Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

A Real-Life Story Of Investing Too Well For Retirement

• Ari Taublieb, CFP®, MBA • Episode 185

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This episode navigates the complexities of retirement planning, from Roth conversions and required minimum distributions (RMDs) to the impact of Medicare premiums. Learn from a frugal couple's experience that highlights the importance of enjoying life while remaining financially secure. We also revisit last week's heated discussion on whether breaking up with a financial advisor might be the right move for you. This episode is packed with valuable strategies and real-life scenarios designed to help you strike the perfect balance between financial security and living in the present.

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Ari Taublieb, CFP ®, MBA is the Vice President of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.

Speaker 1:

Yes, it is indeed possible to invest too well. Some of you are like, no, there's never too much money, I could always find a way to travel or give, and that's not what I mean. What I mean is there's a risk of investing too well and working too long and looking back going. Why didn't I retire earlier? Why didn't I consider potentially doing that remodel? Or why didn't I essentially give more to my child for that wedding? I'm going to tell you a real life story of my clients who invested too well, who are now telling me to tell my clients here's other things I wish I would have done. So I'm going to walk through that with you today. Now, last week, I know, was a big episode. It was one of my longer ones. Hey, should you break up with an advisor, should you not? How do you think through that? I invite you to check that one out. It is a lot of information in there. If you don't, you still might find it valuable.

Speaker 1:

Today's episode is back to the standard process, where I'm going to go over a review of the week. I've got some fun, entertaining ones for you guys, a few funny comments that have been left that you're going to probably chuckle a few times, possibly at, and then we're going to get into the real story here. So hopefully you guys are loving the content so far. I love all the comments, both when you guys send me emails directly to me, when you drop comments on YouTube reviews on the podcast apps. It's awesome. So you guys are the reason I do this. So I'm pulling up the first comment here. I know you can't see this if you're just listening on the podcast apps, but I'm going to explain it to you. If, of course, you're watching on YouTube right now, you can check it out Now.

Speaker 1:

If you don't already know, my name is Ari Taublieb. I'm a certified financial planner, host of the Early Retirement Podcast and I'm the vice president at Root. So first comment here this comes from Kate Libby, 1315. She goes. I took the new retirement route at 59. I have a $10,000 a year side gig that feels more like volunteer work. Now, at 65, we've not touched our retirement funds. Spouse plans to take retirement in two years at 62. Next stage we'll be transitioning from saving to spending.

Speaker 1:

The reason I'm highlighting this comment is because some of you are going to be like what do you mean transition? Just go retire already and start spending if you're in a good spot. It's not that easy. You don't just flip a light switch and essentially go, oh, now I'm going to be able to just spend successfully, because if you did, you wouldn't be where you are right now.

Speaker 1:

The truth is it's hard and it's more like dimming a light where, over time, you become successful at spending. It just doesn't happen overnight and I think the only real way to do it is with an optimized financial plan, or else there's always going to be a little head trash in the back of your head yeah, I think I'm in a good spot, but what if it turns out I overspend? Or what if it turns out you know I want to spend way more than I thought I initially projected? Or what if it's way less? And I'm going to tell you the real client story of one that it was way less. And you're like what do you mean? I'm going to tell you about it in a second. So this is a comment I become an amazing spender overnight and I don't need you to.

Speaker 1:

But I want you to think about it in the following light If you are an amazing saver and a good investor, and that's why you are where you are today. Good for you, I'm proud of you. I don't get to say that to everyone Now. If you continue being a good saver, you will not have success in retirement. You will be financially fine. You'll be financially fine. You'll be financially more than fine, which is the story of today. But you're going to look back on yeah, why didn't I do the remodel or travel? If I was in a fine spot to do so anyways, and still not run the risk of running out of money, you might go, you know what. No, it turns out. I just love you know. Whatever it is volunteer work or I love working and I'm going to keep working anyway.

Speaker 1:

So it's not like a cookie cutter approach. That's not what I'm saying. What I'm saying I want to make sure that you are actually living your dream retirement and you don't have head trash of I don't know if I'm in a good spot to spend. That's my point there. That's the first comment.

Speaker 1:

The second comment this comes. So I've got a second comment that I want to highlight and then I've got, like I said, most of the weeks I will do my best to pick one or two comments to highlight that are very kind, and then I encourage you guys leave these comments and it helps more people find the show, and that's my whole method here. So, thank you guys, and I want to make this is your show, it's not my show, and I try to make it as engaging as I can for you before hopping and some of you are watching on YouTube right now. By the way, it can just like get to it already. I've got chapters and so, if you could you want to like skip to your part? Hey, I just want to hear the story already, or, oh my God, stories. This approach sucks. Just like tell me, should I use the rule of 55 or not? Like I have plenty of content for all of you out there right now. So if you're like I just want a specific, just search it next to my name and I promise it'll come up nice and easy for you. Youtube does a good job. So here's the other comment.

Speaker 1:

This comes, and I've highlighted C Francis 1968 before he goes hey, this is on a video of. It was all about pre-tax assets. I was saying, hey, should you convert, should you not those Roth conversions? And he says, hey, not to mention, if one of them passes away, the surviving spouse is going to get really screwed on taxes, even more of a reason for them to Roth convert, as it's inevitable one will outlive the other. So what C Francis 1968 is wisely bringing up here, the benefit of Roth conversion goes beyond simply hey, I pay a little bit in taxes today to avoid a big bill in the future. Yeah, there's a benefit to that. But what if, like C Francis 1968 is saying here, what if you pass away? Well, now the spouse is inheriting that and they're now going to be paying taxes on that. So can you help out your spouse by doing a roth conversion? So if you pass away, for the rest of their life, they're not getting creamed by taxes. Same approach with your children. So roth conversions can really be a nice estate planning tool. So just want to mention that. So good job, c francis. Now here's my favorite one, and this one Okay. So this comes from hb-yq8gy and he says it's funny nine out of 10 financial gurus I shouldn't say he, I don't know if it's a she or their gender, so I'll take that back it's funny nine out of 10 financial gurus. I don't like the word guru, but that's what he says here. Okay, he says it's funny Nine out of 10 financial gurus pushing Roth conversions on YouTube.

Speaker 1:

If you have a pension and your spouse gets half your pension for life and will be claiming social security at 62 and you need the money from pre-tax accounts for monthly expenses, a Roth conversion doesn't make sense. Look, I read that and I'm like, hey, I don't totally disagree with you. Like I'm reading that going hey, there's a lot of validity. Now it depends completely on how much that person wants to spend. Now, if they're like listen, we don't want to really spend a lot of money and we're kind of frugal and we've got social security and something happens and there's a pension, well, the reality is, if you're already not spending a lot, you have social security and you have a pension One, I'd argue are you potentially underspending Two? I would then take it a step further and go okay, yeah, you're right.

Speaker 1:

Right off the bat, you might not think there's Roth conversions that are necessary because of what you said, but then, as the money keeps growing, well, you're not even spending your money down. So imagine you have an IRA or a 401k and you're only living off Social Security. Well, do you want your IRA to not grow, just so you don't have to pay RMDs in the future. No, that's like not accepting a bonus because you don't want to pay taxes. You want that money to keep growing and as it keeps growing, in the future you are going to have RMDs. So now this person let's assume their spouse does pass away or doesn't either way. Well, now we're talking about two social security benefits, we're talking about a pension, we're also talking about RMDs and I don't know what other assets they have. So now their income could be huge. And now they're going to have what are called Irma surcharges, which is, essentially, you're going to have to pay way more Medicare premiums than everyone else only because you invested.

Speaker 1:

Well, so someone a few weeks ago, they're like, oh, that's kind of cool. So like I pay more and then I get more, I'm like, yeah, it's just without the getting more, you just pay more. It's almost like you make more money, you just pay more taxes. So that is the ant I put on my little kind of you know I'll put all the comments together. I nicknamed that an anti-guru comment. I don't like the guru word. It kind of rubs me the wrong way. So by no means am I some kind of guru. So those are the comments I want to go over.

Speaker 1:

Now let's talk about the real life story here. So this couple comes to me. I've been working with them for some time now. I invited them on the podcast. They politely declined. They were nice about it. I said, hey, I'll blur out your faces. They're like we don't want to share, but I want you to tell everyone I go okay, so they had when they came to 2.5 million at age 55. Okay, so 2.5 million. Now they had more in like rental income and bank accounts and stuff like that. But keep it simple. Like oh, two and a half like IRA or Roth or 401k. It was a mix, don't worry about that. Like, don't want to go too dot. I like going into the weeds, but this is an example where you don't need to be for example's sake, of what I'm going to portray to you today. So they have about two and a half million bucks across various accounts. They're 55.

Speaker 1:

They are naturally frugal people. It is difficult for them to spend money and spending money right now would not add to quality of life right now, meaning when I spoke to them when they were 55. Now here they are in their 60s and they're like listen, ari, I wish you would have kind of told us earlier we should have spent more when we had our energy and our health and we could take more trips. Now they couldn't anticipate they'd get a scary health event, which occurred to one of them. And then the other partner was like listen, I don't, and they don't want me to say their names, but they know who they are. The other partner was like, listen, now I don't want to travel if I can't do it with my best friend. So now they're not traveling to the degree that they would like because of what has occurred. They had plenty of money to do it. They didn't have children, and so here they are, regretting not spending enough money. And here's what's going to happen. They know this, they're even aware of it, and we're actually tackling it together. There's some planning points.

Speaker 1:

So here they are with two and a half million bucks. I've mentioned it in previous episodes. Some of you have heard of this before, but it's called the rule of 72, which tells you how long it will take for you to double your money. So if you get a 7.2% on average return, divide that by the 72, it's going to take you 10 years to essentially double your money. That's how long it's going to take you for your money to double. Now let's see, we've got a 10% return instead of 7.2. Well, now it would take 7.2 years for you to double your money.

Speaker 1:

So here they are, at 55 with two and a half million bucks. Now, this particular couple, they like what they do, so good for them. But some of you are like, no, I don't love what I do. So here's the reason I bring that up. They are going to essentially not be withdrawing anything from this two and a half million. And they weren't, and they're still working. Luckily, they like what they're doing Now when they officially they call themselves retired, even though they're still working, because they just do it, because they want to. Now they've got these low, stressful jobs and they're enjoying it and it doesn't bring a ton of money but allows them to do what they want to do and pay their bills.

Speaker 1:

Here's my point, here's what you need to know. They are not withdrawing from the money. So here they have two and a half million bucks at 55 and their money has done well and it's close to doubled. And that's because they're doing better than just 7.2% return. Markets have done well, we're investing the right way, yada, yada.

Speaker 1:

My point here is they're two and a half million. If we're just keeping it easy with math here, let's assume it doubles every 10 years. Okay, so they have two and a half million today. In 10 years they're going to be 65. Now they're once again already in their sixties today. Just keep it easy, 55 is when they came to me. So that's what I'm basing this off of, two and a half million bucks is going to become five million bucks at 65. Then five million bucks is going to become 10 million bucks at 75. 10 million bucks is going to become 20 million bucks at 85.

Speaker 1:

And so we're showing them this, me and my team, and they're like listen, I get it, but it just kind of feels fake. Like I get that, but what if markets don't perform that well? I go, great, I'm with you. Let's assume it doesn't perform that well. Well, even if it doesn't now. So $20 million we're looking at 13 or $14 million, with conservative assumptions and inflation higher than it's probably going to be like okay. So I still see I'm gonna have millions of dollars and yet why don't? I feel like I can go spend. So here they are talking.

Speaker 1:

This was initially when they reached out and I go. You know what A lot of this is emotional. It looks good, but there's this fear You've made income for 40, 50 plus years Not really For them, it was more like 30 plus years in the traditional sense, where they started working in the early twenties. Here they are now. They've worked 30, 40 years and they're wondering why is it that I don't feel confident that I can spend in retirement? And I said one because you're a human, not a robot, but two because when you're looking at these numbers, it looks good, but like we need to really play out worst case scenario. And so we were doing a lot of the what if? Scenarios. What if they live way longer than they think? What if taxes go up? What if healthcare costs more than they think? You know, when they first came to me, they didn't have a scary health event going on. So now they're coming to me and this, now we and this is a learning lesson for me they go.

Speaker 1:

I wish you would have told me we could have done a remodel and I wish you would have kind of even told me further. And I go. You're right, like I thought I did, and I thought I did show it to you clearly, but clearly I didn't convey it in a way that resonated with you. And so here they are and they're like listen, I'm not beating had a home that was kind of more of the smart home, with other features and things like that, and we would have taken care of the roof and done other things. And some of you are going to I know, hey, did the roof fall on them? No, okay, but they wanted a home gym. They didn't do a home gym at the point. There were things that they wanted that they go.

Speaker 1:

You know, I don't want to just think I can do these things and then run the risk of running out. And some of you don't have this head trash and you're like that's not going to be me. If I know and I have confidence financially, I'm good to go, I'm going to be fine. But the reason I'm telling you this story, it goes deeper than just does the software say that you're on track? And so I'm telling you this because here's a couple that's saying right now I wish I would have spent more. I don't have children, and even if I had children, I wish I would have spent more when we had our energy and health, because here they are now, not able to spend to the degree that they would like. They still want to travel, but it's way more limited. They actually have to spend more money to be able to accommodate stuff that they're going through. So it's a tough situation going through. So it's a tough situation and they're essentially not easy to talk about, but they're essentially going.

Speaker 1:

Listen, we don't want to die going. We have $12 million. Now we're in a different stage of life and it took us time to get to this headspace. So I came to them and I said okay, what could I have done differently to essentially create more success in your ability to spend, for you to feel comfortably? Is it more stress testing? They go. No, we did all of that. I remember that. I felt good about it.

Speaker 1:

One of them felt more strongly than the other, but it's a team approach and I go okay, what could we have done differently? They go. All that could have occurred differently is that we would have educated ourselves earlier. I don't think it actually would have made us change anything. And I went well, that's a powerful statement, because what you're saying is someone could tell you anything and you're still not gonna have the confidence, because you have to feel it and the only way you're gonna feel it is if you're making the decision on your own. It's my job to quantify all these trade-offs and come back to you and make sure you understand the magnitude of all these decisions. But I said, oh, that helped. But I wish I would have known about a lot of this stuff earlier and I wish I would have heard from other people who are in my situation.

Speaker 1:

So one of the things that a lot of you know and the reason I'm telling you this story right now I have my early retirement academy. I don't get to work with all of you guys, and so I created this very affordable option. For a few hundred bucks, you're able to go in there and you're able to essentially have the same access to the tools that in large part not every tool, but a lot of them I use with my clients, and you can see all about it in the description. I am then going to and if you're listening to this right now, it may have already been launched it going to and if you're listening to this right now, it may have already been launched. It's unlikely, but I'm currently in the phase of testing this, where I'm going to launch a community where people, just like these clients I'm talking about right now with you, would have had the opportunity to learn from other people in that situation, because it's one thing to hear it from me, it's another thing to hear it from me on YouTube and go through software. It's another thing to hear it from other people who have actually done it, have actually retired early, did the remodel, are so grateful they did, and if that means that this couple that is a current client of mine would have 1% more confidence to maybe spend more when they were in a fine spot to do so, that's why I'm doing it.

Speaker 1:

So this is a community feature that's going to allow people like you who are interested in early retirement go. You know what? Maybe you know, in my 50s I will stop working and let me hear what other people have to say when they stop working in their 50s and you might go wow, good to know. Nope, turns out that a lot of these people are really struggling with purpose and fulfillment, so I'm going to keep working. You might go. No, what? No, this is really interesting. Yeah, I see I'm kind of just doing the whole goalpost planning. I'm just pushing back one more month, one more bonus, one more year.

Speaker 1:

But if I could have like a community to help me with this and understand, like, hey, what should I do? And guide me, maybe even along the way, that'd be cool to know. So this is not something I have in place today. Now, the truth is, by the time this podcast comes out it might be, but I doubt it. And so the reason I'm not doing this to hype you up. I'm doing this to say, hey, this is real life stuff here. Money is personal and these stories that I'm telling today's more of a story episode, if you want, of course, more of just the kind of direct hey, how do I implement this conversion? And I've got plenty of that. I have hundreds of hours of that content. I want to come to you with more real life stories so you actually can start to go out. I'm going to think differently about my retirement. So that was the goal of the podcast today. Hopefully this was helpful. Not rocket science stuff, but kind of the more emotional stuff.

Speaker 1:

What is the plan for purpose and fulfillment? Meaning my current couple that I'm giving you an example of today. I wouldn't let them stop working and you're like, hey, they have plenty of money. I'm sure it's. They had two and a half when they started, started with you and you say that they've done really well and they've got a lot of money. Now, yeah, financially they're fine. They don't know what they would do in retirement, so they want to travel and they've got a kind of health stuff going on. But they get a lot of purpose and fulfillment from these jobs that don't pay them a ton of money. They love it.

Speaker 1:

So, people, it's like no, you tell me, I can get with my family and just spend more time doing that, great. So this is a really important thing I want you guys to think about, which is okay, great, how do I kind of fulfill my time in retirement and what are things I want to do? And some of you are like, listen, you, I, I've, I'm, I'm never going to be bored. There's so many things I wish I could do, I just can't do them right now. Some of you are like that. Some of you are the opposite.

Speaker 1:

So this story, hopefully, is going to help you go. Yeah, you know what I'm going to look and you guys, I have and this is something I do have right now I have my Academy, which is, if you want to play projections on your own to go, wow, okay, yeah, I don't necessarily need to die with that amount of money, but I've got three kids and got to understand how I get them through college and, okay, what am I going to actually be worth and really start to play around so that you do have confidence and you don't get into your 60s and 70s or 50s or 80s or whatever it is going. Why didn't I spend more when I was in a fine spot to do so? Now, I'm naturally conservative, so I'm the first person to say, hey, don't spend. If you don't have the capacity or ability to do so, okay.

Speaker 1:

But if you do, it's hey, let's start talking about if you're going to buy a new home. How much home could you buy? Does it make sense to maybe get a second home? How much joy would that bring to you? Okay, what are all the things financially? If you didn't have to think about it, you would do, and you can go and put those into the model and the software and go, yeah, I'm going to go to the US Open and I'm going to do National Geographic private jet trips and it might tell you, hey, you're going to run out of money at 80 if you do that, you might go cool. I could take trips every year like that, but what if I do two or three of those trips? Could I do that, be able to do things like that? So, lastly, if you want to work with us of course this is what we love doing Reach out to us. You can see in the description, we do holistic planning for those that really want to optimize what they've worked so hard for, and we love doing it. So that's it for today.

Speaker 1:

Guys, if this is helpful, please like this video, share it. This, of course, is a podcast as well, so please be sure to share this with friends. It's more fun to retire with friends, so I encourage you and appreciate you doing so. Thank you for listening to another episode of the early retirement show. If you have a question that you want answered in a future episode, you can always go to my website, early retirement podcastcom. That's early retirement podcastcom, and you can go ahead and submit a question that I'll look to answer in a future episode. Thank you all for listening. Please do rate it, review it and share it with someone who you think would benefit from this information. If there's anyone out there that you know, I certainly appreciate it and I will see you all each week. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. No-transcript.