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

How Much Do I Need To Spend $10k/Month In Retirement? Hint: LESS THAN YOU THINK!

• Ari Taublieb, CFP®, MBA • Episode 221

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Understanding how much money you really need for retirement is essential. This episode reveals that you don't necessarily need $3 million to retire comfortably, and discusses dynamic spending and adaptable withdrawal strategies to enhance financial security and freedom. 

• Overview of common retirement spending misconceptions 
• Importance of dynamic spending throughout retirement 
• Critique of the 4% rule and its limitations 
• Introduction to Guyton's Guardrails approach for adaptive withdrawals 
• Necessity of a diversified portfolio for sustainable withdrawal rates 
• Exploration of supplemental income sources like Social Security 
• Encouragement to rethink retirement spending strategies 
• Call to action for listeners to engage with the content and submit questions

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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:

If you want to spend $10,000 a month throughout retirement, you go to an advisor and you ask them hey, advisor, how much money do I need? They're probably going to tell you that you need $3 million. Now I don't believe you need that amount, but I'm going to tell you how I came up with that in today's episode. I hope it's a fun one. I hope that you don't worry after this episode, because I think a lot of you think you need more than you actually do to retire early, and the truth is you don't. And the reason for that is you're not going to spend $10,000 a month, every single month, like clockwork. You're going to spend more. When you retire and you have your energy and your health, then you'll spend less. Then there will be more expenses because of medical or more giving. Then there will be less. It's going to be a dynamic, moving thing and there's a strategy I'm going to explain today that hopefully makes a lot of sense and resonates and, if it does, might just shift your retirement. So today is going to be all about making sure you can spend what you want in retirement, using the assumption of 10,000 a month. Now some of you listening are like I don't know what the heck I would do with $10,000 a month. How do people really need that amount of money? Others of you go $10,000 a month. I couldn't even do anything other than eat Top Ramen. So, no matter where you're at on that spectrum, I'm going to give you the insight and the principles and the framework and any other words that pretty much mean the same thing to help you where you're at. So let's have some fun.

Speaker 1:

Now, if you don't already know, my name is Ari Taublieb. I am a financial planner. I'm a certified financial planner. That's what I'm supposed to say. I love what I get to do, which is helping people retire early. For some people, you already know that doesn't mean you actually do retire early. I have clients that go oh my gosh, this is awesome. I don't need to work ever again, but I'm still going to because I love what I do. Maybe I'm just going to work way less. Maybe I'm going to prioritize my health and spend time with family. Maybe I'm actually going to increase working, but I'm just going to do it somewhere else at a spot that appreciates me.

Speaker 1:

So I want you to do what you want to do. I don't want you to do what your neighbor wants you to do and I don't want you to do what your friend and yada, yada. So I am always I got too excited. That wasn't even English right there. I'm always trying to make new videos and content and different pieces that resonate. If you have an idea of something you want me to make a video topic on podcast on, you can submit that at earlyretirementpodcastcom and you can see where you can submit that question. I make it very easy and I spent a lot of money on the website. So no, I didn't spend that much money. So you can see, you can submit that question and I'll look to answer that in a future episode. Let's hop in.

Speaker 1:

So all of this, as always, fun, educational, informational purposes only. Please, please, if you go execute some strategy, please consult with a financial advisor, even if that's you meaning you're your own financial advisor, a tax strategist and a state attorney. Make sure you're doing the right things and be smart about this. So none of this should be construed as financial advice for you. So I'm going to tell you how I came up with that $3 million and we're going to walk through an example.

Speaker 1:

Let's assume that you want to spend $10,000 a month throughout retirement. I will ask my clients how much do you want to spend? And they will tell me I want to spend $10,000 a month. And I will say I don't believe you. And they're like, well, you're nuts, like you don't sleep next to me, how do you know how much you want to spend? I go, I just don't think so. And they're like, well, you're crazy, like how the heck would you know? And that's when I'll say, look, I'm not saying you're not going to ever spend $10,000 a month, but it's like assuming you're going to do 10% every single year. The S&P 500 averages 10%, but it's up 20, then down 15, then down 5, then up 40, then down 10, then up 3. It's going to average a certain amount, but it's not in retirement, like you spend 10,000 a month, every single month, because most of the time you have your core expenses.

Speaker 1:

We're going to call that 6,000 a month, so that's 72,000 a year for you to live. That's groceries, that's driving. That's, I should say, gas, not driving. You don't just pay money to drive, but that's gas. That's giving, like literal giving to charities or foundations or giving within the family, like, hey, we're going to buy gifts for our family. That could include anything from utilities to trips. $6,000 a month is sometimes. I won't include trips in that, but for this example I will. So that's like you're doing your basic trips, maybe one or two trips in that for the year, but for most of you $6,000 a month is the basics. Now, on top of that you might go I really want to do a home remodel. I really need to buy a new car. I really need to help out my kids with college. I really need to. You name it. Those are additional things and those are going to be fluctuating.

Speaker 1:

No-transcript mean. At least, I don't think so. I have not been told I am. I just try to be very transparent because I do not need you working longer than you need to be, unless you love working, in which case be my guest. I love working. I never plan on stopping unless something changes in the business or my employment and I decide I no longer like it. I want the freedom to walk away, and having that freedom, I believe, will make me do better work, because I'm here because I want to. So there's my little TED talk for today.

Speaker 1:

So here's how I came up with the three million. If you go to your fancy calculator, you don't need to go download one from the app store. Just use the calculator. Type in 120,000. They are going to click divide 0.04. It's going to spit out a number. That number is going to be 3 million.

Speaker 1:

So if you go to a traditional advisor and you say you want to retire one, they might say you should work till 65 to be extra safe. I call that extra risky because it's unnecessary often to work until 65 and you're forgoing many of your years where you have your energy and your health which you cannot get back, and I would call that risky. So the point here $120,000, if you want to spend that in retirement, you need $3 million. Well, that's assuming what's called the 4% rule. The 4% rule is based on this study which was done by a guy named Bill Bangen who said if you don't want to run, if you I got too excited there, I was running literally in my mouth I said if you don't want to run out of money which is what I meant to say and you certainly don't want to run out for 30 years you can be safe, assuming you do the right things, that you can take 4% out of your portfolio and you won't run out for 30 years. So if you were to retire at 65 and die at 95, this portfolio, through many different studies and research, shows you will not run out of money. So if you want to spend 10,000 a month, you need $3 million. Here's why that's just not realistic for you.

Speaker 1:

Many of you are retiring early so you're like hey, don't, I need more than that, since I'm retiring early. Some of you do, some of you don't. I'm going to explain why that is and that's not just kind of buzzword stuff. I'm going to explain the logic, so you don't have to trust me. Some of you guys are like I really like you. It just sounds like it makes sense. I go, I'm a lot. Some of you guys are like I really like you. It just sounds like it's it makes sense. I go. Even if you, like me, don't trust me. Like, get the logic as well for it. There's doctors I think are really nice and I trust them and I feel good. But I'm like hey, can I like see the peer reviewed studies? Cause I'm weird like that. Some of you are like look, I don't like you, but the logic you just said there made sense. Cool, no matter how you guys get your answer, you're allowed to like me or not like me. I hope you like me because I try to be a nice person, but that's besides the fact.

Speaker 1:

So, getting to the example here, if you want to spend $10,000 a month throughout retirement and let's say you retire at 60 and you pass away at 100 hypothetically that's 40 years of income that 4% study. That's really not that applicable for you. So what you need is something different, and that different is what's called the Guyton's guardrails approach. Now, this was developed by someone named John Guyton, who developed a study that said look, the 4% rule has some issues. The first issue is if you want to take money out of your 401k to live let's assume you want to take 4% off of 3 million, that's 120,000 a year Do I really need to take out 120,000? Or do I need to take out 140,000 so I can pay taxes and end up with $120,000? That's the first issue. The second issue is this 4% rule was based on a study that shows you only invest in US large caps that's like the S&P 500, and intermediate term US bonds, no real estate, no small funds, no international, no developed, no emerging, no, all these different asset classes. It's ignoring all of that, and then even larger. It's ignoring the fact that you're going to shift your retirement spending. It's assuming you're just going to spend $10,000 like a robot throughout retirement. So John Guyton said that's just not realistic. Your people are going to live on a dynamic basis and there's college and then weddings and then this and then that. So if you invest the right way and you have a dynamic strategy and a way more diversified portfolio, you can actually take out between 5.2 to 5.6% of your portfolio and your money will be designed to last for 40 years.

Speaker 1:

So some of you are like let me see the study. Go look it up, John Guyton, g-u-y-t-o-n if you want to go into the details, but I'm going to summarize it for you. So I'm just going to take 5.2% and we're going to do it together. I've got my super, super fancy calculator here. Guys, I try to be so fancy with you guys. Some of you are like do I need to go buy a time value of money calculator and this and that? No, you don't need to do that. Okay, so don't make it more complicated than it needs to be. But if you're using this guidance guardrails approach because it resonates with you, that's what I'll often use with my clients.

Speaker 1:

I just did the fancy calculation 120,000 divided by 0.05 to 5.2% 2.3 million is what you would need to start with if you don't want to run out of money for 40 years. Well, I just took $700,000 off of your 3 million starting spot and all we did was do more research and look at a study that proved it's actually more effective to do it this way. Now here's what comes with the study. What comes with it is someone who will say and I'll do this with my clients I'll go look, I know you want to do a home remodel, I know you want to buy a new car. We can't do that all in a single year because we'll be too high. That withdrawal rate is not sustainable.

Speaker 1:

So what I need you to do is try to spread out your expenses, and this is what I tell my clients to do. If you're one, two, three, four, five years out from retirement, I need you to try to tackle some of these big expenses so that you don't retire and now have a ton of expenses Travel, healthcare, home remodel, kids in college Because if we get unlucky and markets don't do well, that withdrawal rate might be really high, arguably too high. So how do you protect that? Sometimes I'll tell my clients look, you're maxing out your 401k. You need to stop doing that. You don't need to, but you could stop doing that, and the reason you could and maybe should is you already have enough there. If that keeps growing, great, but like it's not that it doesn't help. It always helps to grow, but you know what's going to help way more is eliminating a big expense. So go buy that car before you retire. So if markets don't do well, you could say I'm going to take one less trip, versus saying I'm going to drive around in a car. That's not safe. So I want you to be a dynamic, what I call retirement boxer. If you're willing to do this, you could have way less money and retire way earlier.

Speaker 1:

Now, what I have not gone into are other income sources, which is the big other aspect of this today. What if you have social security and that brings in another 50,000 a month? Well, if social securities as a couple is going to bring in 50,000 a month, let's call it from I don't know 67 until 90, just for 23 years. Let's use it Easy numbers here. You want 120,000 a year, right, but social security is bringing in 50. That means you only need 70,000 from your portfolio and if you're taking a 5.2% withdrawal rate from that, that's 1.3 million that you need If you want income for the rest of your life, for 40 years.

Speaker 1:

At the beginning of this episode, 12 minutes, 13 minutes ago, we were at you need 3 million to be able to retire and spend 10,000 a month. Now we're at you need 1.3 million and social security in a dynamic strategy. Which one sounds better to you? I'm just using the logic that I walk my clients through and I love this stuff, not because I love taxes for the sake of it or investments for the sake of it. I love if we are powerful with the way we think about planning. You get five more years with your family. You get 10 more years with friends and prioritizing your health and doing what you want to do.

Speaker 1:

So there was a comment that was left on a recent YouTube video. This was left a month ago and so this person I'm going to highlight it for you if you're listening on the podcast app. If you don't know, you can watch these episodes on YouTube if you want to see my radio face. So this person says the hardest part of all this planning I'm 60, wife 56, is trying to forecast what the US government will do with social security. The noise is they may need to reduce payments. None of that's factored into Monte Carlo. It's why I keep struggling with retiring next year or later.

Speaker 1:

Now, what this person's bringing up is what's called just delaying one more year. Oh, I'm going to retire next year once I get a bonus. One more year, one more year, one more year. Now they're 75. Just kidding, no one's delayed it that long.

Speaker 1:

But for the point of argument here, don't just keep delaying. And what some people do is they'll keep working until Social Security because they're like oh, I don't want it all to be up to my portfolio. And the other mistake is people underspend before Social Security gets turned on because they're like it's all up to my portfolio. Hey, that portfolio is there to help you out and live your dream life that you've been saving and investing for, so don't just ignore it. With that being said, that's what I want to go through on today's episode. Hopefully gets you thinking a little bit differently.

Speaker 1:

If you want to play around with the software that I talk about and I'm sure you've seen it, many of you are inside this academy already and you want to go to the retirement analysis section. That's where you get to do your good planning. Go check that out. It's a few hundred bucks for a reason. There's no one-on-one guidance, but you get to go essentially be your own advisor and use the software. I make videos to go along with it that hopefully make your life easier. If you want one-on-one guidance, you can, of course, reach out to Root and we would have the honor of getting to speak with you and seeing if it's a good fit. That's it for this podcast. I'll see you guys 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, 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. 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. 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 will 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. 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. Before taking any action, 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. 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. 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. 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. 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 earlyretirementpodcast. 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 or any future episode. Thank you all for listening. Please do rate it, review it and share it with someone. 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. 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. 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 you think will benefit from this information, if there's anyone out there that you're taking any action. This podcast is for informational purposes only. Thank you for listening to another episode of the Early Retirement Show. Nothing in this podcast should be construed as financial or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. 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 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 or view it and share it with someone. Consult with your tax preparer or financial advisor before taking any action. I certainly appreciate it and I will see you all each week. 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. 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 Podcast is for informational purposes only. 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.