Why the $500,000 dream just isn't enough - Part 2

[@tombkk1322]

I’ve enjoyed this 500k series of yours! You’re very knowledgeable and raise many interesting and poignant points. Thanks.

[@YourRichAuntie]

Glad you like them! There is another $500,000 video coming out today where I show my numbers and give greater detail 🤑

[@LIWYMA]

I love when someone does something that goes against all the rules and expectations. When people call them cray cray for doing it or trying. We have gotten some great inventions that way. It also shows others that anything is possible. I say keep creating new paradigms! 🙏🏾

[@notyet2345]

I think it depends on how your 500k is invested and what your monthly expenses are. The lower your expenses, the less money you need. In addition, depending on your investments, if your investments are averaging 6-7% a year and you only pull out 4%, that 500k grows 3% each year and you will never run out of money. If you are in your late 50's and only have 500k and are close too SS, that 500k should never run out. Through the miracle of compounding and depending on the market, it's quite possible you could die with a million dollars without working another day in your life. Remember, that 500k is not being depleted even if you are withdrawing from it, it's actually increasing over time due to the market and other variables.

[@michaelperry7871]

Preach Sister!!! You either pay when you are young or pay when you are old. Sacrifices will be made. You have to choose when you want to make them.

[@YourRichAuntie]

I agree

[@tombkk1322]

Great point!

[@AgingOnYourTerms]

Thank you for Pt. 2. You know my circumstance. But what I haven't shared was my financial planner had to walk me through my 7-figure retirement accounts (not my husband's) multiple times to convince me that we would be OK with my husband still working. I was very worried, even though I knew my family needed me to stay home after I was laid off. Your clients are very lucky to have someone like you crossing their t's and dotting their i's.

[@YourRichAuntie]

Thank you!

[@ms2bloved126]

Thank you for this.

[@YourRichAuntie]

My pleasure!

[@CarrieV9]

Love your channel.

[@YourRichAuntie]

Thank you!

[@MoeandMo]

You don't run out of money in retirement, you run out of time.

[@YourRichAuntie]

Maybe. You can never tell which one will run out first - the money or the time. I’d rather run out of time before the money but for millions of Americans it’s the opposite

[@QuallsJohn]

Thanks for your Editorial most of these retire early creators are Caucasian who have , multiple pensions. inheritances that will be coming, deferred compensation which I never heard of until I started listening to their channels. And have always been Super Savers. After listening you explained why my channel get such low views as I am working hard to cover myself from further layoff and maximize by working up to 67. Delaying withdraws from these IRA and 401k Plans. Your content is interesting will subscribe and go back and view your library,

[@YourRichAuntie]

Thank you!

[@7SideWays]

Most, not all have minimal expenses and are pretty frugal. No mortgage, no car payment, fun budget in the hundreds.

[@Uplift3704]

The videos I watch they are debt free so the 500k works for them

[@timelston4260]

I would be interested to see a channel of someone who retired with today's equivalent of $500K twenty-four years ago, that is, in 2000, and see how it worked out for them. Recent retirees haven't been doing it long enough to know how it's going to go in the long run, but if someone survived their first decade through the Dot Com bubble burst and Great Financial Crisis, that would be a real stress test. I do watch a couple of low-balance early retiree channels on a regular basis; I like them, but it does bother me when they publish videos promoting early retirement with a low balance, because they don't really know yet if it will turn out to be a good decision for them in the long run, let alone for anyone else with a different sequence of returns in the future.

[@YourRichAuntie]

Good points. And that’s the issue, it doesn’t turn out well and it gets rocky around the 12 year point for many people but some people can delay it to the 20 year point. I’ve seen a few of these people in my career and it’s bad. 20 years in you’re 75, 20 years removed from working and no one will hire you. What will you do at that point? No one wants this dilemma in retirement and had the person just worked five years longer at their regular job they would have avoided this problem

[@robnelson6545]

@@YourRichAuntieyeah, I think at that point they would start living off the equity in their house if they have one or find cheap accommodations and live on food donations

[@Another_Bad_Creation]

People need to understand context is very important when watching these KZbin channels, there are a lot of half truths , so do your own research.

[@mperry228]

I'm sorry that you don't get it. Frugality is not Poverty. We have fantastic lives. And there are a lot of us! Currently making 140k but have a blast living on 900/month. Plan to retire by 40(3 years from now). Paid off house, no debt, and resourceful. Thats all it takes.

[@YourRichAuntie]

Congratulations on your upcoming retirement

[@robnelson6545]

900 a month? Are you including property taxes, insurance, health coverage, food, gas, budget for emergency expenses (what if your hvac or roof needs to be replaced)?

[@tombkk1322]

@@robnelson6545A blast living on 900 month? Seems like a big stretch.

[@mperry228]

@@robnelson6545 doesn't include health which is free though work and wont have it when i leave. renter covers tax and insurance. 900 for everything else. i can fix anything so emergencies aren't a thing for me

[@JimMurray2]

I like the question about how much $ is a safe amount to be able to step away from a higher paying job into a lower paying job by age X. I'm 41 and would like to be able to 'downshift' in 4 or 5 years to a low stress job that just meets my living expenses while letting my nest egg compound without adding to it. The number i have in mind is 1.5m by age 45. I could work another 20 years in a low pay job i like until 65.

[@YourRichAuntie]

This is a good question - its not retirement, it's more latitude over your working schedule and working career. I think more Americans will ask this question in the future vs when can I retire

[@martywilliard]

How much debt is being carried ? What is the monthly household total expenses number ? These (2) tell an incredible story

[@JimMurray2]

Right, for me no debt other than 140k on mortgage at 3.75%. Yearly expenses approx 45k. Looking to be in a position of financial strength when i eventually go for the career change.

[@vallejoborncalihasbecomeal9022]

To make 500k work in early retirement, you must have a plan to not touch the principal and obtain as much interest as possible. In a high yield savings acct at todays rates, 5% interest, 500k might reap 2k a month. If you have no debt, some might be able to retire on 2k. The problem comes when life intercedes. Unseen bills, drop in interest rates, inflation etc.. A 2k a month budget imo is just not enough. The economy over the past 4 years has made twice that amount difficult to live on. If you don't mind supplementing that 2k a month with 2k from principal, you would be better off. You still have the problem with decreasing interest rates though!

[@YourRichAuntie]

You won't get 5% in a HYSA for long. With interest rates coming down, you're going to see very rapid declines in interest rates on HYSA. I'd argue that no one cam live on $2K each month. Healthcare is nearly half that and food/utilities would be nearly the other half.

[@vallejoborncalihasbecomeal9022]

@YourRichAuntie I agree, most cannot live on 2k a month and 5% yields won't last long. I was ruminating on how long someone could live on 500k without risking his or her principal. A hysa paying 5% interest would yield approx. 2k a month. However, 2k is not enough. If that person took the interest (2k) and supplemented it with 2k from principal, he would only decrease his principal by 24k a year. Year 1: 476k. Year 2: 452k. Year three: 428k. Year 4: 404k. Year 5: 380k. Year 10: 260k. Now, obviously, his interest will fall with declining interest rates but, he still has 260k after 10 years. Depending on when he collects SS, a 55 Year old retiree could still have in excess of 200k after ten years even if he took another 500 dollars a month from his hysa to make up the difference in sinking interest. It's just a thought. I probably wouldn't do it but, my wife and I live on about 5k a month now. 1k of that comes from a hysa!

[@vallejoborncalihasbecomeal9022]

@YourRichAuntie The key to affordable healthcare in retirement is to be poor on paper. Keeping your taxes (magi) low affords you to get government subsidies on an Obamacare plan. Pulling cash from a hysa doesn't add to your tax liability because it's already taxed. You'll be taxed on the interest earned but, it won't affect your taxes terribly!

[@robnelson6545]

@@vallejoborncalihasbecomeal9022is that going to last though?

[@Uplift3704]

There is lean, coast, barista FIRE. People send time running their numbers and researching before making a move. You are looking at things from a FA view and who is not really familiar with the FIRE movement.

[@YourRichAuntie]

I’m familiar with the fire movement and the different forms of fire. I do have clients that adhere to fire and love it 😍. I personally don’t adhere to it myself but I can appreciate the principles of fire

[@ExtraGuac007]

The 500K retirees are successful because they don't have Suze Ormanitis.

[@elbar5960]

I understand what you are saying about a $500K retirement being tough. How are people retiring every day, then? The stats say that people barely have anything saved for retirement, but people retire every day. Are most retirees struggling?

[@YourRichAuntie]

Those people aren’t retiring at age 55. This whole series is about early retirement 🙂

[@notyet2345]

People who retire in their late 50's with only 500k and no other income only have to live off the 500k until they collect SS. People who retire don't need for the 500k to last their entire lives, they only need it to last until they decide to collect SS. This is the main reason why so many people in their late 50's retire with only 500k. Once SS kicks in, they just start living off SS and no longer need the 500k to fund their lives unless they want to. That 500k can potentially grow to over a million dollars (depending on the market and other variables) by the time they die because they don't need to use it to pay bills anymore. I think people who feel 500k isn't enough is because they don't realize people are only living off that 500k for a short period of time anywhere from 5-10 years. I retired at 59 with only 500k. I could easily live off the 500k without working another day in my life because I"m so close to SS. However I do have rental income and side hustle income that I was doing before I retired and I continue to do. I personally am not comfortable just living off my investments but that's because of my of my own fears about not having enough but I can live quite comfortably for years on only 500k until I decide to collect SS.

[@notyet2345]

Some are definitely struggling especially women

[@YourRichAuntie]

@@notyet2345 OK so you basically just proved my whole point. You said that you have several other sources of income, so you didn't really retire on $500,000. You retired on $500,000 AND multiple additional sources of income. It's one thing to say you can live on less. It's another thing to actually do it

[@tombkk1322]

@@YourRichAuntieGood point.

[@notyet2345]

Being frugal and only living on 500k in retirement is not living in poverty. Income and net worth are two different things. You could have a net worth of 750k......250k in other assets such as a home and 500k in investments and cash and still have a low income. That isn't poverty. You have assets and other options. People in poverty don't have options.

[@nuprophett]

4% of 500,000 is $20,000 a year. That’s very close to the federal poverty level for a household of 1 ($15,060) and below the FPL for a household of 2 ($20,440). FPL doesn’t count net worth, only household income. That’s because you can have a $250,000 house (an asset in your net worth) and if it isn’t bringing in monthly income, it’s not affecting your ability to meet daily income needs. A 55 year old with a net worth of $750,000 (500k investments + 250k house) would still be living on 4% of the invested assets yearly. For context, that’s $1667 a month. What circumstances does someone need to live off of that at 55 (a decade away from social security and needing to self fund health insurance)? Paid off mortgage, paid off car, plus a super frugal lifestyle? It’s possible maybe, but is it realistic? And for the minor percentage who might meet those criteria, is it comfortable?

[@notyet2345]

@@nuprophett again again, you are conflating net worth with income. It is your net worth that determines if you are in poverty. In addition, if someone needs to meet income needs, all they have to do is increase their withdrawal rate. a person who’s in poverty cannot increase their income. But a person with 500 K can adjust their withdrawal rates to meet their income needs. A person who is poor cannot do that. in addition if that 500 K is invested properly they can easily see 35K or more in returns. every year that 500k is increasing, which also allows them to increase their withdrawal rate to meet their income needs. By the time I die, that 500k can easily grow to 1 million even though you are still withdrawing from it

[@notyet2345]

@@nuprophett the point you’re missing is 500 K gives you options. You have the option to use a 4% withdrawal rate or you have the option to use a higher withdrawal rate. that’s the part you’re missing just because you have 500 K does not mean you can only withdraw $20,000 a year. Once Social Security kicks in now your income will increase. at least in my case, my will jump to almost 50,000 a year.. my expenses will be 22k a year. My 500k has since increased and I can increase my withdrawal rates.

[@notyet2345]

@@nuprophett and your house may not be income producing, but it is certainly an appreciating asset that typically appreciates 3% or more each year which adds to your net worth.

[@nuprophett]

@@notyet2345 On the topic of increasing the withdrawal rate. The 4% withdrawal rate comes from studies done by William Bengen. It is the safe rate at which you can withdraw from your portfolio without running out of money over a 30 year period. (So for a standard retiree, that’s 65 to 95. ) The key to this calculation is that 4% is the “safe” withdrawal rate. The more you withdraw over 4%, the greater the probability that you will run out of money before that 30 year period. Considering this, there are two problems with your suggestion. The first is that for an early retiree, let’s say 55, the 4% rule only gives a safe margin up to 85 (55 + 30), so technically an early retiree should be living on less than 4% of their invested portfolio to be safe into their 90s. This risk is then drastically compounded if you then ask them to spend MORE than 4%. Basically, if they do that, there is a high probability that they will run out of money before they die if they have 500k in investments and try spending more than $20,000 a year (4%)