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

How Much Do I Need To Spend $25k/Month In Retirement?

• Ari Taublieb, CFP®, MBA • Season 1 • Episode 205

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Ever wondered how much you need to spend $25,000 a month in retirement, or how to make sure your savings don’t run dry? This episode of the Early Retirement Podcast tackles these questions head-on, offering a deep dive into retirement budgeting for various spending targets. From $6,000 to $25,000 a month, we cover it all, drawing on listener comments, personal stories, and the infamous cauliflower analogy to explain the intricacies of tax optimization and risk management. Whether you’re aiming to maintain a modest lifestyle or live large in retirement, this episode provides practical advice tailored to different financial goals.

We then shift gears to explore the dynamic nature of retirement spending, especially for those planning to spend between $15,000 and $25,000 a month. Learn why assessing your portfolio’s sustainability is crucial and discover the concept of a dynamic withdrawal strategy. We'll introduce you to the "retirement smile," which illustrates how spending changes during the different phases of retirement, and analyze real-life portfolios to highlight the importance of a sustainable withdrawal rate. With an emphasis on flexibility, careful planning, and the benefits of smart tax strategies and charitable giving, this episode equips you with the tools to optimize your retirement funds and achieve financial peace of mind.

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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:

Welcome back to the podcast, a special episode today how much money do you need to spend $25,000 a month in retirement? Now, some of you and you already know I'm laughing are like what the heck would I do with $25,000 a month? Others go you know what? I could find a way to spend it if you really said I was in a spot to do it, but I really would rather probably retire earlier. Maybe I don't spend $25,000 a month, maybe it's $6,000 or $7,000 or $8,000, $10,000 a month, but it means I don't have to work 10 more years. Yeah, that's more attractive to me. Now that's where most of you fall. So why am I making this video, this podcast? Well, because there's a large amount of people that listen to this show because of you guys, and I will often get asked a question and then sometimes there will be comments after I asked this question. And that's what happened in this instance, where I had put out a video on YouTube and this was a few months ago now saying how much do I need to spend 12,000 a month in retirement, and some of the comments look like this. Now I'm going to explain it. If you're just listening, per usual on the podcast app, all good, and if you want to watch this on YouTube, you can see what I'm talking about. So this comment here 12,000 a month in California, that just covers your mortgage. Other comments here hey, this was great. I'm 44, withdrawn 5 million invested in just some Vanguard stuff. Can I withdraw 3% per year? Just so many good. Different comments Some people here 12K a month WTF. I'm not going to say what that's for and you can see a comment followed up saying that's not outlandish. Another person no, it's not. Other people go, I agree, a little low, right For me 15,000 a month minimum just to get in the parking lot of the ball field. 25,000 a month is more like it for a smooth retirement. So you can see I'm very late on this comment, but I replied five months ago. I said, hey, you'll like the video I've coming out. In the next few weeks I ended up releasing a different style video. This one is directly in relation to that comment. So this is you're wondering how much money do you need to be able to spend 25,000 a month in retirement? That's what this case study, this podcast, is all about. Now, if you don't already know, my name is Ari Taublieb.

Speaker 1:

I am the host of this podcast, the Early Retirement Podcast. I am the vice president at Root Financial Partners and I'm a certified financial planner wearing this dopey shirt. How many of you guys know this shirt Now? If you're listening right now, I know you can't see it. I'm wearing my cauliflower shirt.

Speaker 1:

For those of you new to the show, you will be so confused right now. I can only imagine what you're thinking. For those of you that have been listening for a few years saying hey, ari, yep, love the cauliflower, I'm going to explain what the heck this is. This is an awesome gift given to me. My favorite gift of all time, my second favorite gift of all time is right here. I'll highlight it in light of kindness today. This you can see here if the camera zooms in. It says anti-cookie cutter jar, love the pot. Why? Because I don't believe in just. Hey, what's your risk tolerance on a scale of 1 to 10? It's like okay, you're a 2 and you're an 8. Great, go retire. Well, guess what happens when I ask that couple their risk tolerance when markets are down? Very different answer.

Speaker 1:

So I want to give you an example with this whole cauliflower thing, which is most of you if you've saved and invested well, you're going to pay a lot in taxes. You could say, hey, I'm not going to worry about that taxes stuff until later. I just paid taxes for most of my career. Maybe I retire in the next five years and I could spend way less, but who cares, I already paid so much. I'll deal with it when I'm later. Maybe I'll let my kids let the leeches deal with it. When I'm later, maybe I'll let my kids let the leeches deal with it. Just kidding, some of you guys don't like when I say leeches, but anyway.

Speaker 1:

So the point here is I want you to avoid only having to eat cauliflower in the future. Some of you are like I love cauliflower. This is a horrible example. Relax, all right. Some of you are like, oh no, I get it If I eat a little bit of cauliflower, maybe a little bit each year, pay a little bit in taxes, fill up a certain bracket each year. That means in the future I'm not going to only have to eat cauliflower, I'm going to get to eat whatever I want. Now I don't want you to convert so much that there's no cauliflower in the future. I want you to make sure you're optimizing your taxes. It's dopey, I know it's dopey, but I try to do things in a certain way so that you can remember it. So let's look at this example Now. I'm going to explain it once again, but some of the concepts.

Speaker 1:

If you want to see what I'm talking about, you're going to want to be on YouTube. Now I am, of course, a podcast listener myself. I listen to a few podcasts where they say you know, you should really go over here to listen to this and go over here. I'm like no, I get that, but I like listening here. It's easier. Youtube has ads. It's more annoying, I get it. I want to make sure I'm helping all of you to the nth degree. I personally pay for YouTube premium. So if that's something that you guys want to do, I get no commission by saying that, but just something to keep in the back of your head. I personally, youtube is my new cable, so I YouTube everything. Now, if you YouTube everything, let me know in the comments. Just kidding. Okay, you can if you want to.

Speaker 1:

So this is a case study that you're looking at Now. This couple you can see here. They are 59, and they have $3.8 million. Now their graph doesn't look so good. It looks like it's coming down. If you're looking on the screen here, it's showing that if they were to spend $25,000 a month, every single month, from right now, 61 when they retire, 61 and 58. So if they both retire in a year, they spend $25,000 a month, every single month, for the rest of their life they will pass away right at 91. Now let's assume that investments don't do well, just hypothetical. Or they say you know what we want? More of a balanced approach. Well, now it's not 91, when they run out of money, it's 76. So why am I showing you this at all? The reason I'm showing you this is if you want to know how much you can spend. It's not the graph I'm playing around with right now. This is the graph that looks aesthetically pleasing.

Speaker 1:

What you want to think about if you want to retire early and spend $15,000 or $20,000 or $25,000 a month is can my portfolio support it? So let's do some really basic math. I'm pulling out my calculator right now. Let's assume you want to spend $25,000 a month. Great, well, that's $300,000 a year. That would allow you to live really comfortably.

Speaker 1:

I'll stop and tell a client you're not going to spend that and they're like what are you crazy? Like you don't sleep next to me, like how could you know what I want to spend? I'm like you're probably going to spend more during the first few years of retirement, then less, then maybe more at the end. They're like what's your point? I said, well, if you have a dynamic withdrawal strategy meaning spend more at the beginning than a little less, maybe help a kid with a wedding then all of a sudden you're like hey, I'm going to gift this property whatever it is. Now you're in a spot that your plan is going to look very different. So this concept that you're just going to spend 300,000 every single year for the rest of retirement, it's unrealistic.

Speaker 1:

So what you're going to see me put on now, if you're watching on YouTube and I'm going to explain it, it's called the retirement smile. This is not done by me, I didn't invent this. But if you think about a smile, you have what are called your go-go years. Your go-go years is you enjoying retirement. I want you to be spending it. Then you have your slow-go years. You're still spending, but if you're in your 70s or 80s, you're probably not going to be traveling to the same degree. Then you have your no-go years, where you still want to meet your needs, but you're probably just naturally spending less. So let's assume I just turn that on. Well, what does an average look like? It's not perfect, because not everyone is going to be an average spender in retirement, but watch what I just did. So here's a couple with $3.8 million. They were on track for zero. Now they're on track for 5.6 million at 93. Well, what happened there? What happened is I'm asking my client to be dynamic and I'm saying when markets do well, I want you to spend even more than 300,000. And when markets do poorly, I'm going to ask you to spend a lot less because I want you to optimize your retirement. So I want you to think about it like being a retirement boxer.

Speaker 1:

I put this on the last podcast episode, but sometimes you might need to hear it again to fully sink in. Let's assume you're a business owner. Okay, market's doing well, business is doing well. You might go hire employees. You might say I'm going to buy a new piece of equipment. You might do a lot of different things, but let's assume your business does not do well. Are you still going to go buy equipment and hire 20 employees? No, that doesn't make any sense. So what you're going to do instead is spend a little bit less.

Speaker 1:

I want you to think about your business as your portfolio. Your portfolio is going to have times when it does really well, like this year, markets are doing well. Then there's going to be other years where markets don't do as well and I'm going to ask you to spend a little bit less not spend $300,000, maybe spend $200,000 or $250,000. Because if we do another tax strategy at the same time, it might yield way more money, and that's what can lead to these massive differences you're seeing on my screen and that I'm explaining for you. So I know you guys want a nice cookie cutter answer of hey, if I want to spend $300,000 a year and I'm looking at a 4% withdrawal rate, how much money do I need? Well, 300,000 divided by 4%, seven and a half million dollars.

Speaker 1:

But I'm showing you a couple that doesn't even have $4 million that I would say, if they wanted to spend 25,000 a month, they're in a spot to make it happen, not saying they get to go, do it, because this takes a lot of work and we need to make sure their withdrawal rate is sustainable, which is what I care about. And if I look at the withdrawal rate here. Look at this 11%, 9%, 7%, 6%. That's not sustainable. They will run out of money. So even though their graph might look good here, this doesn't tell the whole story.

Speaker 1:

So let's assume this couple says you know what, 25,000 months, good, but to be honest, 15,000 a month, like 180,000 a year, that's more than enough, like I could do everything I want to do. Well, they might see they're on track for an absurd amount of money 20, $30 million and then they go to their withdrawal rate and they look at it and they go, okay, what does it say? Well, it shows it's starting at 8%, which is very high, and then 6%, and then 5, then 4, and then 3, and now it's in the 2s. Now, here they are in their 70s with a 1% withdrawal rate. Do you know what happens when I have a client with 1%? I yell at them. I'm just kidding. I don't yell, but I say, hey, you're not spending enough. I cannot imagine you're enjoying your retirement. Or if you are and you're spending what you want to spend, we better be doing some charitable giving. Or we better do another tax strategy, because if we don't, do you know how much money you're going to have and when those required distributions are going to come whack you in the face.

Speaker 1:

So the point here is any type of planning. If we're looking at tax strategies, for example, let's look at this couple and I'm going to explain it as well. If this couple is optimal with their tax strategy, they will generate 1.2 million more dollars. At the end, they will have saved two and a half million dollars in taxes and they will have ultimately optimized by about 4 million total tax dollars. So the point as to why I show someone this is because some people get so invested in the taxes they go this is awesome. I mean, look at this a million more dollars in taxes. Because I'm just smart with my tax planning.

Speaker 1:

Why would I not do that? And I'll say, well, you could do that, or you could spend more and enjoy your life more, or maybe you could do part-time income, or maybe you could determine and it's gonna be very difficult for a lot of you and I know that to say, hey, maybe I get more massages in retirement or I go to a different physical therapist that is going to cost more out of pocket, but I'm in a spot to do so. So if you want to start dreaming and understanding what position you're in. Of course, you can play around with this tool, but ultimately, what I want you to know is this is not a cookie cutter thing. Okay, let's assume you want to spend $25,000 a month and you have a pension that covers $10,000. Well, you don't need $25,000 to be generated from some portfolio, because you already have 10 coming from a pension. You now need 15 to be generated from your investments. Let's assume that you have a home and you're going to downsize and it's going to generate $2 million more. Well, great, I mean, that's available for investment purposes. Let's assume you surrender an annuity. Let's assume you don't buy long-term care.

Speaker 1:

I could do this on and on and on. What I want you to really do, and the purpose of this is most of you don't want to spend $25,000 a month. I recognize that Now some of you are going to be like no, I do, I just don't have the financial means to do it. I get that I don't have the financial means to do anything like this, but I want you to know if you're wondering hey, could I ever possibly truly spend $25,000 a month? Just watch this example right here. Let's assume that, just for example's sake. Okay, this couple's like look, I would love to spend $30,000 a month. Okay, just hypothetical. Okay, $30,000 a month, that's $360,000 a year. Okay, that's a lot of money.

Speaker 1:

Now I have some clients that live in Malibu. I call them characters, okay, because they're a little odd. You know Nice people, okay. But some of my character clients are like I want to spend $30,000 a month, every month. No matter what you say. I'm like yeah, that's just not realistic, like you might have to work way longer. And they're like all right, I don't care, I like what I do.

Speaker 1:

So look at this graph for me and I'll explain it as well. Here's a couple same couple 59, $3.8 million. They're on track to run out of money at 77 if they want to spend $30,000 a year. But what if they're like you know, I kind of like what I do and I, what if I just did what I'm doing now? I get I'd have to work longer. But what if we worked a few more years? Would that change things? And they're able to run the projection and go wait a second, wait a second. So if I work three more years excuse me, four more years each, we're on track for like $9 million.

Speaker 1:

Well, that's if that means we could spend $30,000 a year, every single year, that'd be really attractive to us. They might go know, thirty thousand is a lot, but I think it's just too much. Maybe twenty eight thousand a month is kind of our sweet spot. And then they rerun the numbers and go well, you know, that's awesome, but I don't need thirteen million dollars. Maybe we retire instead, you know, just a little bit earlier and they're able to play around with this tool in a really cool way, so that they can determine where's their sweet spot, and that's what I want you to really do here. They are spending $28,000 a month. So $28,000 a month times 12. Guys, here's $336,000 a year. Now you can see they're still running out of money at 90, but they'll go.

Speaker 1:

Oh, so what if I work one more year from there? The reason that one more year helps so much is it's one less year that you're pulling from the portfolio. It's one less year of saving to your 401k and adding money to your brokerage account. So, yes, it's powerful to work one more year, and the biggest mistake I see I'm begging you not to do this is to go. Oh, I'm going to wait. And the biggest mistake I see I'm begging you not to do this is to go. Oh, I'm going to wait. Oh, one more bonus. Oh, six more months. How much longer are you going to tell your spouse that?

Speaker 1:

Because most people come to me going oh, yeah, that's me. Yep, I just keep pushing it back and I don't like to, but I just don't know. You know what if markets go down, or what if Social Security gets reduced, or what if inflation? And I'll say well, test for that. Like, still run the numbers. Like, only retire when you fully are confident, but don't cheat yourself and just go. You know I'm 55 and my neighbor is not close to retiring, so I don't think I'm going to be able to make it happen. Don't do that. Like, really understand the position you're in. Work with an advisor I don't care if it's me, I don't care if it's another advisor Just understand the position you're in.

Speaker 1:

Something like 0.00012% of people that watch our YouTube videos work with me. So I recognize that most of you watching this video are not gonna work with me. Maybe you're gonna use the tool that I'm showing you right now. Maybe you're gonna keep listening to the podcast and go hey, that's good enough for me. I get my education here. I don't know what you're gonna do, but I wanna help you, regardless of where you're at in your journey. So if you don't have three, 4 million bucks, you're going to one day and you're going to want to know how much income that could support. Use a tool like this and understand how you can start optimizing and going. Okay, this makes sense, and oh, maybe I switch this trade off and really get a good sense. Don't over optimize, which I see people do. What if markets drop by 90% and social security is never there? It's? Hey, let's not be unrealistic with this. Let's just be conservative as we look at planning. So hopefully this video case study podcast was helpful and if so, please subscribe, like this video and share it. If you want access to the tool I'm showing right now or you want to work with my team, you can see in the description of this video and podcast where you can go to do just that. Thanks, guys.

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.