March 31, 2025 • 19 mins
We explore how much safe money you should maintain throughout retirement for financial security and peace of mind without sacrificing long-term growth potential. Instead of using cookie-cutter rules, we break down a personalized approach to balancing safety and growth in your retirement portfolio.
• Start with your annual spending needs to calculate your safe money base
• A good starting point is having 5 years of living expenses in safe assets
• Your safe money requirements should decrease as guaranteed income sources (Social Security, pensions) begin
• The 60/40 portfolio rule doesn't work for everyone - your allocation should reflect your specific situation
• As your portfolio grows, the percentage allocated to safe money typically decreases
• Too much safe money risks losing purchasing power to inflation over time
• Consider your emotional "sleep number" - how much safe money you need to feel secure
• Factor in upcoming expenses like healthcare, travel, and home renovations
• Cookie-cutter planning fails because everyone's situation is unique and dynamic
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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.
“Early Retirement – Financial Freedom” is a podcast produced by Root Financial Partners, an SEC-registered investment adviser. The content provided is for informational and educational purposes only. It should not be interpreted as investment, legal, or tax advice. I may reference planning situations based on real client experiences, but they’ve been simplified for clarity. Always consult your own financial advisor before making decisions.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
How much safe money should you have throughout
retirement?
That's what we're gonna talkabout in today's podcast episode
, and I'm gonna tell you howthis came about.
So I was at home with myparents and my aunt came over
and my aunt said hey, you'relike the finance guy, right?
So like, how much safe moneyshould I have?
And is it like literally safemoney, like do I put cash
(00:22):
underneath the mattress, do Ihave bonds?
Or like there's inflationprotected stuff?
And so naturally I want to saya thousand different questions,
not say I want to ask them.
I want to say well, what doessafe mean to you and what does
it mean to have enough incomethroughout retirement?
How much is enough?
That's what I'm thinking.
(00:43):
But in this case she's justlooking for a quick kind of
answer, like how much safe moneyshould I have?
She's looking for a rule ofthumb, and I think that's the
reason these rules of thumbexist, because if they don't,
and I start asking questions.
Well, now we've talked forthree hours, so today should be
a 10 minute episode, which iswhat I'm going for, and I've got
my timer on.
(01:03):
We can even put a timer righthere, so if you're watching on
YouTube, I'm putting this littleclock down timer here so that
you guys can make sure that I amsticking to that.
Now, some of these episodesI'll do.
Yeah, I'll do 15, 20 minutes ifI'm really wanting to go deep
on a certain case study, but forthis it should be simple and
I'm going to break it down foryou and walk you through the
(01:25):
logic.
Now, with this being said, ifyou are unfamiliar with my
content, I do videos andpodcasts on Roth conversions,
healthcare, social security,withdrawing income, meaning
which account do you pull fromumbrella insurance, anything you
could think of financially.
I'm going to try to make avideo on it and hopefully I can
explain it in a way thatresonates.
(01:46):
Now, if there's a video thatyou go I don't think you've made
one yet on this, or could youplease do this Put it in the
comments below.
I will certainly be the onelooking at those comments and my
team will notify me.
Hey, we haven't done a video onthis.
Could you please make one?
More than happy to do it.
I'm also going to be doing myfirst giveaway, so if you're
listening on the podcast,awesome, please continue to
(02:08):
listen.
I am a podcast fan myself, as alistener, and I know sometimes
the podcaster will do contentvia video, but sometimes I just
like listening via audio, and soif you're listening via audio,
that's never going to change.
(02:30):
If you are watching this rightnow and you are on YouTube, you
can obviously see me, butthere's a book called Simple
Wealth Inevitable Wealth andthis is my favorite book in the
financial space.
I'm going to be giving thisaway to one of you who has the
best financial story for me, andit's going to be based on a
comment that you leave onYouTube.
So if you are watching andleave a comment and this could
be any story I had someonerecently say look, no one had
asked me when I, like, canretire emotionally versus
(02:50):
financially, and I thoughtfinancially I could do it, but
emotionally I don't know if I'mreally ready.
What am I going to do?
Other people go look, I'm solike my best financial story is
I bought an rv 100 000 over whatI initially thought and it's
the greatest thing ever.
And I'm not travelinginternationally because that's
not important to me, and now myfamily and friends can come with
me on trips.
So I don't need you to havelike some magical story, but I'm
(03:13):
just going to pick one with myteam and say, hey, here you get
my favorite book.
So if you're listening on theaudio, on the audio, that sounds
like I'm a total boomer there.
If you're listening on theradio, no, through iTunes or
Spotify or some other podcastapp go to YouTube to drop a
comment if you want to be inthat giveaway.
(03:34):
Now let's hop into today'sepisode.
So we have a phrase here atRoot that's called Root Reserves
and what that is is saying howmuch money should you have on
hand at all times so you don'thave to worry?
So that's called root reservesand I'm going to break it down
through an example.
So let's assume you want tospend if we were all on a live
show together, I would ask youguys to interject here.
(03:55):
But in light of time, I'm goingto say 80,000 a year.
You want to spend 80,000 a yearand I'm going to pretend you're
50 years old Okay, I'm doingthis with you right now, I did
not prep this and you're goingto spend 80,000 a year.
After taxes adjusted forinflation, you're 50 years old.
I'm going to say you want toretire at 55.
Okay, now, 80,000 a year, that'sgood, but that's not like
(04:19):
you're, you know, luxuriouslytraveling or anything Like,
imagine you have no mortgage.
Maybe there's a little bit of amortgage, but it's 80,000 a
year.
That's kind of just yourexpenses.
Okay, it's not perfect.
Not cars, not weddings.
Keep it simple.
Now, let's assume you have amillion dollars.
If you have a million dollars,you're trying to figure out how
(04:40):
much safe money should I havethroughout retirement.
And what if my one becomes 1.2and then 1.5 and then two?
Then social security startshelping out and that's where it
starts to become complicated.
So the short answer to how muchsafe money should you have is
it should always be changing andit should be broken down in two
ways.
Number one what is your sleepnumber?
This is the easy one, becausethere's no math involved.
(05:02):
This is gut check.
How much money do you need inyour checking account?
So you're okay.
That's not really this rootreserves, that's not really like
an allocation.
That's what I'm going to talkabout in a second, but I start
with everyone with what's yoursleep number, because some
people will go 500,000.
If I have a million bucks, Iwant 500,000.
I don't get that often, butsome people are like look, I
(05:23):
just feel better.
Markets are going to go up anddown.
I don't want to worry the nextthree years if markets don't do
well, if I have to, like, goback to work and social security
is going to come on in a fewyears so, like, I just want a
ton of super safe assets, inwhich case I go, awesome, love
that.
I'll show something on myscreen that you guys can all see
right now, unless you're, ofcourse, listening.
(05:43):
But basically it is a chartshowing if you had $100 in 1927,
in 2025, it would be worth$2,300.
Versus if you had the S&P 500,it's worth $982,000, a $980,000
difference.
Now, a lot of you are like hey,I get it, I get it.
That's why we invest.
(06:03):
We're into the S&P 500 andsmall caps down.
I forget, I want to pay forsomething travel related.
(06:27):
I just, yeah, could I beoptimizing it in a high yield
savings account?
Sure, but I don't want totransfer that and have to deal.
I call that return on hassle.
It's just not worth the hassleto me for that return, that's
the sleep number.
Then there's the root reserves,and the root reserves is saying
how much safe money should youhave have?
So you at all times don't haveto worry about hey, if markets
(06:48):
do this, am I not gonna be okay.
So here's how you do it reallyeasy.
I've got a few minutes left onmy timer here.
So if you have a milliondollars and you wanna spend
$80,000 on every single year,I'm going to do it really easy
for you Ready $80,000.
For my clients, I like to havefive years of living expenses
set aside so that, no matterwhat happens, you're okay,
(07:10):
because the average marketdownturn for your assets to
recover is about two and a halfyears.
So I just double that and go.
What if you get really unlucky?
So the most any of my clientshave is five years of living
expenses.
So it's 80,000 times five,that's $400,000, which means I
need 400,000 in some type ofsafe thing Could be bonds, could
(07:32):
be cash, could be inflationprotected securities, could be a
laddered CD.
There's a gazillion different.
That's not what I want you tofocus on, but that's the
framework, ok.
So that means $400,000.
That's 40 what I want you tofocus on, but that's the
framework, okay.
So that means $400,000.
That's 40% of a million, whichmeans, right off the bat, a 60,
40 portfolio.
Maybe that makes sense 60%equities, 40% fixed income.
(07:54):
But guess what guys this couple?
They also have $20,000 comingin from rental income, so they
don't need their portfolio toactually have 400,000.
That's unnecessarilyconservative.
That might be like seven oreight years of safe money and
some of you are like, ooh,what's wrong with like more safe
money?
Well, the risk is it's actuallylosing money over time because
(08:19):
that's so much money not growingat a rate of return that's
going to be able to pay forfuture you, future long-term
care, future travel, futuregiving.
So if we now say not 80,000 but60,000, 60,000 is what we really
need and we still want fiveyears of living expenses, that's
300,000, which means, right offthe bat, now we're at a 70-30
(08:40):
portfolio 70% equities, 30%fixed income.
But what if, all of a suddennow let's fast forward this
person's?
Now they're 55, now they're 62,they want to turn on Social
Security and $40,000 is comingfrom Social Security.
Just hypothetical, okay, theyonly need $20,000.
Now.
Well, what's 20,000 times 5?
(09:01):
That's $100,000.
Now, well, what's 20,000 timesfive?
That's $100,000.
Theoretically, maybe theirportfolio grew from $1 million
to $2 million.
Yeah, I might recommend to aclient they have $100,000 of
safe money, five years worth ofliving expenses.
That might only represent 5% ofa $2 million portfolio or 10%
(09:23):
of a $2 million portfolio.
Now, it doesn't have to be fiveyears of living expenses
exactly.
You might go ah, I'm morecomfortable with four, I'm more
comfortable with six.
Yeah, we can have thatconversation.
But the root reserves just tokind of summarize the timing
here on this clock.
And then I have a few thingsI'm going to summarize.
Of course, root reserves shouldbe customized.
(09:43):
You might go nope, I don't havea million dollars, I have $2
million.
Should I still have a 60-40portfolio?
No, that doesn't make any senseat all.
And the reason it doesn't makeany sense at all which sounds a
little petty when I say that,but the reason I'm trying to get
this point across is that's somuch money that you work so hard
for not working as hard as itshould be.
(10:04):
If you have a million dollarsand you want to spend 80,000 a
year, five years, that's 400,000.
Okay, so that's 40%.
But if you don't have a million, but you have 2 million, your
living expenses didn't change.
You still want 80,000 timesfive years, that's four hundred
thousand.
So now, 20 percent.
I don't need 40 percent, I need20 percent.
(10:26):
And also which I think this issomething that we often think
about is hey, I'm getting older,shouldn't I be more
conservative.
Shouldn't I be more safe?
I don't want to run out ofmoney, of course, but that's one
risk.
The other risk is you're sosafe that your purchasing power
decreases, meaning the cost ofthose goods, if you have $100
(10:47):
today.
A lot of you guys know eggscost $10 today, which is wild.
If you want to go buy eggs inthe future, do you think it's
going to cost more or less than$10?
It might come down for a littlebit, but over time, eventually
it will increase.
So if your money is not keepingup with inflation, that's the
real risk here.
So I'm trying to protect futureyou.
So, from a root reservesperspective, you first step.
(11:10):
One is determined before eventhis is how much would you love
to spend?
So I'd want to go to my auntand say hey, aunt, so you say
you want safe money, how muchwould you love to spend?
And she might be like 20,000 amonth.
I go.
Great, your plan would show yourunning out of money at this
time if you did that.
And she might be like ah, maybenot 20.
How about 10?
I go okay, 10 is fine.
Is that you dreaming?
(11:31):
Or is that you like eh, I couldget by?
She's like oh, actually I'drather 12.
You're right, maybe 12 is theright number.
So we'd have a deepconversation about that before I
ever give a hey, here's exactlyhow much safe money you should
have.
But from there we're having adeeper conversation about okay,
what about cars?
What about vacations?
What about weddings?
What about downsizing?
What about really go?
Okay, what are any potentialthings that might come up?
(11:53):
And the reason for that is let'sassume someone's on track for
retirement.
I mean, the retirement looksgood, but they've got kids'
college expenses and one oftheir kid wants to go to grad
school and another kid isn'tgoing to be in dental school.
And so now it's like hey, yousaid five years, but is that
still right?
Because I've got, likehealthcare and other, like I
(12:13):
have some expenses that are notgoing to be here forever.
Like healthcare, it's from nowuntil Medicare at 65.
I got a plan for that.
But then, in addition, I'mgoing to do a home remodel and
I'm going to travel probablymore when I have my energy and
my health.
So is it still five years?
No, no, no, no, no, no, no.
It is not.
That is cookie cutter stuff.
People, these rules of thumb,this cookie cutter of, have
(12:35):
three years of expenses, havefive years of expenses.
Part of this is I need peopleto take action and so I start
with five years at a minimum,but it's a dynamic, moving thing
.
If you're 50 years old and yougo, I'm going to retire.
Well, yeah, I might want you tohave extra safe money, because
(12:55):
if markets don't do well, weneed to still somehow pay for
something called a Rothconversion.
Guess, I don't want to have togo sell something at a loss so
that we can pay taxes.
That defeats the purpose ofgood planning.
So certain situations will callfor me to go hey, I actually
want more buffer here, andhere's why Other situations I'll
go look, you're currently 68years old, social Security's
(13:19):
meeting nearly all of your needs, plus you have a pension, plus
there's rental income, plusinheritance, and so
theoretically and I've sharedthis example before
theoretically, your assetallocation could be 100%
equities in 0% safe money, and Ithink I've told you this before
.
I know I just said that, but Ihave a client I'm trying to
(13:40):
remember.
If they said I could say theirname, so I'm just going to
assume.
No, we're going to call himJohn.
John came to me and there's aclient we work with today.
And John said, ari, you'regoing to freak out.
I said I don't freak out thateasily, but try me.
He's like well, I have 100%equities and I'm in my 70s.
So like, aren't you kind ofworried?
Isn't that too risky?
Now I didn't know if he'stesting me or anything, but I
(14:02):
don't.
I just speak the truth, nomatter what.
So I said I don't think that'scrazy, but like I need to know
more.
How much do you needs?
My pension is 10 a month,10,000, and I want to spend
eight a month.
So I said, theoretically, ifyour $3 million portfolio went
to zero, you would be okay.
(14:22):
You wouldn't like me, but you'dbe okay.
Is that right?
He's like yeah, that was kindof my logic.
My logic is, like I have apension, so like my investments
can fluctuate and the ups anddowns don't really bother me
because I don't even look,because I have a pension.
So like, why would I have anysafe money?
I said I don't think you should.
And he's like well, you're thefirst advisor to say like I
shouldn't get more conservative.
(14:43):
I said if you had no pension,I'd be freaking out because,
like, then we have to go sellthings at a loss and if markets
are down, I don't know if you'regoing to make sure you have
enough money the rest of yourlife, and so it needs to be
custom.
So the point here I have a lotof silly things.
People have given me coolthings, let me say, not always
silly, but this is one.
I'll explain it for those whoare listening as well.
(15:05):
It says anti-cookie cutter jar.
Love the pod.
I don't believe in cookiecutter planning.
Yes, I do like cookies, whichis why this person, I think, got
me this as well.
Cookie cutter planning yes, Ido like cookies, which is why
this person, I think, got methis as well.
But the cookie cutter plant.
What's your risk tolerance?
On a scale of one to 10?
I'm a two, I'm an eight.
That doesn't help someoneretire.
You have to go a lot deeperwith financial planning, and so
this kind of root reserves that.
(15:27):
How much safe money should Ihave on hand throughout my
portfolio?
I don't know.
Are you going to work?
Is there part-time income?
Is your spouse still going todo something?
What Roth conversion strategyare you executing?
Is there a need for taxstrategy about healthcare
subsidies, by the way?
Do you sleep better by havingmore, or what about your spouse?
Do they sleep better?
If you want to go travel, areyou, you know, up?
(15:48):
Are you, I was gonna say,upfronting the cost, but that's
not real English.
Are you fronting the cost tothat?
I have people that book travelsix months in advance.
Well, imagine they were to belike we're just going to dictate
.
Whatever markets do, that'sgoing to dictate our travel.
What if markets are downbecause they're trying to
optimize to the nth degree andnow they're like I know we want
(16:08):
to spend 80, but markets aredown, so our portfolio could
only allow for like 65.
So, like, let's not travel thisyear.
Like, no, don't do that.
That's over optimizing.
So hopefully, this was a helpful, quick-esque video on how much
safe money you should have, andso you can think through it
properly.
It's not an exact science, sosome of this is I want you to
(16:30):
pick something that works foryou, what makes sense on a gut
level.
Oftentimes it's, for example,you're going to go get surgery.
To some extent, you have totrust the doctor that's going to
execute the surgery.
That's like a Roth conversion.
A Roth conversion is somethingvery tactical.
You do it incorrectly.
It's a big deal.
You want to get it right thishow much safe money you should
have.
This is also very importantbecause if you go too
(16:53):
conservative and then 20 yearslater you go, wow, what was I
doing?
I should have had more workingfor me, or the opposite, it's a
big deal.
So I'm not discounting that.
But what I'm saying is a lot ofyou guys can figure it out.
Okay, on a gut check kind of athing, you go, look, I'm going
to sleep better if I have 2million.
Yeah, I want 200 to 400,000,super safe.
Just make sure it's doing whatit needs to do.
(17:15):
Okay, cool, I like CD ladders.
I like inflation protectedsecurities.
I like bonds with differentmaturities to protect against
credit and interest rate risk.
That's what I like.
A lot of you might go you knowI get that but like, look, it's
just, I want 0% bonds.
I don't like bonds.
Other people are going to belike you know I also.
Oddly, I think I get you'resaying all of this, but I
(17:38):
understand the volatility, butmy partner they don't, and I
don't want them to worry whenthey check the account.
Now, if they don't ever checkthe account, then like different
conversation.
But my point here is I don'twant you to feel like oh, I
didn't do it the exact right way.
There is no exact right way.
Any advisor that's like this isthe way.
They don't know what they'retalking about.
They are trying to make it soyou take action, which, by the
(17:59):
way, is what I'm trying to do.
I'm trying for you to go okay,I do have the right amount.
I have 200, I have 300 or 400,whatever it is.
I have the right amount for meand I see when my income changes
, I'm going to change thatnumber, I'm going to update my
plan, which is why I say I don'tdo financial plans.
I do planning, because lifechanges.
It's dynamic, it moves, it'sfun.
(18:20):
That's how you do good planning.
So, hopefully, this was helpfulepisode.
If so, please like this video,share it with those that you
want to retire early with, andI'll see you guys next time.
Thank you all, as always, forlistening to the Early
Retirement Podcast.
I love getting to host theseshows and make different content
(18:41):
for you guys every single week.
I've not missed a single weekin 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 metalk about or hear me talk about
.
Should I say Please talk toyour financial advisor, your tax
preparer, your estate attorney.
Please be smart about this.
None of this should beconstrued as financial advice.
(19:02):
This is for fun, educational,informational purposes only.
Once again, just quickdisclaimer here.
Guys, please be smart aboutthis.
Appreciate you listening, asalways, and you can, of course,
submit a question on my website,earlyretirementpodcastcom.
If you, of course, want me toaddress a specific case study or
topic.
I will not promise I can get toit, but I respond to every
(19:22):
single person and if I find itwill be helpful for a lot of
people, I will absolutely makean episode on it, at the very
least give you some insight.
That's it.
Thanks, guys.
How much safe money should you have throughout
retirement?
That's what we're gonna talkabout in today's podcast episode
, and I'm gonna tell you howthis came about.
So I was at home with myparents and my aunt came over
and my aunt said hey, you'relike the finance guy, right?
So like, how much safe moneyshould I have?
And is it like literally safemoney, like do I put cash
(00:22):
underneath the mattress, do Ihave bonds?
Or like there's inflationprotected stuff?
And so naturally I want to saya thousand different questions,
not say I want to ask them.
I want to say well, what doessafe mean to you and what does
it mean to have enough incomethroughout retirement?
How much is enough?
That's what I'm thinking.
(00:43):
But in this case she's justlooking for a quick kind of
answer, like how much safe moneyshould I have?
She's looking for a rule ofthumb, and I think that's the
reason these rules of thumbexist, because if they don't,
and I start asking questions.
Well, now we've talked forthree hours, so today should be
a 10 minute episode, which iswhat I'm going for, and I've got
my timer on.
(01:03):
We can even put a timer righthere, so if you're watching on
YouTube, I'm putting this littleclock down timer here so that
you guys can make sure that I amsticking to that.
Now, some of these episodesI'll do.
Yeah, I'll do 15, 20 minutes ifI'm really wanting to go deep
on a certain case study, but forthis it should be simple and
I'm going to break it down foryou and walk you through the
(01:25):
logic.
Now, with this being said, ifyou are unfamiliar with my
content, I do videos andpodcasts on Roth conversions,
healthcare, social security,withdrawing income, meaning
which account do you pull fromumbrella insurance, anything you
could think of financially.
I'm going to try to make avideo on it and hopefully I can
explain it in a way thatresonates.
(01:46):
Now, if there's a video thatyou go I don't think you've made
one yet on this, or could youplease do this Put it in the
comments below.
I will certainly be the onelooking at those comments and my
team will notify me.
Hey, we haven't done a video onthis.
Could you please make one?
More than happy to do it.
I'm also going to be doing myfirst giveaway, so if you're
listening on the podcast,awesome, please continue to
(02:08):
listen.
I am a podcast fan myself, as alistener, and I know sometimes
the podcaster will do contentvia video, but sometimes I just
like listening via audio, and soif you're listening via audio,
that's never going to change.
(02:30):
If you are watching this rightnow and you are on YouTube, you
can obviously see me, butthere's a book called Simple
Wealth Inevitable Wealth andthis is my favorite book in the
financial space.
I'm going to be giving thisaway to one of you who has the
best financial story for me, andit's going to be based on a
comment that you leave onYouTube.
So if you are watching andleave a comment and this could
be any story I had someonerecently say look, no one had
asked me when I, like, canretire emotionally versus
(02:50):
financially, and I thoughtfinancially I could do it, but
emotionally I don't know if I'mreally ready.
What am I going to do?
Other people go look, I'm solike my best financial story is
I bought an rv 100 000 over whatI initially thought and it's
the greatest thing ever.
And I'm not travelinginternationally because that's
not important to me, and now myfamily and friends can come with
me on trips.
So I don't need you to havelike some magical story, but I'm
(03:13):
just going to pick one with myteam and say, hey, here you get
my favorite book.
So if you're listening on theaudio, on the audio, that sounds
like I'm a total boomer there.
If you're listening on theradio, no, through iTunes or
Spotify or some other podcastapp go to YouTube to drop a
comment if you want to be inthat giveaway.
(03:34):
Now let's hop into today'sepisode.
So we have a phrase here atRoot that's called Root Reserves
and what that is is saying howmuch money should you have on
hand at all times so you don'thave to worry?
So that's called root reservesand I'm going to break it down
through an example.
So let's assume you want tospend if we were all on a live
show together, I would ask youguys to interject here.
(03:55):
But in light of time, I'm goingto say 80,000 a year.
You want to spend 80,000 a yearand I'm going to pretend you're
50 years old Okay, I'm doingthis with you right now, I did
not prep this and you're goingto spend 80,000 a year.
After taxes adjusted forinflation, you're 50 years old.
I'm going to say you want toretire at 55.
Okay, now, 80,000 a year, that'sgood, but that's not like
(04:19):
you're, you know, luxuriouslytraveling or anything Like,
imagine you have no mortgage.
Maybe there's a little bit of amortgage, but it's 80,000 a
year.
That's kind of just yourexpenses.
Okay, it's not perfect.
Not cars, not weddings.
Keep it simple.
Now, let's assume you have amillion dollars.
If you have a million dollars,you're trying to figure out how
(04:40):
much safe money should I havethroughout retirement.
And what if my one becomes 1.2and then 1.5 and then two?
Then social security startshelping out and that's where it
starts to become complicated.
So the short answer to how muchsafe money should you have is
it should always be changing andit should be broken down in two
ways.
Number one what is your sleepnumber?
This is the easy one, becausethere's no math involved.
(05:02):
This is gut check.
How much money do you need inyour checking account?
So you're okay.
That's not really this rootreserves, that's not really like
an allocation.
That's what I'm going to talkabout in a second, but I start
with everyone with what's yoursleep number, because some
people will go 500,000.
If I have a million bucks, Iwant 500,000.
I don't get that often, butsome people are like look, I
(05:23):
just feel better.
Markets are going to go up anddown.
I don't want to worry the nextthree years if markets don't do
well, if I have to, like, goback to work and social security
is going to come on in a fewyears so, like, I just want a
ton of super safe assets, inwhich case I go, awesome, love
that.
I'll show something on myscreen that you guys can all see
right now, unless you're, ofcourse, listening.
(05:43):
But basically it is a chartshowing if you had $100 in 1927,
in 2025, it would be worth$2,300.
Versus if you had the S&P 500,it's worth $982,000, a $980,000
difference.
Now, a lot of you are like hey,I get it, I get it.
That's why we invest.
(06:03):
We're into the S&P 500 andsmall caps down.
I forget, I want to pay forsomething travel related.
(06:27):
I just, yeah, could I beoptimizing it in a high yield
savings account?
Sure, but I don't want totransfer that and have to deal.
I call that return on hassle.
It's just not worth the hassleto me for that return, that's
the sleep number.
Then there's the root reserves,and the root reserves is saying
how much safe money should youhave have?
So you at all times don't haveto worry about hey, if markets
(06:48):
do this, am I not gonna be okay.
So here's how you do it reallyeasy.
I've got a few minutes left onmy timer here.
So if you have a milliondollars and you wanna spend
$80,000 on every single year,I'm going to do it really easy
for you Ready $80,000.
For my clients, I like to havefive years of living expenses
set aside so that, no matterwhat happens, you're okay,
(07:10):
because the average marketdownturn for your assets to
recover is about two and a halfyears.
So I just double that and go.
What if you get really unlucky?
So the most any of my clientshave is five years of living
expenses.
So it's 80,000 times five,that's $400,000, which means I
need 400,000 in some type ofsafe thing Could be bonds, could
(07:32):
be cash, could be inflationprotected securities, could be a
laddered CD.
There's a gazillion different.
That's not what I want you tofocus on, but that's the
framework, ok.
So that means $400,000.
That's 40 what I want you tofocus on, but that's the
framework, okay.
So that means $400,000.
That's 40% of a million, whichmeans, right off the bat, a 60,
40 portfolio.
Maybe that makes sense 60%equities, 40% fixed income.
(07:54):
But guess what guys this couple?
They also have $20,000 comingin from rental income, so they
don't need their portfolio toactually have 400,000.
That's unnecessarilyconservative.
That might be like seven oreight years of safe money and
some of you are like, ooh,what's wrong with like more safe
money?
Well, the risk is it's actuallylosing money over time because
(08:19):
that's so much money not growingat a rate of return that's
going to be able to pay forfuture you, future long-term
care, future travel, futuregiving.
So if we now say not 80,000 but60,000, 60,000 is what we really
need and we still want fiveyears of living expenses, that's
300,000, which means, right offthe bat, now we're at a 70-30
(08:40):
portfolio 70% equities, 30%fixed income.
But what if, all of a suddennow let's fast forward this
person's?
Now they're 55, now they're 62,they want to turn on Social
Security and $40,000 is comingfrom Social Security.
Just hypothetical, okay, theyonly need $20,000.
Now.
Well, what's 20,000 times 5?
(09:01):
That's $100,000.
Now, well, what's 20,000 timesfive?
That's $100,000.
Theoretically, maybe theirportfolio grew from $1 million
to $2 million.
Yeah, I might recommend to aclient they have $100,000 of
safe money, five years worth ofliving expenses.
That might only represent 5% ofa $2 million portfolio or 10%
(09:23):
of a $2 million portfolio.
Now, it doesn't have to be fiveyears of living expenses
exactly.
You might go ah, I'm morecomfortable with four, I'm more
comfortable with six.
Yeah, we can have thatconversation.
But the root reserves just tokind of summarize the timing
here on this clock.
And then I have a few thingsI'm going to summarize.
Of course, root reserves shouldbe customized.
(09:43):
You might go nope, I don't havea million dollars, I have $2
million.
Should I still have a 60-40portfolio?
No, that doesn't make any senseat all.
And the reason it doesn't makeany sense at all which sounds a
little petty when I say that,but the reason I'm trying to get
this point across is that's somuch money that you work so hard
for not working as hard as itshould be.
(10:04):
If you have a million dollarsand you want to spend 80,000 a
year, five years, that's 400,000.
Okay, so that's 40%.
But if you don't have a million, but you have 2 million, your
living expenses didn't change.
You still want 80,000 timesfive years, that's four hundred
thousand.
So now, 20 percent.
I don't need 40 percent, I need20 percent.
(10:26):
And also which I think this issomething that we often think
about is hey, I'm getting older,shouldn't I be more
conservative.
Shouldn't I be more safe?
I don't want to run out ofmoney, of course, but that's one
risk.
The other risk is you're sosafe that your purchasing power
decreases, meaning the cost ofthose goods, if you have $100
(10:47):
today.
A lot of you guys know eggscost $10 today, which is wild.
If you want to go buy eggs inthe future, do you think it's
going to cost more or less than$10?
It might come down for a littlebit, but over time, eventually
it will increase.
So if your money is not keepingup with inflation, that's the
real risk here.
So I'm trying to protect futureyou.
So, from a root reservesperspective, you first step.
(11:10):
One is determined before eventhis is how much would you love
to spend?
So I'd want to go to my auntand say hey, aunt, so you say
you want safe money, how muchwould you love to spend?
And she might be like 20,000 amonth.
I go.
Great, your plan would show yourunning out of money at this
time if you did that.
And she might be like ah, maybenot 20.
How about 10?
I go okay, 10 is fine.
Is that you dreaming?
(11:31):
Or is that you like eh, I couldget by?
She's like oh, actually I'drather 12.
You're right, maybe 12 is theright number.
So we'd have a deepconversation about that before I
ever give a hey, here's exactlyhow much safe money you should
have.
But from there we're having adeeper conversation about okay,
what about cars?
What about vacations?
What about weddings?
What about downsizing?
What about really go?
Okay, what are any potentialthings that might come up?
(11:53):
And the reason for that is let'sassume someone's on track for
retirement.
I mean, the retirement looksgood, but they've got kids'
college expenses and one oftheir kid wants to go to grad
school and another kid isn'tgoing to be in dental school.
And so now it's like hey, yousaid five years, but is that
still right?
Because I've got, likehealthcare and other, like I
(12:13):
have some expenses that are notgoing to be here forever.
Like healthcare, it's from nowuntil Medicare at 65.
I got a plan for that.
But then, in addition, I'mgoing to do a home remodel and
I'm going to travel probablymore when I have my energy and
my health.
So is it still five years?
No, no, no, no, no, no, no.
It is not.
That is cookie cutter stuff.
People, these rules of thumb,this cookie cutter of, have
(12:35):
three years of expenses, havefive years of expenses.
Part of this is I need peopleto take action and so I start
with five years at a minimum,but it's a dynamic, moving thing
.
If you're 50 years old and yougo, I'm going to retire.
Well, yeah, I might want you tohave extra safe money, because
(12:55):
if markets don't do well, weneed to still somehow pay for
something called a Rothconversion.
Guess, I don't want to have togo sell something at a loss so
that we can pay taxes.
That defeats the purpose ofgood planning.
So certain situations will callfor me to go hey, I actually
want more buffer here, andhere's why Other situations I'll
go look, you're currently 68years old, social Security's
(13:19):
meeting nearly all of your needs, plus you have a pension, plus
there's rental income, plusinheritance, and so
theoretically and I've sharedthis example before
theoretically, your assetallocation could be 100%
equities in 0% safe money, and Ithink I've told you this before
.
I know I just said that, but Ihave a client I'm trying to
(13:40):
remember.
If they said I could say theirname, so I'm just going to
assume.
No, we're going to call himJohn.
John came to me and there's aclient we work with today.
And John said, ari, you'regoing to freak out.
I said I don't freak out thateasily, but try me.
He's like well, I have 100%equities and I'm in my 70s.
So like, aren't you kind ofworried?
Isn't that too risky?
Now I didn't know if he'stesting me or anything, but I
(14:02):
don't.
I just speak the truth, nomatter what.
So I said I don't think that'scrazy, but like I need to know
more.
How much do you needs?
My pension is 10 a month,10,000, and I want to spend
eight a month.
So I said, theoretically, ifyour $3 million portfolio went
to zero, you would be okay.
(14:22):
You wouldn't like me, but you'dbe okay.
Is that right?
He's like yeah, that was kindof my logic.
My logic is, like I have apension, so like my investments
can fluctuate and the ups anddowns don't really bother me
because I don't even look,because I have a pension.
So like, why would I have anysafe money?
I said I don't think you should.
And he's like well, you're thefirst advisor to say like I
shouldn't get more conservative.
(14:43):
I said if you had no pension,I'd be freaking out because,
like, then we have to go sellthings at a loss and if markets
are down, I don't know if you'regoing to make sure you have
enough money the rest of yourlife, and so it needs to be
custom.
So the point here I have a lotof silly things.
People have given me coolthings, let me say, not always
silly, but this is one.
I'll explain it for those whoare listening as well.
(15:05):
It says anti-cookie cutter jar.
Love the pod.
I don't believe in cookiecutter planning.
Yes, I do like cookies, whichis why this person, I think, got
me this as well.
Cookie cutter planning yes, Ido like cookies, which is why
this person, I think, got methis as well.
But the cookie cutter plant.
What's your risk tolerance?
On a scale of one to 10?
I'm a two, I'm an eight.
That doesn't help someoneretire.
You have to go a lot deeperwith financial planning, and so
this kind of root reserves that.
(15:27):
How much safe money should Ihave on hand throughout my
portfolio?
I don't know.
Are you going to work?
Is there part-time income?
Is your spouse still going todo something?
What Roth conversion strategyare you executing?
Is there a need for taxstrategy about healthcare
subsidies, by the way?
Do you sleep better by havingmore, or what about your spouse?
Do they sleep better?
If you want to go travel, areyou, you know, up?
(15:48):
Are you, I was gonna say,upfronting the cost, but that's
not real English.
Are you fronting the cost tothat?
I have people that book travelsix months in advance.
Well, imagine they were to belike we're just going to dictate
.
Whatever markets do, that'sgoing to dictate our travel.
What if markets are downbecause they're trying to
optimize to the nth degree andnow they're like I know we want
(16:08):
to spend 80, but markets aredown, so our portfolio could
only allow for like 65.
So, like, let's not travel thisyear.
Like, no, don't do that.
That's over optimizing.
So hopefully, this was a helpful, quick-esque video on how much
safe money you should have, andso you can think through it
properly.
It's not an exact science, sosome of this is I want you to
(16:30):
pick something that works foryou, what makes sense on a gut
level.
Oftentimes it's, for example,you're going to go get surgery.
To some extent, you have totrust the doctor that's going to
execute the surgery.
That's like a Roth conversion.
A Roth conversion is somethingvery tactical.
You do it incorrectly.
It's a big deal.
You want to get it right thishow much safe money you should
have.
This is also very importantbecause if you go too
(16:53):
conservative and then 20 yearslater you go, wow, what was I
doing?
I should have had more workingfor me, or the opposite, it's a
big deal.
So I'm not discounting that.
But what I'm saying is a lot ofyou guys can figure it out.
Okay, on a gut check kind of athing, you go, look, I'm going
to sleep better if I have 2million.
Yeah, I want 200 to 400,000,super safe.
Just make sure it's doing whatit needs to do.
(17:15):
Okay, cool, I like CD ladders.
I like inflation protectedsecurities.
I like bonds with differentmaturities to protect against
credit and interest rate risk.
That's what I like.
A lot of you might go you knowI get that but like, look, it's
just, I want 0% bonds.
I don't like bonds.
Other people are going to belike you know I also.
Oddly, I think I get you'resaying all of this, but I
(17:38):
understand the volatility, butmy partner they don't, and I
don't want them to worry whenthey check the account.
Now, if they don't ever checkthe account, then like different
conversation.
But my point here is I don'twant you to feel like oh, I
didn't do it the exact right way.
There is no exact right way.
Any advisor that's like this isthe way.
They don't know what they'retalking about.
They are trying to make it soyou take action, which, by the
(17:59):
way, is what I'm trying to do.
I'm trying for you to go okay,I do have the right amount.
I have 200, I have 300 or 400,whatever it is.
I have the right amount for meand I see when my income changes
, I'm going to change thatnumber, I'm going to update my
plan, which is why I say I don'tdo financial plans.
I do planning, because lifechanges.
It's dynamic, it moves, it'sfun.
(18:20):
That's how you do good planning.
So, hopefully, this was helpfulepisode.
If so, please like this video,share it with those that you
want to retire early with, andI'll see you guys next time.
Thank you all, as always, forlistening to the Early
Retirement Podcast.
I love getting to host theseshows and make different content
(18:41):
for you guys every single week.
I've not missed a single weekin 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 metalk about or hear me talk about
.
Should I say Please talk toyour financial advisor, your tax
preparer, your estate attorney.
Please be smart about this.
None of this should beconstrued as financial advice.
(19:02):
This is for fun, educational,informational purposes only.
Once again, just quickdisclaimer here.
Guys, please be smart aboutthis.
Appreciate you listening, asalways, and you can, of course,
submit a question on my website,earlyretirementpodcastcom.
If you, of course, want me toaddress a specific case study or
topic.
I will not promise I can get toit, but I respond to every
(19:22):
single person and if I find itwill be helpful for a lot of
people, I will absolutely makean episode on it, at the very
least give you some insight.
That's it.
Thanks, guys.
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