In today’s episode of Money Mile, you’ll learn about my process for updating my clients’ and my own retirement income projections to get a sense of the process I follow when helping clients.

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My process for creating a retirement income projection

It’s important to periodically review your spending and savings plans to see whether you are still on target to reach your financial independence goals. With the high inflation of the past years, I thought now would be a good time to review mine. I’ll bring you along so you can get a glimpse behind the curtain to understand my process. There are 3 steps that I follow with all of my clients to assess their plans to reach financial independence.

  1. Refresh your spending plan to ensure you’re dealing with the right target
  2. Verify your assumptions regarding investment growth rate, withdrawal rate, taxes, inflation, and timeframe
  3. Assess whether you are on track or if changes are needed

You can design your own money machine too

In episode 28 you got to peek behind the scenes to take a look at how I created my financial plan. With the inflation of the last year, it is important to recalibrate the numbers to make sure that we’re still on track for financial independence. The target we set several years ago was $2 million to FI. This was based on an estimated spending target of $6,500 per month.

Using the Design My Money Machine tool, I can input my numbers to estimate my monthly expenditures, investment returns, withdrawal rate, and taxes to estimate how far I need to go to achieve financial independence.

Updated for inflation, I will now need $2.8 million in today’s dollars to achieve my goal. Looking forward to my target retirement date of 20 years and I’ll need $5.6 million. With my current savings rate of 24%, I’ll be well over my goal in 20 years, so I don’t need to make any changes at this time.

What to do about taxes

Since tax rates are likely to increase over time, we’ll be paying more in taxes in the future than we do today. This is why I would prefer to pay taxes on our savings today and invest it to grow over time. This type of savings vehicle is called a Roth or Roth-type account.

The IRS tax code limits your use of a Roth IRA if your income is too high. In 2024 this begins at $146,000 per year if you are single and $230,000 for married couples. If you find yourself in the grey area, consider defaulting to the non-deductible Traditional IRA and subsequent Roth conversion option. Listen in to hear how you can utilize this type of savings account to your advantage.

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