May 13, 2025 • 15 mins
Jeffrey and Cindy came to me with $3 million saved and one big question: How much can we actually spend in retirement? In this video, we walk through a retirement planning scenario—looking at spending goals, taxes, travel, healthcare, and how Social Security might factor in.
While the numbers vary, the framework we use applies whether you're working with $300,000 or $30 million. We explore how to think about sustainable withdrawal rates, portfolio flexibility, and trade-offs between spending today and planning for tomorrow.
This isn’t just about getting by—it’s about using what you’ve saved to live intentionally. And just as important, it’s about avoiding the regret of leaving money (and meaningful experiences) unused.
If you're thinking about how to align your spending with your values in retirement, this conversation is for you.
Questions we explore:
- How can I estimate a sustainable spending level in retirement?
- How do I balance enjoying life now with preserving assets for the future?
Submit your request to join James:
On the Ready For Retirement podcast: Apply Here
On a Retirement Makeover episode: Apply Here
Timestamps:
0:00 - Jeffrey and Cindy's plan
3:24 - Understand cash flows
5:45 - Projected portfolio withdrawals
7:22 - Probability of success
9:26 - Monitor your withdrawal rate
11:12 - Key takeaway
13:26 - Wrap-up
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
In today's video, we're going to take a look at a
couple that is retiring with $3million in their portfolio, and
they know they can probably livea pretty comfortable retirement
, but they want to know exactlyhow much they can spend before
they run the risk of running outof money.
So what we're going to do iswe're going to jump into their
plan to show you what theyshould be looking at, meaning it
doesn't actually matter if you,watching this, have $3 million,
$30 million or $300,000 in yourportfolio.
The principles we're going tolook at are going to be very
(00:22):
relevant, regardless of whereyou are in your net worth.
This is another episode ofReady for Retirement.
I'm your host, james Canole,and I'm here to teach you how to
get the most out of life withyour money.
And now on to the episode.
So to illustrate this, let'stake a look at Jeffrey and
Cindy's samples plan.
(00:42):
As you can see here, they haveabout $3 million in their
portfolio between someinvestment accounts, an IRA and
a 401k.
They also have a property, butthey're not going to spend down
their property.
That's simply an illiquid assetthat they are living in.
What they really want to knowis can we use this, or how much
of this can we use to maximizeour income and what is that max
amount of income we can spend?
So here's where we started withthem.
As you can see, jeffrey andCindy are 66 and 64.
(01:03):
Their goals are to retire rightnow, jeffrey at 66, cindy at 64
.
To start with, we're going toassume that they want to spend
$7,000 per month, after taxes,throughout retirement on core
basic living expenses.
On top of that we're going toassume $30,000 per year for
travel, but we're only going toassume that for the first 12
years of retirement, knowingthat once they're in their older
(01:24):
years they're probably nottraveling as much as they would
be in those earlier years.
In addition to that, we'reprojecting out some healthcare
costs.
So Jeffrey is already atMedicare age he's 66, so this is
irrelevant for him.
But after Medicare age he hashis Medicare Part B, his
Medicare Part D premiums, plus aprojected $4,600 per year of
out-of-pocket expenses.
For Cindy, she will have oneyear of medical expenses
(01:47):
pre-Medicare, so $8,000 is whatwe're expecting her to pay in
premiums and then, once Medicarestarts, same thing Medicare
Part B and Part D, and then anextra $4,600 per year of
out-of-pocket costs.
So $8,000 per year beforeMedicare $4,600 per year.
Medicare begins on top of thosemedicare premiums.
So these are their goals andthey're saying this would be a
(02:08):
pretty comfortable retirement.
But we also know that we'vesaved quite a bit in our
portfolio.
We want to know could wemaximize that?
Can we spend more than whatwe're looking at here?
Or if we did, would we run therisk of running out of money at
any point in time?
So it's that delicate balancingact.
If we want to be okay long term, but we don't want to leave
anything on the table, we don'twant to underspend and underdo
some of the things that we couldhave done today because we were
(02:29):
too conservative.
So let's continue on with this.
Jeffrey will have his socialsecurity benefit.
He will collect at his fullretirement age and that monthly
amount will be $3,800 per month.
Cindy is going to begincollecting right now.
She's retiring at the age of 64.
She's gonna begin collectingher benefit as well at 64.
Her full retirement age amountis 3,850.
She would be taking a bit of areduction on that because she's
(02:51):
collecting early.
So those are the income amountsthat they will receive.
So this is where we are so far.
We know they have about $3million in liquid portfolio
assets and they wanna know howfar can that go before we run
the risk of running out of money.
We know and that is all aftertaxes, meaning we also have to
(03:12):
factor in the cost of taxes, andthen we see what income they
will have in retirement.
By the way, we're going toassume investment returns of
about 6.5% per year throughoutretirement.
No way is that a guarantee.
That's simply an assumptionthat we're going to make to see
what would this look like ifthey did get that.
So let's tie all these piecestogether.
This is where everyone shouldstart.
It does not matter if you have3 million, 30 million, way less,
(03:33):
way more.
These principles are stillgoing to apply.
What we want to do is we wantto start by understanding their
cash flows.
This is the lifeblood ofanybody's retirement plan,
regardless of asset level,regardless of income level.
What we need to understand iswhere is income going to come
from and how will that compareto the expenses you're going to
have, and what does yourportfolio need to do?
So, for example, every singleyear, starting in 2025 and
(03:56):
beyond we go all the way down totheir age 90, we're going to
project out their income flowsthe income flows to start, you
can see what their socialsecurity benefit would be.
So Jeffrey's not quite at fullretirement age yet, so he does
not have a full year of benefits, but by the time he's 67, he
will.
There's his social securitybenefit increasing with
inflation over time.
Here is Cindy's social securitybenefit.
She is starting right atretirement, so she would have
(04:18):
that full year of benefits.
And here is their total socialsecurity amount every single
year.
So that's the starting point.
That's their income.
What we look at next is whatwill their expenses be?
So their expenses are not justthe $7,000 per month that we
talked about for basic livingexpenses.
This is a trap a lot of peoplefall into.
They look at how much might Ispend on a monthly basis?
Well, that's what the $7,000 is.
(04:40):
But what about beyond that?
What about property taxes thatthey're going to continue to
have?
What about health care expensesthat they're going to continue
to have?
What about beyond that, thegoals that they have?
So travel, now, travel is notsomething they need to plan for
every year, but, as you can see,we're going to plan for that
for the first 12 years and thenat that point, we're assuming
(05:02):
they're not going to betraveling quite as much.
So when you start to add allthese expenses together and once
you start to assume a taxpayment, so this tax payment is
based on an assumption of whereis income coming from whether
it's social security, irawithdrawals, brokerage account
withdrawals we can project thisout to say, jeffrey and Cindy,
here's a total amount that youneed coming in an income so that
you can pay your taxes, pay fortravel, pay for healthcare, pay
(05:23):
for housing, and then have that7,000 per month left over, and
that needs to be adjusted forinflation over time.
So here's the last piece ofthis before we move to the next
section.
Here is the net flows is reallywhat we're concerned about.
For the purposes of what we'retalking about, net flows, says
Jeffrey, cindy, here's how muchwe think you need to pull from
your portfolio, because when youadd this to your income flows,
(05:46):
which is social security, thecombination of those two things
portfolio income plus socialsecurity income gives you this
number here, which then allowsyou to fill these expenses there
.
So that's the number we'relooking at.
We want to know that, based onthe portfolio that they have.
Jeffrey and Cindy again areasking is this sustainable?
Can we sustain this for therest of our lives?
And if so, can we even spend alittle bit more?
(06:07):
Well, let's take a look at whatthat looks like.
Assuming those portfoliowithdrawals that we just looked
at and assuming a growth rate ofsix and a half percent per year
on their portfolio assets,here's what their portfolio
projection might look likethroughout retirement.
They retire with a $3 millionin their portfolio.
They spend the $7,000 per monthon basics, the $30,000 per year
on travel, their taxes, theirhealth care, but their portfolio
(06:29):
is projected to continuegrowing all the way throughout
their retirement.
And this is because the amountthat they're actually pulling
out as a withdrawal raterepresents less than the assumed
growth on their portfolio.
Now, one of the things that'stricky here is they look at this
and say, oh my goodness, eightand a half million dollars, our
portfolio is going to almostdouble even as we do this.
And that is true under theseassumptions.
(06:50):
But let's look at what thisrepresents in today's dollars,
because, keep in mind, 30 yearsfrom now, 25 years from now,
$8.5 million is still going tobe a lot of money, but it's not
going to go as far as $8.5million would go today.
So what we can take a look atis we can look at what does this
represent in today's dollars?
And, by the way, as we'relooking at this, if you want to
run your own projections, youcan get access to this very same
(07:10):
software in the RetirementPlanning Academy.
Link is in the show notes inthe description below.
Get access to that, run yourown projections and you can walk
through this with your plan.
But what we see is what they'vedone is their portfolio has
grown from a real number of $3million to a real number of just
under $4 million, so still avery solid scenario.
What this is saying is they'represerving their purchasing
power, they're preserving theirportfolio while maintaining
(07:32):
their living expenses.
But look at this theirprobability of success is at
100%.
Now this needs to beinterpreted the right way.
This is in no way a guaranteethat Jeffrey and Cindy will be
perfectly fine.
All this is looking at is avariance in the actual sequence
of returns that Jeffrey andCindy might get on their
portfolio.
But what we want to know is whyis this 100%?
What does that come from If wedon't know what that's coming
(07:54):
from?
And again, this does not matterhow much you have in your
portfolio.
This is the key point I want toget across here.
If we don't know what this iscoming from, this number maybe
isn't super useful to us.
Instead, I want to show youwhere that number is coming from
.
That number is 100% because ifyou look at this page, the
cashflow page again, if we takethis number and say here's how
much Jeffrey and Cindy need topull from their portfolio, we
(08:15):
need to understand what doesthat represent as a withdrawal
rate, because some people mightlook at this and say 150,000 per
year and rising.
What does that mean?
Well, that's a little bit morethan 5% per year they're pulling
out of their portfolio.
You're probably not going tohave a 100% probability of
success if you're taking over 5%in those initial years and
never making any adjustments.
So why do we have a 100%probability of success when this
(08:39):
looks like a withdrawal rate ofover 5% to start and rising?
Well, the reason is, this isnot what we're concerned about
because, keep in mind, some ofthis is covered by social
security.
This is what we're actuallyconcerned about what amount of
your expenses need to come fromyour portfolio.
So, if I now go to this otherpage here, what we're actually
concerned about what amount ofyour expenses need to come from
your portfolio.
So if I now go to this otherpage here, what we're going to
take a look at is we're going tobe able to see what do those
(08:59):
dollar amounts represent as awithdrawal rate from Jeffrey and
Cindy's plan.
Well, you see that first yearit's a 3.6% withdrawal rate.
It's higher because Jeffrey'ssocial security benefit has not
kicked in, but then, as soon asit does, their withdrawal rate
drops to 2.4, 2.3, 2.3, 2.2 anddropping.
Now it does pop back up here at73.
(09:20):
And that's simply due to thefact that required distributions
based upon their ages havekicked in and Jeffrey has to
start taking distributions fromhis portfolio.
But what we see is, even withthose higher withdrawal rates,
they're still under 3% almostthe entirety of the way
throughout retirement.
So as we look at this, this isreally crucial to understand.
If you want to see how can youmaximize your spending in
(09:41):
retirement, don't just look atthe total dollar amount that
you're spending.
Look at the actual withdrawalrate from your portfolio.
Because, depending on howyou're running things, depending
on the method that you're usingyour portfolio, making some big
assumptions here in terms ofhow you're running things,
depending on the method thatyou're using your portfolio,
making some big assumptions herein terms of how you're invested
and the rules that you'refollowing, but your portfolio
might be able to generatesomewhere between four and five
and a half percent ofwithdrawals, assuming a 30 plus
(10:01):
year retirement.
So if you look at this and yousay, well, we're well underneath
that, why is that?
What can we do?
What that tells me, is Jeffreyand Cindy could start to
increase some of their spendingand still be under sustainable
withdrawal rates.
That's where retirementplanning gets fun.
That's where they could go backto their plan here and say,
well, what would this look likeif I didn't spend $7,000 per
(10:22):
month?
What if we spent $10,000 permonth?
What does that do?
Well, what you're going to seeis it will mean fewer dollars
left in their portfolio by thetime that they're 90, but
they're still in a position tohave a very comfortable
retirement, a very highprobability of success and, most
importantly, 3,000 more permonth, 36,000 more per year.
Think of all the extra thingsthey could do with that in their
(10:43):
retirement, because that's thekey.
The key here isn't this.
This is not a good financialplan.
In many cases, that meansyou're leaving money on the
table.
A good financial plan is notspending as little as you can to
maximize your probability ofsuccess.
A good financial plan isensuring you're being prudent
and planning for the future, butalso doing all the things that
bring you purpose, bring you joy, bring you happiness today.
(11:05):
So this is an example of howyou can understand these
financial numbers to maximizethe impact of what your
portfolio can do for you.
So, as we're going through this, make sure that you subscribe
to this channel.
We go through a lot of casestudies, everyone with a little
bit of money in their portfolioto people with a lot of money in
their portfolio and everythingin between, so make sure that
you subscribe to not miss any ofthese going forward.
Now here's a key takeaway forJeffrey and for Cindy.
(11:27):
There's not just one thing theycan do here.
There's not just onerecommendation based on these
numbers.
What the conversation is goingto lead to, though, is could you
retire sooner?
Now Jeffrey and Cindy's casethey'd already retired, so
that's probably a ship that'salready sailed.
However, if they were doingthis a couple of years earlier,
we could have the conversationDo you want to retire earlier
(11:47):
because you have enough in yourportfolio to make that happen,
or, on the other side, do youwant to spend more in retirement
?
We just looked at that.
I simply use $10,000 as anarbitrary amount, but it doesn't
have to be just this.
Maybe it's not increasing themonthly spend.
Maybe it's saying do you wantto take some really amazing
trips?
Maybe you continue spendingthat 7,000 per month because
that covers all the basics.
What if, every single trip youwent on, you doubled the cost
(12:12):
because you brought friends, youbrought family, you paid their
way to do it.
What would that look like?
Well, if they did that and ifthey reran the same exact thing,
what you're going to see isit's going to be less money
because more expenses, but stilla very high probability of
success.
And going back to the mostimportant thing more impact,
more fun, more enjoyment intheir retirement years.
Or, finally, maybe you don'twant to retire early.
(12:33):
Maybe you don't need to spendmore.
Don't spend more just for thesake of spending more.
That's a really important partof this message.
If you are having a ball doingeverything that you're doing and
you can't think of anythingelse you'd like to do, it's not
bad to leave money to friends,to family, to charity, whatever
the case might be.
The important thing.
What is bad is doing that byaccident is doing that where you
say I had no intention.
(12:53):
If we go back to future dollarshere, you say I have no
intention of leaving 7 million$8 million to family, to charity
, whatever it is.
And keep in mind that's notincluding the value of the home.
If you include the value of thehome now you're looking at nine
to $10 million.
So be intentional about thatwhen you look at your plan.
What this gives you the abilityto do is to create some
optionality.
Would I rather retire sooner?
(13:14):
Would I rather spend more?
Would I rather give away more?
Would I rather pass away withthis amount of money?
At the end of the day, there'sall kinds of options and the
beauty of financial planning isit isn't something that's very
cookie cutter, and the rightsize, the right solution works
for everybody.
This should very much be areflection of your priorities,
(13:36):
your values and what's mostimportant to you.
But when you do financialplanning right, it leads to
better life decisions.
Now, if you're looking at thisand thinking, you know what,
financially, I think I actuallymight be ready to retire.
Maybe I got this software,maybe I ran my own numbers.
I think I'm there, but it stillfeels a little uncertain.
It still feels a little bitscary.
Well, I have a link to a videothat I made right here called
five signs it's time for you toretire five reasons you should
retire now.
And if you watch that, you'regoing to see them highlighting
(13:57):
some of the non-financialaspects of why retirement could
be a good decision.
So check it out, combine thatwith the financial projections
(14:27):
and see me again for thedisclaimer.
Please be smart about this.
Before doing anything, pleasebe sure to consult with your tax
planner or financial planner.
Nothing in this podcast shouldbe construed as investment, tax,
legal or other financial advice.
It is for informationalpurposes only.
Thank you for listening toanother episode of the Ready for
Retirement podcast.
If you want to see how RootFinancial can help you implement
(14:50):
the techniques I discussed inthis podcast, then go to
rootfinancialpartnerscom andclick start here, where you can
schedule a call with one of ouradvisors.
We work with clients all overthe country and we love the
opportunity to speak with youabout your goals and how we
might be able to help.
And please remember nothing wediscuss in this podcast is
intended to serve as advice.
You should always consult afinancial, legal or tax
(15:11):
professional who's familiar withyour unique circumstances,
before making any financialdecisions.
In today's video, we're going to take a look at a
couple that is retiring with $3million in their portfolio, and
they know they can probably livea pretty comfortable retirement
, but they want to know exactlyhow much they can spend before
they run the risk of running outof money.
So what we're going to do iswe're going to jump into their
plan to show you what theyshould be looking at, meaning it
doesn't actually matter if you,watching this, have $3 million,
$30 million or $300,000 in yourportfolio.
The principles we're going tolook at are going to be very
(00:22):
relevant, regardless of whereyou are in your net worth.
This is another episode ofReady for Retirement.
I'm your host, james Canole,and I'm here to teach you how to
get the most out of life withyour money.
And now on to the episode.
So to illustrate this, let'stake a look at Jeffrey and
Cindy's samples plan.
(00:42):
As you can see here, they haveabout $3 million in their
portfolio between someinvestment accounts, an IRA and
a 401k.
They also have a property, butthey're not going to spend down
their property.
That's simply an illiquid assetthat they are living in.
What they really want to knowis can we use this, or how much
of this can we use to maximizeour income and what is that max
amount of income we can spend?
So here's where we started withthem.
As you can see, jeffrey andCindy are 66 and 64.
(01:03):
Their goals are to retire rightnow, jeffrey at 66, cindy at 64
.
To start with, we're going toassume that they want to spend
$7,000 per month, after taxes,throughout retirement on core
basic living expenses.
On top of that we're going toassume $30,000 per year for
travel, but we're only going toassume that for the first 12
years of retirement, knowingthat once they're in their older
(01:24):
years they're probably nottraveling as much as they would
be in those earlier years.
In addition to that, we'reprojecting out some healthcare
costs.
So Jeffrey is already atMedicare age he's 66, so this is
irrelevant for him.
But after Medicare age he hashis Medicare Part B, his
Medicare Part D premiums, plus aprojected $4,600 per year of
out-of-pocket expenses.
For Cindy, she will have oneyear of medical expenses
(01:47):
pre-Medicare, so $8,000 is whatwe're expecting her to pay in
premiums and then, once Medicarestarts, same thing Medicare
Part B and Part D, and then anextra $4,600 per year of
out-of-pocket costs.
So $8,000 per year beforeMedicare $4,600 per year.
Medicare begins on top of thosemedicare premiums.
So these are their goals andthey're saying this would be a
(02:08):
pretty comfortable retirement.
But we also know that we'vesaved quite a bit in our
portfolio.
We want to know could wemaximize that?
Can we spend more than whatwe're looking at here?
Or if we did, would we run therisk of running out of money at
any point in time?
So it's that delicate balancingact.
If we want to be okay long term, but we don't want to leave
anything on the table, we don'twant to underspend and underdo
some of the things that we couldhave done today because we were
(02:29):
too conservative.
So let's continue on with this.
Jeffrey will have his socialsecurity benefit.
He will collect at his fullretirement age and that monthly
amount will be $3,800 per month.
Cindy is going to begincollecting right now.
She's retiring at the age of 64.
She's gonna begin collectingher benefit as well at 64.
Her full retirement age amountis 3,850.
She would be taking a bit of areduction on that because she's
(02:51):
collecting early.
So those are the income amountsthat they will receive.
So this is where we are so far.
We know they have about $3million in liquid portfolio
assets and they wanna know howfar can that go before we run
the risk of running out of money.
We know and that is all aftertaxes, meaning we also have to
(03:12):
factor in the cost of taxes, andthen we see what income they
will have in retirement.
By the way, we're going toassume investment returns of
about 6.5% per year throughoutretirement.
No way is that a guarantee.
That's simply an assumptionthat we're going to make to see
what would this look like ifthey did get that.
So let's tie all these piecestogether.
This is where everyone shouldstart.
It does not matter if you have3 million, 30 million, way less,
(03:33):
way more.
These principles are stillgoing to apply.
What we want to do is we wantto start by understanding their
cash flows.
This is the lifeblood ofanybody's retirement plan,
regardless of asset level,regardless of income level.
What we need to understand iswhere is income going to come
from and how will that compareto the expenses you're going to
have, and what does yourportfolio need to do?
So, for example, every singleyear, starting in 2025 and
(03:56):
beyond we go all the way down totheir age 90, we're going to
project out their income flowsthe income flows to start, you
can see what their socialsecurity benefit would be.
So Jeffrey's not quite at fullretirement age yet, so he does
not have a full year of benefits, but by the time he's 67, he
will.
There's his social securitybenefit increasing with
inflation over time.
Here is Cindy's social securitybenefit.
She is starting right atretirement, so she would have
(04:18):
that full year of benefits.
And here is their total socialsecurity amount every single
year.
So that's the starting point.
That's their income.
What we look at next is whatwill their expenses be?
So their expenses are not justthe $7,000 per month that we
talked about for basic livingexpenses.
This is a trap a lot of peoplefall into.
They look at how much might Ispend on a monthly basis?
Well, that's what the $7,000 is.
(04:40):
But what about beyond that?
What about property taxes thatthey're going to continue to
have?
What about health care expensesthat they're going to continue
to have?
What about beyond that, thegoals that they have?
So travel, now, travel is notsomething they need to plan for
every year, but, as you can see,we're going to plan for that
for the first 12 years and thenat that point, we're assuming
(05:02):
they're not going to betraveling quite as much.
So when you start to add allthese expenses together and once
you start to assume a taxpayment, so this tax payment is
based on an assumption of whereis income coming from whether
it's social security, irawithdrawals, brokerage account
withdrawals we can project thisout to say, jeffrey and Cindy,
here's a total amount that youneed coming in an income so that
you can pay your taxes, pay fortravel, pay for healthcare, pay
(05:23):
for housing, and then have that7,000 per month left over, and
that needs to be adjusted forinflation over time.
So here's the last piece ofthis before we move to the next
section.
Here is the net flows is reallywhat we're concerned about.
For the purposes of what we'retalking about, net flows, says
Jeffrey, cindy, here's how muchwe think you need to pull from
your portfolio, because when youadd this to your income flows,
(05:46):
which is social security, thecombination of those two things
portfolio income plus socialsecurity income gives you this
number here, which then allowsyou to fill these expenses there
.
So that's the number we'relooking at.
We want to know that, based onthe portfolio that they have.
Jeffrey and Cindy again areasking is this sustainable?
Can we sustain this for therest of our lives?
And if so, can we even spend alittle bit more?
(06:07):
Well, let's take a look at whatthat looks like.
Assuming those portfoliowithdrawals that we just looked
at and assuming a growth rate ofsix and a half percent per year
on their portfolio assets,here's what their portfolio
projection might look likethroughout retirement.
They retire with a $3 millionin their portfolio.
They spend the $7,000 per monthon basics, the $30,000 per year
on travel, their taxes, theirhealth care, but their portfolio
(06:29):
is projected to continuegrowing all the way throughout
their retirement.
And this is because the amountthat they're actually pulling
out as a withdrawal raterepresents less than the assumed
growth on their portfolio.
Now, one of the things that'stricky here is they look at this
and say, oh my goodness, eightand a half million dollars, our
portfolio is going to almostdouble even as we do this.
And that is true under theseassumptions.
(06:50):
But let's look at what thisrepresents in today's dollars,
because, keep in mind, 30 yearsfrom now, 25 years from now,
$8.5 million is still going tobe a lot of money, but it's not
going to go as far as $8.5million would go today.
So what we can take a look atis we can look at what does this
represent in today's dollars?
And, by the way, as we'relooking at this, if you want to
run your own projections, youcan get access to this very same
(07:10):
software in the RetirementPlanning Academy.
Link is in the show notes inthe description below.
Get access to that, run yourown projections and you can walk
through this with your plan.
But what we see is what they'vedone is their portfolio has
grown from a real number of $3million to a real number of just
under $4 million, so still avery solid scenario.
What this is saying is they'represerving their purchasing
power, they're preserving theirportfolio while maintaining
(07:32):
their living expenses.
But look at this theirprobability of success is at
100%.
Now this needs to beinterpreted the right way.
This is in no way a guaranteethat Jeffrey and Cindy will be
perfectly fine.
All this is looking at is avariance in the actual sequence
of returns that Jeffrey andCindy might get on their
portfolio.
But what we want to know is whyis this 100%?
What does that come from If wedon't know what that's coming
(07:54):
from?
And again, this does not matterhow much you have in your
portfolio.
This is the key point I want toget across here.
If we don't know what this iscoming from, this number maybe
isn't super useful to us.
Instead, I want to show youwhere that number is coming from
.
That number is 100% because ifyou look at this page, the
cashflow page again, if we takethis number and say here's how
much Jeffrey and Cindy need topull from their portfolio, we
(08:15):
need to understand what doesthat represent as a withdrawal
rate, because some people mightlook at this and say 150,000 per
year and rising.
What does that mean?
Well, that's a little bit morethan 5% per year they're pulling
out of their portfolio.
You're probably not going tohave a 100% probability of
success if you're taking over 5%in those initial years and
never making any adjustments.
So why do we have a 100%probability of success when this
(08:39):
looks like a withdrawal rate ofover 5% to start and rising?
Well, the reason is, this isnot what we're concerned about
because, keep in mind, some ofthis is covered by social
security.
This is what we're actuallyconcerned about what amount of
your expenses need to come fromyour portfolio.
So, if I now go to this otherpage here, what we're actually
concerned about what amount ofyour expenses need to come from
your portfolio.
So if I now go to this otherpage here, what we're going to
take a look at is we're going tobe able to see what do those
(08:59):
dollar amounts represent as awithdrawal rate from Jeffrey and
Cindy's plan.
Well, you see that first yearit's a 3.6% withdrawal rate.
It's higher because Jeffrey'ssocial security benefit has not
kicked in, but then, as soon asit does, their withdrawal rate
drops to 2.4, 2.3, 2.3, 2.2 anddropping.
Now it does pop back up here at73.
(09:20):
And that's simply due to thefact that required distributions
based upon their ages havekicked in and Jeffrey has to
start taking distributions fromhis portfolio.
But what we see is, even withthose higher withdrawal rates,
they're still under 3% almostthe entirety of the way
throughout retirement.
So as we look at this, this isreally crucial to understand.
If you want to see how can youmaximize your spending in
(09:41):
retirement, don't just look atthe total dollar amount that
you're spending.
Look at the actual withdrawalrate from your portfolio.
Because, depending on howyou're running things, depending
on the method that you're usingyour portfolio, making some big
assumptions here in terms ofhow you're running things,
depending on the method thatyou're using your portfolio,
making some big assumptions herein terms of how you're invested
and the rules that you'refollowing, but your portfolio
might be able to generatesomewhere between four and five
and a half percent ofwithdrawals, assuming a 30 plus
(10:01):
year retirement.
So if you look at this and yousay, well, we're well underneath
that, why is that?
What can we do?
What that tells me, is Jeffreyand Cindy could start to
increase some of their spendingand still be under sustainable
withdrawal rates.
That's where retirementplanning gets fun.
That's where they could go backto their plan here and say,
well, what would this look likeif I didn't spend $7,000 per
(10:22):
month?
What if we spent $10,000 permonth?
What does that do?
Well, what you're going to seeis it will mean fewer dollars
left in their portfolio by thetime that they're 90, but
they're still in a position tohave a very comfortable
retirement, a very highprobability of success and, most
importantly, 3,000 more permonth, 36,000 more per year.
Think of all the extra thingsthey could do with that in their
(10:43):
retirement, because that's thekey.
The key here isn't this.
This is not a good financialplan.
In many cases, that meansyou're leaving money on the
table.
A good financial plan is notspending as little as you can to
maximize your probability ofsuccess.
A good financial plan isensuring you're being prudent
and planning for the future, butalso doing all the things that
bring you purpose, bring you joy, bring you happiness today.
(11:05):
So this is an example of howyou can understand these
financial numbers to maximizethe impact of what your
portfolio can do for you.
So, as we're going through this, make sure that you subscribe
to this channel.
We go through a lot of casestudies, everyone with a little
bit of money in their portfolioto people with a lot of money in
their portfolio and everythingin between, so make sure that
you subscribe to not miss any ofthese going forward.
Now here's a key takeaway forJeffrey and for Cindy.
(11:27):
There's not just one thing theycan do here.
There's not just onerecommendation based on these
numbers.
What the conversation is goingto lead to, though, is could you
retire sooner?
Now Jeffrey and Cindy's casethey'd already retired, so
that's probably a ship that'salready sailed.
However, if they were doingthis a couple of years earlier,
we could have the conversationDo you want to retire earlier
(11:47):
because you have enough in yourportfolio to make that happen,
or, on the other side, do youwant to spend more in retirement
?
We just looked at that.
I simply use $10,000 as anarbitrary amount, but it doesn't
have to be just this.
Maybe it's not increasing themonthly spend.
Maybe it's saying do you wantto take some really amazing
trips?
Maybe you continue spendingthat 7,000 per month because
that covers all the basics.
What if, every single trip youwent on, you doubled the cost
(12:12):
because you brought friends, youbrought family, you paid their
way to do it.
What would that look like?
Well, if they did that and ifthey reran the same exact thing,
what you're going to see isit's going to be less money
because more expenses, but stilla very high probability of
success.
And going back to the mostimportant thing more impact,
more fun, more enjoyment intheir retirement years.
Or, finally, maybe you don'twant to retire early.
(12:33):
Maybe you don't need to spendmore.
Don't spend more just for thesake of spending more.
That's a really important partof this message.
If you are having a ball doingeverything that you're doing and
you can't think of anythingelse you'd like to do, it's not
bad to leave money to friends,to family, to charity, whatever
the case might be.
The important thing.
What is bad is doing that byaccident is doing that where you
say I had no intention.
(12:53):
If we go back to future dollarshere, you say I have no
intention of leaving 7 million$8 million to family, to charity
, whatever it is.
And keep in mind that's notincluding the value of the home.
If you include the value of thehome now you're looking at nine
to $10 million.
So be intentional about thatwhen you look at your plan.
What this gives you the abilityto do is to create some
optionality.
Would I rather retire sooner?
(13:14):
Would I rather spend more?
Would I rather give away more?
Would I rather pass away withthis amount of money?
At the end of the day, there'sall kinds of options and the
beauty of financial planning isit isn't something that's very
cookie cutter, and the rightsize, the right solution works
for everybody.
This should very much be areflection of your priorities,
(13:36):
your values and what's mostimportant to you.
But when you do financialplanning right, it leads to
better life decisions.
Now, if you're looking at thisand thinking, you know what,
financially, I think I actuallymight be ready to retire.
Maybe I got this software,maybe I ran my own numbers.
I think I'm there, but it stillfeels a little uncertain.
It still feels a little bitscary.
Well, I have a link to a videothat I made right here called
five signs it's time for you toretire five reasons you should
retire now.
And if you watch that, you'regoing to see them highlighting
(13:57):
some of the non-financialaspects of why retirement could
be a good decision.
So check it out, combine thatwith the financial projections
(14:27):
and see me again for thedisclaimer.
Please be smart about this.
Before doing anything, pleasebe sure to consult with your tax
planner or financial planner.
Nothing in this podcast shouldbe construed as investment, tax,
legal or other financial advice.
It is for informationalpurposes only.
Thank you for listening toanother episode of the Ready for
Retirement podcast.
If you want to see how RootFinancial can help you implement
(14:50):
the techniques I discussed inthis podcast, then go to
rootfinancialpartnerscom andclick start here, where you can
schedule a call with one of ouradvisors.
We work with clients all overthe country and we love the
opportunity to speak with youabout your goals and how we
might be able to help.
And please remember nothing wediscuss in this podcast is
intended to serve as advice.
You should always consult afinancial, legal or tax
(15:11):
professional who's familiar withyour unique circumstances,
before making any financialdecisions.
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