Ready For Retirement
Ready For Retirement
We have a $3M Retirement Portfolio. How Much Can We Spend Without Running Out of Money?
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?
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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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In today's video, we're going to take a look at a couple that is retiring with $3 million in their portfolio, and they know they can probably live a pretty comfortable retirement, but they want to know exactly how much they can spend before they run the risk of running out of money. So what we're going to do is we're going to jump into their plan to show you what they should be looking at, meaning it doesn't actually matter if you, watching this, have $3 million, $30 million or $300,000 in your portfolio. The principles we're going to look at are going to be very relevant, regardless of where you are in your net worth. This is another episode of Ready for Retirement. I'm your host, james Canole, and I'm here to teach you how to get the most out of life with your money. And now on to the episode. So to illustrate this, let's take a look at Jeffrey and Cindy's samples plan. As you can see here, they have about $3 million in their portfolio between some investment accounts, an IRA and a 401k. They also have a property, but they're not going to spend down their property. That's simply an illiquid asset that they are living in. What they really want to know is can we use this, or how much of this can we use to maximize our income and what is that max amount of income we can spend? So here's where we started with them.
Speaker 1:As you can see, jeffrey and Cindy are 66 and 64. Their goals are to retire right now, jeffrey at 66, cindy at 64. To start with, we're going to assume 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 to assume $30,000 per year for travel, but we're only going to assume that for the first 12 years of retirement, knowing that once they're in their older years they're probably not traveling as much as they would be in those earlier years. In addition to that, we're projecting out some healthcare costs. So Jeffrey is already at Medicare age he's 66, so this is irrelevant for him. But after Medicare age he has his Medicare Part B, his Medicare Part D premiums, plus a projected $4,600 per year of out-of-pocket expenses. For Cindy, she will have one year of medical expenses pre-Medicare, so $8,000 is what we're expecting her to pay in premiums and then, once Medicare starts, same thing Medicare Part B and Part D, and then an extra $4,600 per year of out-of-pocket costs. So $8,000 per year before Medicare $4,600 per year. Medicare begins on top of those medicare premiums. So these are their goals and they're saying this would be a pretty comfortable retirement.
Speaker 1:But we also know that we've saved quite a bit in our portfolio. We want to know could we maximize that? Can we spend more than what we're looking at here? Or if we did, would we run the risk of running out of money at any point in time? So it's that delicate balancing act. If we want to be okay long term, but we don't want to leave anything on the table, we don't want to underspend and underdo some of the things that we could have done today because we were too conservative. So let's continue on with this.
Speaker 1:Jeffrey will have his social security benefit. He will collect at his full retirement age and that monthly amount will be $3,800 per month. Cindy is going to begin collecting right now. She's retiring at the age of 64. She's gonna begin collecting her benefit as well at 64. Her full retirement age amount is 3,850. She would be taking a bit of a reduction on that because she's collecting early. So those are the income amounts that they will receive. So this is where we are so far. We know they have about $3 million in liquid portfolio assets and they wanna know how far can that go before we run the risk of running out of money. We know and that is all after taxes, meaning we also have to factor in the cost of taxes, and then we see what income they will have in retirement. By the way, we're going to assume investment returns of about 6.5% per year throughout retirement. No way is that a guarantee. That's simply an assumption that we're going to make to see what would this look like if they did get that.
Speaker 1:So let's tie all these pieces together. This is where everyone should start. It does not matter if you have 3 million, 30 million, way less, way more. These principles are still going to apply. What we want to do is we want to start by understanding their cash flows. This is the lifeblood of anybody's retirement plan, regardless of asset level, regardless of income level. What we need to understand is where is income going to come from and how will that compare to the expenses you're going to have, and what does your portfolio need to do? So, for example, every single year, starting in 2025 and beyond we go all the way down to their age 90, we're going to project out their income flows the income flows to start, you can see what their social security benefit would be. So Jeffrey's not quite at full retirement 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 security benefit increasing with inflation over time. Here is Cindy's social security benefit. She is starting right at retirement, so she would have that full year of benefits. And here is their total social security amount every single year. So that's the starting point. That's their income.
Speaker 1:What we look at next is what will their expenses be? So their expenses are not just the $7,000 per month that we talked about for basic living expenses. This is a trap a lot of people fall into. They look at how much might I spend on a monthly basis? Well, that's what the $7,000 is. But what about beyond that? What about property taxes that they're going to continue to have? What about health care expenses that they're going to continue to have? What about beyond that, the goals that they have? So travel, now, travel is not something 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 then at that point, we're assuming they're not going to be traveling quite as much.
Speaker 1:So when you start to add all these expenses together and once you start to assume a tax payment, so this tax payment is based on an assumption of where is income coming from whether it's social security, ira withdrawals, brokerage account withdrawals we can project this out to say, jeffrey and Cindy, here's a total amount that you need coming in an income so that you can pay your taxes, pay for travel, pay for healthcare, pay for housing, and then have that 7,000 per month left over, and that needs to be adjusted for inflation over time. So here's the last piece of this before we move to the next section. Here is the net flows is really what we're concerned about. For the purposes of what we're talking about, net flows, says Jeffrey, cindy, here's how much we think you need to pull from your portfolio, because when you add this to your income flows, which is social security, the combination of those two things portfolio income plus social security income gives you this number here, which then allows you to fill these expenses there. So that's the number we're looking at. We want to know that, based on the portfolio that they have.
Speaker 1:Jeffrey and Cindy again are asking is this sustainable? Can we sustain this for the rest of our lives? And if so, can we even spend a little bit more? Well, let's take a look at what that looks like. Assuming those portfolio withdrawals that we just looked at and assuming a growth rate of six and a half percent per year on their portfolio assets, here's what their portfolio projection might look like throughout retirement. They retire with a $3 million in their portfolio. They spend the $7,000 per month on basics, the $30,000 per year on travel, their taxes, their health care, but their portfolio is projected to continue growing all the way throughout their retirement. And this is because the amount that they're actually pulling out as a withdrawal rate represents less than the assumed growth on their portfolio.
Speaker 1:Now, one of the things that's tricky here is they look at this and say, oh my goodness, eight and a half million dollars, our portfolio is going to almost double even as we do this. And that is true under these assumptions. But let's look at what this represents in today's dollars, because, keep in mind, 30 years from now, 25 years from now, $8.5 million is still going to be a lot of money, but it's not going to go as far as $8.5 million would go today. So what we can take a look at is we can look at what does this represent in today's dollars? And, by the way, as we're looking at this, if you want to run your own projections, you can get access to this very same software in the Retirement Planning Academy. Link is in the show notes in the description below. Get access to that, run your own projections and you can walk through this with your plan.
Speaker 1:But what we see is what they've done is their portfolio has grown from a real number of $3 million to a real number of just under $4 million, so still a very solid scenario. What this is saying is they're preserving their purchasing power, they're preserving their portfolio while maintaining their living expenses. But look at this their probability of success is at 100%. Now this needs to be interpreted the right way. This is in no way a guarantee that Jeffrey and Cindy will be perfectly fine. All this is looking at is a variance in the actual sequence of returns that Jeffrey and Cindy might get on their portfolio.
Speaker 1:But what we want to know is why is this 100%? What does that come from If we don't know what that's coming from? And again, this does not matter how much you have in your portfolio. This is the key point I want to get across here. If we don't know what this is coming from, this number maybe isn't super useful to us. Instead, I want to show you where that number is coming from.
Speaker 1:That number is 100% because if you look at this page, the cashflow page again, if we take this number and say here's how much Jeffrey and Cindy need to pull from their portfolio, we need to understand what does that represent as a withdrawal rate, because some people might look at this and say 150,000 per year and rising. What does that mean? Well, that's a little bit more than 5% per year they're pulling out of their portfolio. You're probably not going to have 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 looks like a withdrawal rate of over 5% to start and rising? Well, the reason is, this is not what we're concerned about because, keep in mind, some of this is covered by social security. This is what we're actually concerned about what amount of your expenses need to come from your portfolio. So, if I now go to this other page here, what we're actually concerned about what amount of your expenses need to come from your portfolio.
Speaker 1:So if I now go to this other page here, what we're going to take a look at is we're going to be able to see what do those dollar amounts represent as a withdrawal rate from Jeffrey and Cindy's plan. Well, you see that first year it's a 3.6% withdrawal rate. It's higher because Jeffrey's social security benefit has not kicked in, but then, as soon as it does, their withdrawal rate drops to 2.4, 2.3, 2.3, 2.2 and dropping. Now it does pop back up here at 73. And that's simply due to the fact that required distributions based upon their ages have kicked in and Jeffrey has to start taking distributions from his portfolio. But what we see is, even with those higher withdrawal rates, they're still under 3% almost the entirety of the way throughout retirement. So as we look at this, this is really crucial to understand.
Speaker 1:If you want to see how can you maximize your spending in retirement, don't just look at the total dollar amount that you're spending. Look at the actual withdrawal rate from your portfolio. Because, depending on how you're running things, depending on the method that you're using your portfolio, making some big assumptions here in terms of how you're running things, depending on the method that you're using your portfolio, making some big assumptions here in terms of how you're invested and the rules that you're following, but your portfolio might be able to generate somewhere between four and five and a half percent of withdrawals, assuming a 30 plus year retirement. So if you look at this and you say, well, we're well underneath that, why is that? What can we do? What that tells me, is Jeffrey and Cindy could start to increase some of their spending and still be under sustainable withdrawal rates. That's where retirement planning gets fun. That's where they could go back to their plan here and say, well, what would this look like if I didn't spend $7,000 per month? What if we spent $10,000 per month? What does that do? Well, what you're going to see is it will mean fewer dollars left in their portfolio by the time that they're 90, but they're still in a position to have a very comfortable retirement, a very high probability of success and, most importantly, 3,000 more per month, 36,000 more per year. Think of all the extra things they could do with that in their retirement, because that's the key.
Speaker 1:The key here isn't this. This is not a good financial plan. In many cases, that means you're leaving money on the table. A good financial plan is not spending as little as you can to maximize your probability of success. A good financial plan is ensuring you're being prudent and planning for the future, but also doing all the things that bring you purpose, bring you joy, bring you happiness today. So this is an example of how you can understand these financial numbers to maximize the 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 case studies, everyone with a little bit of money in their portfolio to people with a lot of money in their portfolio and everything in between, so make sure that you subscribe to not miss any of these going forward.
Speaker 1:Now here's a key takeaway for Jeffrey and for Cindy. There's not just one thing they can do here. There's not just one recommendation based on these numbers. What the conversation is going to lead to, though, is could you retire sooner? Now Jeffrey and Cindy's case they'd already retired, so that's probably a ship that's already sailed. However, if they were doing this a couple of years earlier, we could have the conversation Do you want to retire earlier because you have enough in your portfolio to make that happen, or, on the other side, do you want to spend more in retirement?
Speaker 1:We just looked at that. I simply use $10,000 as an arbitrary amount, but it doesn't have to be just this. Maybe it's not increasing the monthly spend. Maybe it's saying do you want to take some really amazing trips? Maybe you continue spending that 7,000 per month because that covers all the basics. What if, every single trip you went on, you doubled the cost because you brought friends, you brought family, you paid their way to do it. What would that look like? Well, if they did that and if they reran the same exact thing, what you're going to see is it's going to be less money because more expenses, but still a very high probability of success.
Speaker 1:And going back to the most important thing more impact, more fun, more enjoyment in their retirement years. Or, finally, maybe you don't want to retire early. Maybe you don't need to spend more. Don't spend more just for the sake of spending more. That's a really important part of this message. If you are having a ball doing everything that you're doing and you can't think of anything else you'd like to do, it's not bad to leave money to friends, to family, to charity, whatever the case might be.
Speaker 1:The important thing. What is bad is doing that by accident is doing that where you say I had no intention. If we go back to future dollars here, 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 not including the value of the home. If you include the value of the home now you're looking at nine to $10 million. So be intentional about that when you look at your plan.
Speaker 1:What this gives you the ability to do is to create some optionality. Would I rather retire sooner? Would I rather spend more? Would I rather give away more? Would I rather pass away with this amount of money? At the end of the day, there's all kinds of options and the beauty of financial planning is it isn't something that's very cookie cutter, and the right size, the right solution works for everybody. This should very much be a reflection of your priorities, your values and what's most important to you. But when you do financial planning right, it leads to better life decisions.
Speaker 1:Now, if you're looking at this and thinking, you know what, financially, I think I actually might be ready to retire. Maybe I got this software, maybe I ran my own numbers. I think I'm there, but it still feels a little uncertain. It still feels a little bit scary. Well, I have a link to a video that I made right here called five signs it's time for you to retire five reasons you should retire now. And if you watch that, you're going to see them highlighting some of the non-financial aspects of why retirement could be a good decision. So check it out, combine that with the financial projections and see me again for the disclaimer.
Speaker 1:Please be smart about this. Before doing anything, please be sure to consult with your tax planner or financial planner. Nothing in this podcast should be construed as investment, tax, legal or other financial advice. It is for informational purposes only. Thank you for listening to another episode of the Ready for Retirement podcast. If you want to see how Root Financial can help you implement the techniques I discussed in this podcast, then go to rootfinancialpartnerscom and click start here, where you can schedule a call with one of our advisors. We work with clients all over the country and we love the opportunity to speak with you about your goals and how we might be able to help. And please remember nothing we discuss in this podcast is intended to serve as advice. You should always consult a financial, legal or tax professional who's familiar with your unique circumstances, before making any financial decisions.
