Exercise #10: How Much Do You Need to Retire?

Chris Haroun
A free video tutorial from Chris Haroun
Award Winning MBA Professor, Venture Capitalist and Author.
4.5 instructor rating • 54 courses • 1,026,079 students

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The Complete Personal Finance Course: Save,Protect,Make More

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15:46:12 of on-demand video • Updated April 2021

  • Upon completion of this course, students will be able to save, protect and make much more so that their net worth is significantly higher in the long run. You will be a personal finance expert by the end of this course!
  • How to profit from the INCREDIBLE Power of Compound Interest
  • 100+ Ways to Save More…Including the following ways:
  • 14 Ways to Save More on Taxes
  • 16 Ways to Save More on Shopping Expenses
  • 13 Ways to Save More on Car/Transportation Expenses
  • 10 Ways to Save More on Housing Expenses
  • 5 Ways to Save More on Vacation Expenses
  • 4 Ways to Save More on Gifts & Donation Expenses
  • 6 Ways to Save More on Phone/Computer Expenses
  • 13 Ways to Save More on Food & Drinks Expenses
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  • 4 Ways to Save More on Education Expenses
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  • 5 Ways to Save More on Child/Child Care Expenses
  • 4 Ways to Save More on Health Expenses
  • 5 Ways to Save More on Personal Care Expenses
  • 5 Ways to Save More on Pet Related Expenses
  • How to Change Your Perception of Money
  • How to Teach Your Children About Saving
  • How to Protect Your Money by Understanding Your Net Worth (Creating and Understanding Your Balance Sheet….Meaning “What You Own and What You Owe”)
  • Understand if You Should Hire a Financial Advisor to Help Protect Your Money
  • Understand Why Hiring an Accountant Might be the Best Investment You Might Ever Make
  • How Taxes + Retirement Accounts Work & Why We Need to Minimize How Much Tax We Pay
  • How Much You Need to Retire
  • Understand and Taking Advantage of Tax Incentives, which Help You Save BIG TIME for Education/School Expenses
  • How Much You Need for Education Expenses (for You or Your Kids)
  • How to Create Your NEW & IMPROVED Income Statement (Meaning Understanding Money In and Money Out)
  • Understand Your Company Sponsored Tax Savings Plans (if Applicable)
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  • Use Quicken on a Mac to Manage Your Money
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  • View, Understand and Fix Your Credit Score/Rating (So You Can Get a Loan or Mortgage)
  • Understand Life Insurance
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  • How to Pay Less Tax Strategies
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  • What Are the Qualities of Billionaires (5 Characteristics of Billionaires I Have Worked For)
  • Understand the Damage that High Investment Fees Can do to Our Net Worth!
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  • How Bonds Work and How Can Governments Stimulate the Economy?
  • Understand Real Bonds - No Theory! (With Real Corporate and International Government Bond Investment Examples)
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  • Add Bond Investments to Your Portfolio
  • How to Invest in Commodities
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  • Introduction to Your Most Important Personal Investment & How Much Should to Spend on a House
  • How Mortgages Work & How to Calculate Payments (Fixed Rates Versus Interest Only Rates & More)
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  • Should You Start Your Own Business & Have >1 Income Stream? 100% YES!
  • Customize Your Own Complete Personal Finance Excel Dashboard (I Will Teach You How to Customize and Create Your Own Version of the Excel Dashboard Document Used for ALL 25 Exercises in this Course)
English -: You need to have about 75 percent of your annual salary in order to retire. And this is roughly 25 percent less, and not a hundred percent of your annual salary, as you don't need to pay for taxes, income taxes, I should say. You don't need to pay for kids, hopefully at that age, and you don't have to pay for transportation to work. And vacations, entertainment, travel related fees should increase when you retire, and hopefully, by the time you reach retirement age, you're going to love what you're doing, so you can actually still work remotely using your laptop. Virtual reality goggles, or whatever it's going to be in the future, who knows. So, in this exercise, I'm not including any social security revenue here for you when you retire, just to be conservative. I'm also not going to include any allocation for pension related stuff here, because most people won't get a pension. And again, I want to be conservative. So this begs the question, how much do you need per month, and the general rule of thumb is to use a monthly multiplier like 300 times. Let me explain this. So if you need a thousand dollars per month, then use a three hundred multiplier. This means if you need a thousand dollars per month, then you need to have at least three hundred dollars in savings. If you need five thousand dollars per month to survive when you retire, then you're gonna need 5000 dollars times 300 dollars which is 1.5 million dollars in savings. This includes the value of your house when I talk about savings, okay? Many people actually downsize at retirement. They sell their house and move to a smaller one, as they don't need the extra rooms for kids. They might want to have a one level house or an apartment with an elevator, as it can be cheaper as well to maintain that than a larger house, okay? Or some people actually by a cottage, which is cheaper given the more remote location if applicable, so if you think you're gonna need a million dollars when you retire, which means a million dollars divided by three hundred and this equals 3,333 dollars per month. See, I just kind of changed that formula a bit. And of course, please don't forget about taxes. Will you take the money out of your retirement accounts. And don't forget about inflation as well, and the time value of money. And this is why I want to be really conservative and not have to rely on a penny from social security or pension fund or inheritance, et cetera. Let's also be conservative and assume that taxes are going to be at least 50 percent by the time you take money out of your savings account. So that one million dollars that you might need to retire is now two million dollars. And I'm being very conservative here. I don't know how much you want to have per month when you retire, expenses wise. I don't know where you live and the standard of living that you want to have. As such, what I'm going to do is this. I'm gonna provide you with a retirement calculator in this exercise and you can enter in your own interest rates, how many years until you retire, and the amount you need per month. So please open up your complete personal finance dashboard and go to exercise number ten, which is called retirement needs. And then, the default example here, you can see that I calculated that if the interest rate is nine and a half percent and the difference between your age now and the year you want to retire is 35 years, then in order to get a million dollars in 35 years, then the monthly contribution for the next 35 years should be close to 300 dollars. The math all makes sense here. In the settings tab, you can change your current age and the year you want to retire, if you want to change these perimeters around. And please play around with this, so that you have a general conservative target, so you can focus more time on saving for retirement. Use the goal seek function if you want to get an exact number, which we talked about earlier in the course, the goal seek function. And as a side note, if you want, look at your income statement in exercise number two to see how much money you need to have monthly then multiply it by 75 percent. And also see your balance sheet in exercise seven to see how much money you currently have already saved in your retirement account and investment account, if applicable. Just remember that the rule of thumb is that you need 75 percent of your current expenses in order to live each month when you retire. And that figure is 75 percent again because you should not have to pay for kids then and you won't have to pay for a mortgage or as much for a mortgage or income taxes, because you're not working. Now, I also want to stress, this figure is higher than you might think you need because you'll still have to pay taxes on the money that you're going to take out of your retirement account, so just be conservative. And 75 percent is a good benchmark to use. And play around with the 300 time monthly factor multiplier if you want as well. I feel like I'm a waiter, hopefully a good waiter with good food. I want to kind of give you a menu of ways to do things and you enter in your own perimeters, okay? I know this is not an exact science, as there's plenty of unknown variables by the time you retire. Please enjoy this exercise and as always if you have any questions, please let me know. Thank you.