withdrawal rates and all the other things are most important
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or most impact people with larger portfolios.
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But I've noticed that there are 5 traits that the most
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successful retirees have that make them, that make you richer
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than you realize. But first, my name is Kevin Lum.
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I'm a certified financial Planning professional, and this
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channel is dedicated to helping a million people retire without
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worry. Now before I dive in, I need to
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make a disclaimer. Financial planning is very
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personal and it's location based.
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In my videos I will often use $100 a year as a baseline
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number and planning. Partially because I like nice
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even numbers, but also because that's close to what many of the
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people I work with spend in a year.
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But inevitably somebody in the comments will reply.
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And if you've noticed, I got lots of thoughts about what
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people in the comments say today.
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I really do try to read and engage with as many as I can
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before they get out of control. But someone in the comments,
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what are they doing? Eating gold Nuggets for dinner
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each night? And essentially the idea was if
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someone was spending $100 a year, they must be living a
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lavish lifestyle. And I can tell you from personal
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experience, that's simply not true.
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It's just more expensive to live in California and to say live in
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Missouri. I know because I've lived in
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both places. Which is why you need to stop
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focusing on what other people have to say about how much you
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need to retire and you need to know your numbers and your
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particular situation. Many people watching this video
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are way better off than they realize.
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And some of you watching, even though you'd have some large
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account balances, are worse off than you realize.
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But returning to the primary topic of today's video, I've
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realized that there are 5 traits that many retirees have that
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make them much richer or much better off than they realize
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because the retirement plan works better than they ever
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thought possible. And for fun, I named each of
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these traits after a retiree. In spite of the uniqueness of
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each retirement plan, there are certain traits that I see in
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people, no matter where they live live, who can retire on
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less than they thought was possible.
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So let's dive in. Trait number one, the first
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trait is represented by modest spending.
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Molly, I told you I named each of these.
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So modest spending, Molly, has learned how to enjoy life
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without upgrading everything. And that matters because real
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wealth isn't about how much you have.
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It's about how much you need, about how much you spend.
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In last week's video, I talked about this idea of margin.
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And here's what's interesting. People with millions of dollars
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can actually be more stressed than someone living on $50 a
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year. Not because they have less
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money, but because they have less margin.
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Margin is the space between what you earn and what you spend.
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Because when you build margin into your life.
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And honestly, this is not just about money.
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This is also about other things like time.
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But when you build margin into your life on purpose, something
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powerful happens. You often realize you can retire
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and live on less than you thought was possible.
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Your money goes further than you expected because you're not
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constantly constrained. You're not constantly backed
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into a corner wondering if you're going to be able to pay
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your bills this month. You have freedom, and what I've
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seen is that freedom compounds over time.
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And so people who think they aren't that well off, based upon
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what they've read in the media, they're actually much better off
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than they realized. The next trait is represented by
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debt free Donald. Donald doesn't owe anyone
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anything. No mortgage, no car payments, no
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monthly obligations, quietly draining his cash flow.
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That alone makes him far wealthier than the numbers would
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sometimes suggest. Because without debt, his
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required income, the amount of money that cost to live monthly
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is often shockingly low. And you see this all the time in
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people who have successor retirement plans.
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Even when they don't have large sums of money, they often have
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little or almost no debt. And so if you're thinking about
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retirement and you're moving towards retirement, one of the
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things I would encourage you to do is to be debt free.
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It just makes your retirement plan work better.
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Now, often I'll see someone who has a little bit of mortgage
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left and have a very low interest rate.
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That doesn't mean you need to run and take money out of your
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retirement account and pay off that remaining 50 or $100 if
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you have say, a 2% interest rate.
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But it does mean you need to make reducing your debt one of
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your largest priorities as you move towards retirement.
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But what I see over and over again is that people who are
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debt free are way better off than they often realize.
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The next rate is represented by guaranteed income Gary.
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This is kind of getting ridiculous, I realize as I
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continue on. I thought it would be fun to
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name these people. Now.
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Guaranteed income Gary doesn't rely on his investments to fund
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his retirement. And I see this a lot, right?
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People who have locked in guaranteed income through
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optimizing Social Security, maybe they have a pension or
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maybe they have some type of annuity and those guaranteed
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income sources cover all of their expenses and retirement.
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So when I see someone that has all their expenses covered by
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their guaranteed income, often what I see is a plan that is
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much better off than someone with millions of dollars in a
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tax deferred IRA. So you may be feeling bad about
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yourself because when you look at your you know your savings
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account, you only have a couple $100 in there or your IRA.
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But if you have a large chunk of guaranteed income, you can
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actually be in a better position than people who have a couple
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$1 in a tax deferred account.
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Because living off your investments introduces risk into
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your plan. And what you see with guaranteed
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income is it shows up no matter what the markets are doing,
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which means your portfolio doesn't have to work nearly as
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hard and may not exist at all. And so people with guaranteed
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income are often richer than they think or richer than they
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look on paper because their income is stable, even if their
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portfolio fluctuates or if there's no money in the
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portfolio. I've seen people, like I said,
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who have nothing saved and still have a wonderful retirement
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based on their guaranteed income.
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Many people, it's simply their Social Security, but because
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they have a more modest lifestyle and they're able to
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live in that Social Security payment, they can do fine even
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though they have almost no money and savings.
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Now, I still think you need some reserves to cover unexpected
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expenses, particularly healthcare and partially long
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term care. But the amount you need may be
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way less than you think. So that's the guaranteed income,
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Gary. Then there's the decision that
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quietly changes everything, which I'm calling covered Carl.
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Carl has and his healthcare situation worked out.
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Maybe his work or his pension plan is covering his healthcare
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expenses for the rest of his life.
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Maybe he's on VA or Tricare, or maybe he has great long term
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care insurance. Insurance is one of the most
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complicated variables in every plan, especially for people who
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want to retire before the age of 65.
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And so having solid healthcare in place makes you better off
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and richer than you realize. Because outside of taxes,
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Healthcare is one of the biggest expenses that you're going to
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face in retirement. Because when your healthcare or
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your long term care is covered or handled right, you don't have
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to worry about it. Every other decision gets
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easier. Now, I will tell you, I'm not a
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particularly jealous person, but every so often I will talk to
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someone who's retiring, who has a very generous pension and a
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very generous healthcare plan that is covered for life.
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And it's at that moment that I feel just the tinge of jealousy
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and wondering if I made poor life choices.
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But unfortunately, those incredible pension plans and
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those incredible healthcare plans are becoming basically
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extinct. When you have your health
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insurance covered, you're not wondering what if something
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happens. And this is particularly
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important for people who are retiring early, right?
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Medicare is a pretty good healthcare program, but there
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still is some risk. But when you have your
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healthcare taken care of, you're not having to make fear based
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choices. One of the things I find, even
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with people who have very large portfolios, is that healthcare
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often forces them into making fear based choices because there
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is the fear of the unknown. What if I have a massive
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healthcare expense later in life?
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So when you have great healthcare that's covered for
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your entire life, it puts you in a much better position and you
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could be better off than you realized.
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And it also gives you freedom. So you're not staying in a job
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just for the benefits. That's margin.
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It's the space between what could go wrong and what actually
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controls your life. And when Healthcare is covered,
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you're not just financially prepared.
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You have some freedom. You can make some choices that
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are harder for other people to make.
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So if you have great healthcare and the Healthcare is taken care
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of after you retire, you are better off and you are richer
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than you realize. So the final trait is
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represented by Flexible Fran. Fran has flexibility in her
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budget. She understands what her fixed
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expenses are, right? Expenses that she has to pay
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every month no matter what. But she also understands what
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her variable expenses are or her discretionary expenses.
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And she's got some flexibility in her budget, right?
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She can delay plans, she can delay a trip if she can't spend
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as much in a particular year. Because she understands that by
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having flexibility in her spending plan, it often will
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allow her to spend more money over for retirement.
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One of the biggest challenges when you're planning for
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retirement if you don't have a lot of guaranteed income is how
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to pull money safely from your portfolio.
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And So what happens is people often adapt a very inflexible
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withdrawal strategy like the 4% rule.
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And the reason the 4% rule is set at 4% is because if you
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tried to have a 5% rule and model that over your retirement,
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it's highly likely that the model would say your retirement
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plan fails. But the reason your plan fails,
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let's say the 5% rule or the 6% rule, is because there's no
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flexibility in the plan. But if you have a little
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flexibility, if you can spend maybe 3 1/2% in a down year, you
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find that you can spend significantly more over the
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course of retirement. Because one of the challenges of
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say, the 4% rule, and I did a whole video on this, but one of
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the challenges of a rule like the 4% rule is often you end up
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at the end of your retirement realizing you could have spent
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significantly more money, but now it's too late, right?
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You don't care not travelling as much when you're at the end of
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your retirement. So by having a dynamic spending
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plan and a dynamic income plan, you can often spend more money
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earlier in retirement. Now, it's tricky to do this
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well. It's why we use a piece of
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software for our firm called Income Lab, because we have real
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live market data going all the way back to the 1920s that helps
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us model this well. If you don't have software,
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there's some rudimentary guardrail strategies that people
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have developed, but they still have some risk of their own.
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But if you have a flexible spend bending plan, you'll often be
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able to retire earlier and be much better off than you
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realized. Because when your expenses can
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move, your income plan doesn't have to be perfect.
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And when your retirement plan can bend, your retirement
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doesn't have to break just because the markets went a
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little haywire. And what that provides is it
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provides flexibility and it provides freedom in your life.
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But to get there, you have to have a flexible spending plan.
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So if you recognize yourself in any of these people, right,
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whether it's modest spending, Molly or debt free Donald or
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flexible friend, there's a good chance that you're richer and
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you're better off than you think, even if you have way less
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money than whatever the latest headline said you should have.
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Hey, thanks for listening. If you enjoyed this content, if
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you do me a favor and just leave a review on whatever podcast app
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you're using, Apple or Google or Spotify, and also you can find
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us on YouTube. Just search Foundry financial or
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retirement made simple. You should go to find us by
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searching both and then you can find
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ourwebsite@foundryfinancial.org. Thanks for listening.