How to Plan Your Retirement (By Age!)

Transcript:

On this episode of the Personal Finance Podcast, how to plan out Retirement by age.

What's up everybody, and welcome to the Personal Finance Podcast. I'm your host Andrew, founder of Master money.co. And today on the Personal Finance podcast, we're gonna be talking through how. Find your retirement number by age. If you guys have any questions, make sure you join the Master Money Newsletter by going to master money.co/newsletter.

And don't forget to follow us on Apple Podcast, Spotify, YouTube, or whatever podcast player you love listening to this. Podcast on it. If you wanna help out the show, consider leaving a five star rating and review on Apple Podcast, Spotify, or your favorite podcast player. Now, today we're gonna be talking through how to plan out your retirement number by age.

And this is one of those things that every single person I truthfully believe needs to track their retirement number every single. Year. This is not something that you can wait every five years or every 10 years and track your retirement number. I think this is something you need to do on a yearly basis.

And at the top of this show, what I'm gonna do is I'm gonna show you exactly how to track your retirement number, step by step. Then we're gonna dive into how to plan out your retirement number by age and some of the things that you need to focus on, some of the things you need to be thinking about by age.

So the first thing we're gonna do is, step one, is we are gonna start with what we are spending today. This is one of the most important metrics that you need to know is figuring out where you stand right now, and I want you to pull out your bank statements and I want you to add up how much you're spending on a yearly basis.

Now, you can figure this out a number of different ways. One, you can take the average of the last couple of months, figure out what that average is, multiply it buys 12, and you can figure out how much you spend that way. Two is if you use an app like Monarch Money, you can go in there and look at your yearly spending over the course of the last year.

This is one of the beautiful things about using Monarch money, is that you can go back and. Figure out these numbers very, very quickly. In fact, Monarch Money now has an AI assistant where you can chat with it and ask it a few questions. And it is still in beta mode, but it is something in a feature that you can use.

Three is you can also pull out your bank statements and you can take out all the personal information that's on your bank statements, throw 'em into some sort of AI tool and say, Hey, how much do I spend every single month? Uh, but you wanna make sure you are careful about privacy when it comes to this because you do not want it to have too much information.

So these are three things that you could do up front, but I just. Highly recommend that you go through, figure out how much you spend every single month. That is number one. Now we are looking at what we are spending right now, and you may be saying to yourself, well, why would I care about what I spend right now?

I'm trying to figure out how much I'm gonna be spending in retirement. This is a very hard number to figure out exactly what it is. So instead, I want you to go out and figure out what you're spending. Now. We're gonna use this as a baseline, and I'm gonna show you how to think about this going forward.

Now step two is I want you to think about the expenses that are gonna be gone over the course of the next couple of years. So maybe your plan is to pay off your mortgage before you retire. Well, are you on track to do this? Or are you gonna own your home for 30 years? By the time you hit retirement age and you know that mortgage is gonna be paid off, well that is a great indicator that you may not need.

You know the amount that you're paying towards your mortgage, or are your kids gonna be outta the house and those expenses are gonna be gone? Then you may not need to think about those. Or maybe you have a car payment and you're not planning on having a car payment or. Gonna have additional debt payments right now that you do not plan on having in the future.

Maybe you're paying for your kids' school or extracurricular activities. Those types of things can get removed from your overall budget when you're thinking about your retirement number, because the likelihood of you having those extra expenses is not going. To be there. And so we wanna take out all the expenses that we do not anticipate being part of our budget in retirement.

Now, if you're saying to yourself, now I want some extra cushion, you can absolutely leave those in if you are okay with the risk of having to work longer. But if you are someone who really wants to retire as fast as you possibly can, I would remove some of those if you know they're not gonna be there by the time you hit your retirement age.

Now, if you are totally unsure and you're like, I don't know what expenses are gonna be there, I don't know which ones are not gonna be there, then you wanna make sure that you just leave 'em in and you can use the number of how much you're spending right now. Now the next thing we wanna do is we wanna factor back in healthcare.

Now, healthcare is one of the. Biggest variables when it comes to retirement. In fact, healthcare spending rises dramatically once you reach retirement age. And folks after the age of 70 spend a lot more on healthcare studies show than folks before the age of 70. And so we wanna make sure that we are factoring in healthcare costs.

In fact, the average couple. Is going to spend over $300,000 in retirement when it comes to healthcare. So how do we plan for this and how do we think about this? So we can look at the average inflation rate of healthcare over the course of the last decade, and we are seeing a rapid rise in the cost of healthcare.

In fact, inflation for healthcare is very different than inflation for other areas, and we are seeing. 6% increase in healthcare costs in comparison to some of these other areas. So you wanna add healthcare back in, and this is where your HSA comes in in a lot of scenarios as well. Your HSA could be the forced savings retirement account if you're not using it for your yearly expenses that could help you with this problem.

Where a lot of people are like, well, what if I overfund my HSA? In my opinion, that is an okay problem to have is to overfund your HSA because healthcare costs are continuing to rise and I think a lot of people in the future are gonna be living a lot longer with AI taking over a lot of different healthcare opportunities.

They are stating now that there is gonna be robots that are gonna be able to perform surgery on you. And if that's. The case, I would anticipate there's gonna be a lot more cures for diseases going forward, and so we need to plan that. We're gonna live a little longer than currently people are right now, especially if you're in your twenties or thirties.

That is something I definitely want you to plan for. So making sure you have enough on hand for healthcare, I think is a very important metric and a very important number that we need to note. And so adding healthcare back in can be very, very powerful. Now, if you're saying to yourself, well, I don't know how much I'm gonna have saved for healthcare.

Just factor in some of the averages here, and you can come up with a number that makes sense for you. Maybe it's having $300,000 as a household or as a family saved up in addition for some of those healthcare expenses. But again, remember, you're gonna have Medicare and you're gonna have some other options available to you once you reach retirement age.

Now, the other thing you need to do is step four. Step four is to inflate the number that you have going forward. So I want you to adjust your contributions moving forward by the inflation rate. But then in addition, we also wanna know what the cost of living is gonna be over the course of the next 20 or 30 years.

There are inflation calculators out there that are great to help you with this, uh, that you can go through and figure out exactly how much your dollar is gonna be worth and how much your dollar can stretch over this timeframe. Now, let me tell you, you all right now. This is why we invest our dollars for retirement and we don't keep it in cash.

We invest our dollars because going forward, we wanna make sure that we have enough cash on hand in order to outpace inflation. This is why we put these portfolios in place. This is why we invest our money for our financial future, because typically our investments are gonna outpace inflation, but we wanna know what our buying power is.

And so you can look 20 to 30 years ahead and see what your buying power is going to be based on the amount that you're spending right now. And inflation calculators can help with that as you go through this. Next Step five is I want you to add up all your different income sources so you could have income sources coming in from a number of different ways.

It all depends on your personal finance situation. This is why I don't like when people say, Ooh, you need five X of your salary saved by the time you're 30 or 40 or 50. I don't like those generic things because everybody has different income sources coming in. Everybody has different financial situations coming in, and so I don't think there's a blanket statement for anyone.

It's gonna depend on the math and it's gonna depend on what you need. Now I want you to remember this right now. Retirement is not an age. Retirement is a number, and once you hit this specific number, you will be able to retire. And so that's why we are going through this exercise to figure out what your number is.

So then going forward, you have your North Star. You know what you're gonna be doing going forward, you. This is where you need to be when it comes to building wealth. Alright, so we need to look, and first you can go to ssa.gov. You can sign up for an account there and you could try to figure out exactly where your social security will be by the time you reach retirement age.

Now, if you're getting closer to retirement age, this is gonna be a much more accurate number. Then maybe someone who's in their twenties or thirties trying to figure out what this number is. You can do an underestimate. I like to underestimate everything when it comes to retirement. That way as I get closer to retirement age, I know I'm either on track.

Or way ahead and I can actually retire sooner, which is a beautiful thing to look at. Next is I want you to, so you're gonna factor in these different income sources. So first, social security. What do you think you're gonna have on hand in Social Security? Another thing would be any pension income that you have available to you.

I want it to be your net pension income. Now, your gross pension income. After taxes, how much you think you have available to you. We wanna have some of these net numbers because this is the real money we're dealing with. This is the money that's actually hitting your checking account, and we wanna make sure that we have that on hand.

Then adding in any rental income, if you have rental properties or you have anything else that you think is gonna be cash flowing, then we want to add in that rental income. After operating expenses. So your net operating expenses are gonna be something that you want to factor in, and then you wanna look at the cash flow after all of your operating expenses.

So your cash flow is not what you're renting the property for. No. You need to run the numbers and understand exactly what your cash flow is gonna be for most people out there, maybe it's a couple hundred bucks per property, maybe you have a couple properties and you're gonna be making a few thousand bucks.

Or maybe you have a lot of rental properties and it's gonna cover your entire lifestyle expenses. Well, that's a great number to have and we need to factor that in. And then add any other passive income sources that you think that you have. Maybe you have a passive income source out there where you're investing in a business and that business is gonna be paying you over time.

Or maybe you think you're gonna have another passive income source where you're invest in notes or something else. Add all of those different things in so that you know exactly how much you're gonna need. The reason why we're doing this is we're gonna find the gap so we know how much we have to have invested in our portfolio.

And so you can think about all of your income sources and add those up. Now, you may not have a pension. You may not have real estate income or income from property. You may not have passive income. And so maybe the only thing you have is social security. That's okay, 'cause we're gonna figure out exactly what that number is.

But I want you to start to add those items up and then I want you to think about. Total number because next we're gonna subtract our total income from some of our inflation adjusted spending. So we figured out, hey, here's how much money we need in order to going forward, spend in retirement. Here's how much income we are gonna have coming in.

What's the difference here? What is the gap between those two things? The gap is how much we're gonna need to have invested, and so longtime listeners have heard me talk about the 25 x rule on this show. This is something I think most people need to make sure that they are factoring in and figuring out is exactly where they stand when it comes to that number.

Because let's say for example, that you wanna spend a hundred thousand dollars per year in retirement, and let's say for example, 40,000 of that is going to be covered just by the income coming in. Maybe it's your social security, maybe you have a rental property or two. And so that is gonna be covered based on.

40,000 per year is gonna be covered based on the income you already are gonna have available to you. Well now we just need to come up with the extra 60,000 and invest those dollars in our portfolio. And so this is where the gap is going to be. And this is exactly how we figure out how much we are gonna need to have invested.

And so you can reverse engineer this a couple of different ways. Number one. Is you can think about, and I'm actually gonna do this in a little more advanced way than 25 x rule. So you can do the simple math of the 25 x rule if you want to. We're gonna actually think through this in a way where you can decide how much you think you're gonna withdraw in your portfolio.

If you don't know where to start with that, look at the 4% rule. You can look deeper into that, and that is gonna be a great place to start. Meaning if you have $2 million invested, you could draw down 4%, which is $80,000 per year. That is gonna be the safe withdrawal rate that a lot of people start with, and then you can adjust based on that.

If you're retiring early, you may wanna only withdraw 3%. If you are retiring in your sixties, maybe you wanna withdraw 5%, but this calculation I'm about to give you is gonna help you figure out exactly what that number is. So once you have your income sources. You subtract that from how much you need and all of a sudden you have a number.

So again, let's do this with the simple math of $40,000 per year is your income sources and you still need a another $60,000 per year. 'cause you wanna spend a hundred thousand dollars per year in retirement. And so you have this $60,000 per year. Where are we gonna get this from? Well, we need to get our dollars invested and we need to start growing our wealth over time, but we need to decide how much we need to have invested before we are financially free.

And so you can take your annual gap number and you can take that number and you can divide it. By your withdrawal rate. So if you're gonna withdraw 3% or 4% or 5%, you can do the math to figure out exactly how much you need in your portfolio. So it's gonna be your annual gap number. Divided by your withdrawal rate, and that is gonna equal your retirement number.

So here's the quick math on this, and I'm gonna pull out my old trusted calculator on my phone here. So let's use our $60,000 per year. Let's use that number as the amount that we need. All right? So we're gonna put $60,000 into a calculator here, and we are gonna divide that by the annual withdrawal rate.

So let's say for example, that you wanna withdraw 3%. Well, I'm gonna put 0.03 in there and I'm gonna hit equals, and that's gonna tell me right there. That if I want $60,000 and I'm gonna only withdraw 3% every year, I need $2 million in that portfolio. Let's do this again. Let's say $60,000 per year, but this time we're gonna do the 4% rule.

Well, if you do the quick math on the 4% rule or the 25 x rule, you know that that is going to be where you're gonna need $1.5 million. But let's the math here, we're gonna divide that by 0.04. We have $1.5 million inside that account. This is the simple math that you can do is divided by the amount that you are withdrawing.

Alright? Let's say we wanna do 5% and we're gonna withdraw 5%. Maybe we're retiring a little later, or we wanna get aggressive with our portfolio and we are okay with that. Let's say. $60,000 divided by 0.05 that is going to equal $1.2 million is how much we need invested in our portfolio. And so this is a great way to figure out a very accurate number of what your retirement number is gonna be based on your withdrawal rate.

Now we are gonna have an episode coming up. Talking through the different ways to think about withdrawal rates, the sequence of returns risk. In addition, we're gonna talk about guardrails and how it could be very important to have guardrails in place based on what the market is going to do. And this can give you a flexible retirement where in some years you're gonna be spending a lot more than in other years.

And so we have that episode coming up. For you. So get ready for that. But these are the steps you need to take to find your retirement number and get a really accurate retirement number. These are the steps we teach inside Master Money Academy, and we dive even deeper than this in that. So I really, really want each and every single one of you to make sure that you understand and know how this works before we dive into how to prioritize things based on your age.

And so this is how you find your retirement number. So now let's dive into how to plan out your retirement number. By age. So if that's something you're into, let's get into it. Alright, so let's start with our twenties first. And in your twenties, I want you still tracking your retirement number on a yearly basis.

Now guess what? The reason why we do this is because the goalpost is gonna move. And the reason why I started to do this was because in my twenties. So many different things changed in my financial life that I had to start doing this to actually get an accurate picture, where every single year, usually I did it towards the end of the year, and if I missed it, I would do it.

Towards the beginning of the year, I would set up a time to start to track my retirement number. Now I would do the exact steps that we did at the top of this show. And if you're in your twenties, you're gonna realize very quickly that over the course of the next couple of years, your life's gonna change dramatically.

Maybe you get married, maybe you have your first kids, maybe you get a lot of different wage increases because you are working hard at your day job. All of this stuff is going to be shifting and into your thirties, it's gonna shift even faster. And so you wanna make sure that you're tracking this on a yearly basis because if you.

Don't, and you think it's just magically gonna happen and you're gonna save enough cash on hand, then you're gonna feel like you're too far behind or way too far ahead and you weren't spending enough on things that you actually love. So instead, we wanna make sure that we are tracking this on a yearly basis, 'cause that goalpost is gonna move my goalpost.

Continues to move even at the age of 37 right now. And so I really, really wanna make sure that each and every single one of you is on track and on target to make this work well. So number one is I want you to get that free money first. Obviously, you're gonna get that 401k match. This is gonna help you dramatically, especially if you start in your twenties.

This is gonna help your retirement account be much larger than most other people. In fact, we have done studies in the past where we have shown that people who get their 401k match have high. Six figure differences in their portfolio from people who don't. In fact, if it's a long enough time horizon, if you're gonna work for 45 years, it'll be a seven figure difference by getting that employer match then from not getting that employer match.

So if you wanna make sure things like healthcare is covered in your portfolio, you wanna make sure that you have that extra money to go out and travel, getting that 401k match is gonna boost your retirement. By hundreds of thousands, if not millions of dollars depending on what your time horizon is as to when you are gonna retire.

So every single person in their twenties, you gotta make sure that you are getting your employer match and make sure you're taking advantage of that 100% rate of return. Step two is get that Roth IRA going as early as you possibly can when you're in your twenties. This is a great time to open a Roth IRA, because future you is probably gonna be making more money, and so you don't usually need a tax break right now when you're in a lower tax bracket.

Instead, you're gonna need it later on down the line. So the Roth IRA means that money goes in that's already been taxed, it grows tax free, and you could pull the money out tax free at any given time. So you're deferring having to take on a tax bill later on, and instead you're paying taxes right now and getting that tax free growth and getting to pull that money out.

Well, the tax free growth when you're young is the majority of your money. And so I really want you to realize this 'cause it is very, very powerful. You can get $7,500 per year into a Roth IRA right now. Now step three is your overall goal should be to save 20% of your income. Meaning 20% of your income needs to go towards emergency fund or investing, and it needs to go towards those wealth building activities.

Why? Because if you'd save less than 20% of your income, you're gonna be working for a very long period of time. And that is gonna be something where we don't want you working over 30 years. So saving 20% of your income allows you to reduce the time that you're gonna be working and is gonna help you dramatically in the long run.

So a lot of people out there hear people say, oh, just save 10% of your income. Well, if you save 10% of your income, you're gonna be working for around 40 years of your lifetime by saving that 10% of your income. So instead, we want you to reduce the amount of time that you're saving and your savings rate by far is one of the most important things that you can do.

We have an episode coming up just talking through savings rate and how powerful it is, but it is one of the. Most important things that you can focus on, especially early and often, and then increasing that savings rate over time can be very, very important. Now, if you can only save 10% of your income right now, and you're just trying to get by your living paycheck to paycheck, you don't make a lot of money yet, then we want you to do the 1% increase every single month or every couple of months so that you can slowly turn up that dial.

And increase the amount that you're saving and investing. Just do it by small amounts over time. Increase it by 50 bucks, a hundred bucks, 150 bucks every couple of months, and try to increase your income slowly over that timeframe as well. That is gonna help you get this base because if you start right now, you gotta start as early as you possibly can.

And if you start as early as you possibly can, it'll change your life forever. Remember. Every single dollar you spend today is going to be worth $10 and 6 cents in 30 years if you got a 10% rate of return. And so making sure that some of that, those dollars that you make right now goes towards investments is gonna help you so much in the long run.

And then step four is I want you to focus on milestones. There are milestones. This is what motivated me in my twenties when I was living paycheck to paycheck. I said, Hey, I just wanna get to my first a hundred thousand dollars. I just wanna get to my first $10,000. I just want to get to those two numbers as fast as I possibly can.

So there are some milestones that'll change your life in your twenties. Your first $10,000 saved and invested is very, very powerful, and I want you to get there as fast as you possibly can. If you're just getting started, then I want you to try to get to your first. Hundred thousand dollars. Once you get to your first 10 and use some of the milestones along the way, maybe it's $50,000 in between to keep you motivated.

Because your savings rate is gonna propel all of this. When it comes to your first a hundred grand, that is something you need to know, is that your savings rate is gonna do all the work. Compound interest takes over later on down the line, but your savings rate is gonna do all the work, and you gotta build up that base and you gotta build up that foundation.

So get to your first 10, get to your first 50, and get to your first a hundred in your twenties so that you don't have to worry about this later on in your thirties. If you do those things and you get to your first a hundred grand in your twenties. You were gonna be so much better off than everybody else just sat on their hands or spent it all on going out or spent it on a brand new car or a really nice apartment downtown or whatever else they blow money on.

You will be in a much better situation than anybody else that does that. So in your twenties, I want you to get the systems in place. I want you to get the automations in place and the behavior you build now be worth its weight in gold in the future. Remember that and say that to yourself every single time you wanna blow money on a big purchase.

The behavior that you build right now. We will save you so much going forward. Now, I want you to also have the balance and the ability to be able to do what you want with your money, and so we'll talk more about that as time goes on. But these are the foundations that you need in order to plan out your retirement, tracking your retirement number every single year, getting that habit going so you know exactly where you think you're gonna land is gonna be important.

Then in your twenties, you have the time to tweak this. Then you could say, I wanna retire at 55. Now I can. I actually wanna retire at 50. If you get really good at this, you can retire in your forties. Easily, and I've seen people do it in their thirties even, because you have enough time and you have enough thought to do this, your wherewithal when it comes to your retirement number is gonna change your life forever.

Now let's get to the thirties. Your thirties is where the paths cross, where people are in their twenties. Who said I'm gonna start later, finally hit their thirties and it comes a lot faster than they ever thought it would. And all of a sudden they realize, oh shoot, I am behind. This is what the regret that I do not want anybody listening to this podcast to have.

And if you do feel this regret right now, and the way that you found this podcast was because you wanted to get your money right. Well, boy, oh boy, did you come to the right spot? 'cause your boy has got you. We're gonna help you out through this process. The good news is your income is probably rising. And the good news is most likely you are advancing in your career.

And the other good news is hopefully you have some sort of delta or gap in place in order to invest some of your money. If you don't, that's akay. We're gonna figure out a way to get you there. But for most of you out there, you wanna make sure you find that delta. Now what most people do in their thirties when they're bad with money, this is what I call the dangerous decade.

In fact, it is the most dangerous decade of your life because if you fall into those money traps, you fall into the trap of buying the fancy brand new car, or you fall into the trap of getting a house that is way more than you can afford. Or you fall into the trap of just spending way too much money on designer or luxury items, and you get used to that lifestyle.

When you really and truthfully can't afford it. Now, if you can afford it, I love it for you. I love that for you if you can afford this stuff. But if you can't guess what? You are gonna get yourself in a whirlwind of problems, and especially if you are starting late and you did not start investing, and you also do some of those things, you really are gonna have to drastically change.

It's a lot harder to go backwards when it comes to money than it is to make sure you just. Don't get yourself into hot water in the first place. And so we're gonna go through some of the things that you need to do in order to make sure you are maximizing the dangerous decade, the messy middle, the decade where everything starts to happen, where overall you're making more money, but also your obligations are increasing, especially if you're getting married or you're having kids, your expenses are rising.

Let me tell you right now, as someone who is now in their late thirties, I understand how fast your expenses can rise in your thirties, especially when your family is growing. And a lot of you out there who listen to this podcast, your family is growing. It's a big motivator as to why you wanna build generational wealth because you wanna do it for your family.

And so let's dive into some of the stuff you need to do a maxing out that Roth every year. That should be a no brainer for every single one of you if you're not doing so, make sure you do that. Also, get your 401k match, obviously, and start to increase the contributions to your 401k every single year.

Every time you get a raise, those contributions should be increasing. In fact, you should be putting at least 50% of your raise towards wealth building activities, if not more, and increasing the amount that you are putting towards some of these things. So if your employer offers a 401k, that is absolutely fantastic.

The other thing is, if you're planning on retiring early, opening up a taxable brokerage account. Is what you wanna be doing because this is the bridge account and the easiest account to retire early with. In fact, I would argue that the taxable brokerage account is a fantastic place to put a large portion of your income if you are going to retire early.

So once your Roth IRA is covered, your employer match is covered, and you decide, actually, I'm gonna retire early, then maybe you wanna put the taxable brokerage account. Even in front of the 401k, there's nothing wrong with that because you're gonna be paying long-term capital gains tax on that. And for a lot of folks out there, if you reach retirement age and you're not gonna have a high income in retirement, this is gonna be where you're not really gonna be paying much tax at all, if any, depending on your financial situation.

Also, when you're in your thirties, I want you to start thinking about real estate. If that is something you're interested in. It is not for everybody, but if you do wanna start thinking about real estate, now is the time to maybe get your first property. Start to feel as though you are making some progress here.

Um, and. A lot of folks out there are just trying to get to be homeowners. If you wanna be a homeowner, just make sure you buy right, run total cost of ownership before you do that. Uh, a lot of people are making a lot of big mistakes in their thirties that they should not be making, and if they had the right education in place, they would not be making.

Now we have an episode coming up on creative ways. To buy a home. We're gonna talk about creative financing and creative ways to buy a home that maybe most people would not talk about. Uh, and we're gonna have an expert coming on, on creative financing when it comes to buying your own personal residence.

So if you're interested in that, make sure you're subscribed to this podcast 'cause that is coming up soon. Now the big thing that I want you to do. And this is the big, big thing for folks in their thirties is to fight lifestyle inflation. It is gonna come at you like a thief in the night. You're gonna not gonna notice that all of a sudden you're spending a little more on groceries and you're spending a little more on subscriptions, and you're spending a little more on kids' activities, and you're spending a little more on dining out, and you're spending a little more on convenience.

And you bought the nicer house and you bought the nicer car, and all of a sudden you're buying the nicer tools for your garage or you're buying the nicer handbags for your closet. All of a sudden, everything just starts increasing, and by the time you know it, you have doubled the amount that you're spending in the decade.

I don't want that to happen to you, and so you gotta stay on top of where your money is going. If you feel as though your spending is getting outta hand, I recommend the five minute drill. The five minute drill means that you take out your budgeting software, and I really think that most people should have some sort of budgeting software.

We use Monarch Money here. Uh, there's a bunch of great ones out there. Monarch Money is absolutely fantastic. We have a code down below. If you want 50% off, you can use code PFP, uh, but with Monarch Money, this is a tool that's gonna help you make sure. You're just on track and on top of your money. And the way the five minute drill works is that you log into your app and every day for five minutes, you just categorize your expenses.

I like to do this at a trigger time, meaning my first five minutes at lunch, I like to categorize my expenses for the previous day, and whatever happened that morning, if I spent money that morning, that's gonna help me stay on top of this news flashing. Guess what? This only takes like 90 seconds. It doesn't take more than five minutes.

And for most people, once you have this organized and set up, you really barely take any time at all. You can miss a day or two, and still it's gonna be less than five minutes because most people don't have 50 transactions a day. You have 2, 3, 4, 5, 6, depending on how many people are in your household, and that's all you have each day.

It's not gonna take you long. And a lot of times with a lot of the budgeting apps, now, they integrate AI and so it all is naturally working for you where you can link 'em all up. So I want you to fight lifestyle inflation. This is the thief in the night that is gonna come steal your wealth. If you're not careful.

Some lifestyle inflation is good. You should be improving your life. You should be spending more on the nicer house when you have a bigger family. You should get the bigger car, the safer car for your friends, for your kids, as you start to grow your family. But if you do this without intention. You're gonna get yourself in trouble and retirement is gonna get further and further away from you.

Now during this decade, this is where it's very, very important to track your retirement number. This is also when it becomes murky or muddy on exactly what your expenses are gonna be, because it feels like your expenses are getting thrown at you left and right, and you got a lot of kids stuff here. You got a lot of marriage stuff here that is getting commingled into something that may not be what you spend in the future, but that's okay.

Because what we wanna do is at least figure out conservatively what we think will spend in retirement, and we wanna track it every single year. Now, let's jump into the forties, your forties, or your financial prime. And this is when most people are making the most amount of money in their career, and your forties can carry you into your fifties.

But this is the decade where it is. Use it or lose it. This is the time where we really need to accelerate how much we are investing, and we need to figure out exactly where we wanna be in retirement. Some of you. If you planned accordingly in your twenties or your thirties, you could be retiring in this decade.

Some of you may feel as though I am just getting started in my forties and I need to get started now. But this is the timeframe where you could transform your entire financial life by just getting started in your forties. And let me tell you, for those of you who do not or under utilize this decade, this is where you're gonna feel the pain if you do not get started now.

And for those of you who are willing to get started now or have been. Investing from your twenties and your thirties. This is gonna be the decade where you see an acceleration and you start to thrive. Why? Because you are making more money. Now, some of the hurdles that you are gonna have to think about here is you may have a lot of expenses that are rising, A, your kids are most likely getting older, or you're starting a family later on in life.

Two is you have aging parents, most likely. And if you are supporting those aging parents, then that could be something that you have to worry about because long-term healthcare is gonna be a very important thing. And these are some of the scenarios that people deal with. They're getting stretched in both different directions.

Number three is if your kids are older, maybe you're also paying for their college, or you're paying a lot more than you were when they were younger kids. This could be something that is weighing on you. Or if you do have younger kids, we have daycare costs and those types of things. And your costs could just be dramatically rising.

So your income is rising, but your cost could also be rising at a rapid rate. And we wanna make sure that we get control of all of this stuff. But because your income is at as highest. We wanna try to max out every retirement account we can across the board. If you have an HSA available to you and you have a high deductible health plan, a great thing to max out.

If you have a Roth IRA, a great thing to match out your 401k, a fantastic or phenomenal thing to max out. All of these are gonna matter so much over the course of the next couple of years, and as you start to approach your forties, your mid forties and late forties, this is where you really wanna get as many dollars invested as you possibly can.

So the brokerage account is gonna come in and it's gonna help you bridge through the gap and get some planning going. Now along this decade, we also wanna diversify our tax buckets. So maybe we want some pre-tax, we want some post-tax, and we want some taxable in these three different buckets. This is gonna allow you to have flexibility in retirement, and this is gonna have allow you to have flexibility in your financial plan, which is what we want.

Money is best enjoyed when you have flexibility. And it is, your life is best enjoyed when you have flexibility, and so making sure we have some in each of these buckets can be really, really important. Now, the third thing I want you to note is do not under any circumstance, sacrifice, retirement so that you can save for your kids' college.

You need to take care of your retirement first. Then you can take care of your kids' college. I know it's counterintuitive as a parent, but there are no loans for someone who is in retirement and there are loans for college. So do not put your kids' college savings. Do not put your kids' retirement savings.

I've seen people do this before your own retirement savings. If you are not on track to saving for retirement, you should not be putting a dollar in a 5 29 plan. Let me say that again. For the people in the back. If you are not saving for your retirement, you should not be putting a single dollar into a college savings bucket.

It's the oxygen mass method. You take care of your own. Retirement first. Then you can help out others when it comes to saving for retirement. So make sure you're doing that and do not sacrifice for college funding. Okay? Too many people do this. I've seen people come into Master Money Academy and we've helped them through this, but I've seen people do this time and time again.

Our students are the best and we've kind of put them on the right track, which is great, but do not. And I repeat, do not do this. Also review your asset allocation because now as you approach forties, you may want to shift what your asset allocation looks like. There's two phases to your asset allocation.

There's the accumulation phase and there's the preservation phase. Some of you who understand how the market works may still be willing to stay in the accumulation phase, and you are willing to keep a high percentage in stocks and you don't really want much bonds yet 'cause you want this portfolio to keep growing for the next, you know, 10, 15, 20 years.

But for those of you out there who wanna be a little more conservative, you can start to review your asset allocation on a yearly basis and say to yourself, okay, maybe do I want to add some more bond exposure? Especially as I get to my late forties, maybe I wanna retire at 55, and so I want to add some more bond exposure very slowly back into the portfolio.

This is up to you on how you handle that, but you want to just review your asset allocation and review your risk tolerance on a yearly basis to see exactly where you are. See, the goal with the forties is to make sure you are aggressively deploying as much capital as possible towards future you 'cause future You is coming really quickly and you're gonna really thank yourself by making sure that you take care of this in your forties instead of waiting too long.

I highly encourage each and every single one of you to make sure you maximize this decade. This is the decade where really you have a lot of time left for money to compound. And so we want to ensure that we are continuously investing our dollars, uh, as time goes on. Because even if you're 40 and you're like, I'm, I'm getting started right now, you still could, you know, you retire at 65 and you have 25 years for your money to compound.

That is a long, long time. So honestly, you may feel as though you're behind, but you can get these dollars working for you and you can still get the ball rolling. Now let's jump into the fifties. So your fifties is the decade where we really want to have our retirement plan dialed in, and we wanna start making sure that we know exactly what we're gonna do next when it comes to building wealth.

And your fifties is the timeframe where a lot of you, if you are getting started again. Not too late, but you gotta get the ball rolling right now. We have a lot of listeners who started in their fifties, who over the course of the last six years of listening to this podcast have made amazing strides. We had someone listen to this podcast who retired in eight years just by listening to the show.

So this is never too late for anybody out there listening, but you gotta make sure that you make drastic changes going forward. So I am really excited to to dive into folks in the fifties, because they can use a couple of different things that will really, really help them going forward. Number one. Is ketchup contributions.

So utilizing ketchup contributions is one of those things that can really just help you going forward. So if you have a Roth IRA, for example, you get an extra thousand bucks into your Roth IRA. If you're over the age of 50, and if you're someone who is contributing to your 401k, you need an extra $8,000 into your 401k.

Meaning you could put $32,500 into your 401k. And so really the extra 1,100 in your Roth and the extra. $8,000 into your IRA is really, really important to note for the catchup contribution. Secondly is we wanna have a plan in place when it comes to social security and the closer you get to retirement age, especially when you're five years out, you wanna have that plan solidified and you wanna make sure that you are attacking that plan.

Maybe you're deciding to retire in your fifties. If you are, you can use the rule of 55. You can use SEP payments. There's all kinds of things. We have an entire episode if you are retiring in your fifties on how to get. Access to your retirement accounts. Uh, we talk about all the different ways to do that.

So make sure you check that out. We'll leave it down in the show notes that you can check it out. But if you have not heard that episode, make sure that you are thinking through your plan. Because when you're five years out from retirement, this is where it's game time. You gotta know what your retirement number is.

You gotta know what you're doing. And this is why it's so important to track every single year. 'cause once you get to your fifties, it makes it so much easier. And so once we start to do this, we wanna have a social security strategy. Most people go into retirement thinking. I don't know when I'm gonna claim Social security.

I don't know what to do. My parents are in their sixties and I talked to them. I talked to a lot of their friends and a lot of them had no idea when they were actually gonna take Social Security. And so we'll do an entire episode on this, but I want you to think through this. If you need money early. In your retirement and you're gonna retire in your early sixties, well, that will be a time to take Social Security if you don't need it, then you could delay year over year and decide, okay, I am gonna get the guaranteed 8% rate of return that happens every year.

I don't take Social Security and I am gonna take a bigger benefit later on in the line. Maybe you want to take it at 66 or 67. Well, that is gonna give you a guaranteed rate of return. But there are two sides to the coin that I want us to dive deeper on in that episode where. Maybe you're like, Hey, life is short.

I wanna get my money now. Or you're like, there's no other guaranteed return like this. I'm gonna take that guaranteed return because I can live off my portfolio, or I enjoy working part-time. Lot of different options that you will have early in your sixties and your sixties is a very interesting time to think about social security and how you're going to handle that.

Also in your fifties, you need to think seriously about healthcare and how you're handling this. If you do not have a plan for healthcare, you need to get one, because this is gonna be a huge portion of how much you are spending in retirement, and I wanna make sure that each and every single one of you has a plan in place.

Medicare does not kick in. Until you're 65. And so because of this, we need to bridge the gap. If you are gonna retire at 57, 58, 59, 60, uh, any of those ages, we need to figure out what we're gonna do about healthcare. Paying off your mortgage is also something I want you to do in your fifties, if it makes sense, because I don't really think that you should have much debt in retirement.

Taking on unnecessary debt or having unnecessary debt and payments is just going to increase your stress in retirement. Decrease your flexibility. And that's not a good combo for most people. That's not what they're looking for when it comes to retirement. And so instead, we wanna make sure that we are taking care of our retirement and ensuring that all of this is getting done in the right order.

And so paying off your car payments, making sure you have no car payments, that's a given. No credit card debt whatsoever. No personal loans. And then the mortgage is the one that is the. Up in the year option, but I really like when people have their mortgage paid off. 'cause it's just less of a liability.

And then you're just paying the property taxes, you're paying the insurance, those types of things. Unfortunately, in this country, even when you have a house paid off, you still have payments to make to the government and to insurance companies. 'cause you need that home insurance in case there's a disaster you wanna make sure that gets taken care of.

So that's a whole different, that's a whole different podcast episode, but it is definitely something that you wanna make sure that you budget for is figuring out, Hey, what are my taxes gonna be? That is something when your home is paid off, people actually don't factor in. Well, my property taxes are gonna increase over time because the value of my home over the course of the next 30 years or 40 years is gonna be going up.

And so making sure you factor in and understand where your property taxes are gonna be is also a very important metric to note. And now let's do a bonus of the sixties. 'cause your sixties is going to be a time. Where I want you to think through a couple of different options. One, a sequence of returns risk.

So this is the risk that if the market downturn happens every couple of years, you wanna make sure that you're considering this and when you retire, because if the market is down on the first year you retire, this could completely wreck your portfolio. If you're not aware of this and you start to withdraw too much money from your portfolio.

And so this is why I like the guardrails approach because it reduces overall sequence of return risks and allows you to adjust the amount that you're withdrawing in your portfolio every single year. Number two is thinking about Roth conversions. When is a good time to make Roth conversions so that you can move money from your traditional IRA or your 401k over to the Roth IRA?

So you don't have RMDs anymore? Well, it should be in low income years or years where it makes a lot of sense. I would highly recommend talking to a CPA or an advisor. When you are thinking about Roth conversions, 'cause it's a much more complicated calculation than just moving it over. And if you do the wrong thing, you could absolutely trigger a taxable event that is not in your best interest whatsoever.

So making sure that you do this in the right order is gonna be important. Social security timing, we just talked about this, but I want you to think through when you're in your sixties. You could start at 63, you could wait till 67 and kind of take it a little later, and it's an 8% rate of return every year that you wait.

But also life is short. So if you wanna take it early, it could benefit you traditionally. And if you think you're not gonna live a long time, maybe you have a preexisting condition or you think you're not gonna be living well beyond your given years, then maybe taking it early makes sense. Or if you are someone who thinks you're gonna live it for a very long time, then maybe taking it later makes sense.

But it just depends on your specific situation. It also depends on how much your spouse makes. We're gonna cover that in an entire episode coming up. Also, Medicare starts at 65, and so we wanna make sure that we're thinking about healthcare and then think about what the difference is within healthcare and how much we're gonna be spending.

Also, what about long-term care? Where are you gonna live when you get older? Or you, somebody has to come and take care of you? Is someone gonna come to the house to take care of you? You're gonna have enough money on hand. Are you gonna go live in a facility? If you are, how are you gonna pay for that or cover that so that you are living in a situation that makes sense for you?

And then RMDs are coming up in your seventies. So at age 73 is when you will have required minimum distributions, meaning the government and Uncle Sam wants his money, so he's gonna make you withdraw a certain amount of money every single year from your 401k or your IRA, those pre-tax, that you've never paid tax on that money yet, you're gonna have to pay tax at some point in time.

And so RMDs could start at 73, which could impact every other phase of income that you have. And so. Traditionally, you wanna make sure that you are planning out for those RMDs and talking to someone to help you through that process. That is the big thing that I really want you to do. And so if you plan this out properly in your twenties and your thirties and your forties and your fifties, your sixties are gonna be a breeze.

They're gonna be so easy, and you're gonna have the flexibility in place where you're not gonna have to worry about this stuff. But we gotta make sure that we are planning out our retirement and with our goals and realizing that you can retire early. And that is really what I want you to know, is that you can retire early and if you have a plan in place, this is a lot easier than it seems.

And so for everybody out there, do not wait for the perfect moment to plan this out. Track your retirement number on a yearly basis. We showed you at the top of the show exactly how to do this so that you can really get to the point in time where you are living your best life. That is our goal for each and every single one of you.

Now, if you guys want to learn how to achieve financial freedom, how to have that plan in place so you don't have to worry anymore, you are working step by step towards financial freedom and you're planning out the exact life that you want, and you're using money as a tool to get what you want in life.

Then I wanna invite you to join Master Money Academy. Master Money Academy is our community of people who is working towards building wealth. Together we gave you the exact framework of exactly what you need to do. We weekly coaching calls every single week, and everybody is there to help each other out.

And so inside Master Money Academy, it's gonna reduce your money, stress, anxiety, and anything else that you have worries about when it comes to your money. We give you the exact framework on how to do this. So for podcast listeners, we are giving you a free trial, a seven day free trial, so you can see behind the curtain to see if it's for you.

Would love to invite you to join Master Money Academy. Again, you have nothing to lose. It's a seven day free trial. Uh, would love to invite you to join and see. If Master Money Academy is for you. Thank you guys so much for being here. I truly appreciate each and every single one of you, and we will see you on the next episode.