Funding Your Retirement With John Grace, Pastor Tommy Brown March 25, 2018
Guests: John Grace and Pastor Tommy Brown
The Income Generation With David J. Scranton
When figuring out how much you need for retirement, how should you approach the calculation from the bottom up or from the top down and what’s the difference? Well, when calculating from the bottom up you simply add up all your anticipated expenses that you think that you might have during retirement, now admittedly this seems like the most logical approach and this is the way that many people attempt to do it. It’s how you would approach it for example going to a baseball game, you’d figure out how much the tickets would cost how much the parking hot dogs so on and so forth. And this approach is fine for a ball game or a vacation unfortunately it’s not the best approach for retirement and the main reason is simply this inevitably you will miss things you will almost certainly overlooked items and under calculating rings in trying to determine 30 years of retirement expenses, we’ll talk more about that later. The fact is that I’m more better approach in determine how much you need for retirement is to do what I call a top-down financial analysis.
You see with a top-down Financial analysis, a top-down financial analysis for your expected retirement expenses instead you start by identify your expenses and contributions you expected to go away during retirement and then you subtract Gross income. For example, if you’re making $100,000 a year while working, you can figure out how much that is going to your 401k and subtract that from the 100,000 you can also subtract the FICA tax that comes out of your paycheck why because you don’t have to pay FICA tax on retirement income and if you expect to have your mortgage paid off by the time you retire you can subtract that monthly expense as well but you also have to determine whether or not it’s pre-tax or post-tax and your Because it’s a mixed bag. Every payment is a mixture of principal and interest. At the beginning it’s more interest than less principal and at the end it becomes more principle less interest, so in terms of your top-down analysis the interest portion of the payment can come right off the top of your income of your gross income because it’s tax deductible. However, your principal portion of your tax returns will have to be grossed up. Why? Because it’s after-tax, it’s not deductible, so what are some other examples of post-tax expenses? well there’s that FICA tax from your paycheck and that is paid with after-tax dollars and therefore it has to be grossed of the same goes for car payments if you think you may not carry into retirement as well as any amount you are adding anybody to a bank or credit union or saving accounts but all those expenses would have to be grossed up for taxes. So, let’s just say hypothetically when you grow help all of those you end up with $35,000 worth of expenses that you won’t carry into retirement subtract 9 from 100 and you get $70,000 a year of pre-tax income that you really spending now.
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