How Much Can I Spend In Retirement with a $2 Million Portfolio?

A retirement story that challenges everything you thought you knew about what’s possible in your golden years.

Meet Michael and Lisa: a couple in their early sixties with $2 million saved who are worried about running out of money too soon. Their initial plan looked bleak, but three simple adjustments reshaped their retirement outlook without working longer or cutting back on their lifestyle dreams.

The shift came from questioning assumptions. Instead of projecting first-year expenses forever, they recognized that travel-heavy budgets don’t last into their 80s and 90s. Pair that insight with a portfolio tailored to their situation, not arbitrary rules, and a smart Roth conversion strategy, and their success probability jumped from 32% to 74%.

The real takeaway isn’t just the numbers. These strategies are accessible to anyone. Retirement planning works best when expenses evolve with time, portfolios reflect personal circumstances, and taxes are managed proactively.

Your retirement might be closer than you think. Let's explore how the right adjustments can turn uncertainty into confidence.

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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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Episode Transcript

Speaker 0 (00:00):
Imagine you're 62 years old with a couple million
dollars in your portfolio.
You're probably starting towonder if you can retire and, if
so, how much might you be ableto spend when you do?
That's the exact situationtoday's couple find themselves
in.
We're going to take a look attheir plan to see what are the
things they need to be mindfulof, what are the common
roadblocks in front of them, andthen what are the specific
action items they can take tomake the most of what they've

(00:20):
worked so hard for.
Take to make the most of whatthey've worked so hard for.
And as we go through thesenumbers, please keep this in
mind it does not matter if youactually have $2 million in your
portfolio, much more or muchless.
These strategies, the frameworkthat we're going to work
through, is what you need tounderstand if you want to make
the most of your retirementstrategy.
So let's take a look, andbefore we do, here's the before
and after, with a few very basicchanges that this couple made.

(00:43):
This is what their portfoliolooked like, and what we're
going to show is how.
This is what their new strategylooks like, their new portfolio
projection looks like.
Not because they're workinglonger, not because they're
doing some crazy thing that'sgoing to actually impact their
bottom line, but because they'reavoiding some common pitfalls
and making a couple of strategicchanges that will make all the
difference in their retirementstrategy.
So with that in mind, with thatoutcome in mind, let's take a

(01:04):
look at where they are today andshow you the three things they
need to be mindful of, the threethings you probably need to be
mindful of if you're in thissituation, so that you can make
the most of this.
So here's an overview of Michaeland Lisa and, as we go through
this, this is for educationalpurposes only.
This is not a guarantee.
None of this is intended to beadvice.
Just to illustrate how a coupleof these concepts work in

(01:25):
practice.
Michael and Lisa have a couplemillion dollars you can see
between their joint account,401ks, iras, roth IRAs.
Then they also have theirproperty.
Their property is $800,000,$900,000 or so of equity in it.
Now, unless they sell thatproperty, of course, that's not
going to change in any type ofretirement income, but still
something we want to factor infor plain purposes.
Their initial goal, their firstgoal, is to retire at the age of

(01:45):
65.
So, number one can we do it?
And then number two how muchcan we spend?
If we do, as we start to workthrough how much can they spend?
We need to start with anunderstanding or an expectation
of how much might you want tospend.
And 14,000 is the number thatthey gave, and where that really
comes from is $10,000 per month.
Keep in mind, this is aftertaxes but $10,000 per month for

(02:06):
them to be able to maintaintheir lifestyle, and then an
additional 4,000 per month,48,000 per year they want to
spend on travel.
So these were their numbers.
Now, keep that in mind, becausethere's a very important change
we're gonna make here thatdoesn't actually impact their
lifestyle, but it's gonnadramatically change the
projection of what's possible.
So $14,000 per month, and ontop of that, we're going to

(02:26):
assume that they have funds thatthey need to set aside for
healthcare.
So they're both going to becontinuing to work.
They have coverage throughtheir current plans until
Medicare age, but once they doretire at 65, they'll be on
Medicare.
So their Medicare Part B andPart D premiums.
And then, in addition to that,we're planning for $4,000 per
year for each of them ofout-of-pocket expenses.

(02:47):
Today they have income.
That income, of course, isgoing to go away when they're
done working, but they will havesocial security.
Both of them intend to collectat age 70.
You can see that here in thesoftware.
Between now and retirement,they're both going to continue
putting 10% per year into their401ks.
They have a little bit of amatch.
But what we want to Can they dothis?

(03:08):
Do they have enough money notjust to last for the first few
years of retirement but to lastall the way throughout
retirement?
And then, once we know theanswer to that, how can we
optimize that and give them somestrategic action steps to take
to make the most of all this?
So this is always what I liketo do when helping someone to
understand if they can retire.
The lifeblood of anybody'sretirement plan isn't their tax
strategy, not their estatestrategy, not even how they're

(03:29):
invested.
It's what will their cash flowslook like.
So this cash flows page, whatwe're looking at, is all the
various income sources Michaeland Lisa will have from now
throughout retirement and allthe various expenses they will
have now throughout theirretirement.
Now, I'll mention this a coupleof times, but if you want
access to the same software, youcan get so in the Retirement
Planning Academy link.
Link is in the show notes below.

(03:49):
But if you want to follow alongas we do this, planning Academy
link Link is in the show notesbelow.
But if you want to follow alongas we do this, you are more
than welcome to do so throughthat software as we go through
this.
This is just a breakdown of whatwill their income source be for
the next three years Salary youcan see Michael's salary,
lisa's salary that's going tocover their needs for the next
three years.
Then that goes away.
Once salary goes away, socialsecurity kicks in, but not right
away.
As you can see here.

(04:17):
There's going to be a bunch ofzeros until Social Security
starts at the age of 70.
So, going back to summary,here's their total income flows
and what we want to compare thatto is what will their expenses
be?
Their expenses are broken downinto a few categories.
One this is just that basicliving expense $14,000 per month
.
That starts at $168,000 peryear, but inflation is going to
happen.
So how do we ensure that numberkeeps up with inflation?
Well, we index it by 3% everysingle year, using that as our

(04:38):
assumption.
Next is housing.
Housing is on top of this, andthe reason we separate housing,
as you can see here is becauseat some point that mortgage is
going to be paid off, whichmeans our property taxes, their
insurance, that will continueforever.
But the principal and intereststops at the age of 70.
So that's no longer an expensewe need to factor into their
plan.
And then, on top of that, wealso have healthcare.
We're shown zero for healthcareand that's simply because

(05:00):
they're covered through workbetween now and age 65.
But after that, here's whattheir expenses will be Taxes and
plan savings.
But really what we want to knowhere is, if we look at net flows
, this takes their totalexpenses, it subtracts any
income sources and the incomeflows and says this is the
amount you need to pull fromyour portfolio.
So you're one of retirement.
As you can see, if their totalexpenses are $252,000, they have

(05:24):
no social security, no salarythey need to pull $252,000 from
their portfolio.
If we fast forward a few years,once they have paid off the
mortgage, once social securityis kicked in, you can start to
see how this number reallychanges pretty dramatically.
But that's what that is showingus.
Now here's what we want to dowith that.
We don't just want to know howmuch you've taken out of your
portfolio.
We want to know can yourportfolio sustain that for the

(05:46):
rest of your life?
And if we keep in mind, go backto what those numbers were, they
were taken out about a quartermillion dollars in the first few
years of retirement.
Quarter million dollars dividedby their portfolio value, it's
a pretty high withdrawal rate.
Today they have a couplemillion dollars in their
portfolio by the time theyretire, somewhere in the
neighborhood of maybe low to twomillions.
It's about 10% per year they'retaken out and rising.

(06:07):
So what does that mean?
Well, it means the next coupleof years, the next few years,
they keep adding to theirportfolio, but then they retire
and they pretty quickly start todraw their portfolio down.
Not a successful outcome.
So the immediate response tocan I retire is no, and the
secondary response of how muchcould I spend?
That response would be well,less than we're looking at right
now.

(06:27):
But that's before we make acouple of key changes.
The first is this when we lookat our retirement monthly
expenses of $14,000 per month,this is a common mistake I see
most people make.
They look at all of theirexpenses that first year of
retirement and they just usethat number on a go-forward
basis.
But if I look at that number, Ilook at 14,000 per month and I

(06:48):
ask Michael and Lisa how much ofthat or how much of that is
travel?
That's about 4,000 per month,50,000 or so per year.
I then ask how many years doyou think you'll actually do
that for?
At age 90, are you stillspending 50,000 per year on
travel, like you are at age 65?
And the answer is, of coursenot.
We're probably going to travelmore so the first 10 years of
retirement and really after thatwe don't see ourselves

(07:08):
traveling all that often.
Maybe little trips here andthere, but not to the extent
that we will the first decade.
So I say, well, what if wesimply do this?
What if we change this?
What if we say the 10,000 permonth on a go-forward basis is
your monthly expenses and travel.
What if we separate that outbut we only include this for 10
years?
If we do that, what impact willthat make?

(07:29):
So that's one change we'regoing to make Now.
Practically speaking, that isreducing how much they're going
to spend compared to theoriginal scenario, but it's a
more accurate representation.
They weren't really going tospend as much all those years.
The second thing you can seeright here, what's the
retirement allocation?
This says moderate right here.
Moderate in this case isassuming a 60-40 portfolio.
So many people go intoretirement and think I'm 65, I'm

(07:55):
retired, I need a 60-40allocation in my portfolio.
Sometimes that is the case.
Many times it is not.
There's a far better, moreintentional way of doing that,
based upon what are your actualneeds from your portfolio.
How will that change over timeand, most importantly, what's
your risk capacity versus what'syour risk tolerance.
So that's a topic for adifferent day.
But when you start tounderstand that, you start to
understand that moderateportfolio, at least for Michael

(08:15):
and Lisa, might not be the mostappropriate.
So what if I change this togrowth?
Now, quick note here I couldchange this to anything.
Just because I change this tosomething does not mean it's
guaranteed to happen.
So I just want to acknowledgethat Just because you assume
something's going to happendoesn't guarantee it's going to.
But what this is looking at isa moderate portfolio.
Under these assumptions, it'sgoing to grow at about 7% or so

(08:37):
per year.
A growth portfolio defined hereit's a 70-30 portfolio is going
to grow at about 7.5% per year.
Guarantee, no, but practicallyspeaking, if we look at history
as our guide.
Is it unreasonable to expectthat you would get a little bit
better performance if you have alittle bit more in stocks?
No, that's not unreasonable toexpect.
So that's the assumption we'regoing to make here.

(08:58):
And then, finally, tax strategy.
If you recall, when you look atthe breakdown of Michael and
Lisa's assets, a lot was inpre-tax accounts, a lot was in
taxable accounts.
That is a perfect opportunityto implement a Roth conversion
strategy.
In those first few years ofretirement, start to
systematically shift somepre-tax assets to Roth assets
and in doing so, you get more ofyour money into tax-free or

(09:19):
Roth accounts.
Now I'm not going to show youthe full modeling out on the
back end, but what we did is wesaid what if, every single year,
they converted up to the 12%bracket?
So in a year they were underthe 12% tax bracket, maybe even
under the 10% bracket.
Convert enough of their pre-taxaccounts to Roth accounts to
get them to max out that full12% bracket.
So if they do all of thesethings?

(09:40):
So keep in mind, nothingdramatically changed here.
They didn't have to work longer.
They didn't have to work longer.
They didn't have to save more.
They didn't have to make anyserious sacrifices to their
retirement lifestyle.
Yes, we better accounted forthe fact that they're not going
to be spending $14,000 per monthindefinitely, just the first
few years of retirement.
But in doing so, you can startto see that this scenario

(10:01):
analysis, this portfolioprojection, started like this.
Now it looks far more like thisIf you go to the probability of
success here.
The probability of success forMichael and Lisa started at 32%,
now up to 74% Now.
This is why retirement planningis so important.
Retirement planning isn't justsaying start with your
assumptions and see what theoutput is.

(10:22):
It's saying start with theassumptions, see where that gets
you, and then what are thelittle things we can tweak and
change along the way.
What if we took this a stepfurther and said Michael, lisa,
do you think you're going to bein your home forever?
They say no, at some pointwe're going to downsize.
What does downsizing look likeIn this case?
I modeled out.
What if they downsize in 15years and they buy something in
today's dollars worth about$700,000,?

(10:44):
Well, when you start to modelall this out, their new
projection took them fromlooking something like this you
can't retire, you need to worklonger, you need to save more.
You need to make some seriouscuts to look in something like
this, we're saying not only canyou retire, but the amount you
can spend might actually be morethan you initially thought that
you could.
So, as we look at this plan forMichael and Lisa, what can we

(11:05):
take away from this?
Your numbers are going to bedifferent than their numbers,
but the framework, the takeaways, are this Number one have an
accurate accounting of what yourexpenses will actually be, not
just day one, but how many ofthose expenses will change over
time.
Will the mortgage be paid off?
Will your travel expenses godown?
Will expenses go up over timebecause of medical bills or
long-term care?

(11:26):
That needs to be modeledproperly for you to have an
accurate sense of how much areyou actually going to need to
support throughout yourretirement.
Number two is your portfolioallocation the right allocation
for you, or is it based uponsome rule of thumb, someone
else's idea of what yourportfolio allocation should be?
Little shifts, littleallocation changes maybe don't
seem like a big deal, but whenthose are compounded over years

(11:49):
and decades, it can have a hugeimpact on what's possible for
your retirement.
And number three do not neglecttax strategy.
If you're neglecting taxstrategy, you may be leaving
tens or hundreds of thousands ofdollars, or even more, on the
table, which, practicallyspeaking, means there's less
left over for you to actuallyspend and enjoy in your
retirement.
So, if you don't have the plan,get access to something.

(12:10):
Work with a financial advisor.
If you want to work withsomeone, we do this all day,
every day, for our clients.
Reach out to us here at RootFinancial.
You can go to our website Linkis in the show notes below to
schedule a time to talk withsomeone here.
Or if you're not ready to talkto a financial advisor, that's
okay too, but get access to aplanning software and get access
to a framework.
You can get this one, if thislooks attractive to you, using

(12:30):
the link below for theRetirement Planning Academy.
But at the end of the day,there's too much to be left on
the table if you're not planningproactively for your retirement
.
And then, finally, for those ofyou that don't have a financial
plan in place, but maybejustifying it as, as long as I
keep saving and working andgrowing my portfolio, that will
cover my lack of an actualfinancial strategy.
Well, take a look at this videoright here.

(12:51):
In this video, I lay out fivereasons that might be time for
you to retire right now, because, as much as you're focused on
the financial side of things,there's a tremendous cost to
your actual strategy bycontinuing to work even after
you no longer need to.