Ready For Retirement is the podcast dedicated to helping you learn the tips and strategies that will help you achieve your retirement goals. When it comes to retirement planning, it can quickly become overwhelming and easy to not take action. I designed this podcast because I want you to have the knowledge and confidence to create your secure retirement. My ultimate goal for all of my clients (and listeners) is to create peace of mind and that starts with having a strategy. I want you to spend more time thinking about what matters most to you in retirement. I post weekly episodes to keep you up-to-date on all the best tips and strategies to create a retirement that excites you. Everything from investing tips, tax planning, withdrawal strategies, insurance planning, Social Security, and that's just the start! Let's help you maximize your return on life. We use your money and the strategies I share in this podcast to do just that!
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======================= Andrew and Ellen are 62, sitting on 2 million dollars, and ready to walk away from work today. Then we ran one more scenario, and it changed the entire conversation.
It's not really about how much you have. It's about what five more years of work actually buys you, and the number surprised even them.
This video is that exact case study, numbers and all.
We're going to cover:
- why a 90 percent confidence retirement plan still wasn't the end of the conversation - the exact dollar amount that extra million dollars translates to every single month - the two hidden costs of retiring early that have nothing to do with your portfolio balance - why chasing the next million never actually satisfies, and where it stops - the three questions I'd ask anyone caught between more money and more time - a bonus strategy that only opens up once you actually retire
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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.
If you're in your early 60s with a couple million dollars saved, you're probably starting to ask yourself this question. Is this enough for me to retire now? Or should I wait until I have a larger portfolio balance? Perhaps three million. I'm going to answer this question for you today, and I'm going to do it with a real life case study of a couple with $2 million saved asking if they should retire now or if they should continue working until they hit $3 million. You'll see what stays the same between the two paths, but most importantly, you'll see what changes, how much they can spend, how social security and taxes impact the decision, and most importantly, how to balance the trade-off between more time and more money. Let's dive in.
So as we dive in, let's introduce ourselves to the couple that we're going to be looking at. It's Andrew and Ellen. And as you can see here, they have $2 million saved. That money is broken down into 401ks, Roth IRAs, joint investment accounts, traditional IRAs. And today, Andrew and Ellen are both 62 years old. Their goal is to retire. And what they wanted to see is what if they retire today? But that leaves a big open-ended question. What are we leaving on the table? We're in our peak earning years. We have this momentum. A few more years might not hurt. But to show them that, or to illustrate the trade-offs here and what this is doing is this is showing us the first picture here of what if you retire today compared to what if you kept working until you hit $3 million in your portfolio. Because in order to properly quantify that trade-off, we need to start with the financial implications. Then we could work backwards into the personal
implications. So as we go back to their plan here, you can see what we're doing is we're assuming they both retire at 62, and we're assuming they're going to spend $11,000 per month in retirement. Now, usually when they were doing this for clients, we're not just saying one spending goal. There's different goals, whether it's education, car goals, vacation, wedding goals, property, so on and so forth. The reason for that is most retirement spending isn't linear. However, to properly illustrate the trade-off here, we need a simple number to compare. And so we're going to use $11,000 to see what this looks like and then compare that to retiring at $3 million. You can see they are both working right now and their combined income is north of $300,000. When you look at Andrew's salary plus Ellen's salary, when you look at their social security benefits, if we assume they both collect at full retirement age, they'll both have a healthy social security benefit as well that will factor in, not right when they retire, but at age 67 for the both of them. Now, if they do continue working, they are saving 10% each of their 401k plans. They're also getting an employer match on that. Now, in this base case, we're assuming they're retiring today. So their salary and their 401k contributions, somewhat irrelevant to this base case. But remember, this is only part one of the equation. Part two is coming in just a second when we compare what this looks like if they keep working a bit longer. So with that in mind, here's where
we want to go. We want to skip right to their retirement analysis. Now there's a whole bunch between going over assumptions and getting to this point that I'm skipping over here. But what this is showing is this is showing if they retire today, they have a couple million dollars. They're gonna start to spend some of that down because remember, all of their spending goal, the $11,000 per month, which is $132,000 per year after taxes, which means they need more than $132,000 per year pre-tax to support this. All that's coming from their portfolio. Now we're assuming their portfolio is growing by about 7% per year in this example. That is not a guarantee. That's simply an assumption that we are using for this specific illustration. And because of that, you can see they're gonna spin down their portfolio a little bit. But once Social Security kicks in, all of a sudden there's less pressure on their portfolio and their portfolio balance continues growing because Social Security is doing some of the heavy lifting. So what is this showing us? This is showing us that with about a 90% probability of confidence, Andrew and Ellen, you could retire right now and you could support about $11,000 per month of limit expenses. So that's good news, but that's incomplete because remember, what we really care about is what's the trade-off of going now in our peak earning years. We've got great positions, we've got great salary, we have this momentum going for us. Are we leaving something on the table by retiring
today? So now let's rerun this plan, but wait to show them retiring until they hit $3 million in their portfolio and see what that scenario looks like. Now, the way I'm gonna do that is I'm gonna go into here and I'm actually gonna show them what if they worked, not until age 62, but until age 67, because I cheated a little bit and ran some of the numbers ahead of time. So I'm gonna adjust this here and watch what this does if we refresh this. If we now show them retiring at 67, not 62, what we can start to see is we can project out what their portfolio balance might grow to. Again, this is based on an assumption of getting some market growth that may or may not happen just like this. But if they do average 7%, here's how their portfolio balance will grow. And you can see right at the end of age 66, that's when they hit $3 million, which means at age 67 is when we could talk to them and we could say, Andrew and Ellen, this is when we believe you're gonna be in a position to retire with $3 million. Now remember, $3 million is somewhat arbitrary at this point. It's just the next round number. What we actually care about is making that number specific. What could your lifestyle now look like at $3 million that it could not look like at $1 million? That's the answer we want to give to them. So let's now go back to this right here. And I'm gonna get rid of this for a second. This is the number, this is the graph we just looked at. If they retire, they spend some money down, then that money starts growing again when social security starts. The new plan that we're looking at here, this is comparing that to what if they don't retire at 62, but now they retire at 67. Well, of course, they're gonna have a whole lot more money left at the end of their life if they do that. But we're not interested in that. Andrew and Ellen aren't saying we want to work longer so we can die with five million more dollars at the end of the day. What they want to know is if we work five more years, which is how long it would take in our estimation to reach 3 million, what could lifestyle look like at that point in time? Now, by the way, if you want to see these numbers run, this is exactly what we do for every single client as we dial on their plan. If you want to see how we do that, check out the Sequoia system video. It's the top link in the description, it's the top link in the
pinned comment below. But going back to Andrew and Ellen as we look at this, what we want to see is at what spending level does this graph level off at the end? So let me show you what I mean by that. What if instead of spending 11,000 per month in retirement now, they spend 13,000? Remember, they're not working longer just to die with more. They want to say we're working longer so we can spend more in retirement. Well, there's still an excess in their portfolio. What we essentially want to do is say, how can we, at least projection-wise, have these two numbers end at the same point? Because that's the crossover point that tells us what the extra value is in terms of what we could spend in retirement. Well, what if we adjust this to 15,000? 13,000, they're still coming out ahead. At 15,000, what we can start to see here is we are getting closer. Still an excess here. What we want this to be is as close to zero as possible. So if I go back in here and I plug in one more number, this is gonna be the number that shows us if they worked until age 67, then instead of spending 11,000 per month, they could spend 15,500 per month and they're projected to have the same ending portfolio balance as they otherwise would have, retiring at 62, spending 11,000 per
month. Now, here's the part most people get wrong. They assume, of course, there's a million more dollars. That means you just take the spending from that, and that's all there is in terms of the difference here. That's not the case. There's two big differences. Number one, as it's not just how big of a portfolio you have, it's how much that portfolio has to support you, or Andrew and Ellen in this example in those early years. They retired at 62. There's a lot of pressure on their portfolio to fund everything. They are at greater risk when it comes to sequence of return risk in that first scenario because Social Security hasn't kicked in, meaning all that pressure is on their portfolio. Then number two is taxes. As you spend more and more money, that you go from spending $11,000 per month to $13,000 to $15,000. Well, it's not just one extra dollar needed every time you go up. Keep in mind you're pushing yourself into higher and higher tax brackets. So depending on what types of accounts you have, you can't just assume that your tax rate is staying the same the whole
time. But here were the actual decision points for Andrew and Ellen. And these will be the same decision points for you. It comes down to three things. Number one, how much do they enjoy work today? If they love what they get to do for work, if they're able to travel, to live their life, to enjoy it, why not keep working? It's only in the event that work is drawing them away from the possibility of freedom to do what they actually want to do. So the first factor, once we look at this, once we quantify this and say, yes, between those two outcomes, there's a $54,000 per year gap. Meaning at 67, you can spend $54,000 more doll every year for the rest of their life. That is meaningful. But we have to ask, is that worth it?
Because what you're essentially giving up to get that is five years of your life. And not just any five years, probably the healthiest five years, certainly your youngest five years, but the longer you defer the spending, the less and less there is to spend it on. Either because you don't have the health to spend it, you don't have the energy to do so, maybe the people you wanted to spend it with are no longer here. Those are real things that you have to take into account. Which is why when I go back to this, the first question I have for Andrew and Ellen, the first question I have for you is what are you losing by continuing to work? We know that you're gaining more money, but are you losing time? Are you losing freedom? Are you losing the ability to do what you actually want to do? The answer is yes. You have to ask yourself, how worth it is that extra $54,000 per year? So that's the second consideration. Not just how much more could you spend, but where does that translate to in terms of extra lifestyle? If Andrew and Ellen could do everything they wanted to do and then some on $11,000 per month, sure you can spend more later, but is it really moving the needle? If everything was good on $11,000, why have more? On the flip side, if Andrew and Ellen have some amazing aspirations of travel or giving or activities they want to do and they would feel held back by not doing those if they were tired at 62, well then it can absolutely be a fair trade-off to keep working longer to have the money to actually fund the life they want to live. But the mistake I see people make is this they get so caught up in the dollar amount because that's something you can quantify. That's something that more always seems like better. They forget to attach it to what's actually changing. And once you get from two to three, life doesn't automatically become more comfortable. You hit three million, you think, well, maybe four million is even better. You hit four and you think maybe five is what I've been after this whole time. At some point you realize no amount more money is going to change your quality of life if you're not translating that into spending on things that are meaningful to you. Which brings us to the third point that I would ask Andrew and Ellen and I would absolutely ask you is is the trade-off worth it? Of course, the longer you work, the more your portfolio will grow, the more social security will grow, the more you can ultimately spend for the rest of your life. But take that to the extreme. Why ever stop working? Why not work until you're 80, 85, 90? That's the best possible case if we're just looking at a graph in terms of how much money you're gonna have. Obviously, it sounds absurd when I say it like that. At some point, you need to translate what you've worked for into the confidence to spend it on a life that's meaningful to you. That's actually the foundation of everything we do. For those of you that don't know, I'm the CEO of a financial advisory firm. We serve over a thousand clients across the country. This is always the core part of what we do. What do you actually want life to look like? What would be more meaningful to you if we saved more, worked more, invested more? What do we want the money to actually do? And then you design the financial strategy around it. If you want to learn more about that, check out the Sequoia system video, top link in the description, pinned comment below. But if you're missing this, if you're missing the point of what's it all for, you're gonna keep working forever. Don't make that mistake. Understand, is the trade-off worth it? Will you rather have freedom today and live today, or have a little bit more money, but lose some of that freedom
today? Now, here's a little bonus insight. Sometimes by retiring early, assuming you're in a good position to do so, it actually unlocks some of the ability to implement different types of strategies that can be even more additive to what you want to do. And now to be clear, sometimes it's the opposite, but different tax strategies, different investment strategies, different withdrawal sequencing strategies, they are going to be different if you're retiring early versus retiring much later. So once you know what it is all for, you've defined what you want your life to look like, that then informs what do you do with your income strategy, your investment strategy, your tax strategy, your overall protection strategy. And that's where you lock in the vision of what you want life to look like and you have your financial plan there to support it. Hopefully that extra million dollars was not just a bigger number on a screen. The goal is for that to show up as more room to breathe, more freedom to spend on the things that matter
to you. So that's the question I want to leave you with. Not how much more can I spend or how much more can I grow my portfolio, but instead ask what would that extra money actually buy me? If you want to see what that answer looks like with your own numbers, check out our Sequoia system video, top link in the description, top pinned comment to see how we implement that for people just like you at root. And if this was useful, the next video I'd love for you to check out is this one. Well, I'm a retirement advisor, and this is what I tell all my clients as soon as they turn 62.
