3 Simple Steps to Retire in 2025

Now I know this is also someone that has lots of things that they are looking forward to in retirement .

But what I was surprised to find out was this person was terrified to actually retire , and it dawned on me that , as much as I could tell from the outside , looking in , that , yes , this individual , if they do things correctly , could easily retire two , three , four times over even but in their mind they were unable to connect the dots between what they wanted

to do and where they are today , and that prevented them from moving forward . So what I want to do in today's episode is I want to make this a very practical , straightforward , easy episode to say what do you need to do to make 2025 the year that you actually retire ?

And , as we're talking about this , even if you're years away from retiring or even if you're already in retirement , this episode is going to be a good refresher to help you determine what needs to happen for you to have a financially healthy retirement so that you can do what you want to do . This is another episode of Ready for Retirement .

I'm your host , james Canole , and I'm here to teach you how to get the most out of life with your money . And now on to the episode . So there's three things that you need to do , and number one is you need to assess your current financial condition . What does that mean ? Well , number one review all of your assets . Review what you have .

This is everything from things like checking accounts and savings accounts to what do you have in 401ks ? What do you have in IRAs ? What do you have in Roth IRAs , brokerage accounts , health savings accounts so often we spend our whole lives working and we have all these different accounts .

Yeah , I opened up a 401k at that company 15 years ago and it's still there my new company . I have a 401k and this is where I'm contributing to . I have a Roth IRA that I started a long time ago . You know , I think my spouse has some different accounts as well . A lot of people are saving money , but they don't actually know what the total value is .

So start by taking inventory what are all the different accounts that you have and come up with a number of accounts that you're going to account on for income and retirement . What do I mean by that ? Well , any money that you have in cash .

You're not necessarily going to count that as part of your retirement portfolio , unless it's a large amount of cash that you intend to invest . Or maybe you already have some money in a health savings account , but that money's already been allocated to be used for some healthcare expenses that you have coming up .

So , really , as you take inventory of what you have , you're taking an eye towards or you're looking at it from the standpoint of which of these assets that I have will create income for me in retirement . It's typically IRAs , roth IRAs , 401ks , brokerage accounts , accounts of that nature . What is that total number ?

I'm going to come back to why that matters in a second , but start there . Number two the second part of assessing your current financial health or taking inventory is understanding what are your monthly income and expenses .

And by income I don't mean what income do you have in terms of your base salary at work , I mean what amount of income is actually coming in .

You have your gross income , but once you have federal taxes , state taxes , social security , medicare taxes , 401k , other deductions taken out , what's actually hitting your bank account is typically significantly less than the top line gross income number that you have coming in . So understand what that looks like .

Yes , know what your total income is , but , more importantly , understand what is your monthly income that you're actually living on today look like . From there , you can look at your expenses . So , whatever your monthly income is , let's say that you earn $10,000 per month gross , so $120,000 per year . Well , $10,000 per month gross doesn't mean $10,000 per month net .

After taxes , after 401k , after deductions , that might be closer to $7,000 per month , for the sake of this example . So the next thing that you're going to do is you're going to say , okay , I have $7,000 per month of income coming in , net income , income that would need to be replaced if I was to retire . How does that compare to my expenses ?

Are you overextending yourself every month compared to my expenses ? Are you overextending yourself every month , meaning $7,000 per month is coming in but you're spending $75,000 in gradually accruing debt , or is there less per month that you're actually spending ?

For example , maybe you're only spending $6,000 per month because the remaining $1,000 between the $7,000 that's coming in and the $6,000 that's going out is actually being saved . That's something that's really important to understand , because the income that you have coming in as a very basic starting point , that's what you need to replace if you're going to retire .

If you have $10,000 per month gross coming in before taxes but $7,000 per month net , that net number is what you need to be able to recreate after taxes and retirement .

But to take it a step further , if you're only actually spending $6,000 per month of that , that's truly the amount that you need to recreate , because $1,000 that you're putting aside in savings , you don't need to continue saving in retirement if you're already at the point that you've arrived at what you're saving for .

So once you take an inventory on your income and your expenses , you can get to a clearer number that's going to help you determine what you need to replace in retirement . The third part of taking inventory or monitoring your overall financial health is review this for any debts that you have .

Do you have a mortgage , for example , and if so , when will that mortgage be paid off ? Let's continue with our example here . $10,000 per month comes in gross After taxes and 401k . $7,000 per month comes in net . Great Of that $7,000 per month , you're saving $1,000 per month for retirement . We don't need to keep saving for retirement once we're in retirement .

So really , $6,000 per month is what needs to be recreated . Now we take a look at your financial situation a little bit deeper and we say , of that $6,000 per month , that you're actually spending , $2,000 per month is on your mortgage payment , the principal interest portion of it . Property taxes will count for separately .

And we also know that you want to retire in five years , but your mortgage is projected to be paid off in four years . Well , what does that mean ? It means we don't need to recreate $6,000 per month to maintain current lifestyle by the time that you retire .

We only need to recreate $4,000 per month because that principal interest portion of your mortgage is going away . So once you start taking stock of where you are financially , you start to whittle this down to say , okay , what do I actually need to do ?

What do I need to recreate in retirement income , which is the foundational piece of your retirement is , how do you create the income that you need to survive ? And this exercise helps you go through that . So once you've seen that and you say , okay , I have a mortgage and it's $2,000 per month and I'm going to take Now . Your real number is $4,000 per month .

Now compare that to maybe having a car loan . You say I have a car loan . That's a few hundred bucks a month , but I planned every time I pay my car loan off . Let's just assume , for example , you buy a new car and you refinance that car . Well , we can't just eliminate that expense from your budget .

That's something that you plan to continue doing , whether you're saving a monthly amount to your next car or you're simply financing a new car . Every time you pay your car off , that's an expense that needs to stay in your budget because you're going to continue paying it , unlike your home , which , once it's paid off , it's paid off .

So step one of making 2025 the year that you actually retire is getting a sense of your overall financial health . Take an inventory of what you have . Starts with your net worth in terms of what does your portfolio look like , what your assets look like .

Then it goes into diving into your income and your expenses and then you monitor that to see how is that going to change based upon some debt that I have that I might not have in retirement . Once you've done that , the second step is to envision what you want your ideal retirement to look like . Now this is where actually most people get tripped up .

A lot of people have a great sense of where they stand financially . They could tell you where they stand on a daily basis in terms of how much they have in their portfolio . How much are they spending each month ? Where are their expenses ? Some people have that part completely dialed in .

Where they're lacking in their planning is that vision of what do they want to do in retirement . They're so focused on the numbers that they can't even think about . Well , what do I actually do if I'm not working every week ? What would I actually do if I spent my time enjoying my money and spending my money , as opposed to just saving it ?

So get that vision for your retirement . What do you want to do ? Because nobody wants to retire and sit there bored every day . Sit there without purpose , sit there without meaning , sit there without anything to do because you never got around to planning for what you want life to look like when you're retired .

This doesn't have to be an incredibly complicated exercise , but understand what are the things that you value . This could be health . This could be faith . This could be family . This could be friends , this could be adventure , this could be community service .

Understand what do you value and then , within each of those categories , simply write down what are one or two things that you can do in retirement to pursue that , things that you can do in retirement , to pursue that In retirement you don't have the 40 to 50 hours committed to a job that you don't have to attend anymore .

You have that time that you can fully dedicate to your health , that you can fully dedicate to friends , to adventure , to service , whatever you want to do . But it's not just going to happen by accident . And understand that there's a pretty dramatic transition . That happens .

But when you get out of the workplace you need to find something to spend your time doing , and that time could simply be hanging out around the house watching TV all day .

But if that's the case , make sure that's exactly what you want to do , Because my guess is most of you are thinking that's not the most satisfying retirement , that's not what I want to do with my time . So plan ahead . What are you going to do with friends ? What are you going to do to recreate that sense of structure , that sense of purpose ?

What are you going to do with your time , with your energy , with your hobbies , with your travel . Think ahead to what you want that ideal retirement to look like . The reason we do that is because then you can work backwards and say how much might that cost .

I say that because if you want to retire and you want to spend your days hiking and you want to , every single day , go on a different hiking trip , but you live in the mountains , that might not cost a whole lot .

Sure , you need some equipment , sure , you need some stuff , but that's pretty low cost if you're spending your time outdoors , compared to the person who says I'm going to retire and I'm going to travel to a different country every three months . That's pretty expensive Plane tickets , a place to stay , accommodations , everything that goes along with that .

So you can't really understand what your retirement's going to cost until you have a picture of what your ideal retirement looks like . So once you get that vision , once you get a sense of what you wanna do , then work backwards to say , generally speaking , how much might that cost . The third step then is that's where you connect the dots .

This is what most people fail to do . Some people are either really good at understanding their numbers , but they have no idea what they want to do in retirement . Other people have a perfect idea of what they want to do in retirement , but they can't get a grasp on their numbers . This third step is connecting the two of those .

When you have that vision for your retirement , here's what you want to do , here's what would need to happen to make retirement the absolute best season of your life , then you work backwards to say what would it cost to do that ? What would it cost to travel like I want to travel ?

What would it cost to prioritize my health like I want to prioritize my health ? What would it cost to be able to give like I want to give ? What would it cost to spend time with family and friends and do the things that I want to do ? So it takes some work .

But if you don't do this work on the front end you're never going to get to enjoy the fruits of what you've worked for . But once you go through that process and understand what it costs , then you go back to your current financial situation . Your current financial situation . You have an understanding , okay , what income is going to come in in retirement .

So let's use the example I was using before Of . So let's use the example I was using before Of 10,000 per month . That's coming in in gross income but after taxes and deductions and expenses on your paycheck , 7,000 is actually hitting your bank account . Of that 7,000 , you're saving $1,000 for retirement , but again you no longer need to save that .

So it's really $6,000 that you need to replace . But then again we determined that of that 6,000 , $2,000 of it is your principal and interest payment for your mortgage . That's going to be gone by the time that you retire in this assumption . So really it's only $4,000 that you need . Now , step one is saying $4,000 is what you're spending today .

Does that still align with your ability and your vision of what you want retirement to look like ? Maybe it does , maybe it doesn't . Let's assume for the second that it does . So $4,000 , okay , that's going to perfectly allow you to do everything that you want to do . Well , now we go to the income piece . We say well , what income sources might you have ?

Is there a pension ? Is there social security ? Is there potentially some part-time work just for something that you enjoy doing ? Not because you have to do it in retirement . Those are the things you explore . Let's assume that you only have social security . Oh , there are those things that I mentioned .

In your retire , you want to spend $4,000 per month and $1,500 per month is coming in from Social Security . Well , the remaining $2,500 per month needs to come from your portfolio . At $2,500 per month , that's $30,000 per year . The question is , can you generate $30,000 per year from your portfolio assets ?

So , once you have that $30,000 , as I have in this example once again we need to work backwards . We need to say okay , $30,000 should be what percentage of my overall portfolio ? In other words , if I have this portfolio going into retirement , how much can I spend from it ? Can I take 10% per year , or is it 2% per year ?

What amount is going to be sustainable over a 30 plus year retirement , which is the average retirement projection for many people ? Well , there's a few different ways of looking at this , but probably the most basic and foundational is what's called the 4% rule .

There's absolutely nothing magical about the 4% rule in terms of is this the perfect number to maximize or minimize spending ? No , it was simply the result of a study that said look , we have no idea if , when you retire , the market's going to be booming and great and everything's going to be awesome .

Or if you're going to retire , we're going to go through a horrible bear market and that's going to last for several years before things recover . And what this study found was that , based upon the portfolio mix , the study was assuming 4% was about the maximum you could take .

So whether the economy was horrible , or whether the stock market was horrible or great or anything in between , you wouldn't run out of money over a period of about 30 years . So that's a good baseline to start from . I think there's better ways of approaching it now and things you can add on to that , but let's assume 4% .

So , going back to this example , you need $30,000 per year from your portfolio . What you do is you divide that by 4% to essentially say 30% or 30,000 represents 4% of what bigger number ? In this example , 30,000 represents 4% of $750,000 .

So if this was your plan , if this was your goal , you would essentially work backwards to say I need $750,000 to make this work . Now , obviously , these numbers I'm just pulling out of thin air . Your actual numbers are going to be different , maybe higher , maybe lower .

Maybe you're right exactly what I'm talking about , but this is the general framework that we're talking about . When you do that , you can get a sense of okay , well , I've added up my IRA , my Roth IRA , my 401k , my brokerage account .

Because I did that in step one , I can compare that total to the total that I actually need and now I can see am I either right on track or maybe I'm actually well beyond the point that I could have retired years ago . Or maybe I'm not quite there . Maybe I still need to keep saving , keep growing , keep waiting until I get to that point .

But once you do this , this process is a very simple process to get you started in the right direction . To say that we've dreamed of retiring , we've prepared for retirement , we've looked forward to it , but so many people can't pull the trigger . Going back to my conversation earlier that I referenced , the individual I spoke with had done really well .

They actually had a great dream for the way they wanted to do in retirement . They just couldn't connect the dots .

It was too overwhelming to them when they think there's tax strategy , there's estate planning , there's withdrawal stuff , there's all these different things I hear people talking about and they got analysis , paralysis and everyone had a simple foundational framework of saying what do I need to have coming in to support my desired lifestyle ?

How does that compare to where I am and how does that inform whether or not I can actually retire today ? So my hope for you as we go into 2025 is that , wherever you are and you're saving , investing retirement journey , you're doing what you're doing because it's what you want to do .

I see too many people who continue working well beyond needing to work because they don't have a plan in front of them to actually retire . I see some people retiring too early into retirement because they don't know financially what's needed to actually make it a reality .

So when you have this plan , not only does it give you confidence for the future , but it gives you peace of mind about today that you're doing the right things . You're striking that right balance between preparing for the future and what that holds , as well as making sure that you're enjoying today . So I hope that that's helpful .

I hope 2025 is an incredible year . I hope that those of you that love work and are passionate about work keep doing it . Work's an incredible thing . For those of you that are getting a little burned out and over it and ready to retire , I hope that you have a plan in place to move towards that .

So , as you go through it this is the first step Understand where you are today , understand where you want to be in the future and then connect the dots to see if what you have can get you to where you want to be . I hope that's helpful . This is a podcast dedicated to helping you make the right retirement decisions .

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