Today's Hack

Are you thinking of retiring early? Is a budget necessary in retirement? Today, we are opening up the mailbag to answer some listener questions about retiring early, risk, pensions, budgets, and more.

Other Retirement Facts:

Phil will be answering 5 listener questions today. What should you know if you want to retire early? Is it smart to take the lump sum of a pension or wait? We will be answering these questions and more.

“My wife and I are thinking of retiring early at 55. What are some key things we need to know?”

As we say over and over again, it always starts with a plan. We have to run the numbers. There can be a lot of challenges to retiring early but if you are able to that’s great. You’ll be facing two big challenges: healthcare and the sheer longevity of your retirement.

If you are trying to retire at 55 you have 10 years before you qualify for Medicare. Medicare is pretty reasonable compared to marketplace health insurance where you might be paying $1200 to $1300 a month with a high deductible. If you put money away for this situation and save correctly you will be in better shape. Meeting with an advisor in this situation is a must.

“What kind of risk should I be aware of at 65?”

There are all sorts of risks in retirement. In your portfolio, you are looking at market risks. You want to make sure you aren’t taking on too much risk with the hope of getting a large return. Sometimes we see this happen when people are trying to catch up on their retirement savings.

The flip side is that you don’t want to be too conservative. You need to keep pace with inflation. There are some common rules of thumb out there when it comes to how much risk you should take on, but it’s always best to sit down with your advisor and determine your risk tolerance.

“I have a pension fund from a previous job in a different state. Should I take the lump sum and invest the money myself or should I leave it there and take the pension when I retire?”

There are pros and cons to each side. Are they giving you enough money to offset the income you’d be getting in retirement?

If you invest it you can keep up with inflation. If you wait till retirement, consider the taxes. Would the monthly income from the pension push you into another tax bracket?

“We’ve never lived on a budget before and my husband doesn’t want to start once we retire. But without a budget how can we be sure that we won’t run out of money?”

Whether you call it a budget or a spending plan, there are a couple of ways to look at this. You can either be really detailed or take a broader approach. You need to know how much money you have and how much you’ll need.

Not everyone needs a detailed line-item budget, but it’s important to know how much you are spending. A budget of some kind is necessary. Otherwise, there is no way of knowing if you’ll have enough.

Listen to the entire episode or skip ahead using the timestamps below. 

[1:42] “What key things should we know about retiring early?”

[5:39] “What kind of risks should I be aware of at 65?”

[8:21 ]– “Should I take the lump sum of my pension or wait till I retire?”

[11:57] “Is a budget necessary in retirement?”

[15:45] “Is having two advisors a bad idea?”

A Quotable Moment:

“The flip side of that is you can’t be too conservative because of inflation.”

-Phil Putney

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