Financial Forum Podcast

Ep #1: Managing Your Retirement Expectations

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It’s not uncommon for your expectations about retirement to be out of whack from reality. Some people have unreasonable expectations while others set the bar way too low. On today’s podcast, Chris describes what reasonable expectations look like for most people in retirement. We’ll also answer some great listener questions about rental properties, estimated tax payments in retirement and what to do about being trapped in “golden handcuffs”.

Show Notes:

0:42 – Mailbag Question From Jack: Rental Property For Income

  • Jack wants to know if he should cash out investments and pay cash for the property, take out an equity loan to raise the cash, or just have a normal mortgage on the rental.
  • Chris views the equity loan vs. mortgage part of the equation as kind of the same because both are strategies that take on debt. However, sometimes mortgage rates have better options for this purpose than going the equity route.
  • Using investments to pay cash for the property would probably be most ideal. However, you have to make sure you aren’t going to cause a tax issue or hurt your overall financial & retirement plan.

    •  3:59 – Mailbag Question From Kathy: Estimated Tax Payments

    • Kathy’s income is going to be different when she retires in a few months. She wants to know what she’s supposed to do about taxes since she figures she’ll be in a different tax bracket. Does she need to pay estimated taxes throughout the year now?
  • Chris says this is a common question because this transition is a first-time experience for everyone.
  • It’s usually a good idea to have 10-15 percent withheld for taxes in your first year of retirement to help create this buffer. Then you can adjust appropriately after the first year. And Chris can look specifically at your plan to help create a more accurate estimate on the front end.
  • But generally, you don’t have to worry about making quarterly payments that first year.

    •  7:01 – Mailbag Question From James: Frustrated With Job

    • Every time James is about to quit his job he gets sucked back in with the yearly bonus. He feels like he’s in “golden handcuffs”. What can be done?
  • Chris says the answer to this question is really pretty simple. Do the math to see if you can indeed retire comfortably now. If you can, don’t worry about missing out on future bonuses.

    •  10:31 – Quote Of The Week

    • “The trouble with retirement is you never get a day off.” – Abe Lemons (basketball coach)

     11:59 – Setting Expectations For Retirement

    • Some people have unreasonable expectations for what they can achieve in retirement vs. what they’ve saved.
  • One of the most intriguing conversations revolves around someone’s expected rate of return on their investments.

    •  14:30 – Not Everyone Is Unreasonable – Sometimes Your Expectations Are Too Low

    • These are actually pleasant conversations. People might only expect to make 1-2 percent on their money.
  • These kinds of folks are typically very risk averse.

    •  16:32 – So What Is A Reasonable Expectation?

    • 4-5 percent is reasonable. But realize that can fluctuate quite a bit year-to-year. You need to be able to understand the short-term volatility you might be exposed to.

     18:16 – What Is A Reasonable Withdrawal Expectation?

    • Chris discusses the merits of the old-school 4 percent rule.
  • Remember that we’ll need to account for inflation as part of the equation.
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    Financial Forum PodcastBy Chris Scalese