The #1 Retirement Trap No One Talks About...

Summary

The 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

00:00

👴 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.

05:02

📈 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.

10:03

💰 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.

Keywords

💡Retirement Trap

The term 'Retirement Trap' refers to the psychological challenge of not knowing when enough is enough, leading to a constant desire for more money even after retirement. In the video, it is highlighted as the number one trap that people often don't discuss, emphasizing the importance of contentment over the accumulation of wealth.

💡Life Expectancy

Life expectancy is a statistical measure of the average time an individual is expected to live, based on their current age, health, and other factors. In the context of the video, the increasing global life expectancy is used to illustrate the growing number of retirees and the potential financial and psychological challenges they may face.

💡Social Security

Social Security is a government program that provides financial support to retirees, disabled individuals, and their families. In the video, it is mentioned as a potential source of income for retirees, but there's a concern about its sustainability in the future.

💡401k

A 401k is a type of retirement savings plan in the United States that allows employees to save and invest a portion of their paycheck before taxes are taken out. It is often used as a tool for long-term financial planning and is a key component of many retirement strategies.

💡Psychological Trap

A psychological trap refers to a mental or emotional challenge that individuals face, often leading to self-defeating behaviors or mindsets. In the video, the psychological trap is linked to the constant desire for more money, which can detract from a retiree's happiness and satisfaction with their financial situation.

💡Happiness

Happiness is a state of well-being and contentment. In the context of the video, happiness is explored as it relates to retirement, emphasizing that material wealth is not the sole determinant of a happy retirement, but rather the relationships and experiences one has.

💡Retirement Portfolio

A retirement portfolio is a collection of investments set aside for retirement, designed to provide financial security and support during the retiree's retirement years. It typically includes a mix of assets like stocks, bonds, and other investment vehicles.

💡Honic Adaptation

Honic adaptation, or hedonic adaptation, is a psychological concept where individuals tend to return to a stable level of happiness despite positive or negative changes in their life circumstances. This concept is used in the video to explain why achieving financial goals may only temporarily increase happiness.

💡Safe Withdrawal Rate

The safe withdrawal rate is a financial guideline that suggests a percentage of a retirement portfolio that can be withdrawn each year without significantly depleting the portfolio over a 30-year retirement period. The 4% rule mentioned in the video is a common safe withdrawal rate.

💡Retirement Income Replacement Ratio

The Retirement Income Replacement Ratio is a guideline that suggests what percentage of one's pre-retirement income should be replaced with retirement income to maintain a similar standard of living. It helps individuals estimate how much annual income they will need in retirement.

💡Passive Income

Passive income refers to earnings derived from a source that requires minimal ongoing effort to maintain or manage. In the context of the video, passive income is recommended as a way to supplement retirement savings and provide additional financial security.

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