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

Here's How To Live A Retirement Without Anxiety

• Ari Taublieb, CFP®, MBA • Episode 226

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Navigating the complexities of retirement wealth requires a balance between prudent saving and intentional spending to enrich one’s life. We explore the fears surrounding financial security, the mental impacts of excessive frugality, and the regret people feel for not experiencing life fully as they transition into retirement. 

• Understanding fears about running out of money 
• Importance of the Rule of 72 and compound interest 
• Exploring the mental impacts of frugality 
• The role of financial planning in retirement 
• The balance between saving and enriching experiences 
• Identifying and addressing specific financial fears 
• Strategies for minimizing potential regrets in retirement 
• Real-life scenarios illustrating intentional spending choices 
• The consequences of excessive restraint on happiness 
• How to seize opportunities while maintaining financial security

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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:

James, I've never met anyone who is really not worried about running out of money, and I've also never met anyone who's going. I cannot wait to die with a hundred million dollars. And this episode that we're going to talk about today was prompted by a listener question who said the thought of running out of money late in retirement that will trigger anxiety. I'm a human. Ending up with many millions may also cause regret because of the thoughts of I should have, I could have. The key is finding the right balance. How do we think about that? That's all about today.

Speaker 2:

It's all about today and before people start thinking that's an absurd range of outcomes, because that's enormous. You either run out of money or you die with you said a hundred million, let's just say many millions. That's not that uncommon for people that might be entering retirement with a couple of few million dollars, especially if they're entering retirement on the earlier side. To run some projections, see what they're headed for and show them that unless we start spending and start doing some stuff, you very well could have four or five, six, 10 times a lot more money at the end of retirement than you do going into retirement. How do we find that trade-off? Don't spend so much that you run out, but don't spend so little that one day you wake up and say, man, I really wish there was more that I would have done with some of this when I could have.

Speaker 1:

Yeah, whenever this conversation begins, I will start with compound interest and explaining this rule of 72. And so if you have $2 million and you're 50 listening to this right now, or you have a million dollars and you're 40, you're going to use a basic calculator of some sort and you're going to see how quick is my money going to grow. And so the cool thing about this rule, which is the same thing as compound interest, that all of you have heard many of you should, I say if you take 72 and you divide that by 7.2, which is a rate of return, that's basically going to tell you how long it will take for your money to double. So if we knew, our money would double every 10 years. Now this is without getting into withdrawal strategy and things that we'll talk about today. Well, if you're 50, you have $2 million, and when you're 60, you might have 4 million. When you're 70, you might have 8, and then 16, and then 32. That range of outcomes.

Speaker 1:

Thinking about this, you all probably just heard that example and said yeah, yeah, yeah, but that might not be me. I don't want to run out of money. I mean, I get the math and the logic, but might not be me. I don't want to run out of money. I mean, I get the math and the logic, but what if markets don't do well? What if I want to retire earlier? Well, those are the trade-offs. That's all we're talking about today, which is trade-offs.

Speaker 1:

And I will start by asking someone and I want to hear once again your perspective on this but I'll say hey, right now, would you rather work five more years and you get to spend 12,000 a month for the rest of your life, or you have to stop working tomorrow and you get to spend 8,000 a month for the rest of your life. Which sounds better to you? And I'm not looking for a yes or no or it's that or that. I'm looking to see how they respond. And some people go 12,000 a month. Do people like live off that amount of money? I go, yeah, some people do. Other people will be like 12,000 a month. What so? I just live off of like top ramen, like no, no, I want to live the retirement I want to live. So the response is very telling. That's how I like to start going into those conversations.

Speaker 2:

Yeah, and I think that I think that the awareness of this, first and foremost, of everyone's acutely aware that you could run out of money, that's the number one fear going into retirement is am I going to outlive my money? What does that mean for me? What if I pass away? Then my spouse outlives their money? What does that mean for them? There's just this gigantic fear, and that fear leads to people being very frugal. It leads to them not doing things. It leads to things that in some ways you look at like thrift is a virtue in some ways. In many ways, the ability to be disciplined is a virtue. The ability to live within your means is a virtue. So all these things are really really good things until they're taken to the extreme.

Speaker 2:

And the extreme example we'll see all the time with clients is clients who have lived so far within their means and then they get to retirement and that just becomes a way of life. It becomes a lifestyle and they say they are so used to saying no to things that we have to show them what they're on track for that. Look, you're retiring at 62 or 65 or whatever it is. You're projected to have so much more money when you pass at 90 or 95, assuming you make it that long. Is that your goal? And they say no, of course, not like that. Of course it's not my goal to die with $30 million or 40 million or 50 million. I think they don't fully believe quite yet that that's truly what they're on track for, cause that just seems absurd. But that's to your point already that compounding doesn't stop when you retire, assuming you're still invested the right way and markets do what they do. Compounding doesn't stop when you retire, especially when you consider retirement might be 30 plus years. That's a long time for compounding to work itself out, and people are so acutely aware of running out of money that they forget the other.

Speaker 2:

What's going to become big regret, which is I missed out on life. I missed out on what I could have done. And so there's this financial tension with this life tension and what you can do with it, of how do you we'll talk about guardrails of how do you make sure they're not overspending? There are ways to look at this of how do you make sure you're not overspending such that if you continue doing this, you will run out of money and have a very bad rest of your life, but also, how do you not underspend to the point that your portfolio is just going to continue growing and your regrets not going to be that you ran out of money, but your regret is going to be still painful.

Speaker 2:

Which is, what if I had taken those trips when I had my energy to do that? What if I had retired earlier because I knew I had the means of supporting my retirement lifestyle and could have spent more time with friends and family? What if I had given more? What if I had spent more? What if I had taken that money and invested it in my health? How much healthier could I? So there's just the regret of yeah, on paper it doesn't sound horrible to pass away with a lot of money, and it's not Like. A lot of clients have legacy goals and things they want to do beyond themselves, and so I want to. I think it's all about intentionality. It's all about intentionality of how do we use our dollars in a prudent way so we're okay today and in the future, but also such that we minimize any potential regrets we might have because we didn't do the things that we otherwise could have.

Speaker 1:

Beautifully said, but what do you say? I'm going to pretend to be the client here. What do you say if a client says something like this James, I get that you're excited about the numbers and the graphs and the guardrails, but look, I just don't care about that stuff, I'm going to run out of money. I know you're telling me these graphs and numbers look good and you're confident in them, but I just don't know what to tell you. I have this feeling that something could go wrong and I'm really worried because if I retire at 55, I don't have social security for a while. I don't know when I'm going to turn it on. I don't have a pension that doesn't start till when I'm 65. So maybe I should just not spend from now until that pension gets turned on, cause I think that's just going to put me in a way, safer spot.

Speaker 2:

Yeah, a lot of this is a more of a general principle. When fears are more generalized, they are more all consuming. It's that whole principle. When fears are more generalized, they are more all-consuming. It's that whole principle. Once you name your fear, define your fear, you start to realize sometimes the absurdity of it.

Speaker 2:

So it's, ari, what would that look like? I get it Like running out of money and not having the means to work anymore to pay the bills. That's a terrifying thought. What are you going to do? Let's walk through how would you run out of money? Let's logically work through this.

Speaker 2:

I would walk through an exercise with you to see what has to happen. How much do you need to be spending for that to happen? Sure, world War III could come and the stock market goes to zero. The stock market's not your biggest concern at that point. Okay, so like that's like, let's show you can worry about that, but not from, like, a retirement planning standpoint. Or we have another great depression type event, and every like there are some things like there's no guarantee that anything that we're projecting in terms of growth rates or asset projections is going to happen. There's a very, very, very high likelihood based upon history, based upon how things work, based upon when you just look at, where does the value of the stock market come from. But I think that once you start to more narrowly define what is that specific fear, the fears start to subside.

Speaker 1:

I have a potential title for this episode, which is called head trash, which is? You just explained it, that's just head trash. And I think if a client just heard you say, right, there you go, you're right. I guess I won't run out of money. If I technically did run them, I'd be way bigger problems in the world. And the big risk that I see.

Speaker 1:

There's two risks the risk you run out of money and the risk that you underspend and get really mad at James and I because we didn't make this episode for you and you're 80 going. Hey, james, ari, why didn't you tell me I should have spent more when I had my energy and my health? And that example I gave of someone who's 55 retiring, worried about spending money because they don't have a pension that turns on till they're 65. The risk is they underspend, become 65 with a pension that covers all of their needs and now their health isn't in a good spot because they didn't take care of themselves or worked a job that was stressful or did something else that the rest of their retirement is not going to happen the way they want it to.

Speaker 2:

Yeah, and I will say like this is why we do planning is because it does help you to define what that might look like, like if you had never run any projections. If you don't care how big your portfolio is say it's $10 million, that's a big, that's objectively a big portfolio. And you're about to retire and you're 55, to use your example. So you're not living on social security, you're not living on a pension, you're living on the dollars that you have saved up. So, living on the dollars that you have saved up. So you're going to go from saving money and building your portfolio to now spending it down. That's objectively a scary thing to think about. Like spending down my money, what if I run out? I might have another 40 plus years of living, well, until you run a projection and you say, okay, well, look, here's your spending Cause I know you are and I know what you want to spend. And we've built in some margin here of what if there's a health event? What if there's an unforeseen emergency? What if I have?

Speaker 1:

to buy a soccer team. What if you have to buy a soccer?

Speaker 2:

team. What if those things come into play? I know what it's going to cost year by year for you to do what you want to do. I know what that's going to represent year by year as a withdrawal rate from your portfolio, when I can show you, for example, that our year projected to spend somewhere between one and a half to two and a half percent of your portfolio value the first 10 years. Okay, now let's relate that back to those fears. That's a very sustainable withdrawal rate and obviously we go through a deeper conversation of how much could your portfolio support, based upon dividends, based upon how old you are, based on how long it needs to last, based on a number of things.

Speaker 2:

But until you have the clarity of actually seeing what does your portfolio need to do, what do withdrawal rates look like? And you can compare that to something like something that's relatively safe For safe meaning, here's our benchmark for if you're at or below this in terms of spending or withdrawal rates or whatever. For if you're at or below this in terms of spending or withdrawal rates or whatever, we feel really good, because here's what this is based upon. Then you get that clarity and it goes from the vague, unknown sense of I just might run out of money to oh okay, I see, I would have to buy a really expensive soccer team I would have to way overspend the market would have to go down 70%, and in which case I would just go back overspend the market would have to go down 70%, and in which case I would just go back and get another job. So financial planning is designed to explore those really bad what ifs, so that we can have contingencies because at the end of the day we don't know what's going to happen.

Speaker 1:

I have two examples for you. The first is, as many of you know, I love to play soccer to an unhealthy degree. I know I should play maybe two days a week or three days, but I love it. So I play more than I should and I had to get a hip procedure done and I know I could have watched a surgery on YouTube of the exact surgery I was going to get done. Maybe I would have had more confidence because I would have known the tool they use. But look, I would be unconscious at that point when the surgery is happening and I don't want to watch it. I'm just trusting the surgeon.

Speaker 1:

So a lot of you are like look, I think I just need an advisor, the right one that I trust that's going to give me the confidence beyond the what if scenarios and projections. So that's some of you. At the same time, james, how many times have you heard the following? And I'm curious how often you hear this, cause I get this more than I would have thought. I'm really scared to retire because up until this point, when markets go down or things aren't going well from news or neighbors, I just add more money to my 401k. I am still working. So if, god forbid, something happens, I have new dollars to put in. I'm scared when markets go down. I don't have new money to put in, and so it's almost like hey, I've got one go at this.

Speaker 2:

Yeah, and we'll acknowledge that like that.

Speaker 2:

Yeah, that's that's the importance of having a financial plan, of having a strategy, of having some contingencies of what you. You should only retire once, unless it's by deliberate choice, because you go back to work and you, you know you're Michael Jordan and you retire and you decide you're not done yet and you go keep playing. But you should not have to go back to work because of a lack of planning, because you feel so that we're not here to say it's not a scary thing, it's not a big undertaking to get a plan in place to do this. That's, it is a scary thing, but the right planning can ensure that you I shouldn't say ensure we can't guarantee anything for us. The right planning can minimize the chance of you ever running out of money while at the same time, minimizing the chance of you having a ton of regret, while, at the same time, minimizing the chance of you having a ton of regret looking back one day because you didn't spend money on the things that you should have spent money on yeah, james getting a lot better at jujitsu.

Speaker 1:

He's not telling all of you this, but if you do not accept his recommendation to retire, he will put you in a chokehold. That is how that works now at root. No, I no, I'm just kidding, but it's not easy. If it was easy, everyone would retire. I would argue, if it was really easy, everyone would retire early.

Speaker 1:

But that example that we just went through of hey, if I'm not adding new money anymore, it's scary. Well, that's another example as to why you don't just plan well, but we'll tell clients. Imagine markets go down and you do a Roth conversion, which is not the topic of today's episode. But imagine you do something like that. Well, it's kind of like adding new money. You're just doing it in a different way, where the growth is tax-free after the fact of doing this conversion. So I'm not going to go through the details of that today, but there are strategies that give you confidence and knowing that you have these levers or trade-offs a lever such as maybe I spend less other times, which, once again today we want to make sure all of you are thinking through these trade-offs.

Speaker 1:

Sometimes, and I know myself, I'll be mad at a client not legitimately angry. But I'll be like look, you told me you did not want to die with $10 million, James, and because of that I'm going to ask you to either go take another trip or you're going to give more to your child for that wedding, which is more important to you. And that's weird because up until this point, James, the reason you have what you have is because you've been a good saver. So for me to ask you to flip a light switch and all of a sudden be an incredible spender well, that's not logical.

Speaker 2:

Yes, I think the way people should look at it is how can you minimize regret? But there's there's multiple types of regret. You know the risk of sounding redundant. You're going to regret if you run out of money and you're 80 years old and to go back to work or just live on social security. You'd also going to regret not doing some things if you were on the extreme side of you never spent money in retirement. You never, um, you know, lived a little and did money with your. Yeah, I told a story, another podcast I was doing.

Speaker 2:

Um, carly munger just passed away last year at the age of 99, warren buffett's partner, and he's been interviewed. I think this is like a few weeks before his death, I think, and he died with billions of dollars. He was incredibly wealthy and he died doing what he loved. Thankfully, I think he really enjoyed doing that. But they asked like what do you like? Looking back, I forget the exact question, but something like what would you have done differently or what. I don't remember the exact question, but his answer was I wish I could go back and catch a 200 pound tuna.

Speaker 2:

I don't have the health anymore to do that. I've got all the money in the world to rent out every single fishing boat and have that. I don't have that anymore. I have money, I don't have time, and so when we can look at financial planning not just as the allocation of financial resources but also the allocation of how we spend our time, how we spend our energy, how we spend our talents, using finance as a tool to help support that, you're going to have a richer experience when you don't just view it as to take hoard, hoard, hoard, save, save, save, invest, invest, invest.

Speaker 2:

There's a great way it's good to do up to a point, it serves you up into a point. And at some point we have to realize what is money for. Ideally, money is for consumption. Money is for the exchange, you know, being able to do things we want to do, have the impact we want to have. Anyways, I'm starting to go in circles at this point. But how do we just go into retirement the eyes wide open that there's not just one regret, which is running out of money. We're all acutely aware of that. There's the other regret of not doing what you could have done, because you, you were either too fearful of doing it or whatever the case might be. But you look back and are upset that that's the case.

Speaker 1:

And it's one thing if you're not in a position to do it, we will be the first people to tell you. You, I'm sorry, you don't get to go buy this boat and you don't get to go get a 200 pound tuna unless, once again, the trade-off, unless you don't want to send your children to this college, like it's all about trade-offs and we don't get to make the final call. It's, of course, your money at all times, but the last story I'll leave you with, and then, james, if you have anything else is I had someone that came to me and I like called them out on it and they were 56 and they had saved, invested really well. They bought $8 million. They said I want to make sure my spouse is okay, and I said who doesn't? And they said, look, I want to make sure my health's not in the best state, but I want to make sure we get to move to this community because I think we're just going to be a lot happier for the next 10 years. And I said awesome, tell me about your health more. So he's telling me about his health and he doesn't know how long he's going to live, but it could be 15 years, could be 20 years, it's safe to say his spouse is going to outlive him and he was just kept telling me about his spouse and his spouse.

Speaker 1:

I said hey, what about? You said moving into this community? What, what might that cost? And he said about $800,000. I said would that be the nicest home in the community? He said no, that that's the 1.8. I've never spent 1.8 million on anything. I just couldn't do that. And I said you could do it. It would be hard, I'd argue, it'd be very hard, but you could do it. And how much of a different experience would that add to your community? And he said really, wouldn't change it that much, it's just a really nice home. I said then great, don't go buy this home just because it's 1.8 million. If you felt it would add to the quality of your life or your wife's life while you were here, that's something to consider. So we're not saying go spend frivolously. We're saying spend on things that matter most to you. So you don't look back and go. Why didn't I catch the tuna?

Speaker 2:

Yeah, why didn't I catch a tuna? Exactly, it's a good way of looking at it. So it's a delicate balance and, to your point, not everyone has the luxury of of of the straight off. Some people, you just Everyone has the luxury of this trade-off, some people it's like Maslow's hierarchy of needs you got to meet the foundational needs first and a lot of people haven't met those. So the trade-off is you do have to keep working, you do have to live within your means, you do have to live on a really tight budget because that's all you have the means for.

Speaker 2:

The problem is when we see people who have the financial resources that get them well beyond that point. They're beyond the point of safety and wellbeing, but they're not living into the next phase of that because their mindset is still trapped in the I got to meet my basic needs and it's preventing them from living. More is what we're seeing. So all the trade-off, as you say, delicate balance. Neither options are good options. But what can we do to minimize regret on either side? Focus on that, prioritize that and you'll be making better decisions as you move into retirement. So where can people find you, ari, if they want to know more about Ari and soccer and all the cool things you're doing.

Speaker 1:

If you want to see me, try to catch maybe a two-pound tuna, if I have a better chance, earlyretirementari on Instagram. And if anyone wants to see you put anyone in a chokehold, where do they find you on Instagram?

Speaker 2:

Well, they find me on Instagram at James Canole. I need to do a better job of being better and active on there. I don't have any chokehold pictures. You know, I haven't actually done jujitsu since our son was born five months ago now, so I got to get back to it. It's just the mornings are a little hectic and chaotic, which is usually when I would train. So I'll get back there and I'll take a picture and post it.

Speaker 2:

But find me on Instagram James Canole company page, root financial, linkedin, james Canole. And then you know, for those people who don't know, um, we're both at root financial, so you can find root financialcom is our company where you can go If you're looking to find an advisor to help you do some of these things that Ari and I talked about on these podcasts in a more hands-on way. So that's Root Financial Social media. I think that's it. I think that's it. I think we covered it all. Awesome. See you guys next time. Thanks for listening. See you next time. The information presented is for educational purposes only and is not intended as an offer or solicitation for the sale or purchase of any specific securities, investments or investment strategies. Investments involve risk and are not guaranteed. Any mention of rates of return are historical and illustrative in nature and are not a guarantee of future returns.

Speaker 1:

Past performance does not guarantee future performance. Viewers are encouraged to seek advice from a qualified tax, legal or investment advisor professional to determine whether any information presented may be suitable for their specific situation.

Speaker 2:

Once again, I'm James Canole, founder of Root Financial, and if you're interested in seeing how we help our clients at Root Financial get the most out of life with their money, be sure to visit us at wwwrootfinancialpartnerscom.