February 17, 2025 • 29 mins
Challenges to an early retirement – Chris Boyd and Jeff Perry explore the risks and
challenges to retiring early. Chris and Jeff start the episode with how some clients have
an undefined desire to retire early, and frequently fail to consider the various details.
Chris outlines why savings must be abundant as an earlier retirement means not only
spending sooner, but also fewer years of savings and less compounding as you spend
assets. Chris and Jeff discuss the need for greater tax diversification, especially if retiring
before age 59 ½. Chris explains the option of using Equal Periodic Payments. Chris and
Jeff explore the need to plan for how you will manage health care insurance and costs, as
well as the long-term impacts of inflation.
For more information or to reach Chris Boyd, Russ Ball or Jeff Perry, click the following
link: https://www.wealthenhancement.com/s/advisor-teams/amr
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to something more with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president, financial advisor at wealth
enhancement group.
One of the nation's largest registered investment advisors.
We call it something more because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay.
Christopher Boyd.
Welcome to something more with Chris Boyd.
I'm Chris Boyd here with Jeff Perry.
We are both of the AMR team at
wealth enhancement group and glad to have you
with us listening for another segment of something
(00:43):
more, um, today we're talking about early retirement.
You know, Jeff, every once in a while,
I get these, um, Notifications of topics and
articles that, um, reporters might be looking for
comment from, um, an advisor to weigh in
on, and, um, this one caught my eye.
(01:04):
I don't know if we'll get, um, quoted
or not, but I thought it was an
interesting, uh, thought exercise that we might want
to share with our listeners about some of
the challenges.
If you are going to think about retiring
early, I know you, uh, probably as much
as I do hear from people who say,
yeah, one of my big goals is I
(01:25):
want to be done.
I want to retire, um, early and, you
know, there may, some people are focused on
it and really dedicated to that.
Right.
And some people just have this sort of
vague, yeah, I'm tired of working and I
want to be done.
You know, so, uh, I think it's a
real high percentage of people who have that
thought process, you know, like what if I,
(01:47):
what do I need to do?
Right.
How can, could I pull it off?
And they kind of go through the checklist
in their head and, you know, it's the
checklist might not include all the things they
should, but I think a lot of people
think about it, right?
Yeah, absolutely.
Um, now just as an aside, I mean,
I, I have one client, excuse me.
(02:09):
He's become one of our biggest clients.
Uh, he came in, uh, I don't know
if he was even in his forties, uh,
when he started and said, you know, I
want to be able to retire young, you
know, um, in my fifties and, um, he's
been just dedicated, vigilant.
(02:32):
Um, he has a good paying job and
is able to save regularly, but puts a
lot of money toward that goal and is,
is at a point where he could, if
he wants to, he just happens to like
his work at this point in time and
isn't, isn't desirous.
But yeah, he's right.
You know, uh, I guess that's the, the,
(02:52):
the financial freedom, right?
That notion of having the resources that work
becomes optional.
That's what we're trying to think about here.
I always think about this in the context
of the older radio show host.
He's not on the radio anymore, but Bob
Brinker.
Yes.
Um, and he had the term critical mass.
(03:13):
So it's when you reach that point that
you have critical mass of assets, I guess,
or income or not debt, or, you know,
the picture you've reached that point where you
can retire, doesn't mean you're retiring.
It doesn't mean you're not working.
You could be retiring from your full-time
high stress, fast pace life to a still
(03:37):
working, but not that right.
Something that's less than that.
That's more conducive to some travel or some
leisure, but not, not going from a hundred
miles an hour to zero.
Right.
Yeah.
So the definition of, I want to retire
early is not a single thing.
It could mean I just don't want to
do this anymore.
(03:58):
I'd like to do something else, but something
that is more flexible and maybe more positive
depending on one's given occupation.
Right.
Yeah.
Yeah, exactly.
Well, I think one of the challenges that
this really present, there's a number of things
that do come up as reasonable challenges to
(04:19):
consider, but the first one that comes to
my mind is that, you know, you really
must be saving with abundance because if you
do retire early and start drawing from your
investments, you know, I mean, the thing about
(04:39):
it is you, we, people tend to be
living longer, so we need to be planning
for the prospects of long life longevity.
Right.
So if I retire, just say, for example,
in my fifties, 55 instead of, or, you
(05:00):
know, 50, you know, as an example, I
want to, I want to retire well in
advance of the traditional, you know, ages people
retire, you know, that not only does that
add 10 years, let's say, or 15 years
of withdrawals.
(05:21):
That could be a 40 year run rate,
right?
Yeah, we might have.
So in that case, you could have it
easily, right?
40, even more, right?
Right.
Let's say it was 50 and you said
for age 50 and you said, okay, normally
I'd plan to retire at 65 or somewhere
thereabouts.
I think it's later from a lot of
people, but so that's 15 or 20 years
(05:42):
of additional withdrawals, right?
Yep.
But it's also now 15 or 20 years
where I'm not getting the compounding impact that
I would have from all the savings I'd
be doing in that time, right?
I'd be adding to the account instead of
subtracting, and the money that's already there would
(06:03):
be compounding for me.
So it'd be growing, whereas now I'm probably
drawing from it to some extent.
So it's a big difference.
So just that notion of the lack of
compounding, earlier withdrawal, and the lack of addition
(06:25):
over that period of time is impactful.
So if that's something you think, I really
want this, you really have to be extremely
aggressive about your savings.
The amount of your, we talk in generalities
of, oh, what's a good amount to set
(06:47):
aside?
People have this question often, and it's a
really kind of an arbitrary thing.
What percentage should I set aside for savings
and investment?
And I think oftentimes we kind of answer
that in different ways.
Well, there's your emergency money.
That's one thing.
(07:08):
There's, well, there's vacations and new set of
tires, delayed spending intentions.
That's another thing.
But if we're really talking about savings and
investment to accumulate resources, we try to encourage
people to, if they can, from the very
beginning, save 10%, they're going to be really
(07:30):
well ready for any kind of financial challenges
they may face over their lifetime or opportunities
like this that they might say, oh, I
have the opportunity for financial freedom earlier.
So I want to add a couple more
things.
(07:50):
If you're thinking about retiring early, all the,
you mentioned the big ones, but a couple
other maybe secondary things that people don't consider
if you're retiring early is you said you're
not contributing to your retirement plan.
Certainly true, but you're also not contributing to
social security.
So if you're relying on, or if you're
thinking about future social security benefits and you
(08:12):
stop working, although you're probably vested certainly by
age 50, you're going to have 15 years
or 17 years of zeros on your highest
35.
Yeah, how many of those are going to
be without number?
So that's a missed opportunity.
And they also, I know it's implied in
your comments, but I just want to highlight
it because some people who do their own
(08:34):
kind of spreadsheets and don't kind of DIY
this, you have that 15 more years in
this example of 50 to 65 of inflation.
And we certainly add in inflation for the
work that we do, the modeling that we
do.
But I see that as one of the
mistakes of people who are doing DIY.
(08:56):
And they're saying, all right, how much money
do I need?
All right, I need $50,000 of income
a year.
And they kind of think that number is
going to be stagnant, right?
Because maybe they have their mortgage paid off.
But as we've seen in the last few
years, the impact of inflation, sometimes in a
short period of time, but certainly over 40
(09:16):
years, you really have to account for that
and not lower all that estimate of what
future expenses are going to be.
Yeah, I remember an advisor who, I used
to do these seminars when I first started
out.
And when I did, there was an advisor
who had a video series to kind of
(09:38):
show you what you talk about.
And he talked about inflation and tried to
explain that as much as people maybe do
have some fixed costs, they also have lifelines
to the community was the way he put
it.
And I think that's a good way to
think about it.
(09:59):
What are those lifelines?
Well, I have real estate taxes.
I have insurance.
I'm going to buy a car.
The car has gasoline, you know, in repairs,
etc, etc.
I buy food.
I like to go out to dinner once
in a while too.
(10:20):
You know, all of these things that we
take for granted, all are subject to the
risks of inflation over time.
And, you know, there's a stereotype, right?
I mean, have you ever been to your
homeowner's association?
If you're like me, it's all the older
retirees complaining about the dues increase because they're
(10:41):
not working anymore.
And it's, you know, these are examples of
inflation, you know, they're on a fixed income.
You know what they're voting against is maintenance.
So over 40 years of life, if you
own a home, if you own a brand
new home today and you're retiring at 50,
(11:04):
everything in that house is being replaced.
Yeah, over that 40 years, at some point,
there's going to be a lot of maintenance
repairs that are going to be needed.
So, you know, those are just things that
will work into your inflation concern.
Yeah, really good point.
And, you know, as much as we might
(11:25):
say, oh, inflation's two and a half percent
or three percent or whatever it is, you
know, rule of 72s, right?
If we divide that by three, 24 years,
that's double.
Everything doubles.
Yeah.
And, you know, if you're living 40 years,
you know, you're close to double.
You're probably going to get a double double,
(11:45):
yeah.
And if you don't believe that, if you're
just like, yeah, kind of, that's not going
to happen.
Go back 20 or 40 years and say,
how much was a car?
How much, you know, you pick your item
that you want to compare it to a
basket of items and you'll see.
Bread and milk and eggs these days, right?
Taxes, insurances.
(12:06):
You know, tax.
Yeah, all of them.
You can just say, oh, it's changed.
It will continue to change.
That's just the reality.
So inflation is one of those things you
have to be more mindful of.
I think another one we should include in
there is, you know, you got to think
about health care, health insurance as one of
(12:30):
those practical things.
If you're retiring, you know, in your 50s
and Medicare starts at 65.
Right.
Um, let's face it, health insurance costs are
exorbitant today.
So, you know, is that something you've planned
for?
If you're not employed, you're not getting any
(12:51):
subsidy from the employer to help defray those
costs.
And usually an employer picks up some of
that cost if you're working through an employer
plan.
I mean, sometimes a lot of it.
Even if it's 50 percent, it's big money
over a year and decades.
So, you know, that could add.
(13:12):
Yeah.
I mean, 20 years of 10, 10 years
of those costs rather, you know, you could
be looking at, I don't know, $250, $300,
you know, more because of inflation.
Right.
The health care inflation is higher.
Right.
So, you know, another chunk of money that
(13:33):
you got to have set aside with that
in mind.
And that's assuming you don't have any health
problems.
That's just for premiums, right?
Not deductibles and all that kind of stuff.
And uncovered dental and other vision and whatever
it is, things that are not covered.
As you get older, you run into more
of these non-covered optional things like teeth,
(13:55):
for example.
Yeah.
We want to keep them.
But, you know, generally, if you don't have
an employer plan, you don't have dental insurance.
You can buy it, but it costs money.
I keep hearing this from people who are
in retirement about the cost of implants and,
you know, some of the dental expense.
Just rough.
It's a common conversation.
(14:16):
In fact, we had people over last night
and one of the ladies in the couple
was sharing how much money she has spent
in the last two months as her need
for dental insurance has come up and she
doesn't have any coverage.
So, you know, it's not inexpensive.
(14:37):
I mean, even if you do, some things
aren't covered enough, right?
That's right.
50%, maybe.
But, yeah.
Yeah.
Well, so, okay.
That's on some of the expenses side of
things.
There's probably others too.
I don't know.
Before we move on from expenses, anything else
that you wanted to think in terms of
that I didn't think of?
(14:57):
No, I would just add when you're projecting
out long-term spending thing, you know, in
addition to the cars and the vacations and
the home maintenance that we mentioned, you have
to really consider is in the next 30
years, am I likely to need to or
(15:18):
want to help a family member?
Because this is something that sneaks into our
financial planning discussions.
Do you have a daughter who's getting married?
Or do you have someone you want to
help buy their first house or maybe a
grandchild with college?
Well, if you're at 50, you might be
talking about your kids in college.
That's what I mean.
That's true.
Yeah, that's a good point.
(15:39):
So, consider not just your household expenses and
even if you're doing a good job with
all the things that we're talking about, kind
of open up that field of vision and
say, what am I going to do with
my time if I retire?
Oh, I'm going to buy a boat.
OK, well, let's make sure that that's there
or I'm going to travel more or I'd
like to be more generous, family charities, or
(16:00):
I'd like to do X, Y or Z
hobbies or all these things have potential costs.
So, enlarge your vision and say, what is
my life look like?
What am I going to do?
What might I do?
And what is the cost associated with that
item?
Good points.
Yeah, I think those are good examples of
(16:23):
sometimes underestimated expenses.
The money we spend on family needs, you
know, come up.
All right.
Well, the next thing I want to talk
about as it relates to this notion of
if you're going to retire early, things you
need to think about and this probably applies
(16:45):
to everyone, but it comes to my mind,
especially for people retiring early, and that's the
notion of tax diversification.
You know, if you're retiring again at 50,
55, you don't have access to your IRAs,
your 401ks.
They're usually now there's some workaround to that,
(17:06):
but by design, they're structured to be available
to you at 59 and a half and
thereafter.
So, you know, you may want to make
sure that you do have, one, other buckets
of money, non-IRA, just, you know, joint
account, individual trust, whatever it might be that
non-qualified taxable, we'll call it kind of
(17:27):
money.
Meaning it, you know, pays income tax each
year as opposed to something that's tax deferred
like your IRA or your 401k and so
forth.
And of course, Roth IRA money, you know,
it's important to have some different buckets of
money with different tax treatment.
So the challenge is if you don't have
(17:50):
sufficient resources in your non-IRA money, we
see this throughout retirement anyway, that if people
draw down on some of their investments outside
of retirement plans, it becomes challenging when they
have a big expense, like a purchase of
(18:10):
a car, it's a common example.
If I want to pay for that car
and I don't have a non-IRA account
to, you know, draw that from a taxable
account, I have to take that out of
an IRA.
I have to, you know, I want to
spend $30,000 on a car, $40,000
(18:30):
on a car, whatever it is, right?
I have to end up spending $50,000
to get that money or, you know, fill
in the blank, whatever the tax.
And that's if you're after 59 and a
half, generally.
And that's if you're 59 and a half.
Now, there is actually a workaround for people
who are pre-59 and a half, but
(18:54):
are definitely going to be in a position
where they need to draw from their retirement
money in a retired status.
But prior to being eligible to access that
money, there's a Rule 72T that relates to
the Internal Revenue Code.
(19:16):
And it does allow for some substantially equal
periodic payments.
Now, the rules around this are very precise,
and you need to know them before you
undertake this process.
So this is why you're better served if
you can avoid it altogether, you know, have
other resources available to you to draw from.
(19:39):
And if you're going to be retired early,
you probably should make sure you do have
those additional resources.
But if you find circumstances change and you
must, you know, be in a new circumstance,
this separate equal periodic payments is an approach
that can allow you to get access to
(20:01):
your retirement plan and not be penalized the
10 percent penalty.
You'll still have income taxes the way you
would from your retirement account, but not have
the 10 percent penalty for withdrawals prior to
59 and a half.
And it's worth mentioning there are other instances
where you can access if there's a disability
(20:22):
or, you know, certain kinds of circumstances that
might allow for earlier withdrawal.
But in this case, the rules are somewhat
involved in, you know, I wasn't planning to
spend the whole show on this, but just
the notion that it is available.
The challenge becomes if your circumstances change, let's
(20:44):
say, as an example, you start down this
path of a 70 to 50, you know,
you're going to withdraw some money and not
be penalized by doing it, you know, do
it in this appropriate fashion.
But then you decide maybe I'm going to
get a part time job and I don't
need to draw from this.
I'm going to stop doing it.
(21:05):
You violated the rules of the separate equal
period.
Periodic and violated the periodic component.
Right.
So essentially there's different methods of whether how
it's calculated.
One that I think of as a common
one is, you know, related to that R
&D kind of notion.
(21:25):
You know, you look at a table to
come up with an amount and that it's
permissible to withdraw from and that allows you
an amount.
Now, is that the right amount to meet
your needs or not?
You know, this is why you look at
these.
There's a few different ways to calculate what
the amount of these periodic payments can be.
(21:46):
But you are required to do it.
Let's say you're 55.
You have to do it at least until
you're 59 and a half and not less
than for five years.
So in that case, you'd have to do
it for five years, even if you said,
oh, circumstances change.
I don't need this anymore.
(22:06):
So it's an oddity and it's complex.
And I would consult an advisor, probably both
a financial advisor and a tax advisor in
reviewing this to make sure you follow through
on doing it properly.
Should you feel that this is a necessity
that you might have to deal with.
(22:27):
Yeah.
On the opposite of the technical comments that
you shared, I have to say that this,
not the 72T, but this frequency of people
who retire at before 50, after 50, after
60 or 70 with the intention of not
working and then wanting to go back to
(22:48):
work or finding something that they want to
do or being bored is super common.
So you can think that you're retiring at
55 and you're done working.
But I suspect that most people are going
to want to do something productive, something.
Yeah.
You may just be done with what you
(23:08):
used to do and not want to do
that anymore.
But that doesn't mean you may not want
to do something for compensation along the way.
I just had a conversation the other night.
I was at Home Depot picking up something
at the tool rental thing and I had
a police shirt on.
So the gentleman who had long hair and
(23:29):
a beard, by the way, he said, oh,
you're retired.
I said, yeah, because me too, LAPD.
And so he was talking, he goes, I
retired for like five years and then I
had to do something.
I started part time.
Now I'm working 60 hours a week.
Yeah.
But that's not the exception.
That's kind of what develops into the norm.
You can only play pickleball so many days
(23:55):
or go to the beach so many days
or whatever you're retiring for and then you
can say, well, I'd like a few bucks.
I need to do something productive.
I want to meet some new people and
a part time.
Well, sometimes it's, yeah, there's a whole range
of reasons.
But sometimes it could be just to help
you afford some of the things you want
to do.
That's right.
And that's what this retired LAPD officer is.
(24:17):
That was just getting a part time job
to get out of the house and have
some pocket money.
And then they creeped, you know, like they
offered him a position to manage the tool
rental and he likes dealing with all the
customers and contractors.
And so he's enjoying it.
So he's enjoying it.
And let's, let's turn our attention, sorry, let's
turn our attention to social security part of
(24:37):
this for a minute or two, though, because
I think that's something we should also talk
about before we wrap up.
And the whole notion of working, even if
you turn on social security early, it has
its own complexities.
Right, right.
So you want to let me set the
stage on this.
(24:57):
Yeah, really related to my comments of people
who retire, say they retire at 62 and
they say my social security money is there.
I'm going to take it right there.
It is.
I know I'd get more later, but I'm
going to take it.
And then I want to start now.
I got who knows how long I'm going
to live.
I'd rather get started.
And then you fall into that scenario I
described or something like it, and you decide
(25:18):
to work.
And so since you're not of full retirement
age, which would be 66 or 67, where
you'd have a higher number, right?
Yeah.
I think it's 20 some odd thousand dollars
is your limited amount.
That I'm planning to find.
But yeah.
So if you make more than.
Twenty three thousand four hundred dollars in 2025.
(25:41):
I'm pretty sure that retired LAPD officer working
full time managing the tool rental center is
making more than that.
So yeah.
So you wouldn't want to keep receiving social
security if you turned it on at 62,
as an example, retiring early if you're going
to be working part time.
So an important consideration.
(26:03):
And it is good that you can suspend
your payments if it turns out that you
have this circumstance.
You thought you wanted it early and then
you change your mind, even though you filed
for it, you could suspend and that would
still help that new wages would count toward
(26:23):
your recalculation.
So if they, you know, add some money
in and took off the zero somewhere, you
know, for your 35 years that you were
talking about earlier, you know, I think that's
worth keeping in mind.
But twenty three thousand four hundred dollars, if
you if you make more than that and
you're receiving social security, you're penalized.
(26:47):
It's it's very unattractive.
So you don't want to do that.
No, I don't want to do that.
So think about it.
And we don't have time for this segment
to add commentary on it.
But I'll just say it may even be
financially prudent to wait and draw from other
assets that you have because of the, you
(27:09):
know, the ultimate benefit that you would get
if you retire at a later date or
maybe even 70 because of the.
Yeah, the increases in social security have a
long lifetime projected and all that.
We talk about it once in a while.
We'll go back to it.
But there's a lot of things to talk
to your advisor about on these.
It depends on like the spouse is who's
the higher earning if their spouses, you know,
(27:30):
all that kind of stuff to help you
think about how to strategize around that.
But, yeah, it's a good point.
If you're trying to retire early, not that
we're we sound kind of negative on this,
Jeff, I think we just want to be
careful.
Yeah, I'm not negative about it.
I just want people if they can do
it and if they want to do it,
just go into it with your eyes wide
(27:51):
open and talk to a fiduciary financial advisor
who has not trying to sell anything, just
has your best interest at heart and go
through all these oddities or scenarios or what
ifs to make sure that you're fully aware
of what an early retirement might look for
you.
(28:11):
And if we can be a resource to
you in the process, we're happy to help.
We talk with people with initially with a
consultation that's complimentary.
We go through a little bit, learn about
you.
We then do some analysis and then have
a follow up meeting where we can explain
to you our observations and make some recommendations
(28:31):
and elaborate on if we were to work
together over time, how we work together.
So if that could be a resource to
you'd like to take advantage of, don't hesitate
to reach out to us.
Until next time, everybody keeps driving for something.
Thank you for listening to something more with
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
(28:55):
quality of life issues that make the money
matters matter.
Whatever's on your mind, visit us at somethingmorewithchrisboyd
.com or call us toll free at 866
-771-8901 or send us your questions to
amr-info at wealthenhancement.com.
You're listening to something more with Chris Boyd
(29:17):
Financial Talk Show.
Wealth Enhancement Advisory Services and Jay Christopher Boyd
provide investment advice on an individual basis to
clients only.
Proper advice depends on a complete analysis of
all facts and circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
pertaining to your specific situation.
Wealth Enhancement Group cannot guarantee that using the
information from this show will generate profits or
ensure freedom from loss.
(29:37):
Listeners should consult their own financial advisors or
conduct their own due diligence before making any
financial decisions.
Welcome to something more with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president, financial advisor at wealth
enhancement group.
One of the nation's largest registered investment advisors.
We call it something more because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay.
Christopher Boyd.
Welcome to something more with Chris Boyd.
I'm Chris Boyd here with Jeff Perry.
We are both of the AMR team at
wealth enhancement group and glad to have you
with us listening for another segment of something
(00:43):
more, um, today we're talking about early retirement.
You know, Jeff, every once in a while,
I get these, um, Notifications of topics and
articles that, um, reporters might be looking for
comment from, um, an advisor to weigh in
on, and, um, this one caught my eye.
(01:04):
I don't know if we'll get, um, quoted
or not, but I thought it was an
interesting, uh, thought exercise that we might want
to share with our listeners about some of
the challenges.
If you are going to think about retiring
early, I know you, uh, probably as much
as I do hear from people who say,
yeah, one of my big goals is I
(01:25):
want to be done.
I want to retire, um, early and, you
know, there may, some people are focused on
it and really dedicated to that.
Right.
And some people just have this sort of
vague, yeah, I'm tired of working and I
want to be done.
You know, so, uh, I think it's a
real high percentage of people who have that
thought process, you know, like what if I,
(01:47):
what do I need to do?
Right.
How can, could I pull it off?
And they kind of go through the checklist
in their head and, you know, it's the
checklist might not include all the things they
should, but I think a lot of people
think about it, right?
Yeah, absolutely.
Um, now just as an aside, I mean,
I, I have one client, excuse me.
(02:09):
He's become one of our biggest clients.
Uh, he came in, uh, I don't know
if he was even in his forties, uh,
when he started and said, you know, I
want to be able to retire young, you
know, um, in my fifties and, um, he's
been just dedicated, vigilant.
(02:32):
Um, he has a good paying job and
is able to save regularly, but puts a
lot of money toward that goal and is,
is at a point where he could, if
he wants to, he just happens to like
his work at this point in time and
isn't, isn't desirous.
But yeah, he's right.
You know, uh, I guess that's the, the,
(02:52):
the financial freedom, right?
That notion of having the resources that work
becomes optional.
That's what we're trying to think about here.
I always think about this in the context
of the older radio show host.
He's not on the radio anymore, but Bob
Brinker.
Yes.
Um, and he had the term critical mass.
(03:13):
So it's when you reach that point that
you have critical mass of assets, I guess,
or income or not debt, or, you know,
the picture you've reached that point where you
can retire, doesn't mean you're retiring.
It doesn't mean you're not working.
You could be retiring from your full-time
high stress, fast pace life to a still
(03:37):
working, but not that right.
Something that's less than that.
That's more conducive to some travel or some
leisure, but not, not going from a hundred
miles an hour to zero.
Right.
Yeah.
So the definition of, I want to retire
early is not a single thing.
It could mean I just don't want to
do this anymore.
(03:58):
I'd like to do something else, but something
that is more flexible and maybe more positive
depending on one's given occupation.
Right.
Yeah.
Yeah, exactly.
Well, I think one of the challenges that
this really present, there's a number of things
that do come up as reasonable challenges to
(04:19):
consider, but the first one that comes to
my mind is that, you know, you really
must be saving with abundance because if you
do retire early and start drawing from your
investments, you know, I mean, the thing about
(04:39):
it is you, we, people tend to be
living longer, so we need to be planning
for the prospects of long life longevity.
Right.
So if I retire, just say, for example,
in my fifties, 55 instead of, or, you
(05:00):
know, 50, you know, as an example, I
want to, I want to retire well in
advance of the traditional, you know, ages people
retire, you know, that not only does that
add 10 years, let's say, or 15 years
of withdrawals.
(05:21):
That could be a 40 year run rate,
right?
Yeah, we might have.
So in that case, you could have it
easily, right?
40, even more, right?
Right.
Let's say it was 50 and you said
for age 50 and you said, okay, normally
I'd plan to retire at 65 or somewhere
thereabouts.
I think it's later from a lot of
people, but so that's 15 or 20 years
(05:42):
of additional withdrawals, right?
Yep.
But it's also now 15 or 20 years
where I'm not getting the compounding impact that
I would have from all the savings I'd
be doing in that time, right?
I'd be adding to the account instead of
subtracting, and the money that's already there would
(06:03):
be compounding for me.
So it'd be growing, whereas now I'm probably
drawing from it to some extent.
So it's a big difference.
So just that notion of the lack of
compounding, earlier withdrawal, and the lack of addition
(06:25):
over that period of time is impactful.
So if that's something you think, I really
want this, you really have to be extremely
aggressive about your savings.
The amount of your, we talk in generalities
of, oh, what's a good amount to set
(06:47):
aside?
People have this question often, and it's a
really kind of an arbitrary thing.
What percentage should I set aside for savings
and investment?
And I think oftentimes we kind of answer
that in different ways.
Well, there's your emergency money.
That's one thing.
(07:08):
There's, well, there's vacations and new set of
tires, delayed spending intentions.
That's another thing.
But if we're really talking about savings and
investment to accumulate resources, we try to encourage
people to, if they can, from the very
beginning, save 10%, they're going to be really
(07:30):
well ready for any kind of financial challenges
they may face over their lifetime or opportunities
like this that they might say, oh, I
have the opportunity for financial freedom earlier.
So I want to add a couple more
things.
(07:50):
If you're thinking about retiring early, all the,
you mentioned the big ones, but a couple
other maybe secondary things that people don't consider
if you're retiring early is you said you're
not contributing to your retirement plan.
Certainly true, but you're also not contributing to
social security.
So if you're relying on, or if you're
thinking about future social security benefits and you
(08:12):
stop working, although you're probably vested certainly by
age 50, you're going to have 15 years
or 17 years of zeros on your highest
35.
Yeah, how many of those are going to
be without number?
So that's a missed opportunity.
And they also, I know it's implied in
your comments, but I just want to highlight
it because some people who do their own
(08:34):
kind of spreadsheets and don't kind of DIY
this, you have that 15 more years in
this example of 50 to 65 of inflation.
And we certainly add in inflation for the
work that we do, the modeling that we
do.
But I see that as one of the
mistakes of people who are doing DIY.
(08:56):
And they're saying, all right, how much money
do I need?
All right, I need $50,000 of income
a year.
And they kind of think that number is
going to be stagnant, right?
Because maybe they have their mortgage paid off.
But as we've seen in the last few
years, the impact of inflation, sometimes in a
short period of time, but certainly over 40
(09:16):
years, you really have to account for that
and not lower all that estimate of what
future expenses are going to be.
Yeah, I remember an advisor who, I used
to do these seminars when I first started
out.
And when I did, there was an advisor
who had a video series to kind of
(09:38):
show you what you talk about.
And he talked about inflation and tried to
explain that as much as people maybe do
have some fixed costs, they also have lifelines
to the community was the way he put
it.
And I think that's a good way to
think about it.
(09:59):
What are those lifelines?
Well, I have real estate taxes.
I have insurance.
I'm going to buy a car.
The car has gasoline, you know, in repairs,
etc, etc.
I buy food.
I like to go out to dinner once
in a while too.
(10:20):
You know, all of these things that we
take for granted, all are subject to the
risks of inflation over time.
And, you know, there's a stereotype, right?
I mean, have you ever been to your
homeowner's association?
If you're like me, it's all the older
retirees complaining about the dues increase because they're
(10:41):
not working anymore.
And it's, you know, these are examples of
inflation, you know, they're on a fixed income.
You know what they're voting against is maintenance.
So over 40 years of life, if you
own a home, if you own a brand
new home today and you're retiring at 50,
(11:04):
everything in that house is being replaced.
Yeah, over that 40 years, at some point,
there's going to be a lot of maintenance
repairs that are going to be needed.
So, you know, those are just things that
will work into your inflation concern.
Yeah, really good point.
And, you know, as much as we might
(11:25):
say, oh, inflation's two and a half percent
or three percent or whatever it is, you
know, rule of 72s, right?
If we divide that by three, 24 years,
that's double.
Everything doubles.
Yeah.
And, you know, if you're living 40 years,
you know, you're close to double.
You're probably going to get a double double,
(11:45):
yeah.
And if you don't believe that, if you're
just like, yeah, kind of, that's not going
to happen.
Go back 20 or 40 years and say,
how much was a car?
How much, you know, you pick your item
that you want to compare it to a
basket of items and you'll see.
Bread and milk and eggs these days, right?
Taxes, insurances.
(12:06):
You know, tax.
Yeah, all of them.
You can just say, oh, it's changed.
It will continue to change.
That's just the reality.
So inflation is one of those things you
have to be more mindful of.
I think another one we should include in
there is, you know, you got to think
about health care, health insurance as one of
(12:30):
those practical things.
If you're retiring, you know, in your 50s
and Medicare starts at 65.
Right.
Um, let's face it, health insurance costs are
exorbitant today.
So, you know, is that something you've planned
for?
If you're not employed, you're not getting any
(12:51):
subsidy from the employer to help defray those
costs.
And usually an employer picks up some of
that cost if you're working through an employer
plan.
I mean, sometimes a lot of it.
Even if it's 50 percent, it's big money
over a year and decades.
So, you know, that could add.
(13:12):
Yeah.
I mean, 20 years of 10, 10 years
of those costs rather, you know, you could
be looking at, I don't know, $250, $300,
you know, more because of inflation.
Right.
The health care inflation is higher.
Right.
So, you know, another chunk of money that
(13:33):
you got to have set aside with that
in mind.
And that's assuming you don't have any health
problems.
That's just for premiums, right?
Not deductibles and all that kind of stuff.
And uncovered dental and other vision and whatever
it is, things that are not covered.
As you get older, you run into more
of these non-covered optional things like teeth,
(13:55):
for example.
Yeah.
We want to keep them.
But, you know, generally, if you don't have
an employer plan, you don't have dental insurance.
You can buy it, but it costs money.
I keep hearing this from people who are
in retirement about the cost of implants and,
you know, some of the dental expense.
Just rough.
It's a common conversation.
(14:16):
In fact, we had people over last night
and one of the ladies in the couple
was sharing how much money she has spent
in the last two months as her need
for dental insurance has come up and she
doesn't have any coverage.
So, you know, it's not inexpensive.
(14:37):
I mean, even if you do, some things
aren't covered enough, right?
That's right.
50%, maybe.
But, yeah.
Yeah.
Well, so, okay.
That's on some of the expenses side of
things.
There's probably others too.
I don't know.
Before we move on from expenses, anything else
that you wanted to think in terms of
that I didn't think of?
(14:57):
No, I would just add when you're projecting
out long-term spending thing, you know, in
addition to the cars and the vacations and
the home maintenance that we mentioned, you have
to really consider is in the next 30
years, am I likely to need to or
(15:18):
want to help a family member?
Because this is something that sneaks into our
financial planning discussions.
Do you have a daughter who's getting married?
Or do you have someone you want to
help buy their first house or maybe a
grandchild with college?
Well, if you're at 50, you might be
talking about your kids in college.
That's what I mean.
That's true.
Yeah, that's a good point.
(15:39):
So, consider not just your household expenses and
even if you're doing a good job with
all the things that we're talking about, kind
of open up that field of vision and
say, what am I going to do with
my time if I retire?
Oh, I'm going to buy a boat.
OK, well, let's make sure that that's there
or I'm going to travel more or I'd
like to be more generous, family charities, or
(16:00):
I'd like to do X, Y or Z
hobbies or all these things have potential costs.
So, enlarge your vision and say, what is
my life look like?
What am I going to do?
What might I do?
And what is the cost associated with that
item?
Good points.
Yeah, I think those are good examples of
(16:23):
sometimes underestimated expenses.
The money we spend on family needs, you
know, come up.
All right.
Well, the next thing I want to talk
about as it relates to this notion of
if you're going to retire early, things you
need to think about and this probably applies
(16:45):
to everyone, but it comes to my mind,
especially for people retiring early, and that's the
notion of tax diversification.
You know, if you're retiring again at 50,
55, you don't have access to your IRAs,
your 401ks.
They're usually now there's some workaround to that,
(17:06):
but by design, they're structured to be available
to you at 59 and a half and
thereafter.
So, you know, you may want to make
sure that you do have, one, other buckets
of money, non-IRA, just, you know, joint
account, individual trust, whatever it might be that
non-qualified taxable, we'll call it kind of
(17:27):
money.
Meaning it, you know, pays income tax each
year as opposed to something that's tax deferred
like your IRA or your 401k and so
forth.
And of course, Roth IRA money, you know,
it's important to have some different buckets of
money with different tax treatment.
So the challenge is if you don't have
(17:50):
sufficient resources in your non-IRA money, we
see this throughout retirement anyway, that if people
draw down on some of their investments outside
of retirement plans, it becomes challenging when they
have a big expense, like a purchase of
(18:10):
a car, it's a common example.
If I want to pay for that car
and I don't have a non-IRA account
to, you know, draw that from a taxable
account, I have to take that out of
an IRA.
I have to, you know, I want to
spend $30,000 on a car, $40,000
(18:30):
on a car, whatever it is, right?
I have to end up spending $50,000
to get that money or, you know, fill
in the blank, whatever the tax.
And that's if you're after 59 and a
half, generally.
And that's if you're 59 and a half.
Now, there is actually a workaround for people
who are pre-59 and a half, but
(18:54):
are definitely going to be in a position
where they need to draw from their retirement
money in a retired status.
But prior to being eligible to access that
money, there's a Rule 72T that relates to
the Internal Revenue Code.
(19:16):
And it does allow for some substantially equal
periodic payments.
Now, the rules around this are very precise,
and you need to know them before you
undertake this process.
So this is why you're better served if
you can avoid it altogether, you know, have
other resources available to you to draw from.
(19:39):
And if you're going to be retired early,
you probably should make sure you do have
those additional resources.
But if you find circumstances change and you
must, you know, be in a new circumstance,
this separate equal periodic payments is an approach
that can allow you to get access to
(20:01):
your retirement plan and not be penalized the
10 percent penalty.
You'll still have income taxes the way you
would from your retirement account, but not have
the 10 percent penalty for withdrawals prior to
59 and a half.
And it's worth mentioning there are other instances
where you can access if there's a disability
(20:22):
or, you know, certain kinds of circumstances that
might allow for earlier withdrawal.
But in this case, the rules are somewhat
involved in, you know, I wasn't planning to
spend the whole show on this, but just
the notion that it is available.
The challenge becomes if your circumstances change, let's
(20:44):
say, as an example, you start down this
path of a 70 to 50, you know,
you're going to withdraw some money and not
be penalized by doing it, you know, do
it in this appropriate fashion.
But then you decide maybe I'm going to
get a part time job and I don't
need to draw from this.
I'm going to stop doing it.
(21:05):
You violated the rules of the separate equal
period.
Periodic and violated the periodic component.
Right.
So essentially there's different methods of whether how
it's calculated.
One that I think of as a common
one is, you know, related to that R
&D kind of notion.
(21:25):
You know, you look at a table to
come up with an amount and that it's
permissible to withdraw from and that allows you
an amount.
Now, is that the right amount to meet
your needs or not?
You know, this is why you look at
these.
There's a few different ways to calculate what
the amount of these periodic payments can be.
(21:46):
But you are required to do it.
Let's say you're 55.
You have to do it at least until
you're 59 and a half and not less
than for five years.
So in that case, you'd have to do
it for five years, even if you said,
oh, circumstances change.
I don't need this anymore.
(22:06):
So it's an oddity and it's complex.
And I would consult an advisor, probably both
a financial advisor and a tax advisor in
reviewing this to make sure you follow through
on doing it properly.
Should you feel that this is a necessity
that you might have to deal with.
(22:27):
Yeah.
On the opposite of the technical comments that
you shared, I have to say that this,
not the 72T, but this frequency of people
who retire at before 50, after 50, after
60 or 70 with the intention of not
working and then wanting to go back to
(22:48):
work or finding something that they want to
do or being bored is super common.
So you can think that you're retiring at
55 and you're done working.
But I suspect that most people are going
to want to do something productive, something.
Yeah.
You may just be done with what you
(23:08):
used to do and not want to do
that anymore.
But that doesn't mean you may not want
to do something for compensation along the way.
I just had a conversation the other night.
I was at Home Depot picking up something
at the tool rental thing and I had
a police shirt on.
So the gentleman who had long hair and
(23:29):
a beard, by the way, he said, oh,
you're retired.
I said, yeah, because me too, LAPD.
And so he was talking, he goes, I
retired for like five years and then I
had to do something.
I started part time.
Now I'm working 60 hours a week.
Yeah.
But that's not the exception.
That's kind of what develops into the norm.
You can only play pickleball so many days
(23:55):
or go to the beach so many days
or whatever you're retiring for and then you
can say, well, I'd like a few bucks.
I need to do something productive.
I want to meet some new people and
a part time.
Well, sometimes it's, yeah, there's a whole range
of reasons.
But sometimes it could be just to help
you afford some of the things you want
to do.
That's right.
And that's what this retired LAPD officer is.
(24:17):
That was just getting a part time job
to get out of the house and have
some pocket money.
And then they creeped, you know, like they
offered him a position to manage the tool
rental and he likes dealing with all the
customers and contractors.
And so he's enjoying it.
So he's enjoying it.
And let's, let's turn our attention, sorry, let's
turn our attention to social security part of
(24:37):
this for a minute or two, though, because
I think that's something we should also talk
about before we wrap up.
And the whole notion of working, even if
you turn on social security early, it has
its own complexities.
Right, right.
So you want to let me set the
stage on this.
(24:57):
Yeah, really related to my comments of people
who retire, say they retire at 62 and
they say my social security money is there.
I'm going to take it right there.
It is.
I know I'd get more later, but I'm
going to take it.
And then I want to start now.
I got who knows how long I'm going
to live.
I'd rather get started.
And then you fall into that scenario I
described or something like it, and you decide
(25:18):
to work.
And so since you're not of full retirement
age, which would be 66 or 67, where
you'd have a higher number, right?
Yeah.
I think it's 20 some odd thousand dollars
is your limited amount.
That I'm planning to find.
But yeah.
So if you make more than.
Twenty three thousand four hundred dollars in 2025.
(25:41):
I'm pretty sure that retired LAPD officer working
full time managing the tool rental center is
making more than that.
So yeah.
So you wouldn't want to keep receiving social
security if you turned it on at 62,
as an example, retiring early if you're going
to be working part time.
So an important consideration.
(26:03):
And it is good that you can suspend
your payments if it turns out that you
have this circumstance.
You thought you wanted it early and then
you change your mind, even though you filed
for it, you could suspend and that would
still help that new wages would count toward
(26:23):
your recalculation.
So if they, you know, add some money
in and took off the zero somewhere, you
know, for your 35 years that you were
talking about earlier, you know, I think that's
worth keeping in mind.
But twenty three thousand four hundred dollars, if
you if you make more than that and
you're receiving social security, you're penalized.
(26:47):
It's it's very unattractive.
So you don't want to do that.
No, I don't want to do that.
So think about it.
And we don't have time for this segment
to add commentary on it.
But I'll just say it may even be
financially prudent to wait and draw from other
assets that you have because of the, you
(27:09):
know, the ultimate benefit that you would get
if you retire at a later date or
maybe even 70 because of the.
Yeah, the increases in social security have a
long lifetime projected and all that.
We talk about it once in a while.
We'll go back to it.
But there's a lot of things to talk
to your advisor about on these.
It depends on like the spouse is who's
the higher earning if their spouses, you know,
(27:30):
all that kind of stuff to help you
think about how to strategize around that.
But, yeah, it's a good point.
If you're trying to retire early, not that
we're we sound kind of negative on this,
Jeff, I think we just want to be
careful.
Yeah, I'm not negative about it.
I just want people if they can do
it and if they want to do it,
just go into it with your eyes wide
(27:51):
open and talk to a fiduciary financial advisor
who has not trying to sell anything, just
has your best interest at heart and go
through all these oddities or scenarios or what
ifs to make sure that you're fully aware
of what an early retirement might look for
you.
(28:11):
And if we can be a resource to
you in the process, we're happy to help.
We talk with people with initially with a
consultation that's complimentary.
We go through a little bit, learn about
you.
We then do some analysis and then have
a follow up meeting where we can explain
to you our observations and make some recommendations
(28:31):
and elaborate on if we were to work
together over time, how we work together.
So if that could be a resource to
you'd like to take advantage of, don't hesitate
to reach out to us.
Until next time, everybody keeps driving for something.
Thank you for listening to something more with
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
(28:55):
quality of life issues that make the money
matters matter.
Whatever's on your mind, visit us at somethingmorewithchrisboyd
.com or call us toll free at 866
-771-8901 or send us your questions to
amr-info at wealthenhancement.com.
You're listening to something more with Chris Boyd
(29:17):
Financial Talk Show.
Wealth Enhancement Advisory Services and Jay Christopher Boyd
provide investment advice on an individual basis to
clients only.
Proper advice depends on a complete analysis of
all facts and circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
pertaining to your specific situation.
Wealth Enhancement Group cannot guarantee that using the
information from this show will generate profits or
ensure freedom from loss.
(29:37):
Listeners should consult their own financial advisors or
conduct their own due diligence before making any
financial decisions.
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
The Clay Travis and Buck Sexton Show
The Clay Travis and Buck Sexton Show. Clay Travis and Buck Sexton tackle the biggest stories in news, politics and current events with intelligence and humor. From the border crisis, to the madness of cancel culture and far-left missteps, Clay and Buck guide listeners through the latest headlines and hot topics with fun and entertaining conversations and opinions.