August 5, 2025 • 16 mins
Forget the myth that you need a million dollars to retire. What really matters is creating sustainable cash flow—not hitting a magic number.
Retirement success comes down to three things: your expenses, guaranteed income (like Social Security or pensions), and the gap your savings need to fill. For some, that gap is smaller than expected.
Real examples—like a couple living comfortably on $300K in investments—show it’s possible. Small lifestyle changes, like cutting $1,000 in monthly expenses, can reduce your retirement savings need by hundreds of thousands.
Define what “comfortable” means to you, then calculate the gap. The real number might surprise you.
_
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.
Create Your Custom Strategy ⬇️
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Any way you look, it seems like a million dollars is
that magic number needed for youto retire comfortably.
That's why, in today's episode,we're going to talk about why
that's not the case.
Whether you have less or more,that's not the number you should
be paying attention to.
So tune in to see exactly whatyou should be paying attention
to.
Aaron, I was talking to aneighbor where the headquarters
of Root Financial is and thisneighbor was asking some
(00:20):
questions about retirementbecause he found out what I do
for a living.
And I was asking some questionsabout retirement because he
found out what I do for a livingand I told him a podcast that I
do.
He started listening to thepodcast and he said ah, this
isn't going to probably connectwith me or resonate with me.
Your most recent episode was howdo you retire with $3 million?
I just don't have $3 million.
I think there's a bit ofdiscouragement that is that
really what it takes to actuallyretire?
(00:41):
And when we started talking andhe started to tell me about
what he had and what's going on,and before long it became very
clear to me that this individualcould retire with far, far less
than $3 million.
This individual had nowhereclose to that.
He had saved well, done well,provided for his family.
But it became very clear veryquickly that this individual did
not need that, and in fact, hehad about $300,000 in his
(01:04):
portfolio and it was plentysufficient to do everything he
needed, and then some because ofthe actual cash flow that he
was going to have throughretirement.
And so, Aaron, I think thatwhat would be helpful to go over
in today's episode is how muchdo you need to have to retire?
Do I need that million dollars?
Do I need that $5 million, oris there something else I should
be looking at to determine whatis the amount needed for me to
(01:27):
feel like I'm in a comfortablespot to retire?
Speaker 2 (01:30):
I feel like every headline we see says you need a
million dollars and it tries toput this feeling out there, that
if you don't have a milliondollars, get ready for a rice
and beans retirement, justbecause you're not going to be
able to make ends meet.
And this is just the narrativethat gets so pushed and I feel
(01:50):
like it adds to a lot ofdiscouragement, because the vast
majority of Americans can lookat their account balance at the
end of the year and say I'mnowhere close to that.
Speaker 1 (02:00):
Yeah, so I'm going to go back to the individual I was
talking to.
Why did he not need $3 millionor even $1 million to retire?
And, by the way, this is, inSouthern California, not a cheap
place to live.
He didn't need that because westarted working through his
financial plan and he was goingto have a pension.
His wife was a teacher in aschool district, so there was a
strong pension coming in.
(02:20):
They had a rental property thatwas generating a couple
thousand, a few thousand dollarsper month, they both had social
security benefits and, maybemost importantly, they were
going to retire debt-free.
They didn't have an extravagantlifestyle and they didn't have
a tremendous amount of expensesand lifestyle that they had to
cover.
And so, when we work backwardsinto why was it this individual
(02:40):
who had $300,000 in hisportfolio and would have a
perfectly fine retirement, whycould he and his wife do it
where some people well, theyvery well may need a million
dollars, $2 million, $3 million?
It all depends on a few reallyimportant things and I think
those things, the way I thinkabout it, erin, is number one,
cashflow.
So, starting with, what are youractual expenses going to be in
retirement?
(03:01):
Number two, what are yournon-portfolio income sources
Things like rent, things likesocial security, things like
pension.
And then, number three, finally, how big of a portfolio do you
need, once you've determined howmuch actual income you need
from that portfolio, to put allthese pieces together and
maintain your lifestyle.
So maybe we could start workingthrough that to help people
(03:21):
understand what is the actualamount that they need.
Is it a million?
Is it more?
Is it less?
Where do we actually start whendetermining what that looks
like?
Speaker 2 (03:29):
Absolutely.
I'm going to throw in anotherexample here, just from my side
of things.
So you've got a couple and theyhad pensions, they had rental
properties, they have socialsecurity coming in, which takes
so much pressure off how muchinvestments they need.
That still sounds like a lot ofincome streams.
I want to talk about agentleman I was speaking with a
couple of weeks ago.
He's a retired veteran.
(03:50):
He has a full disabilitybenefit because he served in our
US military for 30 years.
He has social security and hehas a paid off home and a paid
off car.
His expenses were very, verylow.
He said he spends about $3,000a month between his pension and
his social security benefits.
He's still saving every singlemonth.
(04:12):
He doesn't have a robustportfolio in the terms that we
would think of it, comparing toa million dollars, but he's he
had somewhere around $250,000,but he's still contributing
every single month.
He's still saving even thoughhe's fully retired.
And he said I don't touch mysavings.
I have three sons.
I want to leave everything tothem.
So my pension, my socialsecurity it covers more than
(04:35):
anything I could imagine.
I want to live a modestlifestyle.
I don't want to retire.
So saying that you need amillion dollars in a portfolio
is so relative to where you live, what kind of lifestyle you
want and, like you said, itcomes down to cash flow.
It comes down to your expenses,and once you can nail down what
your expenses are and once youlook at what your income streams
(04:56):
are, you may find that you needfar less than a million dollars
.
Maybe you don't need anythinginvested if a pension covers
everything and social security.
Maybe you find that you needmore than a million dollars
because you bought a vacationproperty and it needs a new roof
, or you want to buy a new carevery three years.
It depends so much on thoseexpenses.
Speaker 1 (05:16):
And, I think, a lot of the time.
Speaker 2 (05:17):
Oh, go ahead.
Speaker 1 (05:18):
You framed it well earlier, where it's not about
your net worth, it's about yourcash flow.
What's the difference there?
When people are saying you needX number of dollars to retire,
they're typically talking abouta net worth number.
How big is your portfolio?
How much does your net worthneed to be?
Hypothetically, you could havea net worth of zero and have a
strong retirement, and I'll givean example.
What if you are that personthat you're talking about?
(05:40):
You have a strong pension, youhave a strong social security
benefit.
Maybe you're married and yourspouse has a strong social
security benefit.
It's cash flow that you live onin retirement, not net worth.
Now, our portfolio can serveboth those purposes.
It is both net worth and itcontributes to our cashflow.
But the main thing to look atisn't a number of.
(06:00):
Do I need my net worth to hit Xnumber of dollars?
Do I need it to hit the numbersI see on the headlines?
If you need a million dollars,you need $5 million.
The answer is no.
You need enough cashflow tosupport your lifestyle, and so
the biggest key, even there, Iwould say, is what is your
lifestyle?
You just gave an example, erin,of someone who lived very
comfortably on $3,000 per month.
There's other people listeningthat could live very comfortably
(06:23):
on $2,000 per month.
Some it's going to take $10,000per month.
So it's very dependent and noteveryone's going to have the
same exact retirement plan.
In fact, nobody will have thesame retirement plan.
But the foundational piece toit, to understanding can you do
this, can you retire comfortably, is defining what does
comfortably mean to you.
Speaker 2 (06:41):
And I would phrase, taking that net worth statement,
I would say, instead offocusing so much on that net
worth number, rephrasing it to,like you said, you know saying
how much cash flow can Igenerate from this portfolio,
and is that enough to cover myneeds?
That question is far moreimportant than what net worth
(07:02):
can I get to.
Speaker 1 (07:03):
Exactly, and here's where that comes in in my mind.
Let's assume I want to retireand I want to spend $6,000 per
month and I'm married andbetween my spouse and I we can
generate $4,000 per month insocial security.
And let's also assume that myspouse has $1,000 per month of a
pension coming in Just veryhypothetical numbers.
(07:23):
$6,000 is our desired lifestyle.
That's what we need to becomfortable in to say, yeah, not
only can we retire, but we canactually do the things that we
want to do in retirement.
I'm ignoring taxes here just tokeep this super simple, but
$6,000 is what we want to spend.
If you add up our incomesources, we have $5,000 per
month coming in.
This is one of those things Ithink far too many people miss
(07:44):
is that $6,000 does not have toentirely come from my portfolio,
from my 401k, my Roth IRAs, mysavings.
Only the delta, or only thedifference between how much is
already coming in from thingslike pension or social security
and my actual desired expenses,needs to come in, and the Delta
there is $1,000 per month.
Now, if you look at 1,000 permonth, that's 12,000 per year
(08:09):
that portfolio required to dothat is what $300,000 or so per
year if you're using a numberlike 4% to generate.
If I had $300,000 in aportfolio and if I apply the
standard 4% rule which is not amagic power law of this is all
that you can, but it's a verysimple basic rule of thumb
(08:29):
300,000, 4% of that is $1,000per month.
What that means for us is wewould need a $300,000 portfolio
to be able to retire.
Now let's look at how does thatshift if our lifestyle shift
changes, or if our lifestyleexpectation changes.
If all of a sudden, we say no,we're moving somewhere else, or
we want to travel a whole lotmore, or we want to do more, and
(08:52):
it's not 6,000 per month thatwe want, it's 8,000 per month.
That doesn't seem like a bigjump.
That's only a 33% jump in termsof our actual expenses, going
from 6,000 to 8,000.
But that is a much bigger jumpin terms of my portfolio's
responsibility.
Speaker 2 (09:09):
Because you're creating such a larger gap
between those guaranteed incomestreams.
Speaker 1 (09:13):
Exactly.
Social security doesn't carethat all of a sudden we want to
spend more.
My pension doesn't care thatall of a sudden we want to spend
more.
My pension doesn't care thatall of a sudden we want to spend
more.
That's going to be the sameamount and that gap, to your
point, has tripled.
It's not a thousand dollars permonth, it's 3000 per month,
which means to maintain thatsame lifestyle.
It's not 300,000 more or lessthat we might need, it's closer
(09:34):
to 900,000 that we might need.
So, when you view yourportfolio not in the sense of
some magic number to attain tomake everything happen, and more
so as the role player of howdoes this supplement everything
else that we're doing?
And everything else that we'redoing is tied at its foundation
to how much do we actually needto live comfortably?
Which take it a step evenfurther is what do you actually
(09:54):
want your retirement to looklike and what does this need to
be for this to be the bestseason of your life?
Your portfolio is kind of thatfinal step to say how much of it
do you need and how do you needto invest it to fill that gap,
to create the outcome you'retrying to create.
Speaker 2 (10:08):
Can you imagine the backlash that you would get if
you started pushing thenarrative that you could retire
on $300,000 or $400,000?
.
You could retire on $300,000 or$400,000.
I mean, I just think thenarrative is so overwhelming in
the media that sometimes, when anarrative is so strong, I think
(10:30):
it can cause people, even withconfidence, to second guess
their plan.
Speaker 1 (10:34):
Yes, and I think that's because, as humans, yes,
and I think that's because, ashumans, we don't like chaos, we
don't like uncertainty.
With financial planning, withfinances, with retirement, there
is so much uncertainty, thereare so many unknowns, there are
so many variables, that thisrests upon, it's 30 years of
(10:57):
unknowns that says okay, I needa million dollars.
Or okay, I need to work untilage 70.
Or, okay, I need my soul.
We find these things to latchon to, which can be helpful if
they serve just as very general,loosely speaking, like North
Stars.
What are we trying to attain?
But be careful what you placeas that North Star.
Be careful what you set as thatgoal, because if it is a
(11:18):
million dollars… you might findthat you work way too long and
sacrifice way too much becauseit's 10 times more than you
actually needed.
Or you may find that's onlyhalf the amount that you need,
depending upon your actuallifestyle and what you should be
doing, which is why I get whypeople like that and gravitate
towards a sense of control and asense of okay.
All this chaos is now organizedinto one single number, but if
(11:40):
you want to do it right, it'snot actually all that
complicated.
It's just this framework thatwe talked about Focus less on
net worth, more on cash flow.
And to your point, erin, how doyou convert your net worth into
cash flow?
Speaker 2 (11:52):
I think you also, you said one thing very subtly and
quickly, but I think there ispower to it.
You said that your portfolio iskind of secondary.
This is what we should belooking at to fill the gap,
whereas I would say for so manypeople, as they're going into
retirement, the thing theyreally focus on is their
(12:15):
portfolio.
They look at that as the numberone spot.
But I would argue that you wantto look at your guaranteed
income streams as your baselinefloor.
This is your income floor.
That gap is how we're going toaddress that from investments
and that's really it could beicing on the cake.
It could be a very meaningfulportion of your portfolio.
(12:35):
It comes down to what yourexpenses are, but those
guaranteed income streams ofpension, rental income, social
security, those are the Aplayers that we want to start
with, and then the investmentscome along and that's our
supporting staff.
Speaker 1 (12:51):
Exactly and depending upon the delta, the difference
between lifestyle and those Aplayers that really should
inform how you invest, how muchyou need to have in your
portfolio, how you draw money,and not to make this too complex
.
But I think that the next stepis well, what about that person
that retires at 60?
And the pension doesn't kick inuntil 65.
(13:12):
And Social Security doesn'tkick in until 70.
So this isn't to say thatthere's only one way of doing
this, and this is a simpleformula, as much as this is a
helpful framework to think aboutit.
The goal is to combine allthese pieces and understand that
no, you don't need a milliondollars, because that's what the
(13:33):
Yahoo headline said.
You need the amount that'sgoing to allow your portfolio to
complement your social securitypension, whatever income
sources.
Speaker 2 (13:40):
You have to give you the amount to do what you want
to do whatever income sourcesyou have to give you the amount
to do what you want to do.
And I would say that who youare is likely who you're going
to be, because we tend to becreatures of habit.
Like, if I'm someone whotravels every single year, if I
upgrade my car on a regularbasis, I'm probably going to
continue being that person inretirement and my expenses will
(14:02):
be similar.
If I'm a homebody and I'm finedriving a 10-year-old car, I'm
probably going to be that sameperson in retirement.
So your expenses today areprobably going to look fairly
similar.
You're not going to change yourentire personality when you go
into retirement, so base it offyour expenses today and how you
see your retirement being.
Speaker 1 (14:23):
Yes.
And the final point that Ithink at least I would like to
make is the single most highlyleveraged decision you can make
in all this simplified equationis your expenses.
If we go back to my example, ifmy wife and I need $300,000,
going back to if we want tospend six, we have five coming
in from Social Security andpension.
Going back to if we want tospend $6,000, we have $5,000
(14:43):
coming in from Social Securityand pension.
We need $300,000 in a portfolioto generate that $1,000 of
expenses.
If we're starting from $50,000or $100,000, that's a big gap to
fill.
The most highly leveraged thingwe could potentially do is cut
expenses.
Well, hypothetically, if wetake $6,000 and drop that down
to $5 to five, now all of asudden we don't quote unquote
(15:05):
need a portfolio.
Now I want to be mindful, likeyou, don't want your retirement
to be anything less than whatyou want it to be.
But just in terms of thetrade-offs here, of what's more
realistic.
Do we want to keep saving andgrowing, or do we maybe not
upgrade the car Because we findthat's not actually as important
to us as is being retiredearlier and spending time with
family?
(15:25):
Do we move to a lower cost ofarea living where maybe kids or
grandkids end up being.
So these are decisions that youcan make and just understanding
the leverage of each.
At some point it's the amountthat you save that's going to
have the highest leveragedimpact on your ultimate
retirement.
The closer you get toretirement it's going to be more
of your expenses.
It's the highest leveragedecision you can make to kind of
(15:48):
making the numbers work, makingthe equation work, if it's not
working the first time around100% agree and I you know
cutting expenses is kind of adouble-edged sword in a positive
way.
Speaker 2 (15:59):
You know, you bring down your expenses, you bring
down how much you need ininvestments.
It helps across all fronts yeah.
Speaker 1 (16:06):
Erin, anything else you want to add before we wrap
up today's episode?
Speaker 2 (16:10):
I'm just going to say just know, you don't need a
million dollars.
Figure out what your number is.
Speaker 1 (16:15):
There we go.
All right, erin.
Well, thank you, and we willsee you all next week.
Speaker 2 (16:19):
Bye.
Any way you look, it seems like a million dollars is
that magic number needed for youto retire comfortably.
That's why, in today's episode,we're going to talk about why
that's not the case.
Whether you have less or more,that's not the number you should
be paying attention to.
So tune in to see exactly whatyou should be paying attention
to.
Aaron, I was talking to aneighbor where the headquarters
of Root Financial is and thisneighbor was asking some
(00:20):
questions about retirementbecause he found out what I do
for a living.
And I was asking some questionsabout retirement because he
found out what I do for a livingand I told him a podcast that I
do.
He started listening to thepodcast and he said ah, this
isn't going to probably connectwith me or resonate with me.
Your most recent episode was howdo you retire with $3 million?
I just don't have $3 million.
I think there's a bit ofdiscouragement that is that
really what it takes to actuallyretire?
(00:41):
And when we started talking andhe started to tell me about
what he had and what's going on,and before long it became very
clear to me that this individualcould retire with far, far less
than $3 million.
This individual had nowhereclose to that.
He had saved well, done well,provided for his family.
But it became very clear veryquickly that this individual did
not need that, and in fact, hehad about $300,000 in his
(01:04):
portfolio and it was plentysufficient to do everything he
needed, and then some because ofthe actual cash flow that he
was going to have throughretirement.
And so, Aaron, I think thatwhat would be helpful to go over
in today's episode is how muchdo you need to have to retire?
Do I need that million dollars?
Do I need that $5 million, oris there something else I should
be looking at to determine whatis the amount needed for me to
(01:27):
feel like I'm in a comfortablespot to retire?
Speaker 2 (01:30):
I feel like every headline we see says you need a
million dollars and it tries toput this feeling out there, that
if you don't have a milliondollars, get ready for a rice
and beans retirement, justbecause you're not going to be
able to make ends meet.
And this is just the narrativethat gets so pushed and I feel
(01:50):
like it adds to a lot ofdiscouragement, because the vast
majority of Americans can lookat their account balance at the
end of the year and say I'mnowhere close to that.
Speaker 1 (02:00):
Yeah, so I'm going to go back to the individual I was
talking to.
Why did he not need $3 millionor even $1 million to retire?
And, by the way, this is, inSouthern California, not a cheap
place to live.
He didn't need that because westarted working through his
financial plan and he was goingto have a pension.
His wife was a teacher in aschool district, so there was a
strong pension coming in.
(02:20):
They had a rental property thatwas generating a couple
thousand, a few thousand dollarsper month, they both had social
security benefits and, maybemost importantly, they were
going to retire debt-free.
They didn't have an extravagantlifestyle and they didn't have
a tremendous amount of expensesand lifestyle that they had to
cover.
And so, when we work backwardsinto why was it this individual
(02:40):
who had $300,000 in hisportfolio and would have a
perfectly fine retirement, whycould he and his wife do it
where some people well, theyvery well may need a million
dollars, $2 million, $3 million?
It all depends on a few reallyimportant things and I think
those things, the way I thinkabout it, erin, is number one,
cashflow.
So, starting with, what are youractual expenses going to be in
retirement?
(03:01):
Number two, what are yournon-portfolio income sources
Things like rent, things likesocial security, things like
pension.
And then, number three, finally, how big of a portfolio do you
need, once you've determined howmuch actual income you need
from that portfolio, to put allthese pieces together and
maintain your lifestyle.
So maybe we could start workingthrough that to help people
(03:21):
understand what is the actualamount that they need.
Is it a million?
Is it more?
Is it less?
Where do we actually start whendetermining what that looks
like?
Speaker 2 (03:29):
Absolutely.
I'm going to throw in anotherexample here, just from my side
of things.
So you've got a couple and theyhad pensions, they had rental
properties, they have socialsecurity coming in, which takes
so much pressure off how muchinvestments they need.
That still sounds like a lot ofincome streams.
I want to talk about agentleman I was speaking with a
couple of weeks ago.
He's a retired veteran.
(03:50):
He has a full disabilitybenefit because he served in our
US military for 30 years.
He has social security and hehas a paid off home and a paid
off car.
His expenses were very, verylow.
He said he spends about $3,000a month between his pension and
his social security benefits.
He's still saving every singlemonth.
(04:12):
He doesn't have a robustportfolio in the terms that we
would think of it, comparing toa million dollars, but he's he
had somewhere around $250,000,but he's still contributing
every single month.
He's still saving even thoughhe's fully retired.
And he said I don't touch mysavings.
I have three sons.
I want to leave everything tothem.
So my pension, my socialsecurity it covers more than
(04:35):
anything I could imagine.
I want to live a modestlifestyle.
I don't want to retire.
So saying that you need amillion dollars in a portfolio
is so relative to where you live, what kind of lifestyle you
want and, like you said, itcomes down to cash flow.
It comes down to your expenses,and once you can nail down what
your expenses are and once youlook at what your income streams
(04:56):
are, you may find that you needfar less than a million dollars
.
Maybe you don't need anythinginvested if a pension covers
everything and social security.
Maybe you find that you needmore than a million dollars
because you bought a vacationproperty and it needs a new roof
, or you want to buy a new carevery three years.
It depends so much on thoseexpenses.
Speaker 1 (05:16):
And, I think, a lot of the time.
Speaker 2 (05:17):
Oh, go ahead.
Speaker 1 (05:18):
You framed it well earlier, where it's not about
your net worth, it's about yourcash flow.
What's the difference there?
When people are saying you needX number of dollars to retire,
they're typically talking abouta net worth number.
How big is your portfolio?
How much does your net worthneed to be?
Hypothetically, you could havea net worth of zero and have a
strong retirement, and I'll givean example.
What if you are that personthat you're talking about?
(05:40):
You have a strong pension, youhave a strong social security
benefit.
Maybe you're married and yourspouse has a strong social
security benefit.
It's cash flow that you live onin retirement, not net worth.
Now, our portfolio can serveboth those purposes.
It is both net worth and itcontributes to our cashflow.
But the main thing to look atisn't a number of.
(06:00):
Do I need my net worth to hit Xnumber of dollars?
Do I need it to hit the numbersI see on the headlines?
If you need a million dollars,you need $5 million.
The answer is no.
You need enough cashflow tosupport your lifestyle, and so
the biggest key, even there, Iwould say, is what is your
lifestyle?
You just gave an example, erin,of someone who lived very
comfortably on $3,000 per month.
There's other people listeningthat could live very comfortably
(06:23):
on $2,000 per month.
Some it's going to take $10,000per month.
So it's very dependent and noteveryone's going to have the
same exact retirement plan.
In fact, nobody will have thesame retirement plan.
But the foundational piece toit, to understanding can you do
this, can you retire comfortably, is defining what does
comfortably mean to you.
Speaker 2 (06:41):
And I would phrase, taking that net worth statement,
I would say, instead offocusing so much on that net
worth number, rephrasing it to,like you said, you know saying
how much cash flow can Igenerate from this portfolio,
and is that enough to cover myneeds?
That question is far moreimportant than what net worth
(07:02):
can I get to.
Speaker 1 (07:03):
Exactly, and here's where that comes in in my mind.
Let's assume I want to retireand I want to spend $6,000 per
month and I'm married andbetween my spouse and I we can
generate $4,000 per month insocial security.
And let's also assume that myspouse has $1,000 per month of a
pension coming in Just veryhypothetical numbers.
(07:23):
$6,000 is our desired lifestyle.
That's what we need to becomfortable in to say, yeah, not
only can we retire, but we canactually do the things that we
want to do in retirement.
I'm ignoring taxes here just tokeep this super simple, but
$6,000 is what we want to spend.
If you add up our incomesources, we have $5,000 per
month coming in.
This is one of those things Ithink far too many people miss
(07:44):
is that $6,000 does not have toentirely come from my portfolio,
from my 401k, my Roth IRAs, mysavings.
Only the delta, or only thedifference between how much is
already coming in from thingslike pension or social security
and my actual desired expenses,needs to come in, and the Delta
there is $1,000 per month.
Now, if you look at 1,000 permonth, that's 12,000 per year
(08:09):
that portfolio required to dothat is what $300,000 or so per
year if you're using a numberlike 4% to generate.
If I had $300,000 in aportfolio and if I apply the
standard 4% rule which is not amagic power law of this is all
that you can, but it's a verysimple basic rule of thumb
(08:29):
300,000, 4% of that is $1,000per month.
What that means for us is wewould need a $300,000 portfolio
to be able to retire.
Now let's look at how does thatshift if our lifestyle shift
changes, or if our lifestyleexpectation changes.
If all of a sudden, we say no,we're moving somewhere else, or
we want to travel a whole lotmore, or we want to do more, and
(08:52):
it's not 6,000 per month thatwe want, it's 8,000 per month.
That doesn't seem like a bigjump.
That's only a 33% jump in termsof our actual expenses, going
from 6,000 to 8,000.
But that is a much bigger jumpin terms of my portfolio's
responsibility.
Speaker 2 (09:09):
Because you're creating such a larger gap
between those guaranteed incomestreams.
Speaker 1 (09:13):
Exactly.
Social security doesn't carethat all of a sudden we want to
spend more.
My pension doesn't care thatall of a sudden we want to spend
more.
My pension doesn't care thatall of a sudden we want to spend
more.
That's going to be the sameamount and that gap, to your
point, has tripled.
It's not a thousand dollars permonth, it's 3000 per month,
which means to maintain thatsame lifestyle.
It's not 300,000 more or lessthat we might need, it's closer
(09:34):
to 900,000 that we might need.
So, when you view yourportfolio not in the sense of
some magic number to attain tomake everything happen, and more
so as the role player of howdoes this supplement everything
else that we're doing?
And everything else that we'redoing is tied at its foundation
to how much do we actually needto live comfortably?
Which take it a step evenfurther is what do you actually
(09:54):
want your retirement to looklike and what does this need to
be for this to be the bestseason of your life?
Your portfolio is kind of thatfinal step to say how much of it
do you need and how do you needto invest it to fill that gap,
to create the outcome you'retrying to create.
Speaker 2 (10:08):
Can you imagine the backlash that you would get if
you started pushing thenarrative that you could retire
on $300,000 or $400,000?
.
You could retire on $300,000 or$400,000.
I mean, I just think thenarrative is so overwhelming in
the media that sometimes, when anarrative is so strong, I think
(10:30):
it can cause people, even withconfidence, to second guess
their plan.
Speaker 1 (10:34):
Yes, and I think that's because, as humans, yes,
and I think that's because, ashumans, we don't like chaos, we
don't like uncertainty.
With financial planning, withfinances, with retirement, there
is so much uncertainty, thereare so many unknowns, there are
so many variables, that thisrests upon, it's 30 years of
(10:57):
unknowns that says okay, I needa million dollars.
Or okay, I need to work untilage 70.
Or, okay, I need my soul.
We find these things to latchon to, which can be helpful if
they serve just as very general,loosely speaking, like North
Stars.
What are we trying to attain?
But be careful what you placeas that North Star.
Be careful what you set as thatgoal, because if it is a
(11:18):
million dollars… you might findthat you work way too long and
sacrifice way too much becauseit's 10 times more than you
actually needed.
Or you may find that's onlyhalf the amount that you need,
depending upon your actuallifestyle and what you should be
doing, which is why I get whypeople like that and gravitate
towards a sense of control and asense of okay.
All this chaos is now organizedinto one single number, but if
(11:40):
you want to do it right, it'snot actually all that
complicated.
It's just this framework thatwe talked about Focus less on
net worth, more on cash flow.
And to your point, erin, how doyou convert your net worth into
cash flow?
Speaker 2 (11:52):
I think you also, you said one thing very subtly and
quickly, but I think there ispower to it.
You said that your portfolio iskind of secondary.
This is what we should belooking at to fill the gap,
whereas I would say for so manypeople, as they're going into
retirement, the thing theyreally focus on is their
(12:15):
portfolio.
They look at that as the numberone spot.
But I would argue that you wantto look at your guaranteed
income streams as your baselinefloor.
This is your income floor.
That gap is how we're going toaddress that from investments
and that's really it could beicing on the cake.
It could be a very meaningfulportion of your portfolio.
(12:35):
It comes down to what yourexpenses are, but those
guaranteed income streams ofpension, rental income, social
security, those are the Aplayers that we want to start
with, and then the investmentscome along and that's our
supporting staff.
Speaker 1 (12:51):
Exactly and depending upon the delta, the difference
between lifestyle and those Aplayers that really should
inform how you invest, how muchyou need to have in your
portfolio, how you draw money,and not to make this too complex
.
But I think that the next stepis well, what about that person
that retires at 60?
And the pension doesn't kick inuntil 65.
(13:12):
And Social Security doesn'tkick in until 70.
So this isn't to say thatthere's only one way of doing
this, and this is a simpleformula, as much as this is a
helpful framework to think aboutit.
The goal is to combine allthese pieces and understand that
no, you don't need a milliondollars, because that's what the
(13:33):
Yahoo headline said.
You need the amount that'sgoing to allow your portfolio to
complement your social securitypension, whatever income
sources.
Speaker 2 (13:40):
You have to give you the amount to do what you want
to do whatever income sourcesyou have to give you the amount
to do what you want to do.
And I would say that who youare is likely who you're going
to be, because we tend to becreatures of habit.
Like, if I'm someone whotravels every single year, if I
upgrade my car on a regularbasis, I'm probably going to
continue being that person inretirement and my expenses will
(14:02):
be similar.
If I'm a homebody and I'm finedriving a 10-year-old car, I'm
probably going to be that sameperson in retirement.
So your expenses today areprobably going to look fairly
similar.
You're not going to change yourentire personality when you go
into retirement, so base it offyour expenses today and how you
see your retirement being.
Speaker 1 (14:23):
Yes.
And the final point that Ithink at least I would like to
make is the single most highlyleveraged decision you can make
in all this simplified equationis your expenses.
If we go back to my example, ifmy wife and I need $300,000,
going back to if we want tospend six, we have five coming
in from Social Security andpension.
Going back to if we want tospend $6,000, we have $5,000
(14:43):
coming in from Social Securityand pension.
We need $300,000 in a portfolioto generate that $1,000 of
expenses.
If we're starting from $50,000or $100,000, that's a big gap to
fill.
The most highly leveraged thingwe could potentially do is cut
expenses.
Well, hypothetically, if wetake $6,000 and drop that down
to $5 to five, now all of asudden we don't quote unquote
(15:05):
need a portfolio.
Now I want to be mindful, likeyou, don't want your retirement
to be anything less than whatyou want it to be.
But just in terms of thetrade-offs here, of what's more
realistic.
Do we want to keep saving andgrowing, or do we maybe not
upgrade the car Because we findthat's not actually as important
to us as is being retiredearlier and spending time with
family?
(15:25):
Do we move to a lower cost ofarea living where maybe kids or
grandkids end up being.
So these are decisions that youcan make and just understanding
the leverage of each.
At some point it's the amountthat you save that's going to
have the highest leveragedimpact on your ultimate
retirement.
The closer you get toretirement it's going to be more
of your expenses.
It's the highest leveragedecision you can make to kind of
(15:48):
making the numbers work, makingthe equation work, if it's not
working the first time around100% agree and I you know
cutting expenses is kind of adouble-edged sword in a positive
way.
Speaker 2 (15:59):
You know, you bring down your expenses, you bring
down how much you need ininvestments.
It helps across all fronts yeah.
Speaker 1 (16:06):
Erin, anything else you want to add before we wrap
up today's episode?
Speaker 2 (16:10):
I'm just going to say just know, you don't need a
million dollars.
Figure out what your number is.
Speaker 1 (16:15):
There we go.
All right, erin.
Well, thank you, and we willsee you all next week.
Speaker 2 (16:19):
Bye.
Popular Podcasts
Fudd Around And Find Out
UConn basketball star Azzi Fudd brings her championship swag to iHeart Women’s Sports with Fudd Around and Find Out, a weekly podcast that takes fans along for the ride as Azzi spends her final year of college trying to reclaim the National Championship and prepare to be a first round WNBA draft pick. Ever wonder what it’s like to be a world-class athlete in the public spotlight while still managing schoolwork, friendships and family time? It’s time to Fudd Around and Find Out!
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy, Jess Hilarious, And Charlamagne Tha God!