February 14, 2025 • 38 mins
Fires - Are You Properly Covered? – With the recent fires in California, many
homeowners across the country are wondering if they are properly covered. Chris Boyd
welcomes Special Guest Doug MacDonald, CPCU to the episode. Joining them is Jeff
Perry. The conversation begins with an outline of what homeowners’ insurance covers
and what it does not. Specific topics reviewed include coverage limits, earthquakes, and
flood risks. Doug offers advice concerning the value of a guaranteed replacement
endorsement. For more information about Doug MacDonald, check out the link below:
https://riskadvice.com/
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
(00:44):
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.
(01:05):
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
(01:26):
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, it's a real high
percentage of people who have that thought process,
(01:46):
you know, like what if I, 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,
(02:07):
I, I have one client, excuse me.
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, in my fifties and, um, he's been
(02:29):
just dedicated, vigilant.
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
(02:50):
ready.
You know, uh, I guess that's the, the,
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
(03:10):
Brinker.
Yes.
Um, and he had the term critical mass.
So it's when you reach that point that
you have critical mass of assets, I guess,
or income or not debt, 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.
(03:31):
You could be retiring from your full-time
high stress, fast pace life to a still
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
(03:52):
early is not a single thing.
It could mean I just don't want to
do this anymore.
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
(04:15):
this really presents, there's a number of things
that do come up as reasonable challenges to
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
(04:36):
investments, you know, I mean, the, the thing
about 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
(05:01):
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.
(05:22):
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, I
normally 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
(05:43):
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'm adding to the account instead of subtracting
and the money that's already there would be
(06:06):
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
(06:26):
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.
We talk in generalities of, oh, what's a
good amount to set aside?
(06:49):
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.
(07:09):
Well, there's like vacations and new set of
tires and 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 well
(07:31):
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.
I want to add a couple more things.
If you're thinking about retiring early, you mentioned
(07:54):
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.
It's 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
stop working, although you're probably vested certainly by
(08:16):
age 50, you're going to have 15 years
or 17 years of zeros on your highest
35.
35 years.
Yeah.
How many of those are going to be
without number?
So that's a missed opportunity.
And they all also, I know it's implied
in your comments, but I just want to
highlight it because some people who do their
own kind of spreadsheets and don't kind of
(08:38):
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,
you know, 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 and they're saying, all right,
(08:58):
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
years, you really have to account for that
(09:20):
and not lowball that estimate of what future
expenses are going to be.
Yeah.
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
show you what are you talking about?
(09:41):
And he talked about inflation and tried to
explain that as much as people maybe do
have some fixed costs, you know, 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.
Yeah.
What are those lifelines?
(10:02):
Well, I have real estate taxes.
I have insurance.
I'm going to buy a car.
The car has gasoline, you know, in, in,
in repairs, et cetera, et cetera.
Like I buy food.
Yeah.
I like to go out to dinner once
in a while too.
You know, all of these things that we
(10:23):
take for granted, all are subject to the
risks of inflation over time.
And, you know, there's, there's a stereotype, right?
I mean, you ever been to your homeowner's
association?
If you're like me, uh, it's all the
older retirees complaining about the dues increase because
they're not working anymore and it's, you know,
(10:45):
these are examples of inflation.
Uh, you know, they're on a fixed income,
you know what they're voting against is maintenance.
So over 40, think about over 40, 40
years of life.
If you own a home, if you had
a brand new home today and you're retiring
at 50, everything in that house is being
(11:07):
replaced over, 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.
Uh, and, and, you know, as much as
we might say, oh, inflation's two and a
(11:27):
half percent or 3% or whatever it
is, you know, um, rule of 72s.
Right.
If we divide that by three, 24 years,
that's double everything.
And, you know, if you're living 40 years,
you know, you're close to probably going to
get a double, double.
Yeah.
And if you don't, if you don't believe
(11:48):
that, if you 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, pick your
item that you want to compare it to
a basket of items and you'll see bread
and milk and, uh, eggs these days.
Right.
Uh, you know, tax, all of them just
(12:09):
say, oh, it's changed.
Uh, in a chain, it will continue to
change.
That's just the, the reality.
It was hard.
So inflation is one of those things you
have to, uh, be more mindful of.
I think another one we should include in
there is, um, you know, you've got to
think about healthcare, health insurance, um, as one
(12:30):
of those practical things, if you're retiring, you
know, in your fifties and Medicare starts at
65.
Um, let's face it.
Health insurance costs are exorbitant today.
So, you know, is that something you've planned
for, uh, if you're not employed, you're not
(12:52):
getting any subsidy from the employer to help
defray those costs and usually an employer picks
up some of that cost if you're working
through their plan, I mean, sometimes a lot
of it, even if it's 50%, it's a,
it's big money over a year and decades.
So, you know, that could add, um, yeah,
(13:14):
I mean, 20 years of, uh, 10, 10
years of, uh, those costs rather, you know,
you could be looking at, I don't know,
150, 300, you know, more because of inflation,
right.
The healthcare inflation is higher.
Right.
So, uh, you know, another chunk of money
that you got to have, uh, set aside
(13:35):
with that in mind for, and that's assuming
you don't have any health problems, that's just
for premiums, right.
Not deductibles and all that.
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, for example, we want to keep
(13:59):
them, but you know, generally if you don't
have an employer plan, you, you don't have
dental insurance and you can buy it, but
it costs money.
I keep hearing this from, from people who
are in retirement about, um, the cost of
implants and, you know, some of the dental
expense, just rough.
It's a common conversation.
In fact, we had people over last night
(14:19):
and, uh, one of the, one of the
ladies in the couple was sharing how much
money she has spent in the last two
months as her, you know, need for dental
insurance has come up and she doesn't have
any coverage, so, you know, it's, it's not
inexpensive.
So just even if you do some, some
(14:40):
things aren't covered enough, right?
That's right.
50% maybe, but yeah.
Yeah.
Yeah.
Well, um, so, okay.
Some that's on some of the expenses side
of things.
And there's probably others too.
I don't know.
Does any, before we move on from expenses,
anything else that you wanted to think in
terms of that I didn't think of?
No, I would just say, I would just
(15:01):
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 want to help a
family member?
(15:21):
Cause this is something that sneaks into our
financial planning discussions.
You know, do you have a daughter who's
getting married?
Did you have a, you know, someone you
want to help buy their first house or
maybe a grandchild with college or, you know,
well, if you're at 50, you might be
talking about your kids in college.
That's what I mean.
That's true.
So consider not just your household expenses.
(15:43):
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.
Okay.
Well, let's make sure that that's there.
Oh, I'm going to travel more or I'd
like to be more generous family charities, or
I'd like to do X, Y, or Z
hobbies or all these things have potential costs.
(16:07):
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, good points.
Um, yeah, I think those are good examples
of, uh, sometimes underestimated expenses, the, uh, the
(16:29):
money we spend on family needs right now
that come up.
All right.
Well, the next thing I want to talk
about as it relates to, uh, this notion
of if, if you're going to retire early
things you need to think about, and, um,
this probably applies to everyone, but it comes
to my mind, especially for people retiring early,
(16:51):
and that's the notion of tax diversification.
You know, if you're retiring, uh, again, at
50, 55, you don't have access to your
IRAs, your 401ks, they're usually, no, there's, there's
some workaround to that, but by design they're
structured to be available to you at 59
and a half.
(17:11):
And thereafter, so you, you know, you, you
may want to make sure that you do
have one, uh, other buckets of money, non
IRA to, you know, joint account individual trust,
whatever it might be that non-qualified taxable,
we'll call it kind of money, um, meaning
it, you know, pays income tax each year
(17:33):
as opposed to something that's tax deferred, like
your IRA or your 401k and so forth.
And then of course, Roth IRA money, you
know, it's important to have some different buckets
of money with different tax treatment.
Um, so the challenge is if you don't
have sufficient resources in your non IRA money,
(17:54):
um, we see this throughout retirement anyway, that
if people draw down on some of their,
their investments outside of retirement plans, it becomes
challenging when they have a big expense, like
a purchase of a car as it's common
example.
(18:14):
Yep.
Uh, 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, um, 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
on a car, whatever it is.
Right.
Uh, I have to end up spending $50
(18:37):
,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, um, pre 59 and a half,
but, um, are definitely like going to be
(18:59):
in a position where they need to draw
from their retirement money in retire, like in
a retired status, but prior to being eligible
to access that money.
Right.
There's a rule 72 T that, um, it
relates to the internal revenue code and it
does allow for some substantially equal periodic payments.
(19:22):
Now the rules around this are very precise
and there, you need to know them before
you undertake this process.
Uh, 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.
And if you're going to be retired early,
(19:42):
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,
um, this separate equal, uh, periodic payments is,
um, uh, approach that can allow you to
get access to your retirement plan and, um,
(20:06):
not be penalized the 10% penalty, you'll
still have income taxes the way you would
from your retirement account, but not have the
10% penalty for withdrawals prior to 59
and a half.
And it's worth mentioning there are other instances
where you can access, uh, if there's a
disability or, you know, certain kinds of circumstances
(20:26):
that might allow for, um, uh, earlier withdrawal.
But in this case, uh, 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
say as an example, you start down this
(20:47):
path of a 72 T 50, you know,
you're going to withdraw some money, uh, and
not be penalized by doing it, you know,
do it in this appropriate fashion.
Uh, but then you decide, maybe I, 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.
You violated the rules of the separate equal
(21:10):
period.
Violated the periodic component, right?
So essentially there's different methods of whether how
it's calculated.
Uh, one that I think of as a
common one is, you know, related to that
R and D kind of, uh, notion.
You know, you look at a table to
come up with an amount and that it's
permissible to withdraw from.
(21:32):
And, uh, 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.
And, but you are required to do it.
Let's say you're 55, you have to do
it, uh, at least until you're 59 and
(21:55):
a half and not less than for five
years.
So in that case, you'd have to do
it for five years.
Um, even if you said, oh, circumstances change,
I don't need this anymore.
Uh, so it's, it's an oddity and it's
complex.
And I would consult an advisor, uh, probably
(22:15):
both a financial advisor and a tax advisor,
um, in, in reviewing this to make sure
you follow through on doing it properly, uh,
should you feel that this is a necessity
that you might have to deal with?
On the opposite of the technical comments that
you shared.
I have to say that this, not the
(22:35):
72 T, but this frequency of people who
retire it before 50, after 50, after 60
or 70 with the intention of not working
and then wanting to go back to work
or finding something that they want to do
or being bored is super common.
So you can think that you're retiring at
(22:57):
55 and you're done working, but I suspect
that most people are going to want to
do something productive.
Something, you may just be done with what
you 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.
(23:18):
I just had a conversation the other night.
I was at home Depot picking up something,
uh, at the tool rental thing and the
general, I had a police shirt on.
So the gentleman who had long hair and
a beard, by the way, he said, Oh,
you're retired.
I said, yeah, it was me too.
LAPD.
And, uh, so he was talking, he goes,
(23:38):
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, you know, but that's not
the exception.
That's kind of what develops into the norm.
Like people like, you can only play pickleball
so many days or go to the beach
so many days or whatever you're retiring for.
(24:01):
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.
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.
That was just getting a part-time job
to get out of the house and have
some pocket money.
(24:22):
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, sorry, let's turn
our attention to a social security part of
this for a minute or two though, because
I think that's something we should also talk
(24:42):
about before we wrap up.
Um, and the whole notion of working, even
if you've turned on social security, uh, early,
it has its own complexities.
Right.
Right.
Um, so you want to, let me set
the stage on this.
Yeah.
Really related to my comments of people who
retire, say they retire at 62 and they
(25:04):
say, my social security money's 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
to work.
And so since you're not a full retirement
age, which would be 66 or 67, where
(25:26):
you'd have a higher number, right.
Um, I think it's 20 some odd thousand
dollars is your limited amount that you getting
to find, but yeah, so if you make
more than $23,400 in 2025, I'm pretty
sure that retired LAPD officer working full-time
(25:46):
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 of retiring early, if you're
going to be working part-time.
So an important consideration, and it is good
that you can, uh, suspend your payments.
(26:10):
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 your recalculation.
So if they, you know, add some money
in and took off the zero somewhere, you
(26:30):
know, for your 35 years that you were
talking about earlier.
Um, you know, I think, uh, that's worth
keeping in mind.
Um, but $23,400, if you, if you
make more than that and you're receiving social
security, uh, you're penalized.
Um, it's, it's very unattractive.
So, um, you don't want to do that.
(26:53):
No, I don't want to do that.
So think about it and not, 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 know, the ultimate benefit that you
would get if you retire at a later
date or maybe even 70 because of the,
(27:16):
uh, the increases in social security.
If you have a long lifetime projected and
all that, we talk about it once in
a while and we'll go back to it,
but there's a lot of things to talk
to your advisor about on these.
And it depends on like the spouse is,
uh, who's the higher earning, if they're spouses,
you know, all that kind of stuff to
help you think about how to strategize around
that.
But yeah, it's a good point.
(27:36):
If you're trying to retire early, not that
we're, we sound kind of negative on this
stuff.
I think, um, 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
open and talk to a fiduciary financial advisor
who has not trying to sell anything, just
(27:58):
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.
And if we can be a resource to
you in the process, we're happy to help.
Uh, we've talked with people with, uh, initially
(28:18):
with a consultation that's complimentary.
Uh, we go through a little bit, learn
about you, we then do some analysis and
then have a followup meeting where we can
explain to you our observations and make some
recommendations and, uh, elaborate on if we were
to work together over time, uh, how we
work together.
So if that could be a resource to
(28:40):
you, 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
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(29:01):
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(29:23):
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(29:43):
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
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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
(00:44):
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.
(01:05):
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
(01:26):
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, it's a real high
percentage of people who have that thought process,
(01:46):
you know, like what if I, 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,
(02:07):
I, I have one client, excuse me.
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, in my fifties and, um, he's been
(02:29):
just dedicated, vigilant.
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
(02:50):
ready.
You know, uh, I guess that's the, the,
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
(03:10):
Brinker.
Yes.
Um, and he had the term critical mass.
So it's when you reach that point that
you have critical mass of assets, I guess,
or income or not debt, 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.
(03:31):
You could be retiring from your full-time
high stress, fast pace life to a still
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
(03:52):
early is not a single thing.
It could mean I just don't want to
do this anymore.
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
(04:15):
this really presents, there's a number of things
that do come up as reasonable challenges to
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
(04:36):
investments, you know, I mean, the, the thing
about 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
(05:01):
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.
(05:22):
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, I
normally 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
(05:43):
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'm adding to the account instead of subtracting
and the money that's already there would be
(06:06):
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
(06:26):
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.
We talk in generalities of, oh, what's a
good amount to set aside?
(06:49):
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.
(07:09):
Well, there's like vacations and new set of
tires and 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 well
(07:31):
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.
I want to add a couple more things.
If you're thinking about retiring early, you mentioned
(07:54):
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.
It's 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
stop working, although you're probably vested certainly by
(08:16):
age 50, you're going to have 15 years
or 17 years of zeros on your highest
35.
35 years.
Yeah.
How many of those are going to be
without number?
So that's a missed opportunity.
And they all also, I know it's implied
in your comments, but I just want to
highlight it because some people who do their
own kind of spreadsheets and don't kind of
(08:38):
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,
you know, 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 and they're saying, all right,
(08:58):
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
years, you really have to account for that
(09:20):
and not lowball that estimate of what future
expenses are going to be.
Yeah.
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
show you what are you talking about?
(09:41):
And he talked about inflation and tried to
explain that as much as people maybe do
have some fixed costs, you know, 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.
Yeah.
What are those lifelines?
(10:02):
Well, I have real estate taxes.
I have insurance.
I'm going to buy a car.
The car has gasoline, you know, in, in,
in repairs, et cetera, et cetera.
Like I buy food.
Yeah.
I like to go out to dinner once
in a while too.
You know, all of these things that we
(10:23):
take for granted, all are subject to the
risks of inflation over time.
And, you know, there's, there's a stereotype, right?
I mean, you ever been to your homeowner's
association?
If you're like me, uh, it's all the
older retirees complaining about the dues increase because
they're not working anymore and it's, you know,
(10:45):
these are examples of inflation.
Uh, you know, they're on a fixed income,
you know what they're voting against is maintenance.
So over 40, think about over 40, 40
years of life.
If you own a home, if you had
a brand new home today and you're retiring
at 50, everything in that house is being
(11:07):
replaced over, 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.
Uh, and, and, you know, as much as
we might say, oh, inflation's two and a
(11:27):
half percent or 3% or whatever it
is, you know, um, rule of 72s.
Right.
If we divide that by three, 24 years,
that's double everything.
And, you know, if you're living 40 years,
you know, you're close to probably going to
get a double, double.
Yeah.
And if you don't, if you don't believe
(11:48):
that, if you 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, pick your
item that you want to compare it to
a basket of items and you'll see bread
and milk and, uh, eggs these days.
Right.
Uh, you know, tax, all of them just
(12:09):
say, oh, it's changed.
Uh, in a chain, it will continue to
change.
That's just the, the reality.
It was hard.
So inflation is one of those things you
have to, uh, be more mindful of.
I think another one we should include in
there is, um, you know, you've got to
think about healthcare, health insurance, um, as one
(12:30):
of those practical things, if you're retiring, you
know, in your fifties and Medicare starts at
65.
Um, let's face it.
Health insurance costs are exorbitant today.
So, you know, is that something you've planned
for, uh, if you're not employed, you're not
(12:52):
getting any subsidy from the employer to help
defray those costs and usually an employer picks
up some of that cost if you're working
through their plan, I mean, sometimes a lot
of it, even if it's 50%, it's a,
it's big money over a year and decades.
So, you know, that could add, um, yeah,
(13:14):
I mean, 20 years of, uh, 10, 10
years of, uh, those costs rather, you know,
you could be looking at, I don't know,
150, 300, you know, more because of inflation,
right.
The healthcare inflation is higher.
Right.
So, uh, you know, another chunk of money
that you got to have, uh, set aside
(13:35):
with that in mind for, and that's assuming
you don't have any health problems, that's just
for premiums, right.
Not deductibles and all that.
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, for example, we want to keep
(13:59):
them, but you know, generally if you don't
have an employer plan, you, you don't have
dental insurance and you can buy it, but
it costs money.
I keep hearing this from, from people who
are in retirement about, um, the cost of
implants and, you know, some of the dental
expense, just rough.
It's a common conversation.
In fact, we had people over last night
(14:19):
and, uh, one of the, one of the
ladies in the couple was sharing how much
money she has spent in the last two
months as her, you know, need for dental
insurance has come up and she doesn't have
any coverage, so, you know, it's, it's not
inexpensive.
So just even if you do some, some
(14:40):
things aren't covered enough, right?
That's right.
50% maybe, but yeah.
Yeah.
Yeah.
Well, um, so, okay.
Some that's on some of the expenses side
of things.
And there's probably others too.
I don't know.
Does any, before we move on from expenses,
anything else that you wanted to think in
terms of that I didn't think of?
No, I would just say, I would just
(15:01):
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 want to help a
family member?
(15:21):
Cause this is something that sneaks into our
financial planning discussions.
You know, do you have a daughter who's
getting married?
Did you have a, you know, someone you
want to help buy their first house or
maybe a grandchild with college or, you know,
well, if you're at 50, you might be
talking about your kids in college.
That's what I mean.
That's true.
So consider not just your household expenses.
(15:43):
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.
Okay.
Well, let's make sure that that's there.
Oh, I'm going to travel more or I'd
like to be more generous family charities, or
I'd like to do X, Y, or Z
hobbies or all these things have potential costs.
(16:07):
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, good points.
Um, yeah, I think those are good examples
of, uh, sometimes underestimated expenses, the, uh, the
(16:29):
money we spend on family needs right now
that come up.
All right.
Well, the next thing I want to talk
about as it relates to, uh, this notion
of if, if you're going to retire early
things you need to think about, and, um,
this probably applies to everyone, but it comes
to my mind, especially for people retiring early,
(16:51):
and that's the notion of tax diversification.
You know, if you're retiring, uh, again, at
50, 55, you don't have access to your
IRAs, your 401ks, they're usually, no, there's, there's
some workaround to that, but by design they're
structured to be available to you at 59
and a half.
(17:11):
And thereafter, so you, you know, you, you
may want to make sure that you do
have one, uh, other buckets of money, non
IRA to, you know, joint account individual trust,
whatever it might be that non-qualified taxable,
we'll call it kind of money, um, meaning
it, you know, pays income tax each year
(17:33):
as opposed to something that's tax deferred, like
your IRA or your 401k and so forth.
And then of course, Roth IRA money, you
know, it's important to have some different buckets
of money with different tax treatment.
Um, so the challenge is if you don't
have sufficient resources in your non IRA money,
(17:54):
um, we see this throughout retirement anyway, that
if people draw down on some of their,
their investments outside of retirement plans, it becomes
challenging when they have a big expense, like
a purchase of a car as it's common
example.
(18:14):
Yep.
Uh, 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, um, 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
on a car, whatever it is.
Right.
Uh, I have to end up spending $50
(18:37):
,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, um, pre 59 and a half,
but, um, are definitely like going to be
(18:59):
in a position where they need to draw
from their retirement money in retire, like in
a retired status, but prior to being eligible
to access that money.
Right.
There's a rule 72 T that, um, it
relates to the internal revenue code and it
does allow for some substantially equal periodic payments.
(19:22):
Now the rules around this are very precise
and there, you need to know them before
you undertake this process.
Uh, 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.
And if you're going to be retired early,
(19:42):
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,
um, this separate equal, uh, periodic payments is,
um, uh, approach that can allow you to
get access to your retirement plan and, um,
(20:06):
not be penalized the 10% penalty, you'll
still have income taxes the way you would
from your retirement account, but not have the
10% penalty for withdrawals prior to 59
and a half.
And it's worth mentioning there are other instances
where you can access, uh, if there's a
disability or, you know, certain kinds of circumstances
(20:26):
that might allow for, um, uh, earlier withdrawal.
But in this case, uh, 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
say as an example, you start down this
(20:47):
path of a 72 T 50, you know,
you're going to withdraw some money, uh, and
not be penalized by doing it, you know,
do it in this appropriate fashion.
Uh, but then you decide, maybe I, 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.
You violated the rules of the separate equal
(21:10):
period.
Violated the periodic component, right?
So essentially there's different methods of whether how
it's calculated.
Uh, one that I think of as a
common one is, you know, related to that
R and D kind of, uh, notion.
You know, you look at a table to
come up with an amount and that it's
permissible to withdraw from.
(21:32):
And, uh, 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.
And, but you are required to do it.
Let's say you're 55, you have to do
it, uh, at least until you're 59 and
(21:55):
a half and not less than for five
years.
So in that case, you'd have to do
it for five years.
Um, even if you said, oh, circumstances change,
I don't need this anymore.
Uh, so it's, it's an oddity and it's
complex.
And I would consult an advisor, uh, probably
(22:15):
both a financial advisor and a tax advisor,
um, in, in reviewing this to make sure
you follow through on doing it properly, uh,
should you feel that this is a necessity
that you might have to deal with?
On the opposite of the technical comments that
you shared.
I have to say that this, not the
(22:35):
72 T, but this frequency of people who
retire it before 50, after 50, after 60
or 70 with the intention of not working
and then wanting to go back to work
or finding something that they want to do
or being bored is super common.
So you can think that you're retiring at
(22:57):
55 and you're done working, but I suspect
that most people are going to want to
do something productive.
Something, you may just be done with what
you 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.
(23:18):
I just had a conversation the other night.
I was at home Depot picking up something,
uh, at the tool rental thing and the
general, I had a police shirt on.
So the gentleman who had long hair and
a beard, by the way, he said, Oh,
you're retired.
I said, yeah, it was me too.
LAPD.
And, uh, so he was talking, he goes,
(23:38):
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, you know, but that's not
the exception.
That's kind of what develops into the norm.
Like people like, you can only play pickleball
so many days or go to the beach
so many days or whatever you're retiring for.
(24:01):
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.
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.
That was just getting a part-time job
to get out of the house and have
some pocket money.
(24:22):
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, sorry, let's turn
our attention to a social security part of
this for a minute or two though, because
I think that's something we should also talk
(24:42):
about before we wrap up.
Um, and the whole notion of working, even
if you've turned on social security, uh, early,
it has its own complexities.
Right.
Right.
Um, so you want to, let me set
the stage on this.
Yeah.
Really related to my comments of people who
retire, say they retire at 62 and they
(25:04):
say, my social security money's 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
to work.
And so since you're not a full retirement
age, which would be 66 or 67, where
(25:26):
you'd have a higher number, right.
Um, I think it's 20 some odd thousand
dollars is your limited amount that you getting
to find, but yeah, so if you make
more than $23,400 in 2025, I'm pretty
sure that retired LAPD officer working full-time
(25:46):
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 of retiring early, if you're
going to be working part-time.
So an important consideration, and it is good
that you can, uh, suspend your payments.
(26:10):
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 your recalculation.
So if they, you know, add some money
in and took off the zero somewhere, you
(26:30):
know, for your 35 years that you were
talking about earlier.
Um, you know, I think, uh, that's worth
keeping in mind.
Um, but $23,400, if you, if you
make more than that and you're receiving social
security, uh, you're penalized.
Um, it's, it's very unattractive.
So, um, you don't want to do that.
(26:53):
No, I don't want to do that.
So think about it and not, 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 know, the ultimate benefit that you
would get if you retire at a later
date or maybe even 70 because of the,
(27:16):
uh, the increases in social security.
If you have a long lifetime projected and
all that, we talk about it once in
a while and we'll go back to it,
but there's a lot of things to talk
to your advisor about on these.
And it depends on like the spouse is,
uh, who's the higher earning, if they're spouses,
you know, all that kind of stuff to
help you think about how to strategize around
that.
But yeah, it's a good point.
(27:36):
If you're trying to retire early, not that
we're, we sound kind of negative on this
stuff.
I think, um, 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
open and talk to a fiduciary financial advisor
who has not trying to sell anything, just
(27:58):
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.
And if we can be a resource to
you in the process, we're happy to help.
Uh, we've talked with people with, uh, initially
(28:18):
with a consultation that's complimentary.
Uh, we go through a little bit, learn
about you, we then do some analysis and
then have a followup meeting where we can
explain to you our observations and make some
recommendations and, uh, elaborate on if we were
to work together over time, uh, how we
work together.
So if that could be a resource to
(28:40):
you, 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
quality of life issues that make the money
matters batter, whatever's on your mind.
(29:01):
Visit us at something more with Chris Boyd
.com or call us toll free at eight
six six seven seven one eight nine zero
one, or send us your questions to AMR
dash info at wealth enhancement.com.
You're listening to something more with Chris Boyd,
financial talk show, wealth enhancement, advisory services, and
Jay Christopher Boyd provide investment advice on an
(29:23):
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.
Listeners should consult their own financial advisors or
conduct their own due diligence before making any
(29:43):
financial decisions.
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