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

How to Calculate Your EXACT Early Retirement Number (Simple Formula)

• Ari Taublieb, CFP®, MBA • Episode 260

Share episode

Retirement doesn’t come down to a magic number, it comes down to your number. In this episode, we walk through a simple, personalized framework to help you understand when you can truly retire, based on what you want life to look like, not generic benchmarks.

We cover the core question: How much do you want to spend each month? From there, we reverse-engineer your retirement target, factoring in taxes, withdrawal strategies, estate planning, and those big one-time expenses that often get missed.

And it’s not just about the math. We dive into the emotional side of retirement. It's about how to find purpose, identity, and meaning in this next chapter. Whether retirement feels decades away or just around the corner, this episode will help you stop guessing and start planning with clarity.

- 

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.

Create Your Custom Early Retirement Strategy Here

Get access to the same software I use for my clients and join the Early Retirement Academy here

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:

There are a lot of assumptions that you must consider when you're talking about retiring early. The issue is, many people consider these assumptions and then they go even further and get the analysis paralysis and go wow, there's so many factors here. I really just can't play on retiring early. I don't know how much is enough and I'm just going to keep working because it's easier. I don't want to run out of money and I don't hate my job. Maybe I would love to do other things, but I feel like I'm only going to be able to make this amount of money my high earning years for so long. I'd rather just keep working and be extra safe. I hear that a lot. There's a big risk to that and what I'm going to do today is show you a framework so that you can hopefully think really clearly about how to retire early, and I'm going to do it for you in the next 10 minutes. Now, if you're new to the show, sometimes I will have a large case study where I'll literally go through an example and show them exactly how much they should convert for optimal tax purposes, do a Roth conversion. I'll talk about healthcare. I'll talk about estate planning. I'll talk about insurance.

Speaker 1:

Today is not that Today is a very simple framework. It's a very simple episode that hopefully removes a lot of head trash. Head trash is the phrase that I talk about when people reach out and say, yeah, there's no way I can retire early because I don't have $3 million, so I'm just going to keep working and I'll say that is complete head trash. You have no idea if your neighbor, who has $3 million, wants a second home, if they spend three times as much as you, if they're not optimizing their situation, you might not need $3 million, you might need $1 million and you might be able to retire early. It totally depends on you and your goals. So don't have the cookie cutter approach, don't have head trash. Now here's the framework and I'm going to keep it really simple for you guys. So too many people go.

Speaker 1:

I don't know my number exactly. Just tell me how much do I need to spend? The reason it doesn't exist is because it would be like going to the doctor and saying, hey, so I filled out this questionnaire for you on my health. Just tell me what surgery is going to fix all of that. They'd be like well, it's not that simple. You're going to need surgery on your ankle because that's broken, but I'm going to need you to lower your cholesterol by taking this pill and doing yada yada. It's not one size fits all. Now, what I also don't subscribe to, because I see this a lot and, more importantly, this happened to my parents. My parents used to always go to their advisor and their advisor would always take the easy way out and I could tell the reason I do this for a living now is because my parents were burned by four advisors out, and I could tell the reason I do this for a living now is because my parents were burned by four advisors, so they used to go to their advisor, ask some simple questions. My parents were great at making money, not great at saving or investing their money which there's a big difference there and they would bring a situation and the advisor would always say it depends. And I would say that's great, it depends, but I need more than that.

Speaker 1:

Imagine once again you go to the doctor. You go, hey doc, so my ankle is really bothering me and for all of you to know the reason I'm bringing up ankle, I'm a soccer player. My ankle is legitimately bothering me, so didn't just pick ankle randomly. So my ankle, which is on the mend. No need to worry, not that you guys are anyways, let's get to the point here the ankle. Cause I watch YouTube and I hate when people go on tangents too much. Okay, here we go. So back to the ankle. You go to the doctor Doc, my ankle is really bothering me. And they literally tell you hey, it depends, there's different protocols. You could do physical therapy, you could get surgery, you could see if it gets better. It depends, and you're thinking to yourself that's great, that it depends. I need more than that. Tell me, what do I do? That's what I'm going to try to do for you guys right now. Obviously no black and white answers here. It all depends. Consult with your financial professional before executing anything today. But this should be a framework that helps.

Speaker 1:

So, the first place to start, how much would you love to spend? Let's just pretend if I were to give you a blank check and I'm going to say you have $8,000 a month, net after taxes, adjusted for inflation. Would that allow you to do everything you want for the rest of your life? Here I'm asking you right now, directly. You can comment below and say, yes, $8,000 a month is great. You could say no, I would need $12,000. But how much? If I said I'm going to start with $8,000, you have $96,000 a year. That's every single year for the rest of your life Would you be able to enjoy retirement? Pretend you say yes, I'd say great, $2 million is your starting spot. $2 million if we're taking a 5% withdrawal rate on that. That's about $100,000 a year, not a million a year.

Speaker 1:

$100,000 a year what's the big assumption? The big assumption here is that you're willing to understand. When markets do well, you can spend more. When markets are doing poorly, you spend less. You're willing to understand that $2 million. I'm assuming in this hypothetical that you don't have to go pay taxes on that, that you just have $100,000. The reality is you don't have $2 million, most likely all in a Roth IRA. Maybe you have 2 million or you're on track for 2 million at age 55 and it will be in your 401k. Okay, so if you have 2 million and it's in your 401k and you want to net 100,000 a year, you need to really probably sell $120,000 worth using a 20% tax assumption here to end up with $100,000. So what that's telling me is let's use $2.5 million.

Speaker 1:

If you have $2.5 million right now and you want to spend $100,000 a year throughout retirement, I might say I have no idea why you're working. What do you need to add on to that? Well, what you need to add on to that is how much is too much to pass away with? So I start with the estate piece. I'll ask someone you're spending $100,000 every single year, you have $2 million and it's all in a Roth IRA. Hypothetically, you're going to pass away with $8 million. How would you feel? Some of you will go I don't need $8 million. I would rather spend more. Great, you don't want to overspend the early years of retirement. You also don't want to be 80 with 6 million going. Hey, I didn't need this amount of money, I should have spent more. There's a balance there.

Speaker 1:

But ask yourself is there a very specific estate goal? Because that drives a lot of the conversation. If you're thinking, yeah, I want to leave 2 million to three different children, great, you should save and invest more. If right now you're 40 and you have a million dollars, if right now you're 40 and you have a million dollars, and if you save and invest well and invest well being the key here and in 10 years you're going to plan on having $2 million. You should feel pretty good right now, understanding that in 10 years you could legitimately retire and spend $100,000 a year. That is a reality. I'm using a 5% withdrawal rate, assuming you're doing all the right things, investing really well, not just in the s?

Speaker 1:

P 500. Lots of different asset classes, diversifying. Check out my other videos on withdrawal strategy to fully understand why it's really important to diversify across many asset classes. Because in retirement, if one asset class is not doing well, you need the others to pick up the slack. There. That's different when you're saving and investing along the way. Along the way, if you put your money into the S&P 500 and it grows and grows awesome, there's not a big risk. If markets are down, you're just putting more money into it. But in retirement, if all your money is in the S&P 500, which I see more often than you would think and you want to go on a new trip and markets are down, you don't have to go sell at a loss. You want to have some other asset class, some other spot. That's actually an uncorrelated asset class. So, with that being said, we'll start on the estate side Now.

Speaker 1:

Level two is go add on other layers. For example, let's pretend you're 60 and we have a conversation and you feel confident that you could live off 100,000 a year and you've got 2 million bucks and I say, hey, you're in a comfortable position. That doesn't mean you should go retire. It means you're in a comfortable position to create 100,000 a year for the rest of your life, to create $100,000 a year for the rest of your life. The reality is you might want to do a home remodel, you might have big healthcare expenses, you might want to travel extensively, but just the first 10 years.

Speaker 1:

Is the plan accounting for that? Because many people are on track for retirement and when I say retirement, I'm saying they're 65 to 95, looks crystal clear, but it's the 60 to 65 or the 50 to 60. That's where the lack of clarity is and that's where most people keep working because they're wondering I don't want to spend too much too early on and not have enough later. So the reason I bring this up is the value of working is significant. If you are planning for these other one-off expenses, if you're cash flowing, your kid's college, if you're wondering about how am I going to pay for taxes in retirement, which may be one of your largest expenses. You need to make more money to account for that now, so that we can pay those taxes and pay for you to do everything you want in more. But let's pretend it takes you two years to save, let's just say $50,000. And that is allowing you to take three big trips in the first year of retirement. And then you go. You know what? We don't really have that many other large expenses. Hypothetically we don't have kids or we're gonna downsize in the future.

Speaker 1:

Awesome, you might wanna really consider looking into retiring way earlier than what you were probably thinking. You may have thought we'll work five more years, six more years. No, you might be in a position to do it way sooner than you think. And it's just because of this head trash concept where people think, well, my neighbors have like two, 3 million, 4 million, probably way more than that. They're not even talking about an early retirement, so it feels weird that I'm even bringing that up. And then there's a sense of identity issues and what are you going to spend your time on? And so the third framework to think through here.

Speaker 1:

So first one is withdrawal rate. Take literally 5%, and that is how much you can spend, assuming you're doing all the right things. Big assumption there If we're taking 5% of a $2 million portfolio, that's $100,000. You want to take 5% of a 3 million portfolio, that's $150,000. So ask yourself first, how much would you love to spend as your base rate throughout retirement, meaning? Here's a check every month to meet your expenses.

Speaker 1:

Some of you would say it's 4,000 a month. Great. Then $2 million might be completely unrealistic and unnecessary for you. And stop beating yourself up thinking that you didn't save well enough or invest well enough. I see way too many people who do that, who go. Ah, I feel like I'm so behind.

Speaker 1:

In your videos you give so many examples of people that have 5 million or 6 million. Yeah, there's people who need to optimize, who have those amount of assets, and there's other people that don't have anywhere near those assets, who don't need to keep working because, for you, you'd rather retire earlier than spend more. That's the big trade-off here. Would you rather work longer so you can spend more, or would you rather retire earlier, even if it means spending less? Everyone's quality of life differs here.

Speaker 1:

With this being said, the first one withdrawal rate. The second one is to get really, really clear and to say well, estate planning. Don't forget, of course, legacy goals. But then we're thinking about withdrawal rates, then we're going deeper here and we're going okay, how much could we realistically spend that would allow us to enjoy our lives? Don't do my pet peeve. My pet peeve is how much could we get by on? Maybe we could get by on $3,000 a month. Retirement is not about getting by, it's how much would you love to spend.

Speaker 1:

Then we need to add in what about those other what-ifs? What if it turns out my health isn't in a comfortable position and I want to be able to afford long-term care at this facility that cost $120,000 a year for the last five years, versus $70,000 a year the last five years, for 70,000 a year the last five years Great. Add that to the plan. What if you downsize? What if there's inheritance? What if you still need to pay for kids' college? Add in these what ifs. Everything I'm talking about today is easiest with a software tool the one in the description, I think, is the best one, which is why I talk about it, but you can get access to this If you want to build your own plan. Many of you already have who listen or watch this content.

Speaker 1:

And then, finally, that final framework here is what are you going to spend your time on for purpose and fulfillment? Because if you knew tomorrow you did not need to go back to work. What would you do? Well, the reality is, most of you go I'm going to spend time traveling, I'm going to spend time with family and friends and it's going to be awesome. And then three, six months later, now, there's some boredom that sets in. Now some of you are like I am not worried about being bored, awesome, you can ignore everything I'm saying right now. But others of you go. No, I think I really am going to struggle. I don't know exactly how I'm going to spend my time. I just worked the last 40 years really hard at this one career. The idea of not having to do that, I mean it sounds good, but I don't really know how I'm going to spend my time legitimately.

Speaker 1:

Well, yes, you could volunteer. Yes, you could look into certain hobbies, lots of different options that we literally help our clients with here at Root. But for you, this idea of having this magic number once I hit $3 million, everything's going to go to bliss it doesn't work that way. But if you had $3 million and you want to spend $150,000 a year. I would strongly consider looking into retiring if that's something that's of interest. And then I would ask you, I would beg you, if you're my client, I go, please.

Speaker 1:

I need to know what other what ifs need to happen. Do you want to redo your pool? Do you want to downsize in the future? Is inheritance coming? Do we want to even plan on it? Do you want to help your kids with the first down payment and pretend hypothetically they go? We'd love to help both of our kids with a down payment and help with a wedding and we want to do a home remodel and they say that that will cost about I don't know, let's say 150,000. And if they make 250,000 as a couple, I'd say, guys, what I want you to do, you've already saved, invested really well.

Speaker 1:

I consider stop adding new money to your 401k, except the employer match, because we love free money Outside of that. It's going to feel weird because you've maxed out your 401k for the last 30 years. I want you to consider stopping that. Save more money just strictly to a high yield savings account. That's for those next three years, of all those things you just mentioned kids, college and buying new cars and weddings and remodels, and what you're going to do is you're going to work three more years, because that's when we're going to have enough money to be able to tackle all of those one-off expenses. At the same time, when you retire, you're going to have your base of, you know, 150,000 a year. You know, monthly, you're going to have your 12 a month. You're going to be more than fine and some of you are thinking about it, but you're going into unbelievable depths, which I'm not blaming you for.

Speaker 1:

But I don't want any of you over thinkers out there to be mad at me later when you're like hey, you talk about all these topics, but you never really simplified it for me. I want to know when can I retire and I'm trying to get clarity around that. Hopefully this is the episode that clicks. I know I watch a lot of different YouTube videos and podcasts on a lot of topics mainly history at the moment but when I'm watching, I want what's the takeaway? Okay, great. So this is what happened during the Spanish Inquisition. Here's exactly why it occurred at this timeframe and what led to this and how. Hopefully this never can happen again because of X, y, z.

Speaker 1:

I want a takeaway, so I hope your guys' takeaway is hey, I'm gonna ask myself how much would I need every month so I could really enjoy my retirement 8,000 a month as an example. I'm gonna write down what are all these one-off things that I'm probably gonna wanna help people with. I'm gonna write down how much would I leave to my children. Maybe it's just they inherit the home, maybe it's no. I want them to have skin in the game and I want them to have to go through what I went through. Maybe it's no. I want to be able to support them, because I never had that support.

Speaker 1:

You write down all those goals and then, finally, you actually see how long would it take you to get to that number of, let's say, 2 million or 3 million so you can spend everything you want and more. Some of you are going to want extra buffer and you might be happy to work another year so that you have buffer in case it turns off. Turns out your assumptions were slightly off. Others of you go buffer the idea of working one more year. I'm good, awesome, but go get real clarity.

Speaker 1:

This should be a really simple framework to think through it. It's mainly on the expenses what's your base, what's your core expenses that you want every month. What are some one-off things? How much money do you need so that you can take care of all of those things? Now are there a million things in between, of course. What's the insurance coverage? How about estate planning? Do you have trust wills, medical directives, power of attorneys? Do you have the right healthcare coverage so that you're optimizing? And how much is in your brokerage account? And what's your stock to bond comparison? There's so much more. This is the simple framework If you want to get real granular about this and really get into the optimization, because you believe that would add more confidence, not take away.

Speaker 1:

A lot of people I see is they're worried about retiring early because of the what if I miss something? What if I get unlucky? What if inflation goes up? What if, right when I retire, markets go down and I'm just an unlucky guy? You can run more what if? Scenarios. You can work with an advisor to get guidance on that. If you want to work with root.

Speaker 1:

This is what we love to do. We help clients so they don't have a new job having to do all of this. If you're wondering, you know I think I might want to hire an advisor, but I just don't know if it's the right time. Maybe I should just wait a little bit not crazy, but maybe I should wait a few more years. Then I'll reach out to an advisor. Awesome, you can use the early retirement academy in the meantime so that you can start planning for your retirement and seeing what you're on track for running these what-if scenarios. And then, once again, guys, I do all of this for you guys. I love what I get to do. Thank you for letting me record these. Please like this video, please comment if there's something you learned, and then please share it with someone you wanna retire early with. That's it for this episode. 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. 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.