The #1 Retirement Trap No One Talks About...
Summary
TLDRThe video discusses the psychological aspects of retirement, highlighting the common trap of not knowing when enough is enough financially. It emphasizes the importance of understanding one's spending habits and the 4% rule for retirement withdrawals. The video also touches on the need to find fulfillment and happiness in the present, rather than constantly chasing more money or possessions. It suggests using the retirement income replacement ratio to plan spending and considers passive income sources to supplement retirement funds.
Takeaways
- 🌟 By 2030, over 20% of Americans will be over 65, highlighting the growing importance of understanding retirement planning.
- 💡 The number one retirement trap is psychological, not financial; it's the constant desire for more money without knowing when enough is enough.
- 🔄 The societal pressure to accumulate wealth can lead to a mindset that detracts from the quality of life and the decision to retire.
- 🛌 Retirement lifestyle doesn't drastically change; most retirees spend their time on leisure, sleep, and watching TV.
- 👴 Personal anecdotes, like the speaker's father, illustrate the struggle to adjust spending habits even when financially secure.
- 🎯 The concept of goalposts moving is prevalent; people often set new targets for happiness after achieving their goals.
- 📈 The 4% rule for retirement withdrawal is widely accepted as a safe method to ensure funds last throughout retirement.
- 📊 Fidelity's retirement income replacement ratio rule suggests replacing 80% of a lower-income salary and 55-80% for higher earners.
- 💰 Tracking pre-retirement expenses is crucial for estimating necessary retirement funds and living a quality life post-retirement.
- 🏡 Consider被动收入 sources like rental properties, dividend income, or hobbies turned into income to supplement retirement funds.
Q & A
What is the expected global life expectancy by 2050?
-The global life expectancy is expected to rise to 73.33 years old by 2050.
What is the number one retirement trap discussed in the video?
-The number one retirement trap discussed is the psychological trap of not knowing how much is enough and constantly wanting more, which affects one's quality of life and retirement decisions.
What does the average American retiree spend most of their time doing?
-The average American retiree spends most of their time relaxing in leisure, sleeping, and watching TV.
What does the Harvard happiness study suggest about retirees and their happiness?
-The Harvard happiness study suggests that retirees don't miss working but rather miss the relationships and social interactions they had while working.
What is the 4% rule in retirement planning?
-The 4% rule is a guideline that suggests withdrawing 4% of a retirement portfolio each year, assuming a 50/50 split between stocks and bonds, to ensure the portfolio lasts through a 30-year retirement window.
How does the retirement income replacement ratio rule work?
-The retirement income replacement ratio rule suggests that individuals aim to replace a certain percentage of their pre-retirement salary with retirement income, with the percentage varying based on the individual's income level.
What are some ways to supplement retirement income?
-Some ways to supplement retirement income include having a rental property, receiving dividend income from investments, and generating side income from hobbies or skills.
How can tracking expenses before retirement help with retirement planning?
-Tracking expenses before retirement helps individuals understand their cost of living, which assists in determining the necessary portfolio size to support their desired lifestyle in retirement.
What is the role of Social Security in retirement?
-Social Security benefits, which start at age 62, provide a source of income during retirement. These benefits, along with other factors like Medicare at age 65, can help reduce healthcare expenses.
Why is it important to adjust one's mindset towards money and happiness in retirement?
-Adjusting one's mindset is important because the constant pursuit of more money can lead to dissatisfaction and unhappiness. Finding contentment and fulfillment in the present moment is key to a happy retirement.
Outlines
👴 Aging Population and the Psychological Retirement Trap
This paragraph discusses the growing number of retirees by 2030 and the global increase in life expectancy. It highlights common retirement concerns, such as the amount of money one can withdraw and the future of Social Security. However, it emphasizes that the number one retirement trap is psychological rather than financial. This trap is the inability to determine 'enough' and the constant desire for more, influenced by societal pressures and lifelong work habits. The paragraph also contrasts the common misconception of lavish retirement with the reality of retirees' daily activities, as reported by The Wall Street Journal and the Bureau of Labor Statistics. It shares personal anecdotes to illustrate the point, such as the story of the speaker's father, who, despite having sufficient savings, is reluctant to spend money on non-essentials due to a lifetime of frugality.
📈 The Hedonic Treadmill and the 4% Rule for Retirement
The second paragraph delves into the concept of hedonic adaptation, where humans tend to return to a baseline level of happiness regardless of achievements or setbacks. Using the speaker's personal experience with reaching a YouTube milestone, the paragraph illustrates how happiness is often temporary and adapts to new circumstances. It then connects this to retirement, emphasizing the importance of finding contentment in the present rather than chasing ever-moving goalposts. The paragraph introduces the 4% rule for retirement, which suggests a safe withdrawal rate from a retirement portfolio, and discusses the asset allocation for minimizing the risk of running out of money. It also touches on the retirement income replacement ratio and the need to understand one's spending habits before retirement to better prepare for it.
💰 Planning for Expenses and Passive Income in Retirement
The final paragraph focuses on practical steps for retirement planning, such as tracking expenses pre-retirement to estimate retirement needs and considering the impact of Social Security benefits. It suggests strategies to reduce costs, like moving to a less expensive location or utilizing healthcare programs like Medicare. The paragraph also explores the potential for creating passive income streams during pre-retirement years, offering examples like rental properties, dividend income, and hobbies that can generate side income. The speaker encourages viewers to build these income sources to secure a more comfortable retirement and concludes with a call to action to watch the next video on wealth management.
Mindmap
Keywords
💡Retirement Trap
💡Life Expectancy
💡Social Security
💡401k
💡Psychological Trap
💡Happiness
💡Retirement Portfolio
💡Honic Adaptation
💡Safe Withdrawal Rate
💡Retirement Income Replacement Ratio
💡Passive Income
Highlights
By 2030, over one in five Americans will be over the age of 65.
Global life expectancy is expected to rise to 73.33 in 2050.
The number one retirement trap is psychological, not financial.
People often don't know how much is enough and constantly want more.
Retirees spend most of their time relaxing, sleeping, and watching TV.
Americans' lifestyle does not drastically change after retirement.
Retirees miss working relationships more than work itself.
The average American over 65 spends more time watching TV and less socializing than a decade ago.
The concept of 'goalposts' refers to the ever-moving targets of satisfaction.
Humans tend to return to a baseline level of happiness regardless of life events.
The 4% rule for retirement withdrawal suggests a safe long-term spending rate.
A 50/50 split between stocks and bonds is recommended for retirement portfolios.
Fidelity's retirement income replacement ratio rule helps estimate needed retirement income.
Social security and Medicare can significantly impact retirement finances.
Passive income sources, like rental properties or dividends, can supplement retirement income.
Knowing your pre-retirement spending is crucial for planning retirement finances.
Retirement planning should focus on finding contentment and fulfillment in the present moment.
Transcripts
by 2030 more than one in five Americans
are going to be over the age of 65 and
the global life expectancy is expected
to rise from
73.33% years old in 2050 with such a
large proportion of people retiring
there's always going to be questions
surrounding retirement such as how much
can I withdraw how much money should I
have saved for retirement and will
Social Security still be there but
that's actually not the number one
retirement trap that's out there in this
video we're going to discuss what the
number one retirement trap that not so
obvious is as well as some of the
pitfalls and numbers that you should
know when it comes to retirement all
right so can you guess what it is the
number one retirement trap that nobody
talks about it's actually not a
financial trap but more of a
psychological one and the trap is going
into retirement without knowing how much
is enough and constantly wanting more
everybody always wants more money
especially in the society that we live
in and I think that drives a harmful
type of mindset when it comes to our
quality of life as well as deciding when
to retire also if you spend your entire
life working and accumulating assets
trying to grow your 401k as well as your
portfolio and then all of a sudden you
have a hard transition into retirement
life it can be kind of a little bit hard
to shut that off your habits already
ingrained couple this with the fact that
when you have more free time in
retirement a lot of people just assume
that you're automatically going to need
more money which kind of perpetuates
this thought of not having enough and
constantly wanting more but here's
what's fascinating for the average
American and I think you guys will
actually find this pretty hilarious it's
not like your lifestyle is going to
change completely once to retire The
Wall Street Journal looked into how
Americans actually like to spend their
retirement and they found that while
many people thought that they were going
to go and travel the world and do crazy
things when they retired the reality was
far from that so here's a visual from
the labor department and you can see
that most retirees here spend most of
their days relaxing in Leisure at 6.24
hours sleeping at 9.01 hours and
watching TV at an average of 4 and 1/2
hours per day which also includes screen
time from a phone or a tablet no wonder
you're always getting Facebook posts
shared from your mom or perhaps your
uncle Susan about the latest lawn mower
from Shark Tank I think you're doing the
right thing but I'm out only about a
half an hour per day was spent
socializing or communicating and working
still comprised about 8 hours per day
and this is actually a problem because
according to a Harvard happiness study
they actually found that retirees don't
miss working they miss the people it's
the relationships that are actually
going to truly Define how happy you are
in retirement but s Sly the average
American age 65 and older spent more
time watching TV than a decade ago but
less time socializing according to the
Bureau of Labor Statistics so there are
two stories that I want to share with
you guys today in terms of the
retirement trap that we're talking about
the first story is about my father but
if you have a parent that's also retired
you may actually find this story quite
relatable if you watch my video that I
posted about a year ago on the Chinese
moneysaving secret you would know that
my dad came from China in the 1940s and
50s he grew up in absolute poverty and
he was able able to immigrate here and
make himself a pretty good life he is
now 92 years old has money saved in his
retirement portfolio yet he still feels
bad about spending money to give you an
illustration of this my dad would rather
eat frozen meals at home from Costco
rather than going out to a restaurant
for a proper meal and even though I ran
the numbers on his portfolio he could
definitely afford to eat out two three
maybe even five times per week without
ever running out of money but yet here
we are it's just not something that he's
used to doing and in his own words he'd
rather not spend money on something he
does quote need so in his opinion the
marginal value that he gets from going
out to eat rather than eating at home is
not enough to justify that spend but the
thing I always say to him and I don't
know if you have a parent that also
experiences this like you don't take
your money with you in the end so what's
the point of all this saving once you
become financially free the accumulation
of money just to have more moneyy sake
is simply just a sport at that point and
speaking of sports that actually brings
me to my second story and it has to do
with goalposts but probably not in the
way that you're thinking about it let me
give you an example from my personal
life even though I am not retired it
will still illustrate the same
psychological concept so last year I hit
a million subscribers on this YouTube
channel it was a brilliant time and I
celebrated with my friends and I was
pretty much living on a high for the
next 3 four or even 5 days but here's
the thing about a week or two later I
just kind of returned to my Baseline
level of Happiness three and a half
years of consistent uploading
strategizing and just basically creating
content on the channel and I finally
reached my dream of hitting a million
subscribers but guess what 2 weeks later
I wanted 2 million subscribers The
takeaway here is that the goal post will
always be moving and if you're trying to
chase that goal post but you're never
satisfied in your life then you won't
really be happy when it comes to that
one day you quit your job and you
finally retire how many times have you
heard from your friends your co-workers
or perhaps your family hey once I make
$100,000 then I'll be happy or once my
retirement portfolio hits a million
dollar that's when I'll retire it
usually comes in the format of once X
then Y and the scariest one is is once I
make a certain amount of money then I
will be happy but this is just simply
called honic adaptation so humans
actually have this tendency to return to
a baseline level of Happiness regardless
of life's UPS or Downs in my case the
subscriber Milestone once I hit a
million subscribers I quickly return to
that Baseline level of happiness and I'm
sure that if I ever hit 2 million
subscribers the same thing will happen
as well so here's a great chart of what
it looks like you can see that our
Baseline happiness here in blue will
always stay the same and even as we're
acquiring new things or hitting new
goals we become happy just for a short
period of time so in this example
specifically you can see that once we
get a new car our Baseline level of
Happiness goes up but then after
sometime we kind of revert to the mean
the blue line right here our car breaks
down perhaps we're at a low low but then
we slowly return back to Baseline level
of Happiness the point here is that
we're just going to adapt to whatever
circumstance is out there and so
regardless of life's UPS or Downs what
we really want to be doing is trying to
find contentment and fulfillment in the
present moment so instead of focusing on
phrases or things that are insecurities
such as I need my portfolio to hit a
certain number before retiring or I need
to wait until my stocks vest until I can
retire comfortably we should really be
reflecting on how much we actually need
to live in retirement and once we hit
that number we shouldn't feel too guilty
about spending that money in order to
basically live a good life in my dad's
case it might actually look like
spending more of his retirement
portfolio in order to enjoy the fruits
of his labor but his problem is that
even though his retirement portfolio can
definitely cover a nicer quality of life
he's not taking that up and I think
there in lies the issue my takeaway here
is that you want to get to your
retirement number and then once you get
there you don't want to feel guilty
about spending that money because that's
basically what you plan for and if you
don't know your number that's where we
actually need to figure it out and the
general consensus is that the safe
withdrawal rate from any retirement
portfolio is 4% and this is known as the
4% rule that means if you have a
retirement portfolio of a million you
should be able to withdraw 4% of that
indefinitely every single year so
$40,000 a year the assumption is is that
as long as your portfolio is split 50/50
between stocks and bonds you will never
run out of money even in the worst
performing stretches of the stock market
this assumes a 30-year retirement window
so if you actually want to retire early
the math will slightly change and I've
actually made a video addressing this
exact situation which I will link down
below or you can check it out after this
video okay so this chart here shows you
the percentage of success of not running
out of money depending on how long you
need the money for and your asset
allocation along the top row here is the
asset allocation split so the left
number being stocks and the right number
being bonds so 100 here is 100% stocks
and 0% bonds and then we have 50/50
which would be 50% stocks and bonds
self-explanatory and then 0 100 is 0%
stocks and 100% bonds now it's really
interesting is you can see the success
percentages here 100% in this case in
green would mean that there is
absolutely no historical situation that
shows you would ever run out of money
for the given time period and asset
allocation so if you had a portfolio
allocation of 5050 in stocks and bonds
and you withdrew 4% a year of a
hypothetical balance every single year
for 15 years there was no back tested
scenario that said you would ever run
out of money ever and for most of these
allocations for 30 years you're mostly
going to be in the green here so as in
over 90 to 95% of never running out of
money so the takeaway here is that if
we're looking to retire and have our
money last about 30 years we should be
heavily favoring the 50/50 split that's
going to give us the best chances of not
running out of money within that 30
years but how much do you actually need
exactly the key thing that we want to
figure out is how much we're spending in
retirement and that way our retirement
portfolio can actually be a means to a
quality life and not just a number if
you're able to start out with an end in
mind and then work backwards then this
becomes a lot easier so Fidelity has a
famous rule that they like to call the
retirement income replacement ratio rule
which is definitely a mouthful but I'll
explain to you how it works so this
table here sums up basically how much
you should aim to replace your salary
with in retirement and you can see the
annual income ranges on the left here if
you make less than 50k per year for
example on the left you'll want to
multiply that salary so let's just
pretend it's 50k multiply that by 80%
that's going to be $40,000 per year in
retirement that's a good rule of thumb
for how much you're going to be spending
every single year if your salary is 70k
per year you'll probably want to plan to
spend around
$52,500 per year or 75% of that salary
in retirement of course this does really
depend on the exact lifestyle and income
that you currently have so if you do
make less than 50 per year maybe you
want to stick to their 80% rule however
if you make like a crazy amount of money
say you make 500k per year I would argue
that you could probably live off a lot
less for most people though they suggest
sticking between 55 to 80% of their
annual salary as their retirement income
replacement ratio salary this all
depends on you if you are someone who's
Super Active and you know that you're
going to want to be traveling the world
and doing crazy experiences when you
retire then you might actually need more
money but if we remember the Wall Street
Journal article from earlier it's likely
that we're probably just going to be
sitting at home watching TV reruns of
the OC and Breaking Bad
[Music]
anyway and you'll have an easier time
predicting how much spend you actually
need in retirement if you're at least
tracking how much you're spending before
retirement as well I'm personally a huge
proponent of at least knowing exactly
how much money is leaving your bank
account every single month or every
single year and that way you have a good
idea of how much your cost of living
actually costs you before retirement if
you're only spending about 30k per year
in expenses then you know that your
portfolio size needs to be 750k that
allows you to withdraw 4% from it every
single year in perpetuity the other nice
thing that you're going to have at your
disposal for example if you live in
America is social security so those
start to kick in at the age of 62 and
the average benefit is1 1825 per month
usually retirees will spend less money
on clothing food and housing as well but
your healthc care expenses might go up
luckily though at the age of 65 usually
you can qualify for Medicare which will
help bring some of those Healthcare
expenses down some other options for
retirees can include moving to a less
expensive location so that their cost of
living is lower or perhaps building some
passive income streams in order to help
supplement their retirement if you
aren't at retirement age yet which most
of my viewers are probably not then what
you really want to do is take the time
right now to try to build up some
passive income sources so that when you
retire you can have a leg up some
examples could be number one a rental
property perhaps it pays you $224,000
per year after expenses and that can
give you a margin of safety for your
retirement number two could be some
dividend income from your retirement
portfolio so I famously have a dividend
income portfolio it pays me about $600 a
month right now or $7,200 per year and
there's no way that I'm going to be
giving that up even through retirement
and number three while this is not
exactly passive if you have a hobby that
you like doing or teaching other people
perhaps you could turn it in a way to
make money through retirement if you
like working on cars bikes or maybe like
gardening for example you can help other
people with their vehicles or with their
Gardens and maybe you make a little bit
of side income just to help you know
offset your cost of living so to recap
here number one don't chase a bigger
portfolio just because you think you
need it make sure to run the Numbers
number two is that the gold poost is
always moving so whenever you do hit
that certain number in your retirement
portfolio or perhaps you change your
status to retired it's better to look
internally for that source of
fulfillment and happiness number three
use the 4% rule to figure out how much
you can safely withdraw in retirement
and number four knowing how much you
spend is going to be so helpful in this
process all right guys I hope you
enjoyed this video make sure to check
out my next video called the number one
wealth killer nobody talks about it's
about something that could be killing
your budget that sits in plain sight so
I will see you guys in that video or a
future video on this channel all right
thank
you
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