Ready For Retirement
Ready For Retirement
How Much Do You Need to Retire on $10K a Month?
If your goal is to spend $10,000 a month in retirement, how much do you really need saved? The answer isn’t as simple—or as overwhelming—as it might seem.
In this episode, I break down the key factors that influence your retirement number beyond the common 4% rule. We’ll explore how Social Security can significantly reduce what you need to save, why account types like Roth vs. traditional IRAs make a major difference, and how your withdrawal strategy and retirement age can shift the numbers by hundreds of thousands of dollars. Using real planning software, I walk through examples that show how all these variables come together.
Whether you plan to spend $5K or $15K a month, these principles apply. It’s not about hitting a one-size-fits-all number—it’s about understanding what works for your unique plan.
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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. We do not provide tax preparation or legal services. Always consult with your CPA or attorney regarding your specific situation.
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The Retirement Planning Academy is an educational program offered by Root Financial Partners, LLC. Access to the Academy is provided through a one-time payment and does not establish an advisory relationship. The content is for general informational and educational purposes only and does not include personalized financial, investment, tax, or legal advice. Participation in the Academy does not make you a client of Root Financial Partners, LLC. Please consult a qualified professional for advice specific to your situation.
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What would it take to spend $10,000 per month, every month, for the rest of your retirement? Today, I'll show you exactly how to calculate this number, as well as the three factors that have the biggest impact on this and can either make or break your ability to maintain the retirement lifestyle you want to maintain. I'm a financial advisor and the founder of Root Financial, where we've helped hundreds of clients answer questions just like this, and what I want to do in today's video is share the framework I like to use to come up with a number that can allow you to determine what you need to spend, what you want to spend throughout your retirement. So, to start, I'm going to give you a very basic example, maybe a painfully obvious example, but we're going to use this as the baseline to say how do we start with something and then apply the three factors I'm going to walk you through to understand how this number changes, so that you can have an idea of what number is going to make most sense for you. So that you can have an idea of what number is going to make most sense for you.
Speaker 1:But let's start with this you want to spend $10,000 per month for the rest of your retirement. That $10,000 per month is after taxes. So let's make an assumption and let's say that you actually need to take out $12,000 per month from your accounts. Obviously, this is going to depend upon what types of account are you drawing from. But let's make the assumption that you need $12,000 per month before taxes so that after tax, you can spend $10,000 per month. Well, $12,000 per month, that's $144,000 per year that you need to have in pre-tax income so that, after taxes, you can spend $120,000 per year or $10,000 per month. So let's now take this further. If you need $144,000 per year, you may be familiar with something called the 4% rule. The 4% rule states that, historically speaking, you can take 4% per year from your portfolio and have that last for 30 years and have a high degree of confidence that your money is going to last. So if we take 144,000 and divide it by 4%, that gives us $3.6 million. So this is a very simple starting point and that's not the actual number that you're going to need. But this is the number that says if you had $3.6 million and you could take 4% per year, that would give you $144,000 pre-tax, $120,000 per year after tax or $10,000 per month. Now that number is going to adjust for inflation. The 4% rule assumes you're adjusting that number for inflation. But that's not where this analysis ends. That's, in fact, a very basic starting point, and now let's discuss the three factors that are going to change this.
Speaker 1:But here's what I actually want to do. I actually want to walk through software that shows you how these numbers will impact this. So here's that 3.6 million that we talked about. We're assuming that this sample client this is not a real client, this is just for illustrative purposes only is retiring at 65. And this client is also 65 today and wants to spend $10,000 per month after taxes.
Speaker 1:We are assuming, for a simple starting point, that there is $0 coming in from social security here. Why are we doing that? Because if your portfolio is required to generate the entirety of that, that's going to be very different than if social security was contributing to some of this $10,000 per month. So if you didn't have social security, what this is showing is that there's a fairly high likelihood that if you have that $3.6 million in your portfolio, you're gonna have a high degree of success, a high probability of success that you can spend that $10,000 per month for the rest of your life. In this case we're assuming 30 years.
Speaker 1:But this is such a basic example that actually doesn't do us much good, because the reality is almost all of us are going to have some other type of an income source. The majority of us are going to have social security. So if we go back in here and say, what does this actually look like if it's not $0 in social security? But what if we just assume $2,500 per month in social security benefits, how would that change things? Well, if we plug in that number here, if you recall, the probability of success number that we looked at was 75% in the first scenario. I'm not saying that's the number that we should be targeting, or even that's the number that any of you should be targeting, but I'm trying to set a benchmark that can we get something between 70 and 75% to show how this analysis changes if different factors come into play. Well, if we add social security to the mix and we go back to that number, that number is going to be significantly higher. You'll see that all of a sudden, the probability of success is much higher because now Social Security is generating some of these income needs.
Speaker 1:Now, if you wanted to normalize this to have more of an apples to apples comparison to say well, how much could the portfolio now decrease by? In other words, how much less of a portfolio would the same individual need to have going into retirement to be able to still generate 10,000 per month and still have the same probability of success? We're going to come in here and we're going to make the change to show that 3.6 doesn't need to be 3.6 to maintain that same probability of success. If we changed Roger's IRA balance to 2.8 million here, what we'll see is that is going to have similar outcome as he would have had not exactly the same, but similar outcome as he would have had with $3.6 million in $0 in social security throughout retirement.
Speaker 1:Obviously simple, maybe painfully simple, but I illustrate this to show that your ability to meet your income needs throughout retirement. If you're asking how much of a portfolio do you need, of course the biggest driver of that, the biggest factor in that, is how much other income sources do you have? This could be social security, this could be a pension, this could be an annuity, this could be rental income, this could be any type of income that you have coming in that is not directly drawing from your portfolio. So another way to think of this is at the high end, what Roger would need, or what anybody would need under these assumptions, is $3.6 million. That 3.6, if we take 4% per year out adjust for taxes that could maintain a $10,000 per month income for call it 30 years and have a high probability of success of doing so. As more income sources come in, there's less of a portfolio that's needed, which means that 3.6 million is a ceiling on how much you might need to need. What we want to explore is what's the minimum you might need here, and that's what these three factors are going to help us to do. But the first factor is other income sources. The more income from other sources, the less you will need in your portfolio to maintain that same standard of living.
Speaker 1:Now let's go back to Roger's profile here and his net worth. The next biggest factor, the next factor that we're going to look at here that's going to impact this, is what type of an account do you have your assets in? If you pull money from an IRA versus a brokerage account, versus a Roth IRA, you're going to have completely different tax consequences for doing so. So as of now, we're showing that Roger needs $2.8 million in his portfolio to supplement Social Security, to maintain that $10,000 per month for the rest of his life. We are assuming that this is on a traditional IRA.
Speaker 1:What if we use an extreme opposite example? What if this isn't a traditional IRA? What if it is a Roth IRA? Well, if we did that, and again if we're trying to keep the probability of success within the 70% to 75% range to normalize what outcome we're solving for, I could drop this down from $2.8 to 2.1 million, and what we're going to see here is we're going to see a pretty similar probability of success. So you can see that right here. His probability of success is now 70%. So at first he needed 3.6 million to get somewhere near this to be able to create that outcome, that desired outcome. Now we're all the way down to 2.1 million. What we've changed is we've introduced social security and we've switched his IRA balance to a Roth IRA balance.
Speaker 1:Now, to be clear here, I'm not just saying that he did a conversion. This is not a tax episode. What I'm saying is I'm just illustrating the difference between how much would he have needed if all of his money was in pre-tax accounts, compared to how much would he need if all of his money were in tax-free accounts? How much would he need if all of his money were in tax-free accounts? That's the only thing that I want to illustrate here is that's a big difference. That was a $700,000 swing for a pretty similar outcome in terms of how much does Roger need going into retirement to be able to maintain this?
Speaker 1:Now, as you can probably see, as we're going through this, there's going to be a lot of variables are going to be unique to you. Some of those variables have to do with what are your actual goals. When Some of those variables have to do with what are your actual goals, when do you retire? How much do you want to spend Some of your income sources? Maybe it's not just social security. Maybe there's a pension, annuity distributions, inheritance, et cetera. Maybe there's other types of expenses, maybe there's other goals that you have. So if you actually want to run these numbers for yourself, click on the Retirement Planning Academy in the link below. You can actually get access to the same software and run this very specific to you. But what we've done so far is just illustrating the principles that we started with 3.6 million for Roger and we've been able to reduce that as we've introduced other income sources and as we've introduced the alternative of not having all money in a traditional IRA.
Speaker 1:But what if some or, in this case, all was actually in a Roth IRA? So those are the first two factors that are going to impact this. Number one, what other income sources do you have? And, number two, what type of an account are your assets held in? The third thing that's going to impact this is what withdrawal rate are you using?
Speaker 1:Now, here's the reality. You can't just choose a withdrawal rate and assume that it's going to work for you. If you start taking out 10% per year from your portfolio, starting at age 65, and you expect that to last until 95, you have a very low probability of actually accomplishing that. Sure, there may be some cases where that would have worked, but the overwhelming majority of the time, you are going to run out of money. So it's not as simple as just choosing a withdrawal rate that you would like to choose. It comes down to two factors. What you want to choose is what's the highest you could potentially take from your portfolio while minimizing the risk of you actually running out of money before you run out of life.
Speaker 1:The withdrawal rate that you can choose is largely going to come down to two factors Number one, how are you invested, and number two, your life expectancy. So let's go through each of those. Number one, how are you invested. This is obvious If you have all of your money in cash. Let's assume you're Roger and you need that $2.1 million. Well, if all of that was just in cash, growing at nothing, versus another scenario where Roger has that same $2.1 million and it's growing it may be a moderate portfolio that's given him growth over time then it stands to reason that each of those portfolios are not going to generate the same level of income. They're not going to have the same sustainable withdrawal rate. All the way through Roger's retirement. The portfolio is just in cash. You're not going to be able to take out as much. So if it's too conservative, you're going to limit your withdrawal rate. On the flip side, if it's overly aggressive or too aggressive, you're also going to limit your withdrawal rate. There's typically a sweet spot based on how much you need from your portfolio, other income sources and other details that you need to come to determine what's the withdrawal rate that works for you. So that's number one.
Speaker 1:The second piece is your age. Why your age? Well, let's use an extreme example. If Roger had this $2.1 million and he was retiring at age 35, that's very different than Roger having that same $2.1 million and retiring at the age of 75. In one of these instances, that money needs to last a whole lot longer than the other. We can actually illustrate that here for Roger. So what if Roger wasn't 65? What if, instead, roger today, we are just magically making him 75? All else is still the same. He still has that $2.1 million in his portfolio that we last ended with.
Speaker 1:If we now go back to his retirement and his probability of success, it's not going to be that 70% probability of success that jumped 25% Significantly higher probability of success. Why? Well, because his money only needs to last for 20 years now instead of the 30 that we originally projected. The older you get and really this isn't a matter of how old you are, it's a matter of how much life do you have left, whether you're 60 and you're only going to live until 65, or you're 90 and only going to last until 95, both of those, in many cases, are the exact same from a planning perspective. They're the same in that we know how long does your portfolio actually need to last for you?
Speaker 1:Of course, there's other variables surviving spouse, other factors, how much you're spending but to a large extent, that's the important factor that we're looking at how long does this money need to last? Well, if we're trying to normalize this at 75% 70 to 75%, normalize that probability of success at the 70 to 75% range what we'll see it's not the 2.1 million that Roger would have needed if he were 65 with all these goals, the $2.1 million that Roger would have needed if he were 65 with all these goals. If we change this number and knock off $500,000 of that, he's now 75, remember instead of 65. If we knock off $500,000 from his portfolio, what we're going to see is that Roger's probability of success is still in that range. So these are the factors that will actually determine how much do you need in your portfolio to spend that $10,000 per month. Now, does it actually matter whether you want to spend $10,000 per month or $15,000 per month or $5,000 per month? No, it doesn't. These principles are the same. It's these three factors that will largely determine how large your portfolio needs to be for you to be able to do that.
Speaker 1:So, once again, take a look at the software. If you want to run the numbers for yourself, you can get access to the Retirement Planning Academy below. But to summarize the things that are going to influence this is number one how much do you have in non-portfolio income sources? Number two where are your portfolio assets actually held? Iras, cash brokerage accounts, roth IRAs? That's going to make a big difference. And then, finally, number three what withdrawal rate can you actually use For someone that has a 30-year retirement or a 30-year projected retirement?
Speaker 1:Generally speaking, if you're retiring at 60 to 65 and you want to plan until 90 or 95, somewhere between 4% to 5.5%, depending on how you're invested, tends to be a common place to start, but that will be influenced by how are you invested and how long actually do you have with your life expectancy. So, for your planning, know how much you want to spend and then work backwards to understand how. These three factors will help you determine how much you actually need in your portfolio to create that. Once again, I'm James Canole, founder of Root Financial, and if you're interested in seeing how we help our clients at Root Financial get the most out of life with their money, be sure to visit us at wwwrootfinancialpartnerscom.
