Wealthstream Advisors Senior Financial Advisor and Shareholder Katharine George joins Yahoo Finance Live to talk about retirement planning, retirement savings versus spending, and navigating healthcare costs.
Video transcription
– Every sixth retiree is considering returning to the workforce. 55% of people considering it want to return because they need the money. According to a new study. Well, joining us now as part of our Retirement Ready segment, brought to you by E Trade, we’d like to bring in Katharine George, Wealthstream Advisors Senior Financial Advisor. It’s great to see you here, Katharine. So let’s start with the basics, because I think a lot of people want to retire. They want to take early retirement. But how do you do it if you have enough money for it? First of all, let’s talk about the factors you need to consider when figuring all that out.
KATHARINE GEORGE: Yes. That’s a good question. And it’s really complicated because everyone’s situation is different from the other. So when you Google that question, the first thing that pops up is this 4% rule. And what does that even mean? That means if you need $40,000 in replacement income, then you need a million dollars to sustain you over 30 years. But there are many questions it raises.
And what the 4% rule doesn’t take into account are things like taxes. A million dollars in an IRA is very different than a million dollars in a joint account. It does not take into account one-off expenses. That means buying a car or going on holiday or buying another home. It doesn’t take into account your asset allocation, which is a completely different topic when clients retire. Someone who holds all bonds probably can’t keep up with the 4% rule. And finally, and I think we’re entering this new age that you mentioned before I joined, there are different retirement ages. People start and stop. So how do we get around these difficulties?
And then that rule of thumb might work for you. But it often doesn’t. And what do we do about it? Financial advisers will help our clients. And we project your expenses, your income, these one-time scenarios that you want to map out into the future, like a home or a car, and grow all of that into the future and see what trajectory you’re on. And it’s just – it’s difficult. But sometimes getting help is the first step in having a plan.
– Fidelity says the average person should save 10 times their income by age 67 to retire comfortably. What do you say?
KATHARINE GEORGE: Again, it is so dependent on someone’s situation. Pensions. Are you coming income? Then you really don’t need to save that much. But at the end of the day, it’s not even as much as what you’ve saved, it’s what you spend. I’ve seen people who have tons of money saved, but their spending just can’t sustain those levels. And I’ve seen people who have saved much less but will retire very comfortably because of their spending levels. So it’s both of them together. It’s how much you’ve saved and how much you’re spending and really getting a handle on both to figure out how much you’ll need in retirement.
– Katharine, how about where you live? How does that come into play?
KATHARINE GEORGE: That’s a good question. Obviously, if you live in an area with a high cost of living, your expenses will be higher. You will need more from your portfolio. You will need more income. But I’d say the first kind of wrench that can be thrown into a plan is healthcare costs. Healthcare costs are rising rapidly. And we haven’t seen any stopping. So historically these costs increase by 6% to 7%.
And Genworth has lots of studies showing that these costs are different in the US. And the most expensive places to have a long-term care effect are Alaska, DC, Connecticut and Massachusetts. And the cheapest is Missouri, Alabama, Texas and Oklahoma. So healthcare costs are a really big factor. They are growing significantly. And I think they even said that 7 out of 10 boomers will have a long-term care effect in their lifetime. So it’s something you really have to be prepared for and make a plan for in addition to just living your daily life.
– Katharine, what about inflation? We’re talking about people paying more and more and more in every aspect of their lives. And to what extent does it potentially delay retirement?
KATHARINE GEORGE: Inflation is such a hot topic right now because everyone sees that inflation is incredibly high. But we’ve just been through a period of historically low inflation for a while. So when you average that out over long periods of time, it’s typically around 3%. And as you weather these periods of high inflation, you should also see some periods of low inflation. So it’s not about what happens today or tomorrow. It is about what happens during the 30-year pension period.
So again, come up with a plan, come up with an investment mix that’s going to be able to sustain inflation and your expenses, and not even just inflation for your regular costs, but these health care costs that I just mentioned. So come up with a good stock-to-bond mix. It will help you achieve your goals but also maintain the inflation that is in the news right now.
– Okay. Katharine George, I never plan to retire. We appreciate the advice.