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

Why $1.5M Is Enough To Retire If You Want To Spend Like This

• Ari Taublieb, CFP®, MBA • Episode 257

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You don’t need $2 to $3 million to retire unless your lifestyle truly requires it. In this episode, we break down why your retirement number should be built around your personal spending needs, not a one-size-fits-all benchmark.

With a well-diversified $1.5 million portfolio, many retirees can support $60,000 to $75,000 per year in spending, especially when using flexible withdrawal strategies that adjust with market conditions. We dive into how spending can adapt over time and how Social Security benefits can reduce the burden on your investments.

We also explore a real-world retirement budget to show how far your money can go, including housing, healthcare, travel, and more. Plus, we discuss one of the most overlooked issues: retirees often underspend out of fear, even when their financial plan says they’re in the clear.

Whether you’re years away or nearing the transition, this episode helps you shift from anxiety to clarity and reminds you that retirement isn’t just a number, it’s a strategy.

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Advisory services are offered through Root Financial Partners, LLC, an SEC registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult your CPA or attorney regarding your specific situation.

The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.

Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements.

Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.

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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.


Speaker 1:

You may think you need $2 million to retire. You might think you need $3 million. You might actually not know how much you need to retire, but the reality is none of that actually applies to you. Now, I know that's not super helpful, so what I'm going to do on this episode is tell you that, if you have about $1.5 million, or if you're on track for $1.5 million, what that could mean for you if you were to stop working tomorrow. Now, most of the time when I speak to someone and they're interested in retiring early, it's not necessarily, hey, I'm trying to do that tomorrow, but it's mainly I would love to know if I'm working because I want to or because I have to, because if I really had enough money, I probably wouldn't keep working at the rate that I'm working because it's really impacting my health, time with family or friends or relationships. So I just want to know when is it possible? Now, the idea that you need a million or 5 million or 10 million none of that applies to you. You need to make sure you have enough money to live the life you want to live. Why is that important?

Speaker 1:

I had a client who and I often will share stories when I record these different podcasts or YouTube videos because I find this is the most fun way to learn. I watch YouTube videos myself and this is how I like to engage content, so I make YouTube videos and I watch a lot of YouTube videos, so I hope this resonates with you. But this person reached out and said hey, I really don't think I can retire early. I only have about $1.2 million. My neighbor actually has. I know more than that because we're very transparent with finances and I asked them to tell me how much. And they said it's just more than that. That's all you need to know. And I said why are you hesitant to retire? And they said well, because they have more than me and they don't seem like they're anywhere close to retiring. And I said that is complete head trash. You don't know if they want to spend 50,000 a month. You don't know if there's three kids that they're supporting. You don't know if there's a second home they want to buy. They might have completely different goals. And the fact that you're considering not retiring even though you're actually in a pretty good spot to make it happen pretty soon, that's just total head trash. And once they heard that, they went oh my gosh, like I just kind of needed to just hear it once. It's like one of those moments where it just clicks. So what I'm going to do is walk you through. If you have one and a half million dollars, here's how much you could spend realistically, knowing that you would not run out of money, assuming you do the right things, of course, which I'll walk you through today.

Speaker 1:

If you're not familiar, my name is Ari Taublieb. I am a certified financial planner. I am the host of this podcast, the Early Retirement Podcast, and I'm the chief growth officer here at Root. Now, these videos are posted on YouTube as well as on the podcast app, so, depending on where you're engaging this content, I encourage people engaging with this content. Should I say I encourage people to check out my YouTube channel because that's where I'll often give visuals that can help with some really tactical things that I'll discuss, whether that be a Roth conversion or tax harvesting or a withdrawal strategy. Today's episode this is totally cool. If you're listening on the podcast app, great. If you're watching on YouTube, even better. I just have a favor If you're watching, please comment below how much money do you want to retire with Now?

Speaker 1:

Don't say $10 million. Okay, be realistic here. Some people like, hey, my goal's 2 million, my goal's 3 million, my goal's 5 million. Some people say, my goal's 800,000, and I'm retiring next year. If you guys don't mind commenting, it helps. Don't mind commenting, it helps other people who watch this video to realize and go hey, I'm not alone. I have $800,000. And here's 10 other people that are also going to retire.

Speaker 1:

I thought I was nuts and that I was going to have to work 10 more years. What am I thinking? Here's a bunch of other people that seem really smart as well and they're going to retire. Maybe I could retire earlier. It's one thing to hear it from me, it's another thing to hear it from others. So I encourage you to comment below and even if you're not planning to retire soon, please let me know. It's fun to hear what kind of content resonates with you.

Speaker 1:

So let's hop in. So, is one and a half million enough to retire? The answer is yes. If the answer is always yes. If it depends, it depends how much you want to spend. If you said, ari, I would love to spend $100,000 every single month, I'd go. Then no, because you'll run out of money in less than two years. But if you go, no, you know what I really would love to spend. Let's call it $50,000 a year. I'd go, then it's possible. Maybe your home is paid off, maybe you're not a big spender, maybe if you had $4,000 a month every month after taxes adjusted for inflation, that you could really live the life you want to live.

Speaker 1:

Now many of you I know, because you're my client who will say hey, I, 4,000 a month, like what would that even look like? Well, let me give you an example 4,000 a month. I'm actually going to go a little bit more aggressive, because one and a half million dollars. If you were to use the 4% rule and many of you know, know, I don't like the 4% rule, I prefer the guardrails approach. The 4% rule is based off a 30-year retirement and the guardrails approach is based off a 40-year retirement, which is oftentimes much more applicable. But 4% of $1.5 million is $60,000 a year. Now that's not including Social Security or inheritance or rental income or healthcare costs. So there's a lot missing.

Speaker 1:

But to keep it simple, let's assume I said here's $60,000 a year. I'm gonna use John and Jane as an example John, Jane, 60,000 a year or 5,000 a month. Here's what that would look like. Let's pretend, for example, you have a mortgage still and it's $1,500 a month, and you need to be able to pay for healthcare on a monthly basis. That's another $500 a month, which, by the way, most of the time healthcare can be. I have one client that pays $11 a month because they're optimizing their healthcare planning, which you can absolutely do if you're smart about it, and I have other clients that spend $1,000 a month on healthcare.

Speaker 1:

So I'm just giving out some basics of what would a $60,000 a year retirement really look like. It would be $1,500 for mortgage, $500 for healthcare, another $500 for groceries, $400 for transportation that's car gas. $250 for utilities and entertainment, $400 for dining and entertainment, $300 for travel I know that's not a ton for travel, that's 300 a month, so 3,600 a year, another 500 for buffer. Once again, you don't need to save more money because you're retired, so you don't have to worry about 401k contributions, but 500 bucks a month and then another 150 for giving, so 1800 bucks a year. Now, would that be tight in New York or San Francisco or LA? Yeah, that would be tight.

Speaker 1:

But some people are like, hey, I'm a simple guy, and if that means I don't need to keep working. Well, that's worth it to me. So geography matters, lifestyle choices matter, healthcare matters. These are big things. So the three questions to ask yourself is how much would you love to spend?

Speaker 1:

If you're like I know me, I know me, I'm going to want to spend $100,000 a month, excuse me, $100,000 a year, and I want to make sure I'm planning for healthcare, and I might want to travel more at the beginning of my retirement because I'm in good health, and I'm probably going to want to help a kid with a down payment and I'm going to want to do a home remodel, okay. Well, the reality is, then, you want to make sure you're saving more. A rule of thumb is that 4% rule. So if I were to take 0.04 and divide that and I just want once again, I'm just, it's not perfect, okay, but I want to make sure that you get to spend a hundred thousand a month, a hundred thousand a year, excuse me. Well, I want to make sure that you don't, first of all, ever run the risk of running out of money.

Speaker 1:

I'm going to use the guardrails approach, though, because that's the approach that I personally resonate with. So I'm going to use a really simple example. Let's pretend you have $2 million. Now let's not get too into the details of is that in a Roth IRA or a 401k or a brokerage account. But that is important. But that is important $2 million. If you follow the guardrails approach, you could take out between five and five and a half percent of your portfolio and be rest assured that money would last for about 40 plus years. So now, that's assuming you're doing all the right things along the way. But $2 million If you took 5% out of that, that's a hundred thousand dollars, not rocket science and really basic math here.

Speaker 1:

The reason I want to show you all this is when you're thinking about planning, don't overcomplicate it. I have so many people that go oh my gosh, travel and healthcare and my kids in college. There's no way I can retire early. You are cheating on yourself by saying that. So this is my tough love. I will say often on my YouTube videos I am the meanest financial advisor. I promise I'm not mean. My dad used to say growing up I'm the meanest dad. Because I would say can I hang out with my friends or stay out late or do these things? And he'd go nope, too bad. I say why? He'd say, because I'm the meanest. So I'm telling you guys, I'm not the meanest, but I don't. I retire earlier.

Speaker 1:

I was in a fine spot. Yeah, I had kids in college, but I had enough money through my employment to pay for that. I had enough money to pay for healthcare. It was a lot, but I had enough to pay for it. So if you have enough to do the things you want to do, what I find is a lot of people go. I've never had no paycheck before, so that's scary. And now you want me to spend more money than when I was working. Yeah, that's scaring me to death.

Speaker 1:

And then all of a sudden, you're in your seventies, your health isn't exactly where you thought it was going to be Not saying that to you, but I see that a lot and that's you cheating on yourself. So this is my tough love not to say go retire, but to say, hey, really run the planning projections, really find out when would work become optional? Because the earlier you find out you can stop working, the better you're going to feel about life, about what you want to do. So this example of if you had one and a half million dollars and you used my guardrails approach, which I didn't invent this. This is done by someone named John Guyton, who created this guardrails approach, where he talks about if you, for example, are living in retirement, markets are doing well, maybe you take out a little bit more. But on the flip side, when markets aren't doing as well, maybe you scale back a little bit. So, rather than it's a certain amount every year, no matter what, it's a percentage which I personally resonate with If you're going to take 5% of that one and.5 million, that's $75,000 a year.

Speaker 1:

Now here's what's really cool If you retire early, all of your money. Let's pretend you retire at 55, you're living off your portfolio. That's how you're going to live. But when Social Security gets turned on, you're going to have additional income. That's helping out. So maybe you retire at 55 and you've got $75,000 of living expenses. That all is coming from your portfolio.

Speaker 1:

From a $1.5 million portfolio, you can see that's about 5%. And you want to spend $75,000 when you're 55 and when you're 65. But when you're 65, you have $2,000 a month coming in from Social Security. Well, that's a big deal. That's $24,000 fewer dollars. So now you're that's only $51,000 that you need from your portfolio.

Speaker 1:

Ideally, your portfolio would have grown. So now let's pretend you have $2 million instead of having $1.5 million and once again, you don't need $75,000. You need $51,000 because Social Security is helping you out. So what we want to get a clear understanding here is okay, how much could I spend then? The reality is most people I find are under spending when they are in a fine spot to actually spend more. They just don't really recognize that. So what we want to understand is okay, what would our withdrawal rate essentially be if, let's pretend, once again, your portfolio grew from one and a half million to $2 million and now you only need to spend about, let's call it, $51,000 a month? Well, what I can do is I can take that $51,000, divide that by my $2 million. That's a 2.5% withdrawal rate. That's extremely sustainable and, I would argue, too low.

Speaker 1:

Because what happens is if you underspend, then all of a sudden your assets grow and if you have pre-tax money so 401ks, iras those monies eventually are going to be taxed at your highest marginal bracket. Those are called required minimum distributions. Those don't begin for most of you until you're 75, so you don't have to worry about it for today. But it's something that you're going to want to plan around. So do you have a plan for healthcare, for inflation, for market downturns? Do you have buffer? One and a half million dollars? Reasonably, to keep it simple, if you follow the 4% rule, you're going to be able to generate 60,000 a year. I think. If you're doing all the right things along the way, you could probably generate closer to 75,000 a year, and that's for 40 plus years. So if you retired at 60 with one and a half million and you're doing all the right things, this research would show that you will not run out of money until age 100 at the earliest. So that's, once again, assuming you do all the right things.

Speaker 1:

I have other videos where I talk about the actual withdrawal strategy, meaning which account do you pull from, what's the timing of it. If you want to check that out, go to my videos. The most popular videos are about that withdrawal strategy, because that's a common question. But hopefully this was helpful, at least to make sure that you're aware that you don't need two or three or five or $10 million. But I also want to make sure you know hey, it's about how much you'd love to spend. If you're someone that wants to spend $10,000 a month, awesome, make sure that you have $2.5, $3 million so that you can do so without worrying about, hey, if markets don't do well or if inflation goes up or if healthcare changes, I have to go back to work. I don't want you to have to think that way. So that's it for this podcast episode. Thank you, as always, for supporting the channel.

Speaker 1:

If you want to download and actually run your own scenarios, I have what's called the Early Retirement Academy. You can find information on this in the description of this video. That is where you can go build your own custom plan. You can actually find out hey, what tax strategy should I use? Which account should I pull from? It's a few hundred bucks for a reason. You don't get one-on-one guidance from me, but you can go build your own plan. That's a good starting spot from me. But you can go build your own plan. That's a good starting spot. That's something I recommend when people are on their way towards an early retirement. Maybe they're five plus years out and they've got a good amount of money in a 401k and they want to optimize.

Speaker 1:

I'm the weird advisor that says everyone doesn't need an advisor. It actually depends on what stage of life you're in and what experience you're looking for, then we of course, have what we do at Root. Our core business model is we help clients so they don't have a new job having to manage all of this throughout retirement. If that's something that's of interest to you, go to our website, rootfinancialcom. Click, get started in the top right and we look forward to talking to you. See you guys next time.

Speaker 1:

Thank you all, as always, for listening to the Early Retirement Podcast. I love getting to host these shows and make different content for you guys every single week. I've not missed a single week in years and that is because I love getting to do this. Now, please be smart about this. Before you actually execute any strategy that you see me talk about or hear me talk about, should I say Please talk to your financial advisor, your tax preparer, your estate attorney. Please be smart about this. None of this should be construed as financial advice. This is for fun, educational, informational purposes only. Once again, just quick disclaimer here. Guys, please be smart about this. Appreciate you listening, as always, and you can, of course, submit a question on my website, earlyretirementpodcastcom. If you, of course, want me to address a specific case study or topic. I will not promise I can get to it, but I respond to every single person and if I find it will be helpful for a lot of people, I will absolutely make an episode on it, at the very least give you some insight. That's it, thanks, guys.