What retirement lessons can you learn from a 4-hour daily commute? On this episode of Retirement Starts Today I share an article I found on CNBC. The article isn’t directly about retirement but there are lessons we can learn from it that apply to life and retirement. I also answer a listener question about Roth and traditional IRAs. We have a lot to unpack with just these 2 topics. Let’s dive right in to find out what retirement lessons we can learn to help you reach your goals.Would you make a 4-hour commute to save $18,000 per year? Click To Tweet
Outline of This Episode
- [1:43] What retirement lessons can you learn from a 4-hour daily commute?
- [9:43] What should the balance be between before and after-tax accounts?
- [11:34] How can you project your cash flow in retirement?
- [13:10] Scenario #1
- [15:20] Scenario #2
Why would someone commute 4 hours a day?
A 30-year-old commutes 4 hours a day so that he doesn’t have to pay a $4500 rent in San Francisco. He wakes up at 4:30 am and takes a car, bus, and train to get to work 5 days a week. Here’s how the math breaks down. He spends 20 hours a week commuting to save between $15-$18,000 per year. So, he’s investing 960 hours per year to save $18,000. Which means he values his time at about $18.75 per hour. This doesn’t include the wear and tear on his car or his gas and bus and train rides. Not to mention his opportunity costs. Would you make this commute to save $18,000 per year?Like a coach commenting on your form, you can pay a #FinancialAdvisor to provide objective advice. Click To Tweet
What retirement lessons can you learn from a 4-hour daily commute?
It’s not my intention to bash this guy’s choices, but instead, I want to see what we can learn from him. It is difficult to be objective about your own situation in life. Like a coach commenting on your form, you can pay an advisor to provide objective advice. If you don’t have an advisor pause and think about who in your life can give you objective advice. Who could you talk to about the diversity of your investment portfolio or the likelihood of your projected spending rates? Collaborating with someone is a big ask but it is important to find objective advice about your retirement goals. Think about where you could develop a relationship with someone. Could you create a retirement planning club? How will you find some outside financial advice in your life?
What is the ideal balance between a Roth and a traditional IRA?
Tony retired about 6 months ago and recently asked if I have any benchmarks to help provide an ideal balance of funds between Roth and traditional IRAs in retirement. The short answer is no. But this isn’t because I haven’t gotten around to it. It is because every retiree will use their IRAS to produce different spending levels. Everything in your IRA account is untapped potential for something you want to do in the future and everyone’s retirement goals are different. So everyone will use their funds differently.Would you create a #RetirementPlanning club? Click To Tweet
How will you know if your IRA balance is too much for your RMD?
Some people will have issues with their IRA balances after age 70 ½ and some won’t even if they have the exact same amount in their accounts. The ideal situation with required minimum distributions (RMD) is for them to be self-satisfied with normal cost of living expenses. To understand if you will have any issues with RMD you must project your cash flow. Start from where you are right now and build a year by year cash flow projection. If your RMD is projected to be $80,000 per year and you only need $50,000 per year you will have $30,000 in excess. You will have to take $80,000 out of the IRA regardless of whether you will spend it. A Roth conversion could be a good idea if you discover that you will have an excess. Listen to this episode to hear why a Roth conversion might be a good idea for you.
Resources & People Mentioned
Connect with Benjamin Brandt
- Get the Retire-Ready Toolkit:https://retirementstartstodayradio.com/
- Follow Ben on Twitter:https://twitter.com/retiremeasap
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