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

4 Steps To Determine When You Can Retire Early

• Ari Taublieb, CFP®, MBA • Episode 182

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Ready to redefine your golden years and gain the freedom to live on your own terms? Join me, Ari Taublieb, a certified financial planner and your guide through the intricacies of early retirement. This episode of the Early Retirement Podcast is a treasure trove of insights, providing a checklist for assessing your readiness to retire early. It's not just about having enough money; it's about envisioning your life's next chapter. We'll discuss the allure of balancing work and leisure, and whether a four-day workweek might be a more fitting transition for you. Plus, I respond to a listener's request for stories from those who've already taken the plunge, offering a candid look at both triumphs and challenges.

Gone are the days of blindly following the 4% rule—your retirement plan should be as unique as you are. I dissect the myths and provide a tailored strategy for determining the best time to retire. You'll learn about the withdrawal test, a critical tool for evaluating financial resilience. Transparency is key, and you'll hear how some may benefit from extending their careers to ensure a comfortable retirement. I'm not afraid to share the tough advice when it's warranted, and this episode doesn't shy away from the hard truths about achieving your dream retirement.

Beyond the numbers lies the heart of retirement—finding joy and purpose in your newfound freedom. I introduce the 'post-career purpose finder,' a concept essential for a fulfilling retirement journey. Listen in as I shine a light on common pitfalls and highlight the necessity of a holistic financial plan that encompasses more than just savings. Future episodes promise to delve deeper into topics like long-term care and life expectancy, ensuring you're equipped with the knowledge to make informed decisions. And as always, your questions fuel this podcast, so keep them coming and connect with a community committed to navigating the path to financial independence together.

Create Your Custom Early Retirement Strategy Here

Get access to the same software I use for my clients and join the Early Retirement Academy here

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:

A lot of you are working unnecessarily. Now I also know a lot of you are like hey, I actually really like what I do. I just wanna do it because I want to, not because I have to, and that's what I'm all about. To be honest, I don't really love the word retirement. I just wanna work because I want to. I don't wanna be forced to do it, and so maybe that means I'm taking an extra day off every week or whatever it is For you all. I want to make sure it's the same that you're working because you want to, not because you have to. In today's podcast I'm going to go through the checklist that I run my clients through before I'm giving them the green light to retire and the different things that they should be considering. So I'm going to go through that.

Speaker 1:

If you don't already know, my name is Ari Taublieb, I'm a certified financial planner, I'm the host of the Early Retirement Podcast and I'm the vice president here at Root. So last week I mentioned that I was going to go through a comment of the week, and then I'm going to go through as well, a criticism of the week or a funny comment. So I want to make this as entertaining as possible. And if you guys are like, hey, this is silly, then let me know. Of course you can just go to my website earlyretirementpodcastcom and just submit a question and tell me you might go. No, these are really fun and engaging and I like hearing them and I've got more thoughts for you. And so, guys, this is your show, I'm just making the content. So hopefully this is helpful and we'll go from there. So the first comment for the week is this is a very kind one from C Kraluk, who says this is the only podcast I've ever shared with someone else. Well done, that's how the show grows.

Speaker 1:

I don't do advertisements. I don't want zip recruiter to come on and talk and hello fresh. And I listen to a lot of podcasts myself and it's annoying when I hear those. I'm like, hey, just tell me, I came here for this content. Um, now I recognize ads are a part of the game and sometimes I know, know, on YouTube they're going to put more ads on there. But I put it on the minimal setting because I know it's annoying, because I, as well as a podcast host, am a podcast listener, so completely understand that frustration.

Speaker 1:

Now let's go over the funny, if not criticism of the week, peng P-E-N-G. Magno7395, who says I wish that you also discuss your clients that are happy, instead of focusing on those who has a lot of complaints. Jeez, with like an emoji like this Looks silly, I get it, but the point here is a great comment. I like all comments, even the hate comments. I'm weird like that. I'm like the weird advisor that likes talking about fees as well, because my parents were burned by multiple and I want clients to know what they're paying and I want people to go oh my gosh, how much more would you let me pay you Because I see the value, and if not, I don't let anyone work with us.

Speaker 1:

So, regarding this comment hey, I wish you're also discuss your clients that are happy. I hope that I can express the true feelings. So I'm not trying to tell this person who left the comment. No, I'm also not trying to say yes, meaning I want to tell you what they feel, and so this particular comment was left on a video where I talk about the three regrets from my clients who retired early. And yeah, there were some deep regrets of hey, I wish I worked six more months, I wish I worked one more year because then I could have traveled and done a lot more of what I wanted to do, and I just don't retire too early.

Speaker 1:

I've seen that and I've also seen people where it's the opposite and they go yeah, you know, one more bonus, one more year, two more years max. And then they just keep working and they keep working and their spouse is like, hey, you said we were gonna retire, when is this actually happening? And then they're 66 and then, well, we've got 5 million bucks now. But I would argue, what good is it if your money truly cannot support the level of the lifestyle you want, whether it's active or travel, whatever it is? So I find most people are working, not always unnecessarily, but they're working in a state of I don't know how much longer I need to work. I don't know.

Speaker 1:

If I think about things differently, if that means I can retire earlier, and if you're telling me I could educate myself to a degree that would give me confidence I could retire early, then I would do it. So that is my reply to that comment. So hopefully I'm not always focusing on clients that are whining, and I hope all of you can recognize that as well as the fact that I just want to give it to you straight. I've got clients with big regrets and I have clients going. I'm so glad I retired early, and if I didn't hear some of the content that you and your partner, james, provide, I would have kept working for who knows how long. So that is my reply.

Speaker 1:

Now let's go through my steps. So step number one here is what I call the withdrawal test. And so some clients come to me and they're like hey, I think I'm in a good spot to retire, but I don't know, I'm 60 years old, or I'm 52 or 58, and I think I'm in a good spot, but I just don't know if I'm going to run out. I don't know how long I'm going to live, but I'm very healthy, so it could be 30, 35 years, and so I want to make sure I don't retire too early. Most people will retire on what's Carlo analysis, or the probability of success, or the graphs that look like they're just going to keep going up. And I'm like, hey, that's great, but when markets go down, what's the strategy? Are we doing tax planning? How are we thinking about these? And most people go yeah, I'm not going to worry about that, I'm just going to kind of this software says that I'm in a good spot, so I'm just going to kind of trust it.

Speaker 1:

To me, that's not I let anyone retire early on that. I want you to know. What are the assumptions going into that. What are we planning on for inflation, okay. What brackets are we planning on tax wise, Okay. Are we anticipating those increasing? What about healthcare? Is that being incorporated into the plan? What about part time income? What about the fact that you're going to want to spend more? When you have your energy and your health, then you're going to probably want to spend less, and then maybe there's medical expenses. You want to spend way more. So, to me, the withdrawal rate is the first test that I'll go through, and you'll probably hear people talk about the 4% rule, which is quite simply you've got a million bucks, you can take out 40,000 every single year and you're not going to run out of money.

Speaker 1:

Well, my first concern with that is that is a study based on a 30-year retirement, so you retire at 65 and die at 95, that just does not apply to you, which is most of you listening to this show. So most of you listening to this show. So that's number one. Number two it just doesn't make a lot of sense because it's assuming you only invest in two asset classes US large cap, so large companies like the S&P 500, and then intermediate term US bonds, so not like short term or ultra short term and not like 30 years long term, but intermediate term. So that is not most of your portfolio. Most of you are either all in equities or you've got a diversified portfolio where you've got some international, some real estate, some small caps, that kind of thing. So it's just not applicable. It's the 4% rule. It's just kind of a stale rule. It's like if you go to the dentist and they're using the same technology from 30 years ago. It just doesn't make sense. So what we like is the guardrails approach. It's a dynamic approach.

Speaker 1:

So I tell my clients it's almost like being a business owner. Let's assume you're a business owner and you're in retirement. Well, what if business is doing well? You might take an extra trip, you might go have extra fun. That's like the market doing well. I might come to you and go hey, you told me you want to take this National Geographic private jet tour. You're doing it, and if you don't do it this year, I'm going to be upset at you as an advisor. Now it's your money and you get to make the final call. But this is. You told me you don't have children and that you don't want to die with $10 million and leave 2 million to two heirs. So if you don't at least spend this amount, here's what's going to happen. So it's me giving you that confidence.

Speaker 1:

But I am and I'm serious when I say this the meanest early retirement advisor, because I never want anyone to retire too early and go. Why didn't I work six more months? Or markets would have went down. Now I can't do what I want to do the rest of my life. So I'll be the first person to say please work six more months, one more year, five more years. Some clients come and they think I'm going to tell them they're in a good spot, and I tell them I wish they'd work seven more years. So I'm the meanest when it comes to that, trust me.

Speaker 1:

But think about once again. You're a business owner, markets go down and you're in retirement. Most people go oh my gosh, I don't know what I'm going to do. But. But you know I need to live off what I need to live off. So I'm going to keep, you know, taking my 8000 a month, just like when markets were going up. I don't want you to do that. I want to come to you and tell you, as your advisor, please, instead of Just these first, you know, one, two, three months, markets recover great, go back to your traditional spending. And people are like why are you the meanest advisor? Why are you not letting me spend what I want? I want you to spend on your core expenses. But if markets aren't doing so well, I might come to you and go hey, this is the time not to take an extra trip.

Speaker 1:

Think about it like being a business owner. If your business was not doing well and you needed more revenue, would you go hire more talent? Well, hiring more talent, I would argue, is maybe like doing a Roth conversion. Maybe that's taking advantage of the situation. But imagine you have a business and you need more people to reach out to work with you. You're probably not going to hire someone. What you're probably going to do is go hey, I don't need to go add a new expense, I need to figure out a way to get more clients. I going to do is go hey, I don't need to go add a new expense, I need to figure out a way to get more clients. I need to figure out a way to maybe decrease current expenses. So that's the way I want you to think about it Like a business owner.

Speaker 1:

Think about it almost like going bowling, where, if you're in, you're going, you're in a retirement and you're throwing the you know ball down the lane. I think it's called a. You could hit a strike every time, but that's just not realistic. Okay, that's the equivalent of hoping markets just keep going up for the rest of your retirement. It's just naive. What's going to happen is markets are going to go down and you might just hit a few pins over. Maybe you hit two over and so maybe hit six over, whatever it is. So now, okay, you only had a few pins over. Well, you might be in a good spot. You might be in, and I'm not gonna say not a good spot.

Speaker 1:

But the point here is what I don't want you to do and this is the head trash that a lot of you have is go well, wait a second. You know, markets just went up. Do I need to shift my expenses immediately? No, and markets went down. Do I need to shift? No, we want to take a wider approach. What I don't want you to do is go oh my gosh, I just got a gutter ball. I just threw the ball down the lanes. I don't know if I'm going to be okay, what am I going to do? And what happens is, if you throw that bowling ball and you get a gutter ball, I would argue there's a big risk there. Risk there.

Speaker 1:

Now, let's assume you have a $2 million portfolio and you throw a gutter ball and now markets went down by 50%. Well, to me, I would argue that there was a giant mistake ahead of time. People go what do you mean? Well, I wouldn't even let a gutter ball occur. A gutter ball would be as if you're throwing the ball down the lane and your portfolio goes down by 50%. It should never be in a position where that could even occur.

Speaker 1:

So, as I see it, you should use the cheat code. People go what's the cheat code? Well, the cheat code is having the bumpers up where, no matter what we're telling our clients, here's the most you can spend this year and here's the least that if you don't at least spend this, we're going to be upset with you. So this is how we approach withdrawal rates. It's saying wait a second.

Speaker 1:

You might retire early let's assume at 57, and you might be in an awesome spot to spend a great amount of money. You've got part-time income coming in, you're traveling and I might tell you I want you to. This is the time you have your energy and your health. Please go spend it, because what's going to happen is in three years, you might not have, you know, the trips you want to take, as much, your spouse might not be in the best health, whatever. You're spending more time with your kids, whatever it is, and then all of a sudden, social Security is going to come in and that's going to help out in rental income and pensions. And so you've got all these different timing.

Speaker 1:

And that's the key here is, when you have your energy and health, I want you to spend more. I want you to enjoy it. I just don't want you to overspend. So I want you to be thinking about that kind of bowling ball analogy of yeah, I'm not going to overspend, but I'm also not going to underspend. And, by the way, I don't want you to be an overspender or an underspender, I want you to be a successful spender.

Speaker 1:

So the withdrawal rate, if you are doing some basic analysis on your end and you see, yeah, I have a 4% withdrawal rate or a 5%. I have clients I'm recommending an 8% withdrawal rate to and you're like, how could you 8%? That seems crazy. I go, yeah, and it's for this one year, because they're also buying an RV and they're taking a trip, and the next year they're going to have a pension for the rest of their lives. So the point here is the withdrawal rate discussion. It's got to be a dynamic one. I might want you to have a 5% withdrawal rate or a 6% withdrawal rate for two years, because then it's going to decrease to maybe 3%, where you're not spending as much. Then it might, without your permission, shoot up to 5 percent. You're like well, how would it increase without my permission? Those are required minimum distributions where the government now forces you to take up more than you need and you get taxed up the wazoo on it. Okay.

Speaker 1:

So the point here is I want to make sure you're not simply marrying this. Well, you know, I have $2 million, I could take out 4 percent every year and I've got $80,000 a year. What about taxes? What about inflation? What about and these are the things we need to layer on so that when you do retire early, you're doing it with total confidence. So number one is the withdrawal rate test.

Speaker 1:

A lot of people think, wow, that withdrawal rate's too high. How long is it high? How many years are we taking these trips? Are we moving? Are we going to downsize? What about part-time income? When we add all those factors in, it changes things. So that's number one.

Speaker 1:

Number two is do you understand your expenses? Because some people go yeah, I do, I'm going to spend $10,000 a month. You're probably not. You're probably going to retire at 50 or 55 and 60, let's call it and you're going to want to spend way more because you have your energy and your health. So maybe you're spending not 8,000 or 10,000, maybe you're spending 12,000 a month because you're just loving life Okay, great, but maybe that's only the first three years. Then it's going to come down.

Speaker 1:

Then maybe you no longer have a mortgage, because the head trash that I see is people go well, I'm making 200,000 a year right now. I need to somehow replace that, but you don't because of the 200,000, maybe you're saving 10% to a 401k and you've got healthcare premiums In addition to that. You're going oh, wait a second, they're withholding extra for taxes, and so all of a sudden, you're thinking you need to live off 200,000 when in reality you might only need $120,000 because, in addition to the 200,000, you forgot that you're saving more to an emergency fund and you're saving more to a brokerage account, which you're going to be stopping once you no longer are working. So it's very rare that you need to actually simply have the same paycheck coming in. You need to essentially replace your net paycheck and then understand okay, how long might I want to do this? Meaning, do I want to travel for five years? Do I want to travel for 10 years? Am I going to retire and need to purchase two vehicles which is my step three here that I find so many people overlook what are the big expenses I need to get out of the way to optimize my early retirement? If you're going to do a remodel or you're going to buy a car or you're going to take some big trips, great, I want you to do it. I invite you to dream it. Too many people don't do that. So please, I love it, bring up these ideas. What I don't want you to do because I see this is very common is people go. Yeah, you know I'm going to think about those things, but you know I've got plenty of money in my IRA, so why don't I just kind of pull from there? Well, let's assume you are over 59 and a half and you can do that.

Speaker 1:

What happens is, let's assume you get unlucky lucky Okay, it's called sequence of return risk where you retire at 60 and you're just the most unlucky person ever. Markets go down and you have to pay for healthcare because Medicare is not on yet and you don't forget are going to travel because you've got your energy and health. Oh, and, by the way, you recognize you want to do a remodel. So now there's like four things occurring that you want to do. You want to travel and buy more stuff and you know, at the same time markets are going down. So now you might be taking way more out of your portfolio than I would ever like to see, and it's because we didn't start preparing for those big expenses. So what I like to see happen is clients, two, three years out before they retire, go.

Speaker 1:

What are these big expenses? I need to take care of A remodel, a new car. How can I maybe get in front of these things so that if I do get unlucky and markets do take a downturn because it's not if it's when, okay. When they do take a downturn, I'm going to take advantage of it. I'm going to do a Roth conversion. I'm going to do this tax technique. I'm going to cut my spending versus what I find a lot of people do is say, yeah, I'm going to figure it out. I'm going to hope markets don't take a downturn when I retire and I don't want to get unlucky. Don't be in that boat. Make sure you're planning well for those big expenses, like a car, like a kid's education, like a wedding, like a vacation.

Speaker 1:

Think through what are these big things? Not because it's scary, but because you go. I want my clients to go do all these things. Let me be crystal clear. I'm the first person to tell my client I'm so excited you get to do this, you're in a great spot. But I'm the meanest person when I'm saying, hey, you're not in a spot to do this and they know I'm going to give it to them straight, which is why I think they resonate with it, so they feel really good when they do take the trip, because what I don't want is you to be in New Zealand having a blast and then going. Well, I want to stay another week, but you to go? Oh my gosh, I love it here. What if I spend two more months? I'm still in a good spot. Yeah, it means I'm not going to spend maybe as much on travel the rest of the year, but I'm in a great spot. I can do it.

Speaker 1:

I don't want you debating appetizers going hey, this wasn't in our budget and it turns out I really want to go to this restaurant. That's all head trash. I would rather you work three more months or six more months so you never have those thoughts for the rest of your retirement. So, hopefully, expenses, you understand you're not just going to have the average withdrawal rate, you're thinking through what are those big expenses. And then the big one that most people overlook and this occurs to what I'll say my smartest clients the purpose and fulfillment aspect of retirement. Now, it sounds a little woo woo sometimes, but it's not. Some people go oh yeah, I'll figure out what I'm going to do. Here's what I would say, and I'm only telling you this because this is what my clients tell me.

Speaker 1:

It's really hard to practice retirement before you retire and people online are going to say make sure you're thinking through what you want to do. Hey, that sounds great, but I'm not able to do that because I'm busy working. So to me it's like unreasonable goals. You're out here trying to retire, you're doing all the right things, you just don't have time to practice it. So how could you possibly know what you want to do? So number one is don't beat yourself up. Number two is okay, well, what can I do? I'm not just going to not worry. I can't just say, okay, great, I can't practice, what do I do? You can start to take little acts to go okay, what could I do? Well, maybe I'll say, even as much as you try them, it's still not going to be the same as when you retire. But here's the good news.

Speaker 1:

I have clients and if there's one episode to listen to, it's this one that I invited on the podcast. They thought they were going to be super bored. They loved their retirement. They're still loving it because they're not bored. They're busier than when they were working and they weren't sure what they wanted to do. And they're finding walking with one another, redating their spouse. They're having a blast. We have what's called a post-career purpose finder that we have our clients walk through before they actually get our green light to retire, because if you don't have a purpose and fulfillment, you don't have a plan for that, then you're not gonna have success in retirement. So I've seen financial issues where people go I can't wait to retire, I'm gonna move to Hawaii. And they do. They didn't want to live there forever. Big financial hit when they sold that. Or if someone goes, you know what? I thought I wanted to buy this property, live closer to my children and their children get a job and they move. And all of a sudden they move there and they didn't love North Carolina, whatever it is.

Speaker 1:

I've seen a lot of situations really thinking through what does your kind of what time? Are you waking up in the morning all the way to? What do you want your life to look like? Are we volunteering? Are we spending our time redating our spouse? Are we just following our children around, which is not just like I want my parents to do that. I like hanging out with them. So really starting to think through what I'll call the soft stuff, which is way harder for most of you. I'm asking you to do the harder stuff. It is easier to keep saving and keep working. And I'm asking you and that's my job is to challenge you and not be the nice guy and say, hey, listen, you could keep doing what you're doing and you're going to be fine. But my dumb joke and a lot of you've already heard it, but I'll give it to you again.

Speaker 1:

Client came to me and they're like I'm going to be your best client ever. I'm like why they go? Well, I have a really, really low withdrawal rate. I have $5 million. I just don't need much for my portfolio. And I said you're probably going to be okay. I go, you're going to be way more than okay. You're going to have way too much money regretting, wishing you would have spent more along the way. How can you understand when you're in a position when you have enough? And it's really hard to do that unless you have a holistic strategy. So I'm the first person and I joke with people to tell someone hey, don't work with us. Okay, we do holistic planning.

Speaker 1:

Some people don't want that. They just want someone to tell them what stock to buy every year. They don't want the tax and the withdrawal and the healthcare and the estate. I go great, then don't work with us. And I've. You know it's funny, but I have advisors listening to the podcast or YouTube going hey, listen, I'm listening to you. Do you mind like just kind of cutting it down a little bit, because some people are not working with me? If they hear your show, I go obviously of working with an advisor or I wouldn't be alive doing what I do the tax and the withdrawal and the estate. But if I was only doing investments and I wasn't doing all the other stuff, I'm not so sure I could add value and I wouldn't recommend working with an advisor unless they're doing something really special or they resonate with you.

Speaker 1:

So the majority of people working with us, they want the holistic approach, they're looking for it and they just don't want to be an advisor in retirement. They're like I'm trying to retire from one job, I don't want another job. I think a lot of my clients are really smart and they could figure out how to be an advisor. But by the time they figured out how many mistakes and what occurred and what's their ROD, people go what do you mean ROD? I go yeah, what's their return on desire Meaning? Do they want to do this? Because we love doing it and I want you to have an advisor that's partnering alongside you for 20, 30 years and they're working for you as long as you like working with them.

Speaker 1:

So if you're looking for a holistic approach, of course is what I love to do, but I know that I don't get to work with all of you. So I encourage you. If you would like to reach out, I want you and I have the first conversation, by the way, with all of you that reach out it's me personally. I have a conversation with you and I'm helping to determine which advisor at Root is best positioned to help. My job is to do that, is to make sure I'm getting that good fit.

Speaker 1:

So this is my checklist that I actually go through. It's withdrawal rate, it's making sure those expenses it's kind of the big expenses as well as just kind of general expenses what are those big things that could hinder us and what are we going to do in retirement? Do we have a plan for purpose and fulfillment? All that good stuff. So what I did not talk about today, that I just put on my other list here that I wanted to go through, but in light of time, I'll skip for another episode what about long-term care? What about taxes? What about life expectancy? What about selling a home? What about inheritance? What about other windfalls? What about investment? So there's a lot more I want to talk about, but today this is the general checklist.

Speaker 1:

I don't want to ever go deep into the weeds on one particular topic. That applies to very few people, so I pick and choose. When I'm making concepts, I hope, when I'm making content. I hope this was helpful. If so, please do leave a review, drop a comment. This was helpful. If so, please do leave a review, drop a comment. That's what really makes me love doing this. So I appreciate all of you guys and I'll see you next week.

Speaker 1:

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, earlyretirementpodcastcom. That's earlyretirementpodcastcom, 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. This podcast is for informational purposes only.