What Comes First When Planning Retirement

"Hey Mike, retirement feels incredibly overwhelming. Where do you start?"

 Discover what comes before financial planning.

Text your questions to 913-363-1234. 

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Episode Transcript

Mike (00:05):
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice thatyou've heard hundreds of times.
Instead, we're gonna get intothe nitty gritty. As always,
text your questions to [phone]. And remember, this is
just a show, not investmentadvice.
Do your research. David, what do we got today?

David (00:26):
Hey, Mike. Retirement feels incredibly overwhelming.
Where do you start?

Mike (00:31):
Yeah. It's understandable to feel overwhelming because of
the significant change. Soyou've got first your work life,
social life, the social life atwork, all of that is gone. Now
there's a huge void. What'sgonna give you purpose?
How are you gonna spend yourtime? Do you have enough? Do you
not have enough? There was aninteresting study at Harvard,
where they asked people like,how much money do you have, and

(00:53):
what's your rate of happiness,and how much more money would
you need to get a 10 on thescale of one to 10 of happiness?
And they were saying like,double the money would make me
more happy.
And the problem with that isthey assumed more money would
make them happier, but there'sthis thing called the hedonic
treadmill. What it means is youmight have blips of happiness
and sadness, but you kind of endup at the same threshold of

(01:17):
happiness over the long term.You go back to your default set
of happiness. And so when youunderstand that more money may
not make you happier, there's acertain threshold that you can
afford now to retire, butworking to get more money may
not actually generate morehappiness. Instead, self
development and learning how tobe a happier person so you can

(01:38):
increase the hedonic treadmill.
Look it up. Hedonic treadmill.Okay. And how to increase your
overall general default settingof happiness. That's, I think,
maybe a better way to look atit, and here's how you do that.
First off, just use the 4% ruleas a general idea of how much
money do you need to save. Solet's say you need $70,000 of

(02:00):
income, roughly speaking, to behappy in retirement, to live
your current lifestyle, and30,000 is expected to come from
Social Security. So you onlyreally need 40,000 from a
portfolio. So back that in40,000 divided by 4%. You know,
you've got, you can back in the4% rule and get a million
dollars.
Okay. So if you're near amillion dollars, you're within
the ballpark, or you canprobably afford to retire. Now

(02:21):
don't go off of that as yourretirement plan. Just use it as
a general threshold. Then hereis the correct order or sequence
in preparing for retirement inmy opinion.
First off, plan your lifestyle.What's going to give you
purpose? Right. Is that moreexpensive or less expensive than
your current cash flow system?Then you then put together your

(02:46):
actual first version of theplan.
Ignore investments and productsand all of that. Just see how
does the cash flow work. Startoptimizing and looking at things
from different ways, longevity,and so on. Then you look at
strategies, tax strategies,social security strategies. Look
at strategies how to get moreout of your money.
Then once you have all of that,now notice it's all based on how

(03:07):
your money's gonna serve you.Your lifestyle plans came first,
then you looked at your plannedcash flow, the overall
projections, then you startedlooking at investments and
products. The investments andproducts, if I'm in reverse
order this, allow you toimplement those strategies,
which bring to life your plan,which then support your quality
of life. Too often, we go to afinancial professional and say,

(03:30):
well, hey, do this. Yeah.
I wanna retire. How much incomecan I get? And we wanna force
our lifestyle around thatincome. It needs to be reversed.
I see.
Figure out your lifestyle first,then build your plan around that
lifestyle. And if they'retalking about investments in
products in that firstappointment, run for the hills.
Mhmm. That's the last thing thatyou do. Not the first.

(03:51):
So that's my answer. Lifestyleplanning first, financial
projections or the general plan,strategies, then investments and
products or your portfolio inthe end. That's all the time
we've got for the show today. Ifyou enjoyed the show, consider
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(04:14):
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(04:34):
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