Are You Ready for Retirement? 5 Money Goals to Reach by 50

In this episode of the Retire Early Retire Now podcast, Hunter Kelly, a certified financial planner and owner of Palm Valley Wealth Management, discusses the five essential financial benchmarks to achieve by age 50. The episode builds on last week's discussion about financial goals for age 40 and is geared towards high-income earners such as physicians and attorneys. Key areas covered include saving six to eight times your annual income for retirement, eliminating consumer debt, maximizing retirement contributions, diversifying investments, and securing an estate plan. Additionally, Hunter emphasizes the importance of long-term investment strategies amid market uncertainties and offers practical advice on how to stay financially on track.

00:00 Welcome to the Retire Early Retire Now Podcast

00:14 Introduction to Financial Benchmarks by Age 50

01:14 Market Insights and Long-Term Investment Strategy

02:46 Benchmark 1: Retirement Savings Goals

07:35 Benchmark 2: Eliminating Consumer Debt

10:54 Benchmark 3: Maximizing Retirement Contributions

12:52 Benchmark 4: Diversifying and Managing Investments

19:45 Benchmark 5: Importance of Estate Planning

24:49 Recap and Final Thoughts

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Transcript

0:00

And welcome to the Retire Early Retire Now podcast. I'm your host, hunter Kelly, certified financial planner and owner of Palm Valley Wealth Management. And today we're going to talk about the five benchmarks you should reach by age 50. So this is an extension of our last week's podcast episode Of the five benchmarks you should hit by age 40. So I just wanted to extend that. If you're still in your thirties or maybe you're working towards your forties, this is a great podcast. to listen to, to kind of say, Hey, gage, am I on track? Am I not on track? What are some areas where I can improve on to help myself, work toward financial freedom? So whether you're a physician, an attorney, any sort of high income earner, looking to maximize their wealth, this podcast is a great podcast for you.'cause we talk about all kinds of different topics. But today specifically, we'll give you some benchmarks. to look toward, and see am I on track or not? And so I release these podcast episodes every Tuesday morning, again to help high income earners maximize their wealth. And before we get started, I do want to jump on a bit of a tangent. There's been a lot in the news, recently. Obviously the market has pulled back a bit. there's fears of recession with all the tariffs and things of that nature. And so, um, just as a reminder. You should be long-term investors. The vast majority of people should be long-term investors, and we have times like this where there is a market pullback, there are fears of recessions. If you're a long-term investor, this is where you can really set yourself apart from other average investors. just staying in the market, can really help your long-term returns. if you miss, those, those large, Returns kind of when that market rebounds and things of that nature, you're really doing yourself a disservice, disservice on your long-term, returns. need, needless to say, just a little bit of pep talk. Stay steady with your plan. continue to save, continue to invest. and as we move forward, obviously the past has not predicted future, but, America will charge on, the market will charge on, and when you get out to the other side, if you stick to that plan, you'll be in a much better spot than you are before. this chaos has ensued so. That being said, if you're having trouble, if you're unsure about your plan, seek financial help, about your specific situation, this is not financial advice. let's get started. Number one benchmark that we should try to achieve by age 50 is have a solid target of six to eight times our. Annual income saved for retirement. And that doesn't necessarily mean in retirement accounts. That could be a portion of that in your brokerage account. and in the vast majority in 4 0 1 Ks, IRAs, things of that nature. But we should have, six to eight times of our annual income saved for or designated for. Retirement. If you wanna retire on that earlier end, you would want to be on the higher end of that spectrum. if you are like, Hey, I enjoy my job, I wanna continue to do it for a very long time, then maybe six times would be more appropriate. But that is a good gauge on am I going to reach financial independence, somewhere in my late fifties to mid sixties. And the good thing about, reaching this milestone is that. If you've been investing for 10, 15, 20 years at this point, maybe you got started in your early thirties. Compounding interest is really starting to take over. Where the vast majority of your growth in these accounts, the interest in your accounts, has taken over what you're actually contributing to the accounts each year. so that's a beautiful thing. You have a bunch of dollar bills working for you, right? And you're not necessarily, putting time and effort into doing that. You're spending time and effort on your, your job, your income, or to produce income. but you're not necessarily going out and making, if you earn a a hundred thousand dollars in growth or interest. You didn't go out and actually have to physically work to go do that. Right. so that's the beautiful thing about, getting to this point, investing for long term is that now this compounding interest is starting to take over. The other good thing is that you're in your peak earning potential, generally in your fifties. So you're gonna be in your peak saving, Peak saving years as well. while you may have limited time to save, because the fact is you're getting closer to retirement, you can save a lot more so you can catch up. So maybe if you're a little bit behind, one, you can put in a little bit more into your retirement accounts. If you're in a 401k, it's generally around six or$7,000 extra that you can put in IRAs around a thousand dollars a year extra that you can put in. So you really can start to catch up, but also take advantage of, those tax deferred accounts as well, which we'll talk about why that's a good thing here in a second. And so the action item from here is, one, we wanna have six to eight times our annual income. That would come from saving and investing, but two, we want to use re retirement calculators and have a. much solid, much more solid number than maybe we did in our thirties or early forties. On, what does that number need to be for us to become financially independent? Right? you can do this by one, getting on and googling retirement calculators. I know, Ramsey Solutions has a couple, there's a bunch out there. So if you just Google retirement calculators, you can probably find a decent one. or you can go work with a certified financial planner. If you're starting to accumulate wealth and you're like, Hey, I don't wanna screw this up, go find a financial planner, to help you calculate, This number and figure out, am I on track, is six to eight times my annual income at age 50 enough? Is it not? and then you can adjust by, boosting your savings or increasing your income. and then maybe if you're ahead of schedule, you can optimize your investments to maybe take some risk off the table, where maybe you don't need as much return because you're ahead of the game. And now you can minimize some volatility like we're experiencing right now on current day. And so just as an example, if you are earning$300,000 per year and you hit age 50, that benchmark, we would want to see somewhere between 1.8 to 2.4 million saved up in our various retirement accounts, brokerage accounts, things of that nature that is designated for retirement. And again, if you're not there yet, don't panic. this is just a benchmark. This is to see, hey, where am I? What does my number need to be and what do I need to do to get there? How do I get from point A to point B? and in my mind, there's mostly things that most things are not good. Most things are not bad. It's just where are we at right now? And, and then how, what do we need to do to fix it to get there? How can we adjust? How can we optimize? So once we figure out that number, the next thing is just some tactical things that we need to be. Getting done. And so goal number two should be completely consumer, debt free and almost mortgage free. You should have a track to pay off that mortgage. but we don't wanna have credit cards. We don't wanna have car loans. we don't wanna have student loans. Get this stuff paid off by age 50. I've been in the business for almost 10 years now. I've worked with hundreds of clients I've worked with or talked and helped with more, just through conversations and things of that nature, as working to get more business and things of that nature. But, uh, the. The biggest indicator to success that I see anecdotally, and I'm sure you can see it in the research that Dave Ramsey does and all the other big financial gurus and companies. if you do not have debt and especially consumer debt, your likelihood of a successful retirement is much higher than someone that does. For a number of reasons. One, if you have consumer debt, and let's say you're, paying two or$3,000 a month because you have credit card debt or student loans or auto loans or whatever, right? That just is just going to make that retirement number need to be that much higher to. Compensate for that debt that you're paying off. But at age 50, if you get rid of that debt, you start taking that money and you're putting it to your savings, maybe increasing your lifestyle a little bit. Now that number that I need to retire to generate enough income to replace the income that I'm making can be much less. Right. So if, if you have$24,000 or$30,000 a year that you're paying toward debt, well now I can. Now I don't need. an extra two, three,$400,000, in my investments to generate that income, to pay that debt, right? So make sure that you're getting this paid off in your forties. Have it paid off by your fifties. So again, that would credit card debt, OT loans, student loan debt, get it paid off, and then have a plan at some point in your fifties, get that mortgage paid off, so that you don't have to worry about that as well. And again. That will bring that retirement number down dramatically. and then you just don't have the emotional, drag on you of, oh, I have all this debt I need to get paid off. I can't retire because I have this or that. that can be an emotional drag. And then I've talked to plenty of people that. maybe it was more financially, smarter. The numbers worked out better to, to keep that money invested. But because the way their mindset was, because they just wanted that extra security. They went, all went ahead and paid off their mortgage or, some sort of debt that wasn't necessarily, keeping them from their financial goals. But it makes them under or makes them feel that now. This house that I own is my house. No one can take that away from me. So number three, goal number three is to maximize your retirement contributions and maybe not for the reason that you would think we want to maximize our retirement contributions at age 51. Yes, because of retirement, but really because you're in your peak earning potential, right? Like we talked about earlier. You're in your peak earning potential, and so you're going to get the most tax benefits out of your pre-taxed accounts like your 4 0 1 Ks IRAs. If you own a business SEPs or solo Ks, your HSAs, right? You're going to get the most benefit right now in age 50, earning the most money that you're gonna make, and then what you can do from there. Is once you retire, maybe you can convert that money that's in those pre-tax accounts at a lower rate, to Roth IRAs. So if your effective tax rate is in the 30 percentile, or more, then you can defer that now and maybe when you retire, your effective tax rate is at 15%. So now I deferred 30%. To convert and pay those taxes at 15% and get it into Roth IRA, or just take it as distributions for income at a 15% rate. Right? that I think contributing to your retirement accounts, once you hit age 50 and, and onward, especially if you've done a good, good job of saving is. Much more for the retire, the tax benefits, and not necessarily retirement benefits. Yes. Is it going to help you get to retirement? Of course. But that tax benefit, starts to weigh a much, more on kind of the benefits of contributing to it. Also, you'll have catchups as well, so in your 401k you can do an extra 6,000, your IRAs, an extra thousand, things of that nature, Again, maximize those retirement contributions for the tax benefit, but also, for retirement. Number four, you have done a good job saving. Let's, let's assume you got, you started early in your thirties, you started investing, you put into your Roth IRA, your 4 0 1 Ks brokerage accounts, things of that nature. Now you've started to accumulate, a fair amount of wealth and now the. Now the objective is not to necessarily accumulate as much as I can and take on risk and be all equities and and all this sort of thing. Now it's starting to say, okay, well how do I start to. Take some of the risk off the table because of volatility and as I get closer to retirement, I don't want, the sequence of returns to, necessarily hurt my chances of, of having a successful retirement, of running outta money and things of that nature. and so having a well thought out investment portfolio. Is much more key than it was in your early thirties or maybe in your forties when you're just starting out. When you're in your early thirties, you're in your early forties and you per put that first a thousand dollars in and the market drops 20%. Whoopty do, it's 200 bucks. I know I have extra cash flow. I'm gonna put another a thousand dollars in next month, so on and so forth. But when you have a million dollars and that portfolio drops 20%. And you lose$200,000, that's gonna feel a lot different when you lost that, that$200, right? And so we want to start to think about how are our investments allocated? are they well diversified? Are we concentrated too much in one asset class or one stock? are we being tax efficient, from an asset location standpoint or even the type of holdings that we have in our. brokerage account. So what I mean by that is how much Roth do we have versus our pre-tax? are we too heavy in our pre-taxed accounts? where now when we get into retirement, all of our income essentially has to come from our pre-taxed accounts. our, we're not really able to control what our taxes are. So should we be putting more into Roth early on or later, or planning for Roth conversions? Are we in mutual funds that are spitting out, bunch of capital gains at the end of the year in our brokerage accounts giving us unwanted tax bills and things of that nature. So as we start to accumulate wealth and our, this, this, investment account is growing, our investment account is growing, the investment allocation becomes a lot more important from a poor performance and. kinda risk mitigation standpoint, but also from a tax standpoint. So having a solid portfolio protects you from market downturns. Kinda you can minimize, that volatility that maybe you are okay with experiencing, when you're in your, your early thirties and maybe early forties. but now, a million dollars kind of fluctuating at 10, 10% at a time is not something that you go in a stomach. So. We gotta turn that down, right? Or maybe, from a risk capacity standpoint, we can't necessarily stomach because it's gonna delay our retirement. And then from a tax standpoint, I say it all the time, you probably hate that I say it at this point, but, taxes are gonna be your biggest, expense of your lifetime. So this is one way in our investments that we can start to control it, whether that be from a tax location or asset location standpoint. Or, through the type of investments that we have in our brokerage account, whether that be mutual fund, mutual funds versus ETFs. Or ETFs versus single holdings. and everybody's gonna be a little bit different there based off their tax situation. But, tax efficiency can save you hundreds of thousands of dollars over your lifetime. And if you can keep those hundreds of thousands of dollars in your investment account and not, with the government, that's going to increase your wealth. a ton over, over your lifetime. So how do we do it right? We wanna make sure that we have a good mix, a well diversified portfolio, whether that be with ETFs, stocks, bonds, mutual funds, we don't wanna be over concentrated in one asset class or. One type of stock. So if you work for an employer where you've been gifted or not gifted, but you've been, compensated through RSUs or restricted stock units, things of that nature, and now 30 or 40 or 50 or sometimes 80% of your net wealth is in your company stock, we want to start to try to unload that, especially at age 50 when we are getting to the point where we wanna retire because of that. A company makes a change and investors don't like that change. Well, now 30% of your wealth can be, can be wiped out in a matter of a few days, right? so we wanted to make sure that we have a well diversified portfolio. We're using tax things like tax loss, harvesting, proper asset location. and I know these are all kind of financial terms that you may have never heard of, but we wanna make sure that we have the right mix of pre-tax Roth and after-tax dollars. and we're using, other tax saving strategies within those particular, accounts as well. to help mitigate taxes over time and then regularly rebalance. So as kind of using current events as this market pulls back and your allocation gets outta whack, maybe you were a 60 40 or 70 30, whatever your allocation may be. you're, when the market pulls back quickly, like it has, your allocation may get out of. balance, right? you wanna make sure that you're regularly rebalancing so that you can one, hopefully sell some winners and get into some losers or, vice versa, right? and so getting back to that normal allocation where we want, to mitigate, volatility and things of that nature, as you get closer to retirement and so many high income earners hold too much cash, right? So if you're sitting on a lot of cash. that can be inefficient for your returns. So maybe having some more treasury bonds or things that will at least produce you more interest. and then looking at your overall allocation, saying, okay, well, including this cash, am I really at a 60 40 or am I at a 30 70 because I have a extremely large amount of cash. Right? thinking, just using things like that, right? And so making sure that you have a well thought out portfolio, especially as your wealth is growing, and those decisions, those market fluctuations, much more impact on your situation. you want to be more thoughtful about what you're investing in and how you're investing. Number five. This is the most underrated thing that I see, that it is, sickening how many people I meet, how many prospective clients I meet, and they've never seen an estate planning attorney. They have kids, they have wealth, they have complicated situations, they don't even have a will, right? so if you are nearing age 50, if you're nearing age 40, if you're nearing age 30 and you have any level of assets or family. You should see an estate planning attorney and have some sort of documents written up to make sure that if anything happens to you, whether that be in incapacitation for an extended period of time or death, your family is taken care of. Right. And so why is it important, without proper planning, your wealth, could be hit by estate taxes, probate fees, attorney fees, unnecessarily co unnecessary complications or drawn out timelines because, of court procedures and things of that nature, giving your loved ones headache after headache, after headache, right? having this plan in place. can give your family that peace of mind, not just from a dollar standpoint, but just from a headache standpoint, that everything's taken care of, everything's in a trust, or, there's beneficiaries or whatever that plan calls for. So that all I have to do is, A few different things that everything's passed on to me like it should be. And one, your wishes are taken care of. Like you want to, it's not left to the court to decide who gets my IRA or who gets my kids or whatever the case may be. So how do I do it? One call a licensed attorney in your state. and generally what they'll do is they'll create a will. They'll create healthcare directives. So healthcare directives are, if I become incapacitated, if I'm on life support, what, What type of care do I want? Right? power of attorney if I'm incapacitated, who's taking care of my financial situation, right? and then they may recommend a revocable trust. So if I have kids. that are underage or, not adults yet, where's that money that I've accumulated my 401k gonna go is, is my crazy sister or brother going to get access to that money and not actually use it for my kids? Well, if we have a trust we can, that can help mitigate a lot of that, headache or, potential unknown, right? And. And then you can, on that trust, you can have someone that would take care and administer that trust, the, the executor of that trust, to be able to, give your wishes and make sure that that trust is gonna do what that trust says. Right? And then review your beneficiaries. Maybe you set up a 401k and you've been with the company for 15 years, and in that 15 years you got married. You had kids and then you got divorced. And if you've never looked at those beneficiaries and your ex-wife is still on that, or your ex-husband is still on that, then they're, they're gonna receive that money or there's gonna be a long, drawn out, fight about who gets that money and things of that nature. Here in Florida there's a a 30%, kind of clause, so your spouse at least gets 30%. And so if that's a second marriage, you may want a trust in place that. maybe you don't want your, your current wife to get that money. You want your kids to be able to get that money because your current wife is set, or maybe that's an agreement that you guys came up with. But we want to have this in, in writing so that you understand that that million dollars,$300,000 isn't going to, my current, my second wife that's going to my kids for my first marriage or whatever, situation that you live in, right? if you're high net worth, if you're above. the estate tax law thresholds, you're gonna need some advanced planning and that's, that's gonna cost money. And I, I've heard from multiple attorneys I've talked to, I've experienced it myself. sometimes you get certain people that go, ah, I don't want to pay an attorney 10,$15,000 to write up this elaborate plan because I have 20, 25,$30 million. when in all reality once you pass, you're paying 40% to pass that down to your kids. And so 40% on$25 million, sounds like a lot more than, 10 or$15,000 to write up, some sort of estate plan to make sure that you can mitigate some of that tax. Right? I'm not saying that, not trying to give legal advice or anything. I'm just saying go meet with the attorney and they will give you the proper advice, to what you need, right? And so whether that be trust or life insurance, trust or gifting strategies, whatever that may be, especially if you're over that, estate planning threshold. So that is goal number five. Again, just to recap here, we want to plan, right? We want to to know our plan or know our retirement number. and have at least six to eight times our annual salary. By the time we're age 50, we want to get rid of all that consumer debt, even the pesky student loan debt that you've, kinda let linger and then maximizing those retirement contributions, not only so that we can save retirement, but for those tax, advantages. that those retirement counts give us, because again, we're at our, generally at our peak earning potential in our fifties, and we've probably accumulated wealth by age 50. So we want a more well thought out investment portfolio that considers taxes and not being overly concentrated in one asset class or one particular holding over another, so that we can mitigate volatility and risk. And then number five, meeting with an estate planning attorney to have some sort of plan in place to make sure our family is taken care of in whatever fashion that you want in case something happens to you, right? hopefully you found that useful, today. again, I know current events are crazy right now. Just to kind of get back on that soapbox real quick. current events are crazy. Markets are crazy. S create a plan, stick to the plan. In times like this, if you can stick to your plan, you'll come out on the other side better financially and hopefully a better person as well. Um, if you're unsure about your plan, unsure about these benchmarks, you can always reach me@palmvalleywm.com. You can go to, look at the Palm Valley Pathway, which is my financial planning process that I use for my clients. You can look at that process, what it looks like to work with. me at Palm Valley Wealth Management and book a call, 15 minute call. It's no cost, to you, but we can talk about your situation, understand your thoughts and, and. Feelings around money and what you want to accomplish, and we can go over how I can help you, and go from there. So hopefully we'll see you in the next one. If you like this podcast, go ahead and leave a five star review on your favorite podcasting app. And we are on YouTube, hunter Kelly, CFP. So if you're watching on YouTube, please subscribe and like this video and we'll see you in the next one. This podcast is for educational purposes only, is not meant to be financial, investment, or legal advice. Please do not make decisions solely based on this podcast. Please seek financial, or legal help about your specific situation. Please keep Palm Valley wealth management in mind when making those considerations.