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Are You More Concerned With Your FICO Score or Your Net Worth?

The Ramsey Show

Thu Sep 14 2023



Background and Financial Situation:

  • Phil and his wife have been saving and cutting corners for over 30 years.
  • They have a paid-off house worth $425,000.
  • Their net worth is $2.2 million in IRA and 401(k) accounts, with an additional $300,000 invested in government bonds.

Retirement Planning:

  • Phil plans to retire at age 60, while his wife will retire at age 57.
  • They are considering deferring Social Security until ages 62 and full retirement age (67).
  • Phil's estimated Social Security benefit at full retirement age is $3,350 per month, while his wife's is $1,900 per month.
  • They also have a pension that could pay around $1,200 per month if taken early or up to $2,200 per month if taken later.

Monthly Expenses:

  • Their current budget covers two properties and amounts to approximately $45,000 per month.

Net Worth Ratio:

  • There isn't a specific ratio between home value and net worth that applies universally.
  • It is common for millionaires to allocate about one-third of their net worth to their homes when they reach a net worth of one to five million dollars.
  • As the net worth increases further, the percentage allocated to the home should decrease.

Withdrawal Rate:

  • The "4% rule" suggests withdrawing approximately 4% of your portfolio balance each year during retirement without running out of money.
  • However, this rule has limitations as it doesn't consider inflation or individual circumstances.
  • Factors like average inflation rates and investment returns should be considered when determining withdrawal rates.

Investment Strategy:

  • Phil plans to invest his retirement savings in good growth stock mutual funds.
  • He can set up his accounts to withdraw $90,000 per year after accounting for pension and Social Security income.
  • Withdrawing around $60,000 per year from a $2 million portfolio would result in a withdrawal rate of approximately 3%.

Financial Advice for Family Members:

  • Phil is considering purchasing Ramsey Plus for family members seeking financial advice.
  • He may explore bulk deals or other options to make it more cost-effective.

Emergency Fund:

  • Phil and his wife have an emergency fund of $50,000 in a high-yield savings account.
  • They plan to keep this fund as a safety net for unexpected expenses.

Retiring Early:

  • Phil plans to retire at age 60, while his wife plans to retire at age 57.
  • With their paid-off house, significant retirement savings, pensions, and Social Security benefits, they are well-positioned for early retirement.

Travel and Lifestyle Expenses:

  • As part of their early retirement plans, Phil and his wife want to enjoy life more and potentially travel.
  • They may need additional funds beyond their regular monthly budget for these activities.

Investment Options:

  • Phil has considered investing in government bonds but may explore other investment options such as mutual funds or stocks with higher potential returns.