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A
It's July 4th, the day America celebrates the adoption of the Declaration of Independence and the official birthday of our nation. Nothing more American than financial independence. After all, retirement is the money related goal shared by just about everyone. So we thought it fitting that in this installment of our 2026 financial planning challenge, airing on America's Independence Day, that we focus on retirement. How do you know if your retirement plan is on track? And how will you know that you're financially ready to bid adieu to the working world? Here to discuss how to find the answers to those questions is my foolish colleague, certified financial planner Stephanie Marini. Welcome back to the show, Stephanie.
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B
Thanks for having me. I'm excited about this one.
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A
So we're going to go through various ways of assessing your retirement progress, from very general guidelines to more customized assessments. So let's first start off with the general stuff and talk about common retirement planning rules of thumb. And there are a bunch out there and I would say most have at least some basis in good financial planning principles. Stephanie, what's a rule of thumb that you'd like to highlight?
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My favorite is always the 50, 30, 20 rule. So for those who don't know, 50% of income would be allocated for needs, 30% for want, and 20% for savings. And I like this one because for 80% to be going toward needs and wants feels like a really manageable percentage for most people. And also it's a set it and forget it type of thing. If you can get within these guidelines, then checking it periodically make is a little bit easier. And then also percentages are an easy way to tackle lifestyle creep or lifestyle inflation. As your income increases, the savings amount should be going up by percentage relative
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C
to your income going out.
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B
So it helps combat that too.
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A
So any drawbacks to this rule of thumb that you feel like maybe a little misleading for some people?
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B
Definitely. I mean, like a lot of these financial planning principles, it's general, so you have to apply it to your specific circumstance. 50% does seem like a lot, but for those people living in Sacramento, New York, those high cost of living areas, 50% might not be enough when rent is so high. So adjustments are needed. Also, once you factor in goals, someone who wants to retire and support extended family might need more than that 20% savings. So it just depends. It's general, but there are some downsides to it.
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A
Every summer I teach a class to our interns at the Motley fool. And in the past I've, I've done it along with Buck Hartzell, a colleague who recently retired And I've used this rule of thumb every time. And then Buck always follows with 20% isn't enough. You should save until it hurts. So I just thought that's always good to throw out there. If you could save more, that's better. And you know, Buck just retired, so it worked for him. I'll touch on a related rule of thumb. You know, this rule of thumb is 20% for savings, but that's savings for everything when it comes to retirement. Another rule of thumb is that 15% should be saved for retirement. And that would include your match. So if you get a 5% match from your employer, you just have to put in the 10% to get the 15%. I think it's a good starting point. I would just say that it is assumes you are starting to retire or save for retirement at some point, maybe in your 20s, maybe early 30s. So if you're getting a late start on saving for retirement, maybe has to be a little bit more than that if you want to retire in your mid-60s. And then I feel like when it comes to rule of thumbs, we have to of course touch on the old 4% rule. And we've talked about it a lot on this show in the past. You know, it started in 1994 with a report from Bill Bangan. He has since come out with a book saying 4.7% is really the worst case scenario. If he were retiring today, he would choose 5, 5 and a half percent. And there's other reports that have found that 4% is probably too low. I'm just going to highlight one that just recently came out by David Blanchett of pgm. It's entitled Rethinking Safe Initial Withdrawal Rates. And I thought this was interesting because he decided that you could provide guidance on safe withdrawal rates based on how much of your portfolio needs to cover essential expenses. So he found that if you need to cover all your essential expenses with a portfolio for a 30 year retirement, safe withdrawal rate should be 4.4%. Maybe a moderate amount would be 4.9%. Or if you have a lot of flexibility in your portfolio, 5.6%. So I'm just highlighting that as again, there's a basic rule of thumb, but there's a lot of research about how to customize it. Me Personally, I think 4% probably should start at 5% for most people and then you can adjust for your circumstances. All right, let's move on to some guidelines that get a little bit more customized. And these are age based guidelines provided by many firms. In fact, Most firms, I would say, have some guideline along these lines. And in most cases they provide the guideline as a multiple of household income that you should have accumulated by a certain age if you want to be on track to retire. And each firm's guidelines is going to be a little different because they use different assumptions. I'm just going to look at a couple of examples here. Probably the most well known come from Fidelity. So at age 30, they think you should have one time, your income to save. So if your income, household income is $75,000, you should have $75,000 saved in your 401 s and IRAs. At age 40, that multiple should be three. At age 56, the multiple should be six. At age 60, a multiple of eight. And that retirement, it should be a multiple of 10. Now I'm going to give another opinion from T. Rowe price. At age 30, they think you should have 0.5% times your household income, 42 times, 55 times 69 times, and the retirement 11 times. So T. Rowe Price starts out a little lower at the beginning, maybe recognizing that when you just start, you know, your career, you might have school loans or something, you can't save as much, but then it ramps up later on. But another key point here is that T. Rowe Price assumes you're going to retire at age 65, whereas Fidelity assumes a retirement age of 67. So it's really important to dig into the assumptions behind these guidelines to see which ones are more applicable to your situation. So with all that said, Stephanie, what do you think of these age based guidelines?
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C
This one's hard for me. I can't say that I like age based guidelines. Maybe for our younger audiences it's okay. It's something to shoot for when you're not in the nitty gritty of thinking about retirement in your 20s, it can make sense as a target, but as you get older, it doesn't take into account earnings years and the different earnings rates. Our younger audiences might be on the lower end. And as you get into your 40s and 50s, you should be on those higher end of earnings years. So it doesn't take that into account. And something else that I will say that I don't like become really popular in this kind of clickbaity culture. Social media culture is the dollar based milestones by certain ages. So, you know, 150,000 saved by. It really doesn't take into account enough factors to be meaningful and especially when you consider the wide range of, of incomes that there are out there. So I would Be really careful with these as more than just a lighthouse target and very light milestone.
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A
Yeah, I think that's true. You definitely have to dig into the assumptions behind them and make sure that they are applicable to you. In fact, I would say that some of the, the most value you can derive from these guidelines is reading the reports behind them because they will contain some really good retirement planning nuggets that really don't express in, in like, as you said, like the headline of it. And I'll just give an example from like T. Rowe Prices report. Behind their guidelines, they actually provide a range of where you should be at each age. And that range should depend, as you said, on your income. And one principle here is that the way Social Security is designed is it replaces more income for lower income workers. So the takeaway there is the more you earn, the more you have to save because you're going to get less help from Social Security. And another principle they point out in their report is single folks have to save more because also they're only going to get one source of Social Security and there are some economies of scale that come from being married that you don't have when you're single. So you have to save more. So strongly encourage you to read the reports. And I'll just highlight another one that I really like is JP Morgan's Guide to Retirement, which also has some guidelines in there about savings, but all kinds of interesting facts about retirement. I think if you, you read J.P. morgan's guide to Retirement, you're going to learn a thing or two about retirement planning.
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C
Well, and one example I would just add to that is, you know, these, these milestones, they say income, but for example, if someone has a goal of retiring on the early side, then the target at 55 is different than ones that are shooting out till 65. Um, and then the other half of that is if you are saving aggressively for retirement, then you might be saving 30, 40% of your income. Well now that factors into what your retirement spending looks like because if you're living off of 60% of your income, then you don't need as much because you're not living off that full income. So I would just, you really need to dig into the numbers behind some of these assumptions. Again, great light post, high level, something to target and shoot for. But once you get closer and you're, you know, really trying to find those milestones and dig into the numbers, it has to go deeper than that.
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A
on to our next source of retirement assessment and that is retirement calculators. Right? Because this these allow you to put in your particulars your actual savings rate, your retirement goal, what age you want to retire, what you're going to get from Social Security. And they can sort of mix all those numbers together and give you an idea of whether you're on track. And the last time you were on the show, Stephanie, which was the the first installment of our June episode of the Financial Planning Challenge, we talked a lot about calculators so we don't have to dig into these too much. But I will highlight the ones that we have highlighted in the past. When it comes to retirement, my favorite free tool comes from Calc xml. Just do an online search for Calc XML Retirement Planning Module. They have a few retirement calculators, but the one that you will get when you look for a retirement planning module is the one I like the most. And then there are premium ones that we often recommend such as Bolden, Maxify and Projection Lab and again Motley Fool Ventures, a sister company, the Motley fool has an investment in Bolden. So Stephanie, what are your thoughts on retirement calculators?
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I think for a free version, I really think everyone should start with wherever their employer qualified plan is. The big ones especially Vanguard, Schwab Fidelity, they'll all have a projection model built into their software so same login. They can use things that are already coming in like your savings rate by contributions, how you're invested and can project out from there if you're on track or not on track. That's an easy way for people to have access. I think I've been using personally a lot more the Projection Lab site. I'm still on the free one. There are some ads but it's pretty extensive even on the free side. And I, I'm still pretty far from retirement. So I like how easy it is to model the hypothetical scenarios. What happens if I retire five years? What happens if I stop contributing and switch jobs and want to do the kind of barista fire where I just earn a small income for my last five working years. So it's really easy to make those adjustments and see quickly how it affects my overall plan and longevity, changing out life expectancy, all very, very easy to use. So that's my push is for the projection labs I think has been really, really fun for me lately.
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Yes. And I know a few colleagues who feel the same way about Projection Lab. I have used Bolded more which I like. I like Maxify as well. It was designed by Larry Kotlikoff, an economist and someone who thinks a lot about retirement planning. So to me personally, I mean the cost of these tools there are often free versions and a premium version as well, but the costs are not so prohibitive that you can't use more than one and get a second or third opinion. What are your downsides Stephanie, when it comes to using retirement calculators?
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So you mentioned it earlier for the age based guidelines but I'm going to mention it here because this is where I think coming these default assumptions can get real, real dangerous. Maybe because the planning is a bit more extensive with these tools but I really think you need to look at the default assumptions that are built in. I know the, you know, S P the market returns have been great over the last 10 years but sometimes I think these, these softwares can, can use things that are a bit higher than I'd be comfortable with something like 8 to 10% of annual returns which we, you know when we were, when I was on back in June, we talked about it being a bit lower. So things like that, things like is inflation included? How does that affect it? What is the inflation rate for medical expenses for example, which have historically been higher than than traditional inflation. So I really think you need to dig deep into the assumptions based in these tools before we just rely blanket on them.
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Yeah, we talked about when you were on the show last that we Both coincidentally use 6% as our return before retirement and 5% in retirement. And you know that is lower than long term average of stock market if you're investing mostly in stocks. But the truth of the matter is by just about any measure, the US Stock market is about as expensive as it's ever been. Either as expensive as it's ever been or close to maybe the dot com days. And history says that when you started a point of a significantly above average valuation, you tend to have below average returns over the next decade or so. Not always, but you know, when it comes to retirement planning, you should play it safe with your projections. So I think it makes sense to definitely look into what are the assumptions within your retirement calculator. And a good retirement calculator will first of all explain those assumptions and allow you to customize them as well.
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- [15:54]
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A
All right, so finally we move on to getting professional help with analyzing your retirement plan. And I often say that I think even dedicated do it yourself or should get an objective professional second opinion once every five to ten years or so. And it's certainly right before retiring you want to make sure you have all your ducks in a row. Stephanie, like me, you are a former financial planner. So what's your take on getting help from a human with your retirement plan?
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I think the biggest advantage to working with a financial professional, and again, exactly to your point, every few years, is the mindset of financial planning. So I mean on the high level, financial planning is all numbers and calculators and a bit more black and white. But there's so much more that goes into it from just thinking about what retirement looks like. What does that really cost, having confidence in your allocation even when the market is down 30%. And then the tax strategy, long term tax strategy. I like that you mentioned you know, it's not just right before you retire, but even maybe five years, five years before you retire to make sure your accounts are in the right places. So for tax strategy in retirement. So I think the mindset that a professional, a financial professional can help walk you through those more qualitative questions and emotional journey that comes with these big financial decisions is not something that AI or calculators have been able to replace. And I think it's, it's worth speaking to every few years.
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A
You mentioned the emotional journey and I think that most financial planners will say the value that they really add is not the number crunching as much as the behavioral coaching. And in some cases it's just plain old accountability. Right. Because we all have things we know we could probably be doing better with our finances and we just haven't gotten around to it. Planner can help prioritize that and keep you on track. And otherwise I think it's just good to work with a planner because they have the experience, right. They've helped many other people get through this process of saving for and then entering retirement. They ideally have deep knowledge about all aspects of that. Right? The taxes, as you mentioned, asset allocation, when to claim Social Security, Medicare, and they have the sophisticated software that often isn't available to non professionals. The downside of course is it's going to cost money and it's not going to be cheap. Right. The hourly rates, if you're going to work with an hourly planner, it's going to range from $250 to $500 an hour. Some will work by the project. You know, you just say, listen, I just want to help with an assessment of my retirement plan. Those fees though can range from $2,000 to $5,000 or more, depending on how comprehensive the plan. And if you want to work with an advisor to manage your money, Most charge around 1% of your assets per year. And then the financial planning usually comes along with that. And I just want to highlight the places where you can find these types of financial planners who may be willing to work on an hourly or project basis. A few networks. One is the advice only network. This is a relatively new one, but some others that I've mentioned before, Garrett Planning Network, G A R R E T T napfa, the national association of Personal Financial Advisors, and then XY Planning Network. So you just go to those sites, find someone in your area or someone you're comfortable working with who can work remotely and then get that assessment. And then finally on the professional help, I will point out that you may actually have some access to professional help. It might be through your employer. You might have a financial wellness program or an EAP. It might be through your 401k provider. They might provide access to a financial counselor of some kind. And you might have it actually through your financial services. Firms you already have money with, especially some firms will give you access to a financial planner if you have a certain level of assets. So make sure you explore all those options as well. All right, Stephanie, you have any final thoughts for us on financial independence?
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I think one thing we've gone through a lot of tools and. And guidelines, but I think one thing to point out is financial independence is a range, and it really means something different to everyone. It's so much more than just a dollar amount saved, but it's more about the options that it provides, and that goes throughout all of life, not just as we're thinking about it in retirement. So whether that be you're keeping expenses low so that you don't have a high monthly overhead or having enough saved to be able to support your parents or even the ability to take breaks from a corporate ladder and pursue passion projects, I think financial freedom can mean many, many different things, and it's very personalized. So it's up to you to decide.
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Well said, Stephanie. You know, it comes down to determining what financial independence means to you and then aligning your finances so that you're on track to achieve it. And with that, I want to thank Stephanie for joining us and thank you, dear foolish listener, for spending part of your weekend with us. We hope you have a safe and jubilant July 4th. I'd also like to thank Bart Shannon, the outstanding engineer for this show. As always, people on the program may have interest in the investments they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell investments based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not a of approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Robert Brockamp. Full on everybody.