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This week on the Pete the Planner Show, Pete and Damian revisit a #FAIL of their own: the intro music to the show.
No time to listen? Here’s a preview of what happened and when:
DIGGING DEEP INTO THE 4% RULE: [6:33]
- One of the weird things about saving money into a retirement plan for 45 years is your find yourself perpetually in the accumulation phase. You don’t really think about the distribution phase. It can be hard to stay focused and remember why you’re doing it. The industry rallied around this idea that you should calculate how much your nest egg will generate by multiplying your nest egg by 4% and that will tell you how much you can safely withdraw annually without the fear of running out of money. This past week, a paper was published suggesting the new number should be 3.3%.
- PETE: This means a $500,000 nest egg at retirement would then drop from $20K to $16,500 per year without the fear of running out of money.
- DAMIAN: $500,000 sounds cool, but that’s a pretty small number when you break it down with maths.
- PETE: If more people calculated a proper withdrawal rate at the midpoint in their career, I think it would make people get on their horse a bit more when thinking about retirement.
IRS CONTRIBUTION LIMITS HAVE CHANGED AGAIN!: [19:45]
- Every year, the IRS puts together the increases in contribution limits people can put into retirement vehicles and other things. Their changes are always shockingly predictable. Special note: there has been a lot of criticism lately as this relates to the income gap and how retirement plans unfairly reward those with money, which in turn, leaves people with no money behind.
- In 2021, if you were to max out a 401(k) or 403(b), you could put in $19,500. It used to be $18,000 some years ago.
- PETE: One of the ways people can prepare for the retirement crisis is by putting away the right amount of money. By not moving the limits up, in some respects could dissuade people from properly planning for retirement.
- DAMIAN: In the year 2000, it was $10,500. In 2005: $14,000. In 2010: $16,500. In 2015: $18,000. In 2022: it’s $20,500….if you’re 49 years old or younger.
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Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.