The One Reason Everyone Delays Their Retirement

Maybe I just wait one more year , one more bonus , then I'm going to retire . I know I should retire , but I don't have long-term care yet . And what are we going to do ? I mean , how am I going to spend my time ? Am I going to have purpose ? And I could retire , but my kids are still in college . " So, all of these thoughts , I'll call them head trash .

It's not a perfect phrase . I'll use head trash primarily when I'm talking about things that my clients don't need to worry about , and so part of my job as an advisor is to advise . "hey , here's an investment strategy , here's a tax plan , here's a withdrawal report , whatever it is .

But also part of my job is to go hey , here's a bunch of things you're worrying about right now that you just don't need to worry about . " For example , I have clients that reach out, "hey , oh my gosh , I can't retire yet , I don't have long-term care , I go . Maybe you shouldn't worry about that because you have enough income from your portfolio .

As long as that keeps growing, and you have a sustainable plan , it's better that you actually don't go pay a separate company , an insurance company , pay the premiums to yourself instead , unless financially something shifts and legislation shifts and there's a new requirement or tax that occurs . " So it's not me just saying "hey , don't worry about it .

" It's me saying hey , don't worry about it for now, but , like anything , you have to keep tabs on it and be dynamic . " So what I'm going to go through today , today is more of a story . I have lots of different podcast episodes that are deep case studies . Hey , if I have 2 million , how much can I spend ? If I have 500,000 , when can I retire ?

If I have 20 million , am I in a spot to never have to worry truly , and can I leave the legacy I want ? But then I also have specific episodes , like you're going to hear today , which is just a story , and so I'm going to talk about the story that I had with a client of mine .

So this is a client that is a very nice person , and so if they are watching , please know . I asked you if I had permission to post this and you said yes , so don't forget that . If I had permission to post this and you said yes , so don't forget that , just messing around , that actually did occur . But they told me that I could share the story .

Just can't share names , obviously . So this couple they were not worried about their retirement in terms of like 60 to 90 , 60 to 100 . That was not their concern . Their concern was hey , we're worried from 55 to 60 . It's these first few years of retirement . I think that's where most of our concern is .

I said totally get it , you're a human , that's why You're not a robot . Let's dive into the finances . And so we did . And when we dove into the finances , we found that they were going to be okay if they retired at 55 , but they didn't have a brokerage account . And a brokerage account is what I call a superhero account .

A superhero account is a brokerage account , a taxable account , a joint account , individual account . All four of those accounts are the exact same thing . The financial industry just makes it really annoying for these basic phrases that come with all these different names . It's like those acronym people in your life that are always trying to sound smart .

It's like just tell me what it is . So superhero . I call it a superhero because it allows for flexibility . And so this couple is going okay . So like , why do we ? Why do we not feel at ease ? I said I don't know , like , what's your healthcare costs ? Now I knew what they were , but I wanted them to say them .

And they said , yeah , that's , you're right , I think that's it . And so sometimes I need my clients to say it out loud . If I just say what I think they're thinking , number one I could be wrong . But number two , if they don't actually speak it , they're not going to really ever have the ability to overcome it .

From my experience and from what mentors have shared and from what I've seen , so I've asked them to share hey , what did healthcare ? And it was for them about $8,000 a year each for healthcare until Medicare kicked in . That's significant . And so the reason that I said that they had anxiety is for healthcare , college planning and remodels .

That was their head trash . I think I said healthcare a second ago . Healthcare is one of them , but this head trash . Basically I say , hey , the reason , guys , you're hesitant to retire is not because you won't be okay long term . I think you also recognize that it's because these first few years of retirement , that's where you're nervous .

And I get why you're nervous . I'm not confused . The reason you're nervous is because if you get unlucky and retire and markets don't do well , because you don't have a superhero account , you can't shift your income that easily . Now why can they even retire at all ? Well , there's something called a rule of 55 .

Many of you know this already , but what this is is this is something that allows you , as long as you retire in the year you turn 55 or later , as long as you're working at that company in that year , once again , you turn 55 or later , you can start pulling from your 401k . Now , that just avoids a 10% penalty . You still have to pay taxes .

So basically , you just have the ability to turn this on at 55 instead of 59 and a half . So this is great for people that have a lot of money in a 401k and want to retire early . It's an option to withdraw income , but it's not optimal .

And the reason it's not optimal is because if you start pulling income from your 401k when you actually live off that income , it's as if you're making ordinary income . It's like W-2 wages . It's not pulled that way , but that's how it's taxed through what are called IRA distributions . And so for this couple , they pull from their 401k .

That creates income and that income is taxed at ordinary income levels , and so they're not receiving any health care subsidies . They also , once again , they need to pay for college expenses . How are they going to pay for those college expenses ? Well , they need to pull from cash flow , because they don't have 529s . Well , cash flow , they don't have cash flow .

They're retired , in this hypothetical , at 55 . So they're now pulling more , which once again gets taxed at a higher bracket , because now they're taking 40,000 out to pay for college expenses , in addition to the 100,000 that they wanna live off .

So , 140,000 , they need 140 , but not really , because they need like 160 , 170 so that they can pay taxes and end up with 140,000 . And that's me being nice there , by the way . So the point here is they also want to do a home remodel because they don't want to retire and not have their bathroom done . Well , that's another 20,000 .

But in addition to that , guys , do you think they're going to spend more time traveling or less ? When they retire early , they're going to spend more . So now they have more time . When you have more time , you spend more money . So now maybe they need $200,000 . Maybe they need $240,000 that they need to go sell so they can live off of $200,000 .

Now the reality is they have some expenses that will go away their mortgage that will go away , college expenses that will go away but they generally get replaced not evenly . But if you're not doing college expenses , you're helping out a child with a down payment . Some of you are like I'm not , but I have clients that often do this .

They're helping out someone with a wedding . They are oftentimes going . We're gonna travel more and we're gonna spend money as a family to do that , because once they're out I'm trying to make . Here is this person that was hesitant to retire with head trash . It's a valid head trash .

They are hesitant to retire early because they're worried about oh my gosh , what if all of these things ? I need so much income so early on ? What if it turns out we want to spend more or life changes ? I don't want to have to go back to work in my sixties and I go . That's super reasonable , by the way .

So there are people that are on track for retirement , but in the first few years of retirement . That's what I'm worried about . For my clients . It's generally not the 60 to even 70 to 90 , 70 to 100 .

It's , I see , that income At that point there's social security helping out At that point , maybe there's inheritance at that point , but it's kind of this in between . What do we do then ? And so what I would encourage this couple to do and I work with this couple obviously today , and we've had a lot of conversations about this , they are still working .

The reason that they have this , I call it head trash . It's valid . So that's why I don't really love the phrase , but the reason I do want to bring it up .

It's never I don't think it's perfect , but the head trash that they are worried about in large part they don't need to be worrying about and some of those things that , in fact , a lot of those have nothing to do with what I just said .

So let me connect the dots , or else it feels like I'm going in circles here , because what I hope you just connected is yes , they have valid concerns that if they retire and get unlucky and they start pulling from their 401k , if they need to pull out 250,000 , but markets aren't doing well , maybe they need to pull out 300,000 .

If they have 2 million , pulling out 300,000 in one year is a big deal and that's way less . That grows long term . That's their concern . That's valid . What's not valid is them going . You know what ? What we're going to do instead is we just we're not even going to look at projections . We don't know . There's no way we can retire Absolutely not .

Our friends . We know they have less money than us and they're going to have to work so much more . In fact , we also have friends that have more money than us and they are not even close to retiring . So that just confirms it . I cannot retire early . Why don't we just work till 65 ? I mean , it's just , it's safer . We can't go wrong . I guess .

If politics or things at work shift , maybe I'll look for some other job , but I really don't want to . That is head trash . That is them cheating their self . That's like if any of you guys have run drills in sports or have children that have run drills , that's like running to the line .

If they go run to the line and run back , that's like running to the line and then stopping 80% of the way there and running back . It's like you're just cheating yourself . Go get a plan that really says when you can retire .

So for this couple , what I encourage them to do because they have a really healthy income is don't add more money to your 401k beyond the match , because that's free money . Take the remainder and put that to this brokerage account . That's for flexibility . And before you retire , let's do that bathroom remodel . That's one less thing we're gonna have to worry about .

So when we retire , we're decreasing our chance of getting unlucky . Now , college okay , maybe we're putting money away for grad school , but maybe you're also having a conversation with children and say , hey , I'm paying for your undergrad , but beyond that , that's just not in the cards .

Not because I'm trying to be mean , but because you know we only have our health for so long .

We want to spend time with you guys , we want to travel , we want to do different things , and so can you eliminate some of these things , these things that cause head trash of I can't retire a home remodel , I'm not going to retire , I don't get paid my bonus for another year . Don't do that . That is you cheating yourself out .

So , yeah , it's some tough love you're probably getting from me right now , but I don't know who else is giving it to you , so I hope it is really love . That's what I hope . I'm trying to do . I want everyone to know the earliest time work is optional .

I don't want someone to retire too early and run the risk of running out of money , and the risk I'll see is it's a common example , but many people know the S&P 500 . It's an amazing asset class and it's really something that when we talk about investing S&P 500 , equities equities would be known as the asset class .

The subdivision of that would be the S&P 500 . Those are called large caps , large companies , the 500 largest technically , 505 to be exact .

But the point here is these are companies that generally grow at 10% per year over time and there was a period where , from 2000 to 2010 , it was literally like the second best literal performer versus like the entire world , like real estate and small caps and all these different types of assets .

But 10 years prior , from 2000 to 2010 , the S&P 500 lost an average of 3% per year because there were a few years 2000 , specifically , in 2008 , that did not do very well , and so if you had $100,000 , and you started with that and you didn't withdraw any money in 2000 , and then you checked your account 10 years later you would have lost money .

So now imagine that's a million dollars , and not only did you lose money , but you had travel , remodeling , college expenses and now all of a sudden , you're spending . The rest of your life is very different . So this was a big risk . That someone thought they were diversified with the S&P 500 . They had to go back to work .

And so I'll talk to people that will come and they'll say , hey , ari , I'm retiring . I said , okay , cool , they go . No , I'm retiring again . I said what happened ? They said , well , I retired , I had all my money in one investment like the S&P 500 .

I had healthcare , I had travel expenses , I had a home remodel , I had other investments that didn't do well , and so now I have to go back to work and you don't want to be that person On the flip side . I don't want any of you mad at me when you're 80 years old with way too much money going . Hey , we told you like we wanted to retire early .

Why didn't you kind of give us more confidence to do that ? And I have had feedback from people that are very transparent and have said that I have clients with me in their 70s who are like hey , you should have pushed harder , like I was like in the moment I thought I did . They're like oh no , you think you did , but you didn't . I said why they go ?

Because I didn't retire and you were so confident you were showing me all these numbers and graphs but you didn't find a way to connect it and I'm like great point . Like then , what good is it ? So the point here is I want everyone to know the earliest time , work is truly optional for this particular couple .

I encourage them to pay off at least one of their children's college , which is going to be two years , save more money to a brokerage account and do a bathroom remodel . Then I'm asking them to reevaluate . So the following year I'm going to be checking in and we're going to be having a conversation about hey , is this happening ?

Like , did we actually do the saving we talked about ? And they might be like we did more than you projected because I got another bonus . Great , then maybe they could retire , then they might go . You know what I know ?

I said I was going to save that amount of money , but there's this really cool new Maserati that I didn't tell you and I kind of got a new obsession . So that's what I bought . I bought four of them .

I said , okay , that's cool , I want you to buy the cars maybe not four of them , but you're going to work till you're 62 now and they might be like that's cool Cause I just love cars so much . Great , it's not my goals , it's their goals and it's my job to make sure what's happening properly . Is them accomplishing their goals ?

So that is the quick little story for this couple of what is head trash ? Well , head trash is where you're thinking . Hey , I saw an article online that says I need 2 million to retire . I don't have 2 million , so , like I can't retire . That's head trash . That does not mean you cannot retire . There are people that retire with $500,000 .

There's also people that go I can't retire Like the people I'm around . They've got 5 million bucks and I want to live like them . Okay , maybe you can't retire . Maybe you do need more because you want to spend more . But do you really want to spend more ? Like , what is it you really want ? Is it we're keeping up with the Joneses , or is it ?

No , those are my specific goals . So I encourage you map out how often are you buying new cars ? Okay , are there new cars ? How many vacations do you want to take ? What is your health like ? Do you have a specific legacy goal ?

Build a custom plan , either with root or another advisor , or , as I've shared with many of you , start with the software , go , project out , see what you're on track for and then , after you kind of run some analyses , you can see okay , I kind of loosely know what I'm on track for . I now I'm going to work with an advisor to help me execute this .

But for a lot of you I don't think you need an advisor . If you're in your 30s and 40s saving money to your 401k or brokerage account , but as you get closer to retirement you're in your 50s , 60s going hey , I think , like an early retirement is probably possible .

I would then seriously encourage you to go okay , either take the time yourself to learn tax strategy and go deep on that front , because that's the biggest value an advisor can add . Or you hire an advisor for quality of life to go , hey , my life's way better having an advisor .

I want someone in my corner to help out with all of this and I don't want a new job as an advisor . So I hope that this was helpful and insightful , quick story on this kind of head trash concept talk about . I have a lot of different phrases I like and I try to make these fun .

So hopefully you guys liked this video and if so , please like it and I'll see you guys next time . Thank you all , as always , for listening to the early retirement podcast . I love getting to host these shows and make different content for you guys every single week . I've not missed a single week in years and that is because I love getting to do this .

Now , please be smart about this . Before you actually execute any strategy that you see me talk about or hear me talk about , should I say Please talk to your financial advisor , your tax preparer , your estate attorney . Please be smart about this . None of this should be construed as financial advice . This is for fun , educational , informational purposes only .

Once again , just quick disclaimer here . Guys , please be smart about this . Appreciate you listening , as always , and you can , of course , submit a question on my website , earlyretirementpodcastcom , if you , of course , want me to address a specific case study or topic .

I will not promise I can get to it , but I respond to every single person and if I find it will be helpful for a lot of people . I will absolutely make an episode on it . At the very least give you some insight , that's .