So Retirement can be seen as 1 of 2 things. 

• 1st. Retirement is when you reach at least 65 years of age and stop working at your daily job in order to live off of income and benefits you have stored up over the last 25+ work years.

• 2nd. Retirement is when your passive residual income is greater than your expenses, which allows you to quite your day job and live freely. 

In order to retire successfully, during your working years you should be focused on Increasing your retirement income (or passive residual income) and decreasing your retirement expenses.

Funding your Retirement

• When you have a 401k or 403b, the company that manages that retirement fund automatically invests your money into different stock market portfolios. 

  • If you company matches, then invest into that account as much as the company will match. (You can invest more than that. But at the minimum, invest what the company will match).

• Simple Index Fund Investing

  • Buy and hold the following Ticker Symbols

    • SPY

    • VFIAX

Retirement Basics 101

Increase Retirement Income

• Retirement Accounts - 401k, 403b, IRA

• Stock Market - ETFs, Mutual Funds, and Target Retirement Funds

• Savings Account

• Bonds

• Residual Income

  • Royalties

  • Income Properties

  • Stocks that Pay Dividends

• Profitable Business or Business Franchise income

• Real Estate Investment Trusts

• Government Assistance

  • Social Security

  • Medicare (covers some Health Care expenses)

Decrease Retirement Expenses

• Anticipated Retirement Expenses

  • Housing 

    • Property Taxes

    • Home Insurance

    • Home Repair Fund

      • Consider costs of home warranty

    • Consider moving to a country where the cost of housing is inexpensive. Your US Dollar may go further in other countries.

  • Transportation

    • Car Repairs

    • Gas

    • Cheaper to use Uber than maintain an hold car if y6ou are driving less than 9,500 miles annually.

  • Health Care

    • Health Insurance

    • End of Life Care

  • End of Life Planning

    • Life Insurance

    • Will

    • Estate/Trust Management Fees, Taxes, etc.

  • Entertainment, Fun, Travel

Expenses to reduce or pay off prior to retirement

• Home Mortgage

• Student Loans

• Consumer Debt (e.g. credit card debt)

• Car Loan

• HOME Ideas

• Downsize Home unless you are doing multigenerational living

  • Consider downsizing. Smaller home = smaller home repairs. 

    • Condo fees can continue to rise. 

    • Maybe consider small house. New Roof. New Systems (Plumbing, electrical, and HVAC) and Appliances. Small manageable yard or concrete yard for less maintenance

  • Consider

    • One Level living

    • wide doorways

    • wide halls

    • mini workout space to keep you able bodied during retirement

    • Buy quality goods that will last

• Upgrades that reduce future expenses and reduce utility expenses

  • • wood burning fireplace

    • seal air leaks

    • LED lighting

    • smart thermostat

    • upgrade HVAC to heat pumps

    • Good insulation

    • Ceiling fans - to reduce reliance on AC

    • screens - to allow you to turn AC on and open windows

    • low-flow fitures - to conserve water

    • Replace old water heater

    • Energy Star Appliances, windows, and doors

    • Solar Panels and Battery Storage

Home Systems life span

Roofing

• Asphalt Shingles: 15–30 years (3-tab shorter, architectural longer).

• Metal Roofs: 40–70 years.

• Slate Roofs: 50–100+ years. 

HVAC (Heating, Ventilation, Air Conditioning) 

• Air Conditioners/Heat Pumps: 10–15 years (more frequent replacement).

• Furnaces (Gas/Oil): 15–25 years (longer than AC).

• Boilers: 20–30 years.

• Rooftop Units (RTUs): 15–25 years. 

Plumbing

• Water Heaters (Gas/Electric): 8–15 years (tankless lasts 20+).

• Copper Pipes: 50+ years.

• PEX Pipes: 40–50 years.

• Cast Iron Drain Pipes: 75–100 years. 

Electrical

• Copper Wiring: 70+ years (often lasts the home's life).

• Electrical Panel: 40–60 years.

• Outlets & Switches: 10–20 years (GFCI types 15-25 yrs). 

Key Factors for Longevity

• Maintenance: Regular filter changes, professional tune-ups extend life.

• Quality: Higher-quality materials/units last longer.

• Usage: Heavy use or harsh climates shorten lifespans.

Designing and Curating your Retirement Life

Determinign what type of life you want to live during retirement helps you to determine how much retirement income you need to leave. 

Some people choose to save up X amount of money, and move to an area or country with lower costs of living. 

Others want to stay in their home that they just finished spending the last 30 years paying off. 

Withdrawing from Retirement and Sequence of Return Risks

• Your Retirement Goal = Annual living expenses x 25%

  • Ex. If Annual Living Expenses = $5k a month x 12 months = that equals $60,000 a year for annual expenses

  • $60,000 x 25 = $1,500,000 or $1.5 million

    • This assumes you have 25 years of retirement. 

      • Ex. Retire at 65. Live off of retirement for 25 years until you're 90. Average Life expectancy in the US is around 80. 

    • If you have more money that you need, spend lavishly. Or still spend according to your estimated costs and leave the rest in a Will or Trust to the next generation.

• At Retirement you can withdraw 4% of this amount every year.

  • For example: 4% of $1.5 million = $60,000 you withdraw each year. 

• Now how do you get to that $1.5 million

  • Most people invest in the stock market (ex. ETFs, Mutual funds, stocks) or real estate because realistically people don't save $60k a year for 25 years. For employer-sponsored plans like 401(k)s and 403(b)s most of these are heavily invested in the stock market, especially through equity mutual funds, ETFS, and target-date funds.

  • If you invest in stocks for retirement, one way to do this is in an self-directed IRA.

    • That way when you reach $1.5 million, and you cash out stocks in your IRA. This means you can convert those stocks to cash (by selling those stocks back to the stock market) but it is still not taxable until you actually withdraw from your IRA.

    • Your IRA is like a bank account that you only put money into until you retire. 

    • In your IRA, once the money is in there, you have to invest it into something. Stocks, ETFs, and mutual funds are the most common. If you don't invest the money, then the IRA will not grow. Ex. if you put $7,000 in your IRA. After 25 years, you will have $7,000. If you put $7,000 in your IRA, and use that to buy $7,000 worth of stocks/ETFs like the SPY which is the stock market ticker symbol for the S&P 500, this is what could happen. If the stock market grows 8% every year, for 15 years, that $7,000 invest could be worth $47,800 in 25 years, even if you never put another dollar in. You do, however, need to make sure that your dividends are reinvested into the SPY. That can be automated by contacting your bank that holds your IRA.

  • If you want $1.5 million in 25 years, assuming you are investing in SPY at an 8% average annual return, you need to invest:

    • $1,577 per month for 25 years 

    • or a one time investment of $219,000

    • Just make sure you set up your account so that your dividends are reinvested

• Please note that the stock market goes up and down. The goal is to put more money in while its low, and leave it alone while its high. 

  • So if everyone is saying that the stock market is crashing and dropping, that is the time to buy up more stock (like SPY). You are buying and holding this stock until you retire. Not buying and selling. This is a retirement savings strategy. Your retirement savings money should be different then your other money that you use to start a business, do independent contracting, or day trade/swing trade. 

S&P 500 Stock Market Return Risks

• 4% is the common amount that people say you can withdrawn from your retirement account every year during your retirement.

• However, the stock market goes up and down. Meaning that $1.5 million can be $1.7 million one year and $1.3 million another year. So do you still withdraw the 4%

  • One idea is to keep the remaining money in the stock market to continue to get the annual rate of return that the stock market sometimes gives.  (This is what I plan to do.)

  • Another idea is to cash out the stocks, and keep it in your IRA. When you do this, the money is no longer growing. But it's also not subject to the dips of the stock market.  (This is if you're being ultra conservative and super safe.)

• Average S&P 500 rate of return.

  • Over 25 years, from 1999 to 2023, the S&P 500 has had a positive return for 19 of those years and a negative return for 6 of those years. 

  • The average annual total return over these 25 years was 9.8%

  • The years with a negative return were: 2000, 2001, 2002, 2008, 2018, and 2022

    • 2000 - 2002 negative returns were primarily due to the bursting of the dot-com bubble, the economic fallout from the September 11 attacks, and major corporate accounting scandals.

    • 2008 negative returns were primarily due to the collapse of the US Housing bubble

    • 2018 negative returns were primary due to concerns over a US China Trade war and the Federal Reserve raising interest rates multiple times

    • 2022 negative returns was once again from the Fed aggressively raising interest rates to address soaring inflation. This was coupled with global geopolitical instability from the war in Ukraine and supply chain disruptions. 

• Given that sometimes the stock market can have a negative return, you want to keep this in mind when pulling from your retirement funds. 

Sequence of Return Risks

Sequence of Returns Risk (SORR) is the danger of poor market returns early in retirement, when you're withdrawing money, which can permanently deplete savings faster than expected, even with good average returns later; early losses force selling assets at low prices, leaving less to grow, making the first few years the most critical for portfolio longevity. 

How it works: The sequence matters

1. Early Downturns (The Danger Zone): You retire and immediately face a market crash (e.g., -15% in Year 1).

2. Forced Selling at a Loss: To fund living expenses, you must sell investments (stocks/bonds) when they're down, locking in losses.

3. Reduced Capital Base: Your portfolio shrinks significantly (e.g., from $1M to $850k), and now you're withdrawing from a much smaller amount.

4. Compounding is Hindered: When the market eventually recovers, there's less money to grow, and it takes much longer to rebuild to your original balance. 

Example Comparison

• Retiree A (Good Sequence): Starts retirement with market gains, then faces a downturn years later; portfolio recovers well.

• Retiree B (Bad Sequence): Starts retirement with a market downturn; forced withdrawals lock in losses, causing their money to run out years sooner, despite the same average returns as Retiree A over the long term. 

Why it's critical in early retirement

• Larger Portfolio: You have the most money at the start, so losses are larger in dollar terms.

• No New Contributions: You're no longer earning a salary to add to the pot.

• No Time to Recover: You don't have decades left for markets to bounce back; you need income now. 

How to mitigate the risk

• Flexibility: Adjust spending downward during bad market years.

• Cash Cushion: Keep 1-3 years of living expenses in safe assets (cash, bonds).

• Asset Allocation: Maintain a balanced portfolio, reducing aggressive stock exposure early on.

• Delay Retirement/Work Longer: Gives your portfolio more time to grow before withdrawals start.