An early retirement can be intimidating because you do NOT want to:
1) run out of money (obvious)
2) go back to work (you only want to retire ONCE)
3) wonder if your loved one's will be okay if something happens to you....and so much more.
In today's episode Ari gives you the 10 things to avoid if you want to retire early with complete confidence. Enjoy!
Create Your Custom Early Retirement Strategy Here
Ari Taublieb, CFP ®, MBA is the Vice President of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients navigate the nuances of an early retirement.
PS: Before anyone decides to move forward with our services, I want to ensure we're the best fit to help you reach your goals and I personally have the first conversation with you.
An early retirement can be intimidating because you do NOT want to:
1) run out of money (obvious)
2) go back to work (you only want to retire ONCE)
3) wonder if your loved one's will be okay if something happens to you....and so much more.
In today's episode Ari gives you the 10 things to avoid if you want to retire early with complete confidence. Enjoy!
Create Your Custom Early Retirement Strategy Here
Ari Taublieb, CFP ®, MBA is the Vice President of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients navigate the nuances of an early retirement.
PS: Before anyone decides to move forward with our services, I want to ensure we're the best fit to help you reach your goals and I personally have the first conversation with you.
In last week's episode, I went over five things that my clients who successfully retired early implemented so that they had a fulfilling, fun, purposeful and financially sound retirement. In today's episode, I'm going to be doing the opposite not just telling you all the terrible things, but I'm saying hey guys, here are 10 things I need to make sure that you are avoiding if you are considering an early retirement. So it's almost like a part two to last week, but if you haven't heard last week's episode, totally fine, this episode is still going to resonate, but I do encourage at least listening to both at some point. With that being said, I want to start to hop right in because I am too excited and I just want to start going over these with you. I do want to go over a recent review, and this comes from a YouTube comment, and I want to say thank you because it's a very special comment. It's going to be sad, okay Now, I do not want to start off your Monday in a sad way if this is when you are listening to this episode, but it is sad but important, and maybe he's going to re, maybe rewire your brain a little bit. Probably not, but let's see what you think. Okay. This comes from James Chavez5723, who says a friend kept moving those goal posts from one million one and a half million to 2.2 million. This took him four years. Sadly he dropped dead two weeks later. I bet he would have settled for that one million and those four years back. It's a very sad comment but, james Chavez5723, thank you for sharing that on YouTube.
Speaker 0:The reason I'm bringing that up today is there's a lots of mistakes out there and I do not want you to make them when it comes to an early retirement. I also don't want you to get overwhelmed and go oh my gosh, there's so much to this. I'm not going to take action. I know, and a lot of you know this, but I'm a soccer player and when I go to physical therapy and they show me exercises that sound good with fancy names, but I don't know actually how to do them if they don't show them to me. I know they're good for me, I know I should do them, I don't do them. Okay, I'm a human being and because of that I want to make sure that I understand the exercises and I'll make them. Show it to me two or three times until I go great, I get it Now I can't wait to do the reps at home because I see how it's going to help me. Same thing here.
Speaker 0:What's happening is this, friend they kept moving the goalposts back because they did not have confidence as to how much they needed when they retired. And I'm sure they said, yep, I've got a million bucks, I'm good to go, but one and a half, I'd feel a whole lot better. Yeah, six more months, one more bonus, then I'll retire. Yeah, 2.2 million sounds good, but I'd really love to have three. And then all of a sudden, you can pass away and none of us know how long any of us have. And that is the reason, in large part, I do what I do. I do not want you later in life going. I'm kicking myself because I didn't consider retiring early and I don't want to retire too early. Okay, I'm not Mr Nice Guy that's just gonna say, hey, you can go retire, but if you want my green light or green flag, there's steps we have to walk through and I'm gonna walk you through what I need you to avoid if you are considering this.
Speaker 0:So let's start to hop through my little list here I put together, and the first one is underestimating expenses. It is fun to talk about investments and tax strategy and you know I'm gonna talk about them more than the average person because I obsess over this stuff but, with that said, underestimating expenses is a very simple thing that many people do not even consider. They go yeah, here's what I think we spend. We think it's pretty good, but we're not sure. So number one is in the description of this episode and last week's really every single video. I have a free cash flow planner. I fully recognize I'm not gonna work with all of you. If you do have the pleasure of working with us, root, and I have the pleasure of working with you Amazing. But the truth is I won't get to work with all of you and you won't get to work with us just because there's lots of reasons for that. But the premise is I want to give you a bunch of free resources that you can use if we even are not working together. So, with that being said, go into my description. You'll see that cash flow planner there.
Speaker 0:Many people are going to assume that your spending is going to drop drastically in retirement and the truth is there are going to be some things that are going to drop. For example, maybe you have a mortgage today, maybe that's going to go away, but then, all of a sudden, there's healthcare expenses, and then we have to layer onto that. Well, you're in good energy, you have good health. Maybe you're going to travel more. How much travel can you do? And being able to accurately reflect how much you want to spend throughout time is very difficult. And so here's what you're going to do. You're not going to try to perfect it, okay. What you're going to do is understand that there's going to be a retirement smile and everyone's smile is going to look different.
Speaker 0:So if you don't know the retirement spending smile, the analogy is the following there's a book on it that's wonderful, that I'll talk about later. But they talk about the slow go years, the go go years, the no go years and all these different fun analogies. But here's how. What I need you to know. The truth is, most of you are going to retire early. You're going to have your energy, you're going to have your health, you're going to spend more. So you're going to be at like the top of this smile.
Speaker 0:Okay, then almost think of like a smile. Now we're going down the smile and what's happening is you're spending less in your 70s why you don't have your same energy, you don't have your same health. You're still spending on your core necessities. And then the smile. We're coming back up to the other side of the smile, where now you go oh my gosh, I have more money than I thought. Or medical expenses are really rose in, or, oh my God, charitable giving, or oh my God, I'm going to die with more than I expect. I got to start spending this. That's going to happen. And so some people go well, are in. My cash flow planner says 8,000 a month. So that's my number. It's not Okay. I hope you marry your partner forever. Unless they're not an ideal partner, then please don't. But if they are wonderful, and even from there, I say don't marry your asset allocation, don't marry your partner, don't marry XYZ. So that's number one. Don't underestimate your expense. Number two neglecting healthcare.
Speaker 0:I have another ebook in the description complete guide to health insurance. It's fairly wide in the way I talk about it, but it's going to give you a good overview of how to even consider health insurance planning in retirement. The truth is, you are not going to have an employer once you retire, and a lot of you. It's going to make you uncomfortable, why You've had health insurance for many, many years and the concept of going out and getting health insurance is weird.
Speaker 0:I have some clients that have retired early and they're on short-term health insurance. I mean, it's covering the bare necessities, they're not paying a lot for it, but the truth is they're in good health and they are not expecting a big healthcare event to occur. They're protecting against catastrophes and that's pretty much it. I have other clients that are spending I think my biggest client spending like 1,800 a month just themselves for healthcare. Okay, so you're looking at nearly $25,000 a year on just healthcare expenses and it's a big expense. But it's another one you need to account for and it's not for forever. Okay, it's a temporary expense that once again, you want to account for, but that's it. So my dopey joke clients say all right, how am I going to pay for health insurance? I go, you pay for it. You don't do it with a smile, but you pay for it. So, once again, making sure you're planning for healthcare and not neglecting it. Number three I have tapping savings prematurely.
Speaker 0:So what I wrote here is relying too early on your retirement accounts, having no way to bridge that gap. So some people come to me. They're 58 years old, they're going. Oh well, you know, I think it's happened to my IRA at that 59 and a half and so because of that, that tells me I've got about a year and a half till I need the fund. So maybe I'll stick like 40,000 to a brokerage account over the next year and I'll say I'd rather you go renovate your home. Like what do you mean? I thought I should just kind of save you talk about the brokerage account. Why you lying to me now you said brokerage account, now you're telling me to go renovate the home.
Speaker 0:I want to be really intentional. So every single plan is different. But the big thing is, if there's these big expenses that you need to take care of before retirement, what I don't want to have happen is your retire markets go down. Now I need to send you monthly income and oh, by the way, that renovation that you are doing, maybe it's for aesthetic purposes, but let's assume it's not. Now, all of a sudden, that bathroom well, that has to get fixed and it's a higher cost and markets are down. I'm sending you monthly income and I'm sending you an additional 30,000 to fix your bathroom. Well, now the plan's not looking so good.
Speaker 0:So the premise here is sometimes I want you to prioritize taking care of the big expenses at first few years before you actually retire. Other times then, yeah, you know what? That's not a red flag, it's maybe more of a pinkish flag. So, because of that, I want this amount in the brokerage account, this amount to your IRA, and here's why Don't do cookie cutter planning. Okay, so don't just say I'm just going to put X amount into a brokerage account because I want to retire early. Nothing wrong with that. But if you want to optimize, this is the next level pro stuff we're talking about here. Number four I'm ignoring social security optimization.
Speaker 0:Okay, here's what most people do. Most people go like this and I'm not saying this in a mean way, this is just true. Okay, and one of my clients is gonna listen to this right now, cause I know them. They're go. Oh my God, that was my question. You're making me sound dumb to all your listeners. I promise they don't know who you are. Okay, I know who you are and you're helping thousands of people every single month by me explaining this, and you had said prior that you wanted me to help as many people as possible and I'm gonna send you a separate note. So this podcast is, right now, won't even get released unless you give me the go ahead. So you're gonna laugh extra when this comes out. Okay, you know who you are.
Speaker 0:Now let's talk about Social Security. Here's what most people do. Okay, they'll say you know when I think I'm gonna collect Social Security early and here's why I know it's not at the largest amount and I could collect more if I waited, but I like the idea of collecting more for more years. So they're like wait a second, collecting more for more years. So my client misspoke. But the premise is that you hear, it's simple. They're saying I wanna collect less, so let's call it 500 a month to keep it simple, instead of a thousand a month. But you get the 500 a month for more years.
Speaker 0:I know all of you are smart people and you understand that concept. What you might not be thinking is the following when should I collect Social Security based on my tax plan? People go. I don't know what you talk about. Well, if you turn on Social Security earlier, even though it's a smaller amount, yes, you do get it for more years because none of us know how long you're gonna live. But the truth is, maybe you shouldn't collect it all until age 70, even though you could, people go. Well, why not? I think I could collect and then invest and do better I go.
Speaker 0:When you turn on that Social Security, you are turning on more income which allows for less creative opportunities for tax purposes for the next 30 plus years of your life, but mainly it's the next 10 plus years of your life, because if you're gonna have required minimum distribution starting at age 75 and you turn on Social Security at age 62, well now, all of a sudden, you're gonna have income that's coming in the door, that's shooting up your overall taxable income, not allowing for as efficient Roth conversions or other purposes. Now, some of you don't have a big RMD required minimum distribution problem, which comes at age 75 for most of you, age 73 for some of you. So this will apply to you, but some of a large majority of you, it will apply to that reach out to me. So I need you at least considering this, okay. So Social Security optimization when you collect, there's so much more. I can do a full episode, in fact, I have on exactly this, and it depends on survivor benefits. You don't just make your you know election based on you. It's based on your spouse. What about other planning opportunities? So should we consider Roth conversions, donor advised funds, life expectancy there's a lot to this but optimizing your Social Security a lot of people, I find, don't do that.
Speaker 0:Number five is lack of purpose and purpose and fulfillment. There's amazing content out there not just mine, and maybe mine's not amazing, but I do my best on 4Ks and IRAs and Roth IRAs. A whole lot less on purpose and fulfillment in retirement. So right now I'm looking at this on my screen. It is my purpose the post career purpose finder is what we call it and we have someone on staff who actually helps clients walk through this, and what we wanna make sure is happening is that you're not leaving anything on the table. So people go financially. I understand that, but I've never thought about it from a purpose and fulfillment aspect. So I'm gonna just imagine right here you have a retirement vision board. Okay, I know all of you don't right now, but here are just a few few samples that we talk about in here, just so you can get a taste of this. Okay, this is very elementary, but it might be consulting, it might be part time. It might be focusing on home projects, time with your spouse, teaching, relaxing, exploring, traveling, mentoring others, playing which could be golf writing the five rings of retirement.
Speaker 0:We talk about growth, community health, giving back finances, looking at each core level within those, looking at your core values, meaning, what core values are you trying to take the next 20, 30 plus years of your life? In what way are you planning to live? What of those values you actually wanna leave for legacy purpose? What do you want your children, heirs, foundations to think? We want you to really identify what you wanna do, and the way you do this is by going through this purpose finder exercise. So this is what we're doing with our clients, but just don't ignore the purpose aspect. Too many people I find do, because they wanna talk about returns and tax strategy and Roth conversions and all that stuff's great, very fun stuff. We love doing it, but just making sure you have a sense of purpose.
Speaker 0:Number six unrealistic expectations. The truth is, retirement is not always gonna be sunshine and rainbows. I think you know that In having a plan to prepare for unforeseen challenges, which could be inflation rising or it could be oh my gosh, that big medical expense happened for my child. Can I support that? The truth is there are things that are gonna change and markets are gonna fluctuate, and if you don't have a plan that tells you you're gonna be okay, it is gonna be stressful, okay. I'm not telling you that to scare you. I'm just telling you that because it's real. And so have a good plan that tells you exactly what you need to do to plan for the unexpected Number seven.
Speaker 0:I call it unrealistic inflation. Some of my clients they'll come on board, we'll talk about inflation and they're like are you showing me a historic inflation rate of like 6% over time? I'm happy to do it, but if you're trying to get 7% over time, your plan's gonna look really bad. They go, yeah, but I like 6% because last year it was even higher than that. So I wanna plan on that and I'm not making fun of my clients, I'm just being real here. I wanna make sure that we're using an inflation assumption rate that you're comfortable with, but we're not being unrealistic. Okay, don't have unrealistic inflation expectations, because what I don't want you to have happen is recency bias, which is, yeah, the past few years it's been very high. We plan on that forever. You look at your plan, it's gonna look really bad and you're gonna wonder oh my God, am I gonna run out of money? The truth is, inflation's gonna do what it's gonna do and we are gonna plan for it. And if you plan for it, well, even when it rises, even when it deflates, even when there's stagflation, you have a plan for it and you're gonna be okay. So, unrealistic, overlooking inflation, don't do that.
Speaker 0:Number seven, number eight mortgage versus investing. I get this question all the time should I pay off my mortgage? Should I invest? Here's the really, really, really simple example. Okay, the simple example is the following People will come to me and they will say, ari, I wanna pay off my mortgage, I'm gonna sleep better.
Speaker 0:I say, great, what do the analysis say? They say I don't know, I'm gonna sleep better, so I wanna pay off my mortgage. I'll say what's the interest rate? They'll say 5%. I say, great, what I want you to do is think about it like this you could go pay off that mortgage and get a guaranteed 5%, or you can invest and historically get 8%, 9%, 10%. They go yeah, but Ari, that sounds good. That's kinda what you do for a living. So I know you're kind of always talking about markets and sounds good, but I'm gonna sleep better by paying off my mortgage, I say great, here's what I want you to think about next.
Speaker 0:The truth is nobody ever has thrown a party when their investments have gone up by $50,000 in six months or a year. But you bet I'm not gonna say it, but you bet your blank that people throw a party when they're paying off their mortgage. No debt, you sleep better, you feel better. You're not willing to spend $1,000 less expense in retirement. So sometimes the decision on the analysis is pretty close, meaning I'll run it for a client and they'll see it's about over 30 year period. It's a $40,000 decision, meaning the opportunity cost is we're leaving $40,000 on the table to instead pay off our mortgage and sleep better. And a client will look at that and say, yeah, happy to do it, I am paying off that mortgage. Good to know, ari. Thanks for the analysis $40,000 decision. Help me quantify it. But I'm good Other times. It's a $600,000 decision and I want you to pay off the mortgage. I want you to sleep better. But you're gonna sleep even better when you realize that the truth is you are leaving crazy amounts of money on the table and over time, you're gonna be able to spend a whole lot more, do more legacy planning and really have an optimal retirement. If you are at least just willing to consider not paying the mortgage off in full, still paying a healthy amount, I'm even okay with paying a little bit extra for that momentum, okay, but just not doing this without understanding the magnitude of the decision. So, should I pay off my mortgage? Should I invest?
Speaker 0:Number eight, number nine, my dopey joke all of you have probably heard a thousand times don't pay more in taxes than you need to. I'm all about being patriotic, but I do not want you to overpay in taxes. That's why we talk about Roth conversions, that's why we talk about tax gain harvesting and tax loss harvesting and all these cool tax strategies that I obsess over, because it can save you a ton in money and if you're gonna retire early and your income's gonna be low, you have a wonderful opportunity and I hope you know that and take advantage of it. Lastly and this is number 10, don't let the financial plan, don't let inflation, don't let the markets, don't let your neighbor let their tail wail your life. Stupid analogy, I get it, but here's the point. I do not want you to go oh, my neighbor's doing this, so maybe I should do that. Oh, you know what? My plan says this, but markets are doing this, so maybe I should do that. I call that head trash. I want you retiring with total confidence. You know, here's a fun story I'll give you.
Speaker 0:One. Client came to me and they said sorry, I wanna help my child out with their wedding. And I said how much are you thinking? They said about 20,000 bucks. I said very nice of you, what's the most you can do? They're like I don't know. I go great, let's go look.
Speaker 0:So we did some planning. We showed them that they could spend up to $60,000 on that wedding. They're like no, no, no, that sounds like too much. I go yeah, it sounds like too much because in your head your anchoring number was 20,000. So if I told you 200,000, you would've said that sounds crazy. And they said you're right. I said what if I told you that your mortgage was 200,000? They'd say well, I'd be really happy, because it's $350,000 right now. I said exactly, it's just. What price are we looking at? It depends. What are your assets? If you had a million fewer dollars, I'd say the most you could spend is $10,000, and you would say that's not enough and I'd say that's right. I have to be the main guy here.
Speaker 0:The point is understand what is the most you can spend so that you can sit at the wedding of your child and go. I don't have to worry about long-term Jane care. I don't have to worry about is Jane not gonna and my client's name's not Jane, but just use an example I don't have to worry about is Jane not gonna be okay later because I overspent at my child's wedding? I don't want that head trash even entering your brain, and the only way to combat that is with a good plan. So that's why I obsess over this stuff, because you just work too hard to not get the most out of it. That's all I had for today, guys. I hope that this was helpful.
Speaker 0:These are my 10 points here 10 mistakes. Do not make them when you are considering an early retirement. Undress, remaining expenses, neglecting health care, tapping into savings too early, ignoring optimizing social security, not having purposeful routine and fulfillment for that routine in retirement, having unrealistic expectations, overlooking inflation, neglecting debt, underestimating taxes and don't let any of these other aspects outside of your control impact what you wanna do. Make sure that you have a plan that tells you exactly how much you can spend on your kid's wedding or on a boat, or when you can retire. Don't let the tax tail wail the life dog. Don't let the neighbor tail wail the life dog. Don't let those other factors you can still talk to them, of course, and listen to them. Don't let those factor your confidence. Don't let them impact your confidence.
Speaker 0:Better way to say that? I don't want you looking at an article that says you need two million to retire. You might need 500,000 because you have a healthy pension. You might need five million because you wanna spend 30,000 a month.
Speaker 0:Okay, I've got some characters that are clients of mine in Malibu. Okay, I'm putting it nicely. Okay, they know who they are and they call themselves this. Okay, they're characters. They wanna spend 20,000 a month, 30,000 a month. They say, great, go, do that. Here's what you need to do.
Speaker 0:And they'll say, well, that's working a lot more than I thought. I go, that's right, based on what you wanna spend and your investing goals and how we're gonna set up your tax and estate plan. That's your earliest kind of time you can make it happen. They're like fine, I go. What if I want to spend less, I say, if you want to spend less, great, let's talk about that. And they're like, no, I'd really love to do this. And then I say, great, let's understand what you want to do in life. What's going to make you happy? What are those trade-offs? You have all these levers and you can choose which ones you want to maneuver based on what you want out of life. So hopefully, guys, this was helpful.
Speaker 0:Please, please, do leave a review on iTunes or on Apple excuse me on Apple Podcast or iTunes, or a comment on YouTube. If you're listening there, I want to make the most helpful content for an early retirement on YouTube. So thank you for helping making this dream come true. Thanks, guys, love you. Thank you for listening to another episode of the Early Retirement Show. If you have a question that you want answered in a future episode, you can always go to my website, earlyretirementpodcastcom. That's earlyretirementpodcastcom, and you can go ahead and submit a question that I'll look to answer in a future episode. Thank you all for listening. Please do rate it, review it and share it with someone who you think would benefit from this information. If there's anyone out there that you know, I certainly appreciate it and I will see you all each week. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only.