Wealthstream Advisors Senior Financial Advisor and Shareholder Katharine George joins Yahoo Finance Live to talk about retirement planing, retirement savings versus spending, and navigating health expenses.
- One in six retirees are considering returning to the workforce. 55% of those people who are considering that want to return because they need the money. That's according to a new survey. Well, joining us now as part of our Retirement Ready segment, brought to you E Trade, we want 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 retire early. But how do if you have enough money to do that? First off, let's talk about the factors that you need to consider when figuring all that out.
KATHARINE GEORGE: Yeah. It's a great 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 comes up is this 4% rule. And what does that even mean? It means that if you need $40,000 of replacement income, then you need a million dollars to sustain you over 30 years. But there's lots of questions that brings that up.
And what the 4% rule doesn't account for are things like taxes. A million dollars in an IRA is very different than a million dollars in a joint account. It doesn't account for one-time expenses. So buying a car or taking a vacation or buying a second home. It doesn't take into consideration your asset allocation, which is a whole other topic when clients are retiring. Someone that has all bonds probably can't keep up with that 4% rule. And, lastly, and I think that we're entering this new age as you mentioned before I joined on, there's different retirement ages. People are starting and stopping. So how do we get around these difficulties?
And so that rule of thumb might work for you. But, oftentimes, it doesn't. And so what do we do about that? Financial advisors will help our clients. And we project out into the future your expenses, your income, these one-time scenarios that you'd like to map out, like a home or car, and grow all of that into the future and see what trajectory you're on. And that's just-- it's tricky. But sometimes, just getting help is the first step in having a plan.
- Fidelity says the average person should save 10 times their income by age 67 in order to retire comfortably. What do you say?
KATHARINE GEORGE: Again, it's so dependent on someone's situation. Pensions. Do you have income coming in? Then you really don't need that much saved. But, ultimately, it's not even so much as what you have saved, but it's what you spend. I've seen people that have loads of money saved, but their spending just can't sustain those levels. And I've seen people that have saved much less but are going to retire very comfortably because of their spending levels. So it's both of those in conjunction. It's how much have you saved and how much are you spending and really getting a handle on both of those to figure out how much you need at retirement.
- Katharine, what about where you live? How does that factor in?
KATHARINE GEORGE: It's a great question. Obviously, if you live in a high cost of living area, your expenses are going to be higher. You're going to need more from your portfolio. You're going to need more income. But I would say the number one kind of wrench that can be thrown in a plan is health costs. Health costs are rising rapidly. And we haven't seen stopping. So, historically, those costs increase at 6% to 7%.
And Genworth has plenty of studies that show these costs are different across the US. And the most expensive places to have a long term care effect are Alaska, DC, Connecticut, and Massachusetts. And the least expensive is Missouri, Alabama, Texas, and Oklahoma. So health costs are a really big factor. They're 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 is something that you really have to be prepared for and create a plan for in addition to just living your daily life.
- Katharine, what about inflation? We talk about the fact that people are paying more and more and more in every aspect of their life. And to what extent does that potentially delay retirement?
KATHARINE GEORGE: Inflation is such a hot topic right now because everyone is seeing that inflation is incredibly high. But we just went through a historically low inflation period for quite some time. So when you average it out over long periods of time, it's typically around 3%. And so weathering these high inflation periods, you should also see some low inflation periods. So it's not about what's happening today or tomorrow. It's about what's happening over that 30-year span of retirement.
So, again, coming up with a plan, coming up with an investment mix that will be able to sustain inflation and your expenses, and not even just inflation for your regular costs, but these health costs that I just mentioned. So coming up with a good stock to bond mix. That will help you reach your goals, but also sustain that inflation that is in the news right now.
- All right. Katharine George, I plan to never retire. We appreciate the advice.