Do We Have Enough To Retire (And Never Go Back To Work)?

Create Your Custom Early Retirement Strategy Here

Ever wondered why some folks can retire comfortably at 53, while others work well into their golden years? The answer isn't as simple as how much money you've saved up—it's rooted in your monthly expenses and lifestyle choices. Today's episode peels back the layers on retirement planning, debunking the myth of a magic retirement number and introducing you to the concept of Financial Independence, Recreational Employment. We're discussing how it's not about quitting work entirely, but about having the freedom to choose how and when you work. Join us as we navigate through personal stories and financial examples that bring to light the true indicators of retirement readiness.

Diving into the heart of financial planning, we meet Ari, who's wrestled with retirement decisions and wondered if they're on the right track. I'll walk you through Ari's journey, highlighting how personal values can significantly shape financial decision-making. We're also tackling the common mistake of equating retirement expenses with your current salary, and why it's essential to have a realistic budget reflecting your actual living costs. If you've toyed with the dream of retiring to a sun-soaked village in Portugal or Spain, we even touch on the financial implications of relocating. Don't miss this chapter where we also share a handy tool—a cash flow spreadsheet linked in the description—to help keep your spending habits transparent.

Wrapping up, we shift gears to focus on the brass tacks of a solid investment strategy that will carry you through retirement without hiccups. I guide you through evaluating your savings, understanding the impact of taxes, and how to balance equities with fixed income to ensure a comfortable and sustainable lifestyle. Plus, we discuss why having pensions might actually allow you to take a bolder approach to investing. Remember, this is about more than just numbers—it's about crafting a retirement that fits your life. So, whether you're planning early retirement or simply curious about the financial future, tune in and let's explore what it takes to retire on your terms.

Create Your Custom Early Retirement Strategy Here

Ari Taublieb, CFP ®, MBA is the Vice President of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients navigate the nuances of an early retirement.

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PS: Before anyone decides to move forward with our services, I want to ensure we're the best fit to help you reach your goals and I personally have the first conversation with you.

Transcript

Speaker 1: 0:00

You might see an article that says you need a million dollars to retire and you might see another article two hours later saying that a million dollars is nowhere near enough. They're both wrong, and here's why I have clients that have $500,000 and they are retiring and they're spending north of 15,000 a month, but they also have a pension that covers the majority of their needs. Other clients that have $3 million are nowhere close to retiring if they wanna spend 20, 25, 30,000 a month. So to me it has nothing to do with the portfolio amount in everything to do with what you actually want to spend in retirement and if that's sustainable, if you have a portfolio that's actually reflective of that. Meaning you might wanna spend five, 10, 15,000 a month, but maybe you're only spending 10,000 a month the first two, three years when you're retiring early, when you have your energy and your health and your traveling and your pain for health insurance and Medicare hasn't kicked in, then maybe a mortgage goes away, so even less is required for your portfolio, and then at that point maybe medical expenses shoot up, so maybe you do need more again. So don't marry that expense number. Too many people make that mistake. What I'm gonna walk through today is specifically how you can know if you are in a position to retire. Now you might listen to this episode and go oh my gosh, this really made me think differently. I think I am in a spot to retire, but I love what I do. Great, don't stop working.

Speaker 1: 1:13

People often think when I talk about early retirement, it's me saying here's when you should stop working. That's not what I'm talking about at all. In fact, I talk about what the RE stands for. So if you're not familiar with the FIRE movement, it stands for Financial Independence Retire Early. I don't like that definition. I prefer Financial Independence, recreational Employment. Most people don't wanna do nothing. They just wanna know they're going to work because they want to, not because they have to. So one of the first things I'll show a client when they become a new client is hey, here's your RE, here's when you'll know you're actually working because you want to, not because you have to. And then they go oh, that's good to know, but I'm gonna keep working cause I like it, or you know what? No, I'm gonna take this job that pays a whole lot less and, yeah, I'm gonna enjoy it more. So that works great. I wanna make sure you're not leaving anything unnecessarily on the table, but that you also don't retire too early. So I often say I'm the meanest early retirement advisor because I never want you to have to go back to work.

Speaker 1: 2:05

So today I'm gonna walk you through a way to think about if you know you're in a position to retire and some common myths that are probably creating head trash. So head trash is what a mentor of mine once coined the term for, when someone's like I think I'm on a good spot to retire, but I don't know, and if markets don't perform well, maybe then I'm not, or do I have to hope taxes are gonna be a big expense? How do I even think through that for retirement? So what I'm gonna walk through today is my framework so you can understand if you're in a good spot, and, once again, some of those myths. Now I do like to start with client stories, give you a financial example and then, of course, hit you with the logic behind all of it. So I am gonna go ahead and start with a recent review, and this one comes from Lewis3249, who says really enjoying listening to Ari's show find extremely informative. I find it's the only content that specifically is earmarked for an early retirement, especially like the idea that he talks about renting in retirement and how you shouldn't die with the most amount of money. You don't get any extra points in the grave. So, absolutely true, I tell everyone. Some people come to me that they really wanna travel and they just wanna be a homeowner At the same time. They're like, hey, I wanna have a home base, but should I consider renting? And so I'll do a whole rental analysis. So that's what that specific listener is alluding to.

Speaker 1: 3:19

If you're not familiar, now we're gonna start with my client story, which is there was a client that came to me. This is Ari. I don't know if I have enough to retire, because I just feel weird. I'm like you feel weird. That's why you don't think you have enough to retire. What do you mean? They go well, I'm 53 years old and my coworkers seem nowhere close to retiring. So how on earth could I retire? I go well. What cars do your coworkers drive? They say, well, most of them drive Audi's and Mercedes Benz, and I go nothing wrong with that. Those are nice cars. What do you drive? But what will I, to be honest, drive it to you? To Corolla? Is that embarrassing? I go no, it just shows where your values are. It's not good or bad. I have clients that love boats and clients that just never wanna have a boat a day in their life. So it's not good or bad. So we started talking more about their situation. They go well, I do think I wanna spend a whole lot less than my coworkers. So should that change my retirement? I'm like no, no, no, no, no.

Speaker 1: 4:08

Absolutely the idea that because you are maybe 52 or 53 or 54 and you're listening to this, and maybe your coworkers are in their 60s and they're nowhere close to retiring One, that they might need a whole lot more for their satisfaction in life. Maybe they have parents they're taking care of, maybe they want a second home, maybe they want a vacation and do first class and, you know, do all these other expenses that you might not want to do now. If you want to do these things, I say great. I'm in no position to tell anyone retired too early. I would just rather you work one or two or three more years so that you can do all these things that you want to do. So it's a very basic story. But the client was like, hey, I just think maybe I needed the gut check from an advisor that just because I'm 53 doesn't mean I can't retire, so hopefully that was helpful.

Speaker 1: 4:52

Now the logic for today I want to start with and I've got my little list here, so of course, you guys can all watch me on YouTube and see me go through my list. If you're listening on the podcast apps, that works great as well. But number one is make sure your retirement expenses are realistic. Now a lot of you have already done this work and you're like yeah, I know, I want to spend 4000 month or 8000 or 10000 or you know what. No, I actually haven't tracked any of this and I should, but I want to make sure that you're all being really intentional with this.

Speaker 1: 5:17

Now what I want to make sure of all else is that you don't make the mistake of essentially going well, today I'm earning 400000 and so you know, I think maybe I'm gonna need 400000 income in retirement, which most of you aren't going to do that. But I want to make sure you don't make that mistake, because here's what might be happening maybe you have $40,000 between you and your spouse. You're contributing to a 401k. Maybe now, if you're call it, have 400000 income and moving 40,000 out. Maybe now that's $360,000 that you're actually bringing in, because what I'm doing is backing out before those pre-tax contributions. So now, if I back out federal taxes that you're paying on the 360,000 because once again 40,000 is going to 401ks the federal taxes on that, just making an assumption here of 67,000.

Speaker 1: 6:04

Now you have 293,000 that's coming in. Maybe you've got, let's call it, 10 to 15,000 going to a brokerage account of extra savings. I'm going to keep it at 13 to keep it really simple. So $280,000 is coming in the door. So right off the bat, you don't need 400,000 in retirement. You would need 280,000 to just keep the standard of living you have today.

Speaker 1: 6:22

Now that does not include state taxes or other deductions such as pension medical insurance. So it's likely that number is high. It's just. This is how you start thinking through this. So let's assume super simple all state taxes and deductions come out to 40,000 a year. That would mean you'd have 240,000 a year. After taxes and deductions, that's $20,000 a month.

Speaker 1: 6:44

So people come to me and go how much can I spend? Well, if you wanted to spend 12,500 or you want to spend 15,000 a month, so 15 would be 180,000 a year I'd say, well, you can easily do this because right now, look at the income you have coming in and they go, yeah, but Ari, one day I'm not going to have that income. I go exactly right. What we want to do is start to understand what are the income sources you need and can you replicate that sustainably, meaning, can your portfolio now start to generate this income that you've been creating through salary? So people often say, yeah, like 20,000 is coming in today. I get that, but you know my expenses are only 12,000 and so really I feel like I need a whole lot less or a whole lot more and I'll say where's the rest of the money going? Meaning, 20,000 is coming in. You say you want to spend 12,000.

Speaker 1: 7:30

What I often find is people are spending a whole lot more. That's why I bring this up. Maybe it's travel and new cars and family support, and because they're not regular expenses, people just aren't accounting for them. So the most accurate way to determine expenses is with a cash flow spreadsheet, and we have one of those, of course. So you can see in the description of this podcast episode, I've got my cash flow spreadsheet. You can go ahead and check that out. So that's kind of level one. Level two is like what if you want to live elsewhere? Maybe you live in Portugal or Spain or the Philippines, and so you don't know what tax they're going to look like. Maybe it's a lower cost of living, maybe you want to help your son or daughter with college. What about health insurance? Because you're going to need it to come from somewhere and certainly Medicare is gonna help, but that doesn't turn on until 65. So maybe you're going.

Speaker 1: 8:14

What do I do during all those years? Make sure you have enough money for these unexpected expenses and understand that some of them might be very temporary. Too many people don't factor any of this into the planning. They just go yep, I need 2 million or a million and a half or 3 million, and then I can retire. What you need to do is really understand how expenses are gonna change throughout retirement.

Speaker 1: 8:33

So I would almost say start there and then simply say let's start making some assumptions with taxes. Now some of you are going hey, there's a lot to this. I even know of Social Security. There's something called Provisional Income Tax, where only a portion is taxed and it's based on my income. And then all of you not all of you, some of you get the paralysis analysis where whoa, whoa, whoa, there's a lot to this. I'm hiring an advisor. Others of you are going hey, this is what I wanna do in retirement. I love tax law, in which case, great Like, hopefully this is helpful for you where I wanna make sure you're not simply making these common tax mistakes.

Speaker 1: 9:03

What I'm gonna tell you now, which is where people go yeah, you know, I think I'm gonna add on taxes at 15%. Well, that sounds great, but in reality, income taxes are very different compared to just what most people think. It's a marginal tax bracket system, and so it depends where you pull income from the tax implications. I mean, if you just take an effective tax bracket of 15%, that's great, but in reality it might be 25 or 30%, maybe only for a first three, four, five years. Maybe we're doing Roth conversions and you're doing other planning tools, and then all of a sudden now it's a whole lot less, and so you need a strategy that's changing over time.

Speaker 1: 9:41

From there, what I'll tell a client is okay, you're gonna retire, you wanna spend I don't know 12,000 a month, I'll call it 144,000 a year or 150. What are all the different income sources you have? Because most people just start with a pension and stop there. What I want you to do is say, okay, you have pension, you have portfolio, you have rental income, you have social security, and the timing is gonna vary with all of this. Let's assume you have 50,000 a year keep it super simple from a pension, you wanna spend 150,000 a year? Okay, well, 100,000 has to come from your portfolio to supplement the difference there. And then you have social security, and maybe social security is also bringing in 50,000 between you and your spouse. But that doesn't start for five years.

Speaker 1: 10:20

So, okay, we wanna spend 150,000 a year, we've got 50 covered, meaning 100,000 has to come from our portfolio. But in five years from now, social security is getting turned on and then only 50,000 is required from our portfolio. So you might wanna learn actually how social security gets taxed, and I have different videos on that. But the idea here is you wanna understand what are the all in income sources and then what's the remainder that actually has to just come from your portfolio. So that's just called the reverse engineer aspect of portfolio timing.

Speaker 1: 10:48

It's not rocket science, but this can make you think a lot differently, because if you go wait a second, 100,000 has to come is coming, should I say, from my pension and social security in the future? And yes, it's adjusted for inflation. Maybe there's a cola, a cost of living adjustment on your pension, maybe there's not. Social security generally grows at 2.6% as opposed to inflation, which historically is 3%. So you need to make sure you're factoring all of this in.

Speaker 1: 11:13

But the idea with all financial planning is that once you dial in the rental income, pension, social security, it's how much needs to come from your portfolio, quite simply. And if 50,000 is required from your portfolio, and maybe 100,000 is required for the first few years, but if it's 50,000 for the next 20, 30 years, okay, you might be in a really good spot a better spot than you think and once again, I don't want you to ever retire too early where you can take 50,000 out, and if you're taking that from a $2 million portfolio, that's extremely sustainable. And I really want to make you think differently about this, because if you're taking $50,000 out, for example, and you have a $2 million portfolio, that's a 2.5% withdrawal rate and so that's extremely sustainable, to the point where I would argue you could probably take out a whole lot more and not die with $5, $10 million, unless that's a specific goal of yours. What I don't want to have happen and this is really real and it's crazy to think about it, but I have clients in their 80s saying, ari, please go tell your clients, the money's not worth as much at this age and go spend it when you have your energy and health. So understanding how much you can spend is what I talked about last week in the withdrawal rate episode.

Speaker 1: 12:21

Today is just understanding. Can I make it happen? And so what you really want to know is what are these income sources, how does that change and how should my investments be reflective of that? And so, understanding how much you need in retirement, that's where you start. Do I need 4,000, 5,000, 10,000? How much do I need to be happy? Okay, great, keep it super simple 10,000 a month Okay. Number one is gut check. Can you spend 10,000 a month? After you factor in all your different income sources, before looking at Roth conversions and withdrawal strategy and all those things, can you make it happen on the bare bones of your portfolio? Some people it's yes, I can't. Well, great, now maybe you can retire and then the optimization begins after that.

Speaker 1: 13:04

But if you have quite simply $3 million and you go, hey, I'd love to spend 80,000 a month in retirement. Well, excuse me, 80,000 a year. Right there, you're less than a 3% withdrawal rate. You're at 2.7%. Yeah, if you're following the right rules and invested the right way and that's a big assumption you absolutely are in a position to retire.

Speaker 1: 13:24

Now some of you are going I don't have 3 million, I might in the future, but I've got Social Security and I've got pensions and rental income. Okay, factor all of those things in and say do I have a strategy? That's connecting all the dots. And you might find, yeah, you are in a good spot to retire. Or you might find you know what? No, I need one more year of income. You know what? No, I need two more years or three more years because I've got a home renovation or I've got a big travel that is coming up that I really have always dreamt of doing, and that's gonna be 30,000 a year.

Speaker 1: 13:49

So the point here is not to stress you out. It's actually to the opposite. It's to say I want you to know the earliest you can retire and still do everything you wanna do. And what you might find is that if I forced you to spend 4,000 a month in retirement, you'd go all right, that's no problem. What if I forced you to spend 12,000 a month? You might go all right, I could find a way to do it. Or you might go no, to be honest, I would just end up saving more.

Speaker 1: 14:11

And then we say, great, can we do more charitable giving? Can that start reducing your taxes? Can you start really implementing the pro level stuff here? I wanna make sure you understand that Social Security is gonna come on at 62, or 67, or age 70. And the timing of that needs to be connected to every single aspect of your plan.

Speaker 1: 14:30

Most people simply go yeah, I think I've got a million bucks or two million and that sounds good. I think I can retire. The numbers look good. I've got the six-cell spreadsheet, but it's not accounting for all the timing. It's not accounting for how Social Security gets taxed. It's not accounting for actually where I'm gonna pull income from in the tax implications.

Speaker 1: 14:46

So making sure you have something that actually connects all the dots, that's gonna give you a whole lot more confidence and shifting your investments is one of the biggest things that you need to be aware of, because this is and this is the last thing I'm gonna leave you with of the mistake that I see people make is they have everything in the S&P 500, or they have everything in one part of the market and the risk you run is significant and, once again, not rocket science, but it is very real that if you have a million dollars and markets go down 40%, that's a $400,000 loss. That's significant. You can't afford to take on that level of risk, and so what a lot of people do is they're too heavily invested or they're marrying an asset allocation essentially 60% equities, 40% fixed income and going hey, I think that sounds right, when in reality, what they need to do is, if you might need a lot more from your portfolio, you might need to be a whole lot less conservative later in your career. You're like what are you talking about? Here's what I'm saying. Let's assume you're tired, age 60, and you wanna draw, let's say, $60,000, and you have a million dollars in your portfolio. Well, if you're drawing $60,000, that's a 6% withdrawal rate. We can't have your money fluctuating in a volatile manner because if markets go down, call it 20% or 30% well, now your withdrawal rate's not 6%, now it's 7, 8, 9%, and that is not sustainable, and you never want to have to go back to work because you didn't invest well. So maybe you're having a whole lot more in fixed income or cash during the years, you're spending a whole lot more. And then what happens is now, oh, social Security gets turned on. So once that happens, maybe you can be a whole lot more aggressive in your portfolio. And you're like, what do you mean more aggressive? I thought, ari, I was getting older, why would I become more aggressive? And what you wanna do is, as you have more guaranteed income, you wanna be more aggressive because you have the ability to do so, and I've given this example before, but I'm gonna give it to you again.

Speaker 1: 16:39

Client came to me with $3 million and they said, ari, I don't want a lot of ups and downs in the market. I'm gonna lose sleep. And I said I don't want you to have a lot of ups and downs either, but you have the ability to take a whole lot more risk than an average retiree because you have a pension that covers all of your needs. So if your $3 million went to zero, you would still be okay. I'm not saying you're gonna be happy. You'd be very unhappy. I recognize that. But the reality is, if you didn't have a pension. You could not have that as 100% equities because you just could not weather those downturns and still meet all your income needs.

Speaker 1: 17:12

That's where I tell everyone you can't have a cookie cutter approach. It has to be customized to your goals and too many people are not, I find, doing the deep analysis, other advisors not doing the deep analysis because they don't specifically work with people trying to try early and implement all of the tax and withdrawal techniques that I talk about in my episode. So hopefully this was helpful, giving you some insight as to even considering am I in a position to retire? Work out your expenses and don't cut the little ones. Don't cut. Yeah, I think I can afford coffee, but I don't know I can make it home for a quarter instead of buying it for five bucks. That's not near as impactful as investing the right way and having the right allocation. So not cutting the wrong expenses.

Speaker 1: 17:52

Having an investment strategy, having a plan so that if markets do take a downturn or should I say when they do take a downturn you're going to be executing Roth conversions if they make sense for you. You're going to be proactive with your retirement. You're going to be reading tax law, understanding okay, brackets are changing in 2026. Should that change my retirement timing? Maybe it should, and too many people don't even factor that in. What about health insurance and starting to layer on those called short term three to five, maybe 10 year expenses if you're retiring at 50 or 55 or 60 before Medicare kicks in and then from there going, let's layer on all these different income sources and understand how much actually has to come from my portfolio alone. So hopefully this was helpful to allow you to start thinking through it holistically.

Speaker 1: 18:34

Now, if you're listening to all of this going well, there's a lot to this. I want to partner. That's, of course, what we do. If you're listening to this going well, I love this stuff. Oh my gosh, this is what I want to do in retirement Don't pay us, because I don't want you overcharged unnecessarily. So the majority of people come into us. They have an advisor, they're not getting the holistic planning services that they're looking for and they reach out to us for that reason. So hopefully, if you're listening to this, this resonates with you and feel free to, of course, reach out and be happy to have that conversation with you.

Speaker 1: 19:02

Thank you guys for listening, and I recognize I'm not going to work with all of you. So, if this is even somewhat valuable, I do ask that you leave a review on Apple, on the iTunes app, or just shoot me an email. I love hearing from all of you. So my email is ari at root, financial partners with an s on the endcom, and I look forward to speak with you guys next week. Love you guys.

Speaker 1: 19:24

Thank you for listening to another episode of the early retirement show. If you have a question that you want answered in a future episode, you can always go to my website early retirement podcastcom that's early retirement podcastcom and you can go ahead and submit a question that I'll look to answer in a future episode. Thank you all for listening. Please do rate it, review it and share it with someone who you think would benefit from this information. If there's anyone out there that you know, I certainly appreciate it and I will see you all each week. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only.