Market Mentor: Retirement and the Power of Compounding

Updated : Oct 22, 2019 in Articles

Market Mentor: Retirement and the Power of Compounding


– Welcome to “Virtual Trade.”
I’m joined by new trader
Jenny Horne. Jenny, good to see you again. – Thanks, Scott. – We’re gonna talk
about something I think
that’s very near and dear
to traders and investors,
and unfortunately
it’s something they don’t always think about, Jenny, do you think about
retirement from time to time? – Yes.really. Well, you’re very young,
but that’s most likely
the best time,
as you’ll see, to start
thinking about retirement. – Yeah, I mean, I really–
I have to say,
I just think about
more the next years to come. – Okay, well,good at planning
what we’re gonna do is,. and we’re gonna takeo
advantage of a toolm website,
they have there called
the Retirement Calculator. So what this is able to do,
it’s gonna be able to give you
a view of it–
“Okay,
if I start to plan
for my retirement and assess what my goals are,
how would I save and make sure
that I set things up
so that I could achieve
those goals – Yeah, I mean, get to my
I would love that.ll be okay?”
– And again, we’re looking
at a model,
and as with all models,
there’s no guarantees that all these things work out,
because, you know, and what the annual rate of
return is and things like that,
but you’ll see as we go
through the calculator,
there’s a lot to this. – Great. I’m excited. – All right. Well, let’s dive right in. We’re gonna go into
the tdameritrade.com website. As you can see,
we’ve logged in. to, obviously,My Account” tab,
“Planning and Retirement,” go and then click on “Overview.”o
Now, I’ve already done that,
so I’m gonna bring up
the Overview page for us
so we can bring that up
right now, and there it is. This is exactly
what it’ll look like. This is
the Retirement Calculator. So let’s go through
the steps together,
and I’ll let you go ahead
and start typing in,
and right now, we’ll start. As you can see, step one
is some personal information. – I’m a female. – Okay, perfect. Now, it’s gonna ask birthdate,
because obviously it’s going
to be making some assumptions – Right. – It’ll calculate when you can
start drawing Social Security
and things like that. – Right. – So it’s important
that you use
an accurate date on that one. Okay, marital status,
that is totally up to you. Employment status: employed. Now, employment income. So, again, this is something
you obviously want to be – Right. – But, again,r accuracy… we know
those numbers will change,
so let’s just start off, Jenny,
with a round number here. Maybe we’ll put in 50,000. How’s that? – Great. – All right, so someone
who’s a young professional
starting off their career,
we’ll just use a round number. Okay, that’s fine.e’ll just go
Where do you live?right now. You might think,
“Why do they ask this?”
Well, it depends
where you live. and what kind of benefitsctor
you potentially could have. – Right. So I currently
live in Illinois. – At least I hope not. – All right, so pick a state. – Okay, well, I would like
to retire,
I think, in North Carolina,
so I’ll put that. – Great.ght. No, absolutely. – Now, you hit the next button
in the upper right-hand corner. Now we’ve got the personal
information in there,
and now just
a couple more things,
so they want
to kind of figure out where your expected
life expectancy is. I know that sounds
kind of morbid to think about,
you know, but again,
this is very important,
and that’s why many people
don’t think about this, I think, Jenny. They–“Oh,
well, that’s something
I’ll worry about later.”
Well, no. There’s no better time
than right now
to start this planning process. All right, so let’s go down
to the questions
they’re asking you for. First of all, are you a smoker? – I can say my health–I think
– Omy health is excellent. – I’m optimistic here. And my family lives
a very long time. I have grandparents
who are 100,
so I’ll say longer
than average. – All right, good genes. Again, you want to be
honest about this. – Yeah. – And again, it’s just
asking you for accurate-
-the more accurate you are
with the information going in,
the more accurate
the potential model will be when it comes out. – Right. Maybe knock on wood,
but I think that
I’m pretty healthy. – All right, well,
take a quick look. I’m gonna put my glasses on. Now this says
Jenny retiring at 65… with the information put in,
– And then, Jenny, – That soundsbe living
like forever away.-2088. – It does seem like
a long way away,
but again,
this is what it needs to make
the planning decisions
as we go forward, so–all right, so we’ve got
all that information in there. It says,
based on your selections,
your money will need
to last you
for approximately
29 years of retirement. – Okay.s longer than I’ve even
But again, this is good.. It’s putting together
sort of a model for you
or some retirement
type of goals you’re gonna
want to have. Okay. – And that’s pretty cool,
because I really would have
no idea how long
I would need to save for,
and now it tells me
an estimate right there. – Exactly, especially–
and again,
things can vary, as you’ll see. We’ll be able to change
some of these variables
as we go forward. All right, so I think
we got everything there. We’ll go to “Next.”
Maybe a couple other things
that it’s asking you for. Let’s see,
what do we have here? All right, now this is going
to be that once you do retire, What would be available for you
out for annual income?ere? – Right. – All right? And we can see that number
right now works out
to be–
what does it say right there? – 37,000-ish. – Yeah. We can round that close
to about 38,000. – Right. – Okay. Perfect. So now we have a number–let’s
keep that number in mind. and then we’ll go ahead000
Okaand hit “Next,”hat in mind, there are a lots you’re going
of different placess, Jenny,
on the Retirement Calculator
that will give you
further explanation
of the different numbers that you’re seeing. – Okay. – And again,
those are typically in blue,
so you’ll just–if you hover
over your mouse,
click on that,
a little box will pop up, and it’ll give you
more information. – That’s great. – All right, so now,
let’s talk about
Social Security benefits. Are you eligible
to receive benefits? – Yes. – If you’re paying taxes,
generally, that is true. Are you currently
receiving those benefits? – No, I am not. – No. All right, good,
so that’s very clear. When do you want to begin
receiving those benefits? Now you can see, right now it’s
going to assume that, you know, and you could start, retire,
and right now it’s gonna assume
you’re gonna
collect benefits–
I think right now
it says 67, all right? So 67 would be
the ideal time for you
to start taking benefits,
I think, according to this. – Right. I like that it says,
“Use the slider
to see how long waiting
can increase your benefit,”
because I think that
it’s saying if I retired here, it–okay look at–yeah,
it goes to 20,000. – Now, this is a great point. it goes to 22,000. where it would be actuallyf
a mormore beneficial,k area5,
so if you waited
till you’re 67,
you can see right there
exactly what that number is, and the longer you wait,
obviously the higher the Social
Security benefits would be. – Yeah. – All right. All right, let’s scroll down. Anything else
that we missed there, Jenny? so you’ve got benefits,ore
and of course it tells youht,
your lifetime benefits
there as well to the right. It says about 600,000. Okay. you could certainly add those
to the bottom of this page,
so you can see that blue
when you scroll down. If you do click on that, Jenny,
provided additional benefits. let’s just go down there
and take a quick look. you’ll be able to do that here. other benefits other than that, – Oh, I think it didn’t like
Are that we opened this. We can just delete… –
Oh, let’s go ahead and delete. Good point. All right. That’s a good catch. All right, let’s go to “Next,”
and now it looks like assets
and employer-sponsored plans. So if you’re working,
most people–many people;
not most,
but many people–have a 401(k)
provided
through their employer. – Right. – So it wants to know,
in addition to Social Security,
what should be calculated
into your retirement model,
so, again,
let’s have some questions here. Let’s go ahead and take a quick
look, other assets,
and let’s go down to, So it’s gonna ask yout
aabout your 401(k).ly invested? Well, first of all, let’s go up
to where it says “401(k),”
and let’s add that,
and you do have a 401(k)? – Yes, I do. – Now, if you’re young,
as you are, you probably
don’t have a lot of value
in that portfolio yet,
that 401(k), so… – Correct. – Let’s go ahead and–let’s put
something in anyway–
maybe 2,000 or 3,000. – Okay. – Just to say that, you know, It was–let’s hit “Edit” there,
What do and let’s sayhat one? that you’re gonna be
contributing–typically people
maybe–it depends
if you have matching,
maybe somewhere
between 6% and 10%. – Okay. – We can just put 6% in
for right now… – Okay. – As a contribution. Okay. All right, good. We got through that. Other assets,
and how are your retirement
assets currently invested? So how much is in cash?–this
is an important question too. I’m gonna guess
a small portion. Maybe let’s just
put in 10% for that. Since you are young,
you probably have more All right, so that seems
slike a fairly–let meocks. grab the mouse. I’m gonna just drag down. All right. I think we’re set here,
and let’s go forward. Now, again, but I think we’re justry
kind of putting togetheridual,
just a general idea of what
it would be at this point. – Right. – Okay, now, Risk. One:
select your target portfolio
and review its potential loss. Is it beyond
your breaking point? So now we need to slide this
to the right. until my retirement.e risky,
beca- Exactly. more years
You are looking at what we call
a growth portfolio,
and since you’re young,
you’re gonna have plenty of opportunity
to navigate the ups
and downs of the making
before you get to retirement. – Right. – So you’ve got plenty of time. – Which is–you just put it
in a good way. I have lots of time. – Right, and oftentimes,
financial planners
will look at that
and say that it’s, you know,
it’s not such a bad thing
to have more exposure to the stock market, and–I almost saidmuch time
“expiration”–retirement. Okay. – “Now and expiration.”
– All right. So far, so good. Now, it’s assuming
an average return of 7%,
and that’s important, All right, so let’s keep going. a variaNow, here we go. Drumroll. Jenny, take a look. What does it say? to last for yourough retirement
29 years of retirement? – No. – And it says, “No, you’ll run
out of money in 14 years.”
– Oh, no. – Oops. – I may have to work
a little bit longer. – Right. So now we’re at the point Well, if you come to thee
right side here–I’m gonna move
my mouse–there’s
three different zones,
and you’re in the zone
of–the purple zone, which gives you about
a 33% probability
of meeting
your retirement goals. That’s not a great probability. – I mean, but I’m almost
at the green part of it. – Right. Well, take a look here. The green is where
your money runs out. Now, obviously,
it’s planning that you’ll
live out to here–2088. Now, the question is,me left
now that you’re here,concern. how do we get into the green
or the blue zone,
which is a much higher
confidence of this? And again, if you’d like
to get more explanation
on these answers,
just click here,
and it’ll give you
a lot of information about how things are calculated,
so again, these are
great things to click on how do we get tothrough here. meet these goals?ext thing is,
How do we get this cash
to last all the way
till your expected age? Well, now we’re
in the final zone, and now you can see that it did
masome changes for you here,
and you can see, hey, now
if we make some small changes, and what you can start,
which doing heree bit higher,
is look
at the changes they made
and continue to make
other changes yourself. you can change those. you want
to solve for retirement years,
If you’d like to say,
“Well, maybe I’ll change I can change those as well. living All right? Jenny, you’re able to go ahead
on that laand say,there,
“Well, listen,
how can I meet that goal?” – That’s fair. – So the first time
I clicked on “Age,” I said,
“I don’t want to do this,
because the only solution
to that – Yeah. I don’t want to cut
a shmy lifespan down. – No, so I jumped past
that one for sure,
so again,
these are important things. What if I got
a higher rate of return? Now, that would also help
to meet
those retirement goals as well. – Yeah. – So on that last page, just by sliding on the bars…d
and change some of the factors
– Right. – And seeing what would happen
if I actually added maybe
an extra $100 or $200 what that doesmazed at just
to retirement goals.00 a month,
– All right, yeah, I mean,
as you can see,
it’s important to go back
and change all of those things, or else
I won’t retire very well. – Right, and that’s one
of the fun parts of this tool. All right, well, Jenny,
what’d you think about this
and retirement
and using a tool like this? – Oh, this was great. As I said, I had no idea,
really,
how I’m going to retire,
and this gives me perspective
of things
I need to change in my lifestyle
and things I need
to do moving forward. website, and I totally agree. All right, well, thanks, Jenny. That was a lot of fun,
and I think very educational
for not just yourself,
but everybody watching. – Thanks, Scott. – And I certainly look forward
to our next session.

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