October 3, 2021

How do you plan for your retirement?

What are your goals and how can you achieve them?

Here is a new series of videos to help you with your Retirement Income Plan.

There are 5 episodes in total with various topics:

1 - What are your retirement goals? How long will it take for you to achieve? 

Taking into account your ideal income for retirement as well as your current income, this video introduces a free calculator that I have developed for you to crunch your retirement income numbers. 

2 - How much money do you need to retire? How long will it take you to successfully retire?

This video compares various scenarios and calculates the duration of time it takes to achieve the goal of retirement in varying circumstances. 

3 - How much do you need to save per month for retirement?

Saving money in your first five years is very important - especially when you are just at the start of your investing journey.

As time progresses after this period, if you are able to make profitable investment returns, then saving money will no longer be a significant variable in your portfolio.

4 - Will getting a 30% return lead to early retirement?

The faster your money grows, the sooner you can retire. This video compares different methods of investment gain with low-volatility, safe index funds. 

5 - What is your safe withdrawal rate? What do your expenses look like on an annual basis? 

This video estimates what your expenses will look like based on your age and whether you have a spouse, kids, or other financial duties you commit to.

Your safe withdrawal rate is the amount of income you must earn in order to feel “safe”.

Normally, this figure is  2-3x more than your expenses.

90% correct transcript

So welcome back to another episode of retirement income planning. So that is really the topic for the next couple of videos. We're going to be doing a series on this and I'll try to limit each video to around 12 minutes long. And then, uh, we'll see how many episodes we need to go through this process. So what you're looking at right now is actually one of the tools I developed, uh, when I go through a call with a potential subscriber. Uh, so I have made a free version, uh, that you can just copy, download and play with, uh, during your spare time for retirement planning. So in this video series, I'm going to go through how you can grab this calculator in this video, and then, uh, who is this for how to use it? What is usually the base case? Uh, how can you use this to plan for your retirement?
What are the common pitfalls when you are, uh, planning for retirement and how do you make sure you're okay. Uh, so that is pretty much how it's going to go and we can get started. So before we start, I just want to celebrate another four successful case studies, where a shack made 104% from Intel. In two months, Haywan made 75% from Intel in two months. Brad made 74% from Intel in five months. And Mike made 85.6% from Intel two months, uh, two months. So congratulations to you for, uh, so that's fantastic. And I look forward to the next successful case study you got. So in this video, I'm going to first walk you through how to get this calculator downloaded. So the link to the calculator is in the link, uh, five minute investing.com/retirement-return-calculator. So if you just go to the link below, I'm going to include the link to this calculator.
And all you got to do is just enter your name and email. Then you can get this calculator for free and it will take you to, um, the Google sheet, which you see right here. So now what you'll do is you'll first click file and make a copy. And this will give you a copy to Google sheets. Uh, and then you can start changing some of the assumptions here. So let me tell you a bit of a backstory on why I need to use this calculator. So oftentimes when people come to talk to me about investing, they always start with some sort of goal. So this can be, I want to retire in seven years. This can be, I want to have a net worth of 2 million. And one of the things would be well, how long does it take you to get there? Like, is it possible with the current return or getting to reach that retirement goal?
And if you do learn a more aggressive or more active strategy and get a higher return, would that get you faster? And if so, what is to change you need to make, or how much money you need to allocate in order to reach your retirement goal. And usually when you're looking at retirement goals, I'm just going to use a name, Bob air, two parts. So the first part is really what is the portfolio value in the end that you want? Now, some people notice already they might have done a calculation of fire, and it's usually around 1 million to $4 million, depending on how aggressive you want to be. Now, the second parts of retirement is really what is your annual expense? And most of the time, uh, from my experience, talking with people that are in their forties, fifties, or sixties, it's somewhere around 20 K to 40 K, uh, up to 80 K depending on how many members you are considering.
Uh, so usually when you're planning for retirement, you probably have your house paid off, or you don't really have a big consideration for rent and your annual expenses is going to be lower. If you still plan to pay some sort of rent, then it will be higher. Of course. Uh, but my range, uh, is based on my experiences around 20 30, 40 K. Uh, so you can do your calculation there. And for this calculator is really to help you look around 10 to 30 years in advance. So you can see I've actually built this up all the way till 35 years. So here you can see, you know, what would happen if you're able to achieve a certain return every single year. Now, of course, when you're using this calculator, there's going to be volatility. Uh, which means there are going to be some years, you're not going to get that return.
So you'll need to be aggressive first in terms of your assumption and it kind of dial it down. So then you make sure you're hitting that goal. Uh, so that's really how you want to use this calculator. And we'll also talk about savings, uh, which I have put in here as well. Okay. So let's get started, uh, with the simple case. Now, the simple case is really about, you know, if you walk into to financial advisor today and what is the kind of return you can get now, when it comes to investing in, uh, next funds or mutual funds or using a 401k, you usually get to select conservative, moderate, aggressive, and, and that ranges you from around 3% to 10%, depending on which one you choose. And usually for conservative, the financial advisor will assume that you can not lose any money. So that would be around 3% or less.
Now this return using here is before inflation. So if you take into account inflation, which is around 2% or 3%, then you're right, the real return is actually 0%. So basically, um, you're not getting any at all. Um, but yeah, let's go with 3%, which has to be for inflation rate. So you always need to take your return and minus day inflation, uh, when it comes to calculating, what are your portfolio is really growing or not? Now, obviously the fed has been printing quite a bit of money. So to inflation rates for the future will be slightly higher, at least in the short term. Uh, that's my opinion.
Okay. So, so right off the bat, you can see how a hundred thousand will grow. So over the years, and I realized there's actually a typo here, we'll fix that for you. Um, and this is the portfolio value. If you also save a thousand dollars a month, so you can see it's 115 after the first year. And the way this works is I assume the portfolio grows at 3% for the year and you put in 12,000 at the end of the year. Now this is an assumption, of course, you can put it money into your portfolio every single year. Uh, but for the simplicity of the calculation, uh, that's what I did. So if you expand and click on this plus button, then you'll get the calculation, uh, inside where the money saved here is year over year 12,000, which has taken the 1000 times 12.
The year over year gain is just a 3% times, um, that previous balance. So then your return for the money you saved this year, doesn't kick in until year two. So if you go to year two, then that's when I would take, um, 1, 1, 5 times to 3% and an add on to it. So here you can see what I did is I just take the total balance times the percentage plus the money safe. So that's actually how it works. And if you want to change this assumption, uh, yes, you can. So you can just go ahead and do that. So you are looking at, you know, a conservative, uh, portfolio. You will realize that sometimes your financial advisor will be honest with you and tell you that you wouldn't make it, or you wouldn't be able to retire. So this is the easiest to see when you're looking at the year over year gate.
So you can expand this sheets and look at the column E uh, and this actually happened to one of my subscribers where she had around half a million dollars. Okay. And let's say she was saving a thousand dollars a month and she was planning to retire right in 15 years or so. And after she did the calculation and based on her goal and the financial advisor said, well, I don't think you're going to be able to retire. And she was actually shocked. And I think it's because a combination of factors. So first she had a goal of, you know, retiring with, let's say around $2 million. And she only had 15 years to work. And with that amount and only saving a thousand a month, then you can see that after 15 years, she's only able to reach a million using a conservative return, which is 3%.
Uh, so here you can see she would make it. And if your financial advisor is honest with you, then, then you will know, uh, or if he, or she is not honest with you, then you wouldn't know until watching this video. Now, what, if you go up to 5% now, 5% is a moderate return after inflation, you're making around 2% to 3%, which is not really a lot, but it is still moving in the right direction. And in this case, after 15 years, uh, for my subscriber there, she would be at 1.3 million. So it's really not pat the 2 million mark that she wanted. So that means she needs to go even more aggressive with her portfolio, which is 7%. Now, 7% will get her closer or a lot closer, which in this case, it's 1.7 million.
When you're thinking about disbalance,
That is great.
When you're thinking about the return, this means you're pretty much putting a hundred percent of your portfolio into equities. So you're not putting it into low-risk bonds. You're not putting it into, uh, some government guaranteed income. Uh, you're not going to put it into some lower return dividend stocks that doesn't really grow much. Um, so that is really the average return for S and P 500. So if you think about getting, you know, seven, eight, or even 9%, it means you're going to have a very large chunk of your portfolio, if not the entire balance in the stock markets. So one of the things you need to consider is whether you can accept that.
So if you cannot accept your
Entire portfolio in the stock markets, because he can't sleep at night, then you got to rethink whether this return is reasonable in the normal circumstances.
So that's basically it for this video. We're just about to hit the 12 minute mark. Um, so in the next video, we'll continue on and explain this calculator. So if you're interested in, learn more about investing and how I invest, then you can grab the free training below it's four hours long and, um, you can sign up for it. You can watch it entire four-hour free training, and then schedule a call with me. So if you hear some bird noise in the background is because I opened my window and now it's the migration season. So that is the seagulls in British Columbia or whatnot. So I'll see you in the next video.

About the author 

Eric Seto

Investor, CPA (Canada) based in Hong Kong and Vancouver

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