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

6 Surprising Statistics About Wealthy Retirees

• Ari Taublieb, CFP®, MBA • Episode 278

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Retirement anxiety does not discriminate based on wealth. Even multi-million-dollar portfolios are not immune to the fear of running out of money. This creates one of retirement’s greatest paradoxes: having enough but feeling like you don’t.

When clients hear they can safely spend $150,000 a year in retirement, many hesitate. They remember their first job making $30,000 and struggle to shift from a lifetime of saving to a season of spending. Research shows wealthy retirees spend 24 percent less than they safely could, simply because of this mindset.

Healthcare adds to the anxiety. Retiring before Medicare can mean $20,000 to $30,000 a year in costs for couples. Even after 65, Fidelity estimates a couple needs $315,000 saved for healthcare alone. No surprise that many retirees keep 10 to 20 percent of their portfolio in cash, even though that choice limits long-term growth.

Ironically, spending often decreases with age while income from Social Security and investments increases. This creates a cushion that may support higher equity allocations later in life, which is the opposite of what conventional wisdom suggests. Yet fear lingers. A 2023 EBRI survey found one in three high-net-worth retirees still worry about outliving their money.

If you want clarity about your retirement picture, try our free planning tool or reach out to explore how Root Financial can help you make the most of what you have worked so hard to build.

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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 an investment, tax or legal professional 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:

A few weeks ago, I released an episode talking about the average 401k balances by age, as well as the medians, and the results were surprising. The results were probably way smaller than you thought. In fact, those in the range of 55 to 64 have an average 401k balance of $256,200 and a median of $90,000. Those over age 65 have an average balance of $280,000 and a median of $103,000. That's way smaller than you probably think, and most of you who are watching this on YouTube or listening on the podcast app, you have probably saved and invested really well. That's why you're listening to this. You are probably naturally a saver at heart or someone who wants to make sure they're in a good spot to retire and, as you can imagine, if you have $280,000, you're probably not spending a whole lot or maybe enjoying your retirement to the fullest. Now, what I don't want you to ever do is spend for the sake of spending. But for transparency, most of our clients they want to spend $100,000, $150,000, $200,000 a year, especially because they have their energy and their health. So they're in their 50s, they've saved well. They want to make sure they can travel and pay for healthcare or how about a child with a down payment when it's more meaningful to them, and they don't want to run out of money in 30 or 40 potential years. So, with that being said, I'm going to go over, in this episode, six really interesting statistics about wealthy retirees.

Speaker 1:

Now, many of you are on your track to being a wealthy retiree. How do we actually define wealthy? How much is enough? Well, there's the famous Rockefeller quote of how much is enough? Just a little bit more. Yep, once I have a million, I'm going to retire. 2 million, 5 million, 10 million I'm finally done, and I can't tell you how many people do this that we talked to. It's called goalpost planning. They just keep moving back the goalposts. One more project at work, and I'll ask you, even like I'm going to do right now, if you're being honest with yourself and if you can do that. Please ask yourself if you really do need to ask your spouse. I encourage you to pause this podcast or video that you're watching and go ask them how many times you've pushed back your retirement. Now, I don't know if my mic just picked up on it, but I live right by UCLA and there's a hospital right here, and so I just heard a large, a very loud ambulance. Not a large ambulance. I couldn't hear the size of the ambulance, as you can imagine, but right when I asked that question it went off, and so you can see they want you to ask your spouse about this as well. Now, in all seriousness, I'm going to go through these six examples but ask them how long? Or ask yourself have you told yourself, hey, this is the year I'm going to retire? And then you pushed it back, and there's nothing wrong with that, by the way, it's not a bad thing.

Speaker 1:

Sometimes you'll find I don't know what I'm going to do in retirement. I know financially I'm in a position to make it happen, but I don't really know if I want to. Other people are going to tell you I don't know, are truly just on the financial side, worried they don't have enough, but they keep changing their definition of what enough is, which is not going to be effective for your retirement Meaning. If you want to make sure you never run out of money, the solution is really easy. People overcomplicate it. Just work forever, you'll be fine. You probably don't want to do that because you're going to go eventually. I don't want to do that. So the better solution is to really have a high quality financial plan, and you can use a tool like the one I talk about in often many of my videos, where you can go build your own analysis, and that's available in the description of this episode.

Speaker 1:

Now, my name is Ari Taublieb. I'm a certified financial planner, host of the Early Retirement Podcast and Chief Growth Officer here at Root root financial. Now here's six surprising statistics. Number one wealthy retirees often spend less than they could. Even retirees with a million dollars or more in investable assets spend cautiously due to fear of outliving money. I can attest to this. We have so many clients who go. Yes, I know I have over a million dollars, but it just feels weird. It feels weird. I've never taken from my portfolio, I've only ever added to it. So here I am and I hear what you're saying, which is I'm in a good spot, but it's still difficult. There was a study by United Income in 2018, which found retirees spend 24% less than they could safely spend. Wealthy retirees often spend less in retirement than in their working years, despite financial security.

Speaker 1:

The reason that's so powerful to me is think about it like this here I will ask a client how much would you love to spend? They'll tell me $150,000 a year. Then I'll ask them what do you currently make per year salary? And they'll say $200,000. And I'll say, okay, what was your first job? They'll say, well, it was 30,000 a year. I said, okay, well, I'm asking you to spend 150,000, literally five times more than what you originally started at when you entered the workforce. How does that feel? And I'll have a lot of people who go, wow, that feels weird, like you're literally telling me that I can do this. But I remember, like I still can't forget, the feeling of spending. You know, I've been making 30,000 a year and I was living off of, you know, top ramen and eggs and it was like very difficult. Now you're saying I can just do this willy nilly, like that's not who I am, so it's difficult.

Speaker 1:

So the first step is to recognize that Number two average spending in retirement is way lower than expected Across retirees. I talked about this in the past. It was about $57,000, depending on the article you talk about. The BLS Consumer Expenditure Survey says it's about $52,000, but that higher income retirees so the top 20% 20%, not per pent spend $100,000 to $150,000 on average, but often below pre-retirement spending. Many wealthy retirees spend 70% to 80% of their pre-retirement income rather than the rule of thumb, which is 85%. In our industry.

Speaker 1:

Healthcare is a big one. Healthcare spending before 65 can be shockingly high. Without employer coverage, which I talk about a lot, retirees under 65 will pay three times more for healthcare than those above 65. That's just because of Medicare. So average annual healthcare spending before 65, we're looking at $10,000 to $15,000 a year out of pocket. That's for premiums and deductibles. Couples with Honestly high ACA premiums you could be at $20,000, $30,000 a year. So let's just say $25,000 a year. That's a significant expense. So you certainly need to make sure you plan for it. But you can also bring that down significantly if you plan well, which I have tons of different episodes on. If you just search REtileBleep Healthcare, I will come up whether that's podcast, youtube, wherever Fidelity is estimating a 65-year-old couple retiring in 2024 to need $315,000 for healthcare. But those retiring early often see annual costs at $20,000 plus. That's according to Fidelity's 2024 healthcare estimate and the KFF ACA premium analysis Statistic number four.

Speaker 1:

Wealthy retirees keep large cash reserves, sometimes too large. Now what's the risk to having a large cash reserve? Sometimes too large. Now, what's the risk to having a large cash reserve? The risk is that money does not outpace inflation and then otherwise you therefore can't spend as much money later. But does it provide peace of mind? That's worth it? I find it often does, and so I'll see a lot of advisors that talk about make sure to have a significant amount of equities because you want to make sure you outpace inflation, which I personally agree with.

Speaker 1:

At the same time, there is something to be said about this not so quantifiable analysis. Hey, I'm just sleeping better at night. I have two, three hundred thousand bucks on the sidelines. Yeah, I know it's not growing like my Roth, but that's fine and I don't need it to be growing. It's there for safety. I'm sleeping better at night, fine, and I don't need it to be growing. It's there for safety. I'm sleeping better at night. Now, what you don't want to do is overdo it.

Speaker 1:

And there's a lot of high net worth retirees, according to Vanguard, who say they keep 10 to 20% of their portfolio in cash for flexibility and peace of mind, even if not optimal returns, and that they prefer real estate and a conservative allocation in retirement, which makes a lot of sense. Number five retiree spending declines with age. This is fascinating to me. Most of you, if I ask you, what's your equity to fixed income allocation? You might say 70-30. 70% equities, 30% fixed income. And I would ask you if you get older, what do you think is gonna happen? Will your equities increase or decrease? And most people say it will decrease because I'm getting older. I need to be safer in quotation marks, more conservative. I don't have as long for my portfolio to recover which would be true.

Speaker 1:

But think about it like this when you're in your seventies, are you going to be spending more or less than in your fifties? Probably less. Your energy and health is not the same. Let me ask you this Do you think that you're going to have more income when you're in your 70s versus your 50s? You'll probably say more because social security is helping out and your portfolio has grown because of compound interest. Despite you still withdrawing from it, it's still growing. So here we are in our 70s and we actually have more income coming from our portfolio because, once again, portfolio has grown. So 5% of a million 50,000 versus 5% of 2 million 100,000, plus social security is coming in. So now you don't need as much from your portfolio because if you want to spend, let's say, a hundred thousand in retirement and you're taking 80 from your portfolio and 20 from social security. The reality is that is a very different amount from when you're in your 50s with a million bucks relying entirely on your portfolio. So you actually could, if you wanted, to increase your equity exposure, which is a contrarian belief, because now here we are in retirement, well into retirement in our 70s, and you see you're in a fine spot If you were to have 70% equities, or let's just, let's be a little, let's be a little aggressive here, just for fun.

Speaker 1:

Here. Let's pretend that you have a million dollars in your 70s, just to keep it real simple here. And you decide you want to spend $50,000 a month. Well, you want five years of short term assets. So five years times 50,000, 50,000 a year, not 50,000 a month. Well, you want five years of short-term assets. So five years times 50,000, 50,000 a year, not 50,000 a month, that's 250,000 and you have a million dollars. That tells me your fixed income portion should be 25% or 250,000. Aka five years of living expenses and that you can have 75% in equities. But now fast forward and you have $2 million. If you have $2 million and Social Security is helping out and your portfolio has grown, you could theoretically have a higher equity exposure, meaning your assets could grow even more and you could spend more, meaning you're even in a more comfortable position. You don't need to do that because you have ask yourself what's going to let me sleep best at night, but it's something to consider.

Speaker 1:

The sixth statistic here wealthy retirees still worry about outliving their money. I can attest to this. We have clients at Root that have 5, 10, 15, $20 million. Sometimes they're more stressed than our other clients because they're worried. I don't want to screw this up. It's a lot of money and I don't want to mess things up. Where could I go wrong here?

Speaker 1:

A 2023 EBRI retirement confidence survey found one in three high net worth retirees fear running out of money due to the unknown of healthcare costs and market volatility. Longevity uncertainty, potential long-term care costs and market downturns drive underspending. So in our software we'll run what-if scenarios and go what if you're like super unlucky and markets go down? I don't know 40%? And what if it turns out? Healthcare costs are just going through the roof and you wait.

Speaker 1:

You decide that you want to spend way more than you first thought when you retired and you know inflation rises and your returns don't do what you expect. Like what if you're the most unlucky person ever? And we'll show them. Here's what it would look like. And sometimes I find clients totally shift in this moment and they go wait. So if I'm the most like unlucky person ever, I'm still not going to run the risk of running out of money. Like what am I worrying about? And that will add a lot of confidence to their plan. So here are six interesting statistics from wealthy retirees compared to the average or the median, as I shared. If this was helpful and you're watching on YouTube, please like this video. Please comment below if you found it helpful. If you want to play around with your own tool, your own software, you can do so in the description of this episode. And if you want to work with Root so that we can be true partners and help you in this next stage of life of truly optimizing what you've worked so hard for, this is what we