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

This Is The Danger Of Working One More Year: Goalpost Planning

• Ari Taublieb, CFP®, MBA • Episode 210

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Have you ever told yourself:

"I'm going to retire, but just one more year because markets are notdoing well"

"Once I hit $2M I'll retire, I mean it”

"Now soon as my kids graduate I'll retire"

Explore the intricacies of retirement income planning with John and Jane, two public school teachers navigating their financial futures. We break down their planning approach, examining the role of pensions, Social Security, and personal savings while addressing the challenges of the windfall elimination provision. Then, follow Ari's journey as he reconsiders his career path, contemplating a sabbatical and re-evaluating his retirement strategies. We discuss how he can tailor his investment portfolio to match his shifting goals and the importance of balancing immediate desires with long-term security. Join us to untangle the complexities of retirement planning and find the path that suits your unique lifestyle vision.

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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. If you listened to last Thursday's episode, today will not be a surprise. If you happen to miss that episode, you might wonder why there are two people on this podcast now, since traditionally I do this on my own. Every Monday, I'm still doing the podcast solo, but on Thursdays the founder of Root, James Canole, and one of my mentors, is actually doing the show with me, so this episode is going to be with both myself and James. It's a fun episode.

Speaker 1:

We talk about goalpost planning, which is what a lot of people do, although they don't know they do it. What does that mean? A lot of people are like, yeah, just one more year, two more years, $3 million, then I'm gonna retire. But they're really just continuing to push that back. So we walk through the strategies to think through are you really ready to retire, both financially and emotionally, and how do you think through this? Because I don't want anyone to retire too early and go, hey, I should have worked two more years. And I really don't want anyone to go, hey, I've got 10 million bucks and I'm 85 and that's not important to me. I wish I did retire earlier, when I had my health and my energy and time to do what I cared about most, so hopefully this episode is helpful for you guys. Once again, every Thursday both myself and James and then on Mondays you're going to get me solo, so not stopping those. Hope you guys enjoy this.

Speaker 2:

Hey.

Speaker 1:

Ari. What's up, james? How are you? I'm doing good. I'm thinking about us as the initiators. I don't know if it's caught on yet from the last episode, but maybe it'll stick. Maybe something else will come along.

Speaker 2:

We'll find out in the YouTube comments. Let us know. If you have no idea what we're talking about, listen to the last episode. We just started this new podcast. Don't have a name for it. Ari has the Early Retirement Podcast. I have the Ready for Retirement Podcast. This episode is going to be pushed to both of those and also live on the James Canole YouTube channel. So what should we call this? So if you're totally confused about what we're talking about, listen to last week's episode. What do we have going on this week?

Speaker 1:

Today we've got a fun one. So I hear often I know you do as well, james of hey, should I just work one more year? Oh, maybe one more bonus. Two more years, three million bucks, then I'm finally going to retire and we'll call that goalpost planning. We're going to explain what that means in a second.

Speaker 1:

But these comments, everything we discuss on this show, whether you're watching on YouTube or listening on the podcast apps, these are coming from you, so you can see here. This comment was left from Woods Parker 7902. And he says Ari, teachers may have a strong desire to retire early because of the stressful environment they work in. Now, only teachers this is a real stat, james only teachers are stressed in their job. No, everyone's stressed. So this could be applying to you. If you're a teacher, engineer, what have you? Even if it means sacrificing some of the finer things in life, let's call it a first class ticket, overcoach, I would predict one more year of work may not be worth the trade to fly first class if it means an early classroom exit. So my question is very simple to you, james have you ever flown first class?

Speaker 2:

I have one time in my life and it was great. Did it feel weird? It did feel a little weird and it was a compromise. What was the compromise? It was gosh. I hope I'm not throwing my wife under the bus. I don't think I am. I'm going to do sorry.

Speaker 2:

I just want to find we were flying to Mexico to go to Cabo and we're staying practically for free because some friends had a nice like a place that was open, and we said, yes, she just didn't feel super comfortable. There's some stuff that had happened in Mexico. It's like friends, she was just like I don't feel comfortable doing that and it's like, well, we'll fly from San Diego directly to the airport there and we'll do it first class because we're staying for free, as opposed to like what a lot of people in San Diego will do is drive down to the border, walk across and then fly from Tijuana to Cabo because it's super cheap and it's really easy and all that stuff. So that was the instance and it was fun, it was cool. The meal, the flight, it was a good experience, but I would say no, it didn't feel weird, even though it's the only time we've done it.

Speaker 1:

I have an interesting thought on that, because your gut right there, right when I asked you, you were like no, it didn't feel weird, it was cool. And if you had grown up only flying first class, you would have been like, I imagine, like well, what is life without first class? And then I think of other people, just like the person may be leaving this comment right now, Woods, who's going look, sure, first class is nice, but I'd rather retire two years earlier. If that means I don't get to fly first class, I don't care. That's more important to me. Do you find many people that you either speak to or read comments about struggle with this? Should I work one more year or two more years? How do I think about trade-offs with spending, or is it just no, it's easy.

Speaker 2:

Yeah, there's two main principles or things that I want to pull out of this. The first is um, I think of a good example, maybe in college. Like, okay, you have an exam you need to study for and you really don't like this class, you don't want to study. What do you do? You clean your entire room that hasn't been cleaned the entire semester. You do anything like you. Or you have a project at home you really need to do it, but like, what do you do? You do anything else besides that?

Speaker 2:

Like it's this procrastination? Like what can I find to do to avoid doing the hard thing? That's the same thing that's happening a lot of times here. Someone knows they can retire, but the hard thing is who do I actually wanna be when I retire? What am I going to do? How am I going to find meaning and purpose? That's a really hard question that requires some really deep thought and introspection. So instead we clean our room, we do all the dishes, we do all that. So now it's not actually cleaning the room, it's we say we're going to wait for another bonus, we're going to run another financial projection, we're going to do another tax optimization thing, and it's just that same thing.

Speaker 2:

If these are forms of procrastination. They're things that are a little bit easier to do to avoid the big, scary project, which, in this case, is not for everyone but for a lot of people. Who am I actually going to be when I retire and don't have this giant 40 to 50 hour commitment called work every week to fill up my time and distract me from the bigger questions of life? So that's part of it. The other part of it is there are trade-offs and first class. For some people to to go back to this question is amazing and cool. For other people, they couldn't care less. So it's, I think.

Speaker 2:

How do you look at retirement? Not through the? I should be doing these things. I did a podcast a few weeks ago with a client who she was sharing, just very transparently. Hey, I retired and one of the challenges is my family wants to retire, wants to travel. I don't want to travel. Like, that's not interesting to me. I like being where we are. But sometimes it's this oh, I'm supposed to do this, I'm supposed to retire and travel. I'm supposed to retire and do your retirement, not just your retirement. Really all of your life should be what you want it to be, but that takes a lot of introspection, a lot of reflection. So I see those are two themes that both are coming out of that question about the goalpost planning, of constantly pushing things back because it's easier to do that than to face the big question of what I want to do and the other side of okay, what are the trade-offs involved here, and how do I create my ideal retirement, not my neighbor's ideal retirement, perfectly said, the neighbor's ideal retirement.

Speaker 1:

That's just plain old head trash. It's like when you see an article online that says you need a million to retire, or 2 million or 5 million, you don't. They're all wrong. And some people say, ari, you're just saying that. Or James, you're just saying that to make me feel good. It's like, no, we're not. You need to replace your income in retirement. That's what you need to do.

Speaker 1:

So I want you all for a second, if you don't mind, and yes, we ask you to do this. Ask yourself and be honest have you ever said I'm going to wait three more months, six more months, one more year, my spouse is going to wait until that one boss finally quits, then I'm going to retire. If that's you, please be honest. Let us know in the comments, or you can tell a Ari, james, you guys are totally nuts. I never deal with this at all and we won't make another episode like this ever again. But we'll get to see if there's lots of comments or not. I know I want to see you go through, james, an example of okay, how does someone think through what if there's a pension and you could be a teacher with a pension, a government employee with a pension. How does that factor into Social Security, to a portfolio? Okay, you cool to walk through an example, let's do it.

Speaker 2:

Awesome, let's do it. Do you want to hit up the or do you want to start with the example? Do you want me to run through it?

Speaker 1:

I'll start with the example and then come to you with some thoughts. So example let's pretend John and Jane. They're 55 years old and they're just public school teachers. They've been doing it for 30 years. They're like, look, we love it, but we do want to retire. We just don't know exactly when we think we have enough money. But who knows, they want to spend 120,000 a year in retirement.

Speaker 1:

Now some of you hear us say that and they go you guys don't go deep enough. Is that after taxes? Is that before taxes? That adjusted for inflation? Um, what about X, y, z? We're just going to assume always in these examples it's after taxes. So this couple wants 10,000 a month after taxes adjusted for inflation. They have a million dollars in retirement accounts and I hear some of you going is that in a 401k? Is that a 403b? Is that a Roth IRA? Is it a brokerage account? It's all in Bitcoin. No, it's not all in Bitcoin, it's across different accounts. So we'll make some assumptions going into this and that they own their home with no other debt. And let's just assume this couple, because we talked to a lot of couples that are always going well.

Speaker 1:

If I financially optimize, maybe I could actually just pay down the minimum to my mortgage, invest the rest. I'll come out on top. And then James and I will ask that person hey, are you going to sleep better by having that mortgage gone? Are you going to sleep better by getting a 9.32, 9, 6, 7, 2%? And they're like oh, thank God, you told me I could pay it off. I just was waiting to hear that.

Speaker 1:

So part of this is financial, part of this is emotional, but we want to walk through an example. If you're in this boat of early fifties let's call it mid fifties want to retire, I've got a million bucks. I want to spend 10,000 a month in retirement. Can I make it happen and how do I think through it? And the last thing before I'll come to you, james, on this, is the mistake I see, because I see a lot of early retirement cases is people do the following. They go here, I am retiring in my mid fifties, I don't have social security yet. I maybe don't have a pension yet, maybe there's no inheritance, no rental income. I don't want to spend too much money because I think I might run out. And then what happens is they're 75, 80, 85 going well. I know I didn't have other income sources back then, but I still had plenty to retire. So now great, I've got 15 million bucks. But I wish I retired earlier. I wish I spent more when I had my health and energy, because I can't exactly quantify that. Any thoughts?

Speaker 2:

Yeah, a lot of thoughts. There's a lot of different ways we can go with this. The first is you know if this person with a million bucks at 55 wanted to retire and have $120,000 after taxes from their accounts let's just say that's 150,000 pre-tax, just round numbers If you were only living on your investments, that's a 15% withdrawal rate. There is almost no way in the world you're going to be able to withdraw 15% of your portfolio and have that last for 40 plus years. That's just not good luck. Having that happen, not going to almost certainly. Um, you mentioned their teachers.

Speaker 2:

Teachers have pensions typically. Now, teachers are not known for being super highly paid. A lot of teachers are very underpaid. I will say the pensions a lot of teachers have are pretty significant. You know, if you have a pension that's, let's say, $60,000 per year. One way of looking at that is almost how much would you have to have in a 401k in investments to recreate that level of income that you have? If you use, just simply put, the 4% rule, okay, we can take 4% from some investment and think that's going to last for some period of time. A $60,000 per year pension is the same as having $1.5 million in a 401k or a 403b. So in some ways these pensions helped at least somewhat offset I won't say fully offset, but somewhat offset low pay for many teachers. I don't know what age this person gets their pension, let's say at 55, if you're a teacher, typically you have some years of service to hit that pension requirement.

Speaker 2:

All this stuff the reality that this is a long-winded way of saying this individual, most individuals you don't need to pull the entirety of your expenses from your portfolio. That, million dollars by itself almost certainly couldn't cover everything. Do you have a pension coming in that covers part of that? Does social security then kick in at a later age to fund another part of that? Now, if you are a teacher and if you do have a pension, you might be subject to something called the windfall elimination provision, also the government pension offset for some spousal benefits and social security. So we're not going to get into the weeds of what that means, just be aware of it.

Speaker 2:

But my initial thoughts are no, this person could not retire just on the portfolio that they have. But that's why it's so important to look at the big picture. Retirement is about cashflow. Retirement is about understanding what are all of your income sources, your portfolio being one, but then also potentially pension, then also potentially social security. And the other thing I'll say to this on the cashflow side is that's income. The other is expenses.

Speaker 2:

Well, 120,000 is our starting expenses. Some people look at that and that's it. Other people maybe look a little bit more detailed. Now I know this couple doesn't have a mortgage and it's hypothetical. But what if they did have a $3,000 per month mortgage and it was going to be paid off in three years?

Speaker 2:

We look at it and say, okay, you have 120,000 expenses the first three years, but that's going to drop down to 7,000 per month, at least when the principal interest portion of your mortgage is paid off. And so that's when the challenges of retirement planning is, on the financial side at least. Income and expenses aren't always consistent, and then what you have to be able to do is have a real clear sense of the financial side so you can come back to the trade-off side of what this person's talking about. Do I work one more year to get more pension, to get more savings, to get more income, or do I retire today and start doing the things that I want to do? And that's where you have to marry the financial side of things with the what do you want your life to look like side of things and find that thing that meets in the middle.

Speaker 1:

Can I pretend to be your client, of course, okay. So, james, I feel like you're just not hearing me. I have a million dollars saved for retirement. I know I'm in my mid fifties and all that. But look, I have a million bucks and that's a lot of money. You're going on about the withdrawal, this and withdrawal that I want to retire, but I'm probably not going to do nothing. I mean, look, I've had my, I've been with my spouse I haven't really seen him for 30 years cause I've been working but apparently I still have a spouse that says that on the document somewhere. So because of that, I'm probably going to do some part-time income. I mean, I don't know exactly how much and what. If I hate it, then I don't want to have to do it, but does that change my retirement?

Speaker 2:

Sure does Ari tell me about this part-time work. What would you find satisfaction doing that still might bring income in?

Speaker 1:

Well, there's a few different things. I've been teaching for 30 years. I'm thinking about maybe doing a little bit less teaching with some of the kids that, let's just say, cause a little bit more havoc. Okay, it's not a nice way of putting that, but I think I want to do a little bit, maybe some smaller classroom things. I'm just going to guess. It brings in 30,000 bucks a year and if I like doing it, maybe I do it for 10 years 10 years.

Speaker 2:

Okay, what about your spouse? Do you see your spouse doing the same?

Speaker 1:

thing. Oh, yeah, I'm married. Sorry, I forgot. Yeah, I'm still married. So, my spouse I have one of those yeah, my spouse, I think they're probably not going to want to be with me as well, since you know it's been a long time. But, look, maybe we redate each other Like it's been a long time since we've had a first date. But let's assume we go on that first date and you go yeah, you're right, let's get part-time jobs. Well, to be honest, my spouse doesn't want to travel as much as I want to travel, so I might bring in $30,000 a year, but they might work more than me because I still want to travel. I've been working with these kids causing me havoc and so, because of that, and just so all of you know listening to this, my fiance is a teacher. Okay, so I have a soft spot for the teachers out there, so you can give me sticks still if you'd like to, but my spouse probably going to bring in $40,000 a year. I'll probably bring in $30,000, maybe next 10 years or so.

Speaker 2:

Well, let's do this. Ari, you know we've been working together for a long time now and I do notice that your attitude, by the it's time for school to start up again, you've got a little bit more pep than your step. You're a little less discouraged about things. You're excited because you do love kids. You do love teaching.

Speaker 2:

Here's one thing I noticed I was reviewing your benefit statement. You've got about 12 weeks of PTO that you've saved up to this point. You know, when you're working, you're giving it your all. Why don't we consider something like this? How about, over the next 12 months, I'm going to task you with using all of that. Burn all that up. Okay, that gives you some time to see. Do you really want to transition out of this or do you just need a little bit of a call to sabbatical? So let's not make any major decisions here. But what if you use all 12 weeks of your PTO and if you don't fully love it, if you're not fully re-energized after taking the trips you want to take, then let's consider going to part-time work. How does that sound to you?

Speaker 1:

to start, oh, you're stressing me out. I think I should maybe speak to my parents during that time, because I haven't talked to them about money in a long time. But I think that's a good idea, because here you're right. Some people, james, I'm known I'm only five foot four apparently, but you're right, sometimes in August I'm going back to school. Some people think I'm five foot six at that time because I just got a little spring in my step, and so I think it's a good idea. I think I start with the PTO. Now let's fast forward. Three months I go, james turns out I miss my spouse and I haven't gotten to see them. I was about to go just in my brain plan in my financial strategy for 30,000 year the next 10 years. I don't want to do that, no way. I'm spending time with my spouse Now. They're still going to do something. Bring in 10, 20,000 a year, but this experiment that you just told me about this just shifted my whole retirement no-transcript.

Speaker 2:

You're almost at 100% of where you previously were between your pension and between part-time work. Now your portfolio needs to support much less to still cover all of your needs. So, really, what we wanna work towards is how do we start with? Set the money aside? What's most important to you Sounds like it's your relationship with your spouse. It's travel.

Speaker 2:

What's most important to you it sounds like it's your relationship with your spouse, it's travel, it's the ability to live now and not be so stressed out with what you're doing. Then how do we see what are the options to make that happen? Perfect world is you love what you do for work and you're able to do all those things. So that's why you're going to take all 12 weeks of PTO and you're going to see if that's possible. If not, we're going to shift into plan B, which is still a great plan, which is do something part-time. Because if you fully retire today at 55, you might love it for the first two months, three months, four months, knowing you are, you might get bored and you might be wondering what's next. So let's start to shift into this gradually, knowing that you can financially support it, both today as well as at 65, 75 and 85 and beyond because of the strategy and will continue to revaluate along the way.

Speaker 1:

I feel like that's a good plan. I just have a few financial things going off because my neighbor who keeps just always coming they come over, james, they're like I got to tell you about this new allocation strategy. I'm like, what is it? They're like you should be 60-40. I know some people said that's the cookie cutter, but no, no, no. I saw another article that says you're so brilliant, so they're telling me I should have 60-40. Now I don't know if that's right, and there's a part of me that feels it's not right, because I have a pension and I might do part-time income, but I don't know. 60-40, my dad has 60-40 portfolio. He's pretty smart, so is that what I should do? I mean, I know I'm getting a little financial here, but what should my allocation be? Should I even be thinking about that?

Speaker 2:

A couple of things. One is nothing wrong with the 60-40 if that's the outcome of a good strategic planning process to determine how you should be invested. If that's just a starting point, it's probably maybe missing the mark. Nothing wrong with it, but it's typically something that okay. You're retired, therefore, this is your allocation, and it's not the right mix for you. If you're retiring at 55 already, you need that money to last for a very long time.

Speaker 2:

A 60-40 portfolio might typically be thought of, as this is going to last for maybe 20, 30 years throughout retirement. 20 years from now, you're 75. I hope you're still traveling. I hope you're still playing soccer. I hope you're still doing really fun things.

Speaker 2:

We need our money to last a bit longer, so we do need to have enough that 40,.

Speaker 2:

What that 40 stands for is how much we need to have in bonds or conservative assets. We do need to have enough in bonds and other conservative assets to be there for you when the stock market drops 20, 30, 40%, not if so, we need to have a very specific, intentional amount that will help you withstand that drop and still have stable income to live on. But if you have too much there, inflation is going to take your $120,000 of living expenses over the next 30, 40 years in quadruple, if not more, what it's going to cost. It's going to cost you $500,000 at age 90 and ballparking here to cost what today might cost 120,000. So for two conservative, good luck keeping up with that. Your money will stay fairly stable. You won't be subject to the ups and downs. But you're going to be really mad at me later on in life when I didn't allow you to. I didn't advise you to be a bit more on the growth side to ensure we're keeping up with inflation.

Speaker 1:

That's interesting, I think. You know, james, you're right. I think I would have been really mad at you, but with this 12 weeks off of vacation, it turns out I'm just a chill guy now, so I probably won't be too mad. But lots of thoughts here, james. So one just quick story and then I know we'll wrap up here on this episode.

Speaker 2:

So I still my client for you now. Are you now already the advisor?

Speaker 1:

Now are the advisor.

Speaker 1:

So this was this was a few months ago. Someone came, they reached out and they go you know I'm 83 and need help with my allocation. They start talking about all these things. I go how many advisors have you had? They said I've had four advisors. I said why didn't you stick with any of them? They kind of just gave me ideas. They never gave me an action strategy. I said okay.

Speaker 1:

So we talked a little bit more in detail and I said you should have a hundred percent equities. And he said hey, are you nuts? I'm 83. I said oh, I know it's a horrible recommendation. They're like then why'd you just say it?

Speaker 1:

I said it's horrible for your neighbor that doesn't have a pension, social security, inheritance and rental income. You would not be happy with me, client and I'm not going to say their name, but client if your 4 million went to zero. I know you would not be happy with me, but you would be okay because you would be able to meet your needs. You wouldn't be able to meet your legacy goals and lots of other things, but you might be able to still, if you're okay with the ups and downs of the stock market, have that allocation and be okay versus your neighbor or friend that told you that's a terrible idea. They actually might not be okay if they don't have that pension, social security and rental income. So that whole idea of a cookie cutter 60, 40, 70, 30 doesn't really align well with me. But anything you want to add there.

Speaker 2:

Well, we see that all the time on YouTube. Like how many? How many videos have you done where you do a hypothetical of what does it take to spend 7,000 per month in retirement? And you'll get some comments of oh my gosh, who needs 7,000 per month? You should need no more than 2,000 to 3,000. We'll get a lot of other comments of who on earth could possibly survive on 7,000 per month. We'll get some comments on you If you're dumb and you're going to have a horrible retirement. We'll get others that say you wait till 70 all the way.

Speaker 2:

We'll get some comments right now from this who on earth would have 100% equities at age 83 or whatever it was versus? So it's hard to take a big step and say all these financial decisions should be very personal in nature and they should be very unique to you as an individual. And it's not bad to have some basic rules of thumb or some basic frameworks to think through as a starting point. But this is something that you can. But it's not the right approach of just saying, okay, here's your age, therefore, here's your asset allocation, when you should take social security, all these other details. It is so highly dependent upon the person and a number of different things.

Speaker 1:

Love it. That's all I got for this episode. Any other thoughts?

Speaker 2:

No, we are good. We're still trying to come up with a name. Thoughts welcome, comments welcome. Thanks everyone for listening. We'll see you next time. See you next time.

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. 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.