A Wiser Retirement®

315. Is $1 Million Enough to Retire? Let’s Run the Numbers

• Wiser Wealth Management • Episode 315

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In this episode of A Wiser Retirement® Podcast, we discuss how $1 million has been the golden benchmark for retirement savings. But is this magic number still enough in today's economy?

Related Podcast Episodes: 

Ep 276: How to Make Sure You're Ready for Retirement

Ep 217: What are the best and worst states to retire to?

Related Financial Education Videos:

Investing for Income vs Growth in Retirement: Finding the Balance

How to Estimate Your Tax Bill in Retirement

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This podcast was produced by Wiser Wealth Management. Thanks for listening!

SPEAKER_02:

Do you think a million dollars is the magic number for retirement? Let's test that assumption. Let's take into account inflation, longevity, and lifestyle choices. Stay tuned to learn more. Welcome to Wiser Retirement Podcast. Are you curious if a million dollars is enough to retire on? I'm Casey Smith, and today I'm joined with Michaela Dowdy. Each week we bring you practical advice on retirement investing and planning for your financial future. Don't forget to subscribe to the podcast wherever you're listening. Let's get started. Hey Michaela.

SPEAKER_05:

Hey, Casey.

SPEAKER_02:

Thank you for taking a break to do a podcast with me.

SPEAKER_05:

I know, I know. You fit into the schedule.

SPEAKER_02:

And Michaela is in high demand. High demand. I got clients working with me for 25 years. They go, is Michaela not in our meeting today? I see this every time you run out.

SPEAKER_05:

I know, and I miss them though.

SPEAKER_02:

I know.

SPEAKER_05:

I know I don't get to see everybody. And it's just like you where you talk about it. You're like, I don't get to see all of my clients anymore that I like knew from the beginning. Sometimes my feelings get hurt a little bit.

SPEAKER_02:

I'm like, what? They're working with uh the team? What about me? And I was like, well, this is what we want. This is what we want. We want people working with the smartest people in the room. And uh it's definitely the wiser team, that's for sure. Um, well, first of all, you're listening to this episode uh Thanksgiving week. So happy Thanksgiving.

SPEAKER_05:

Yes, happy Thanksgiving.

SPEAKER_02:

Uh I am grateful for Team Wiser. Um, I tell you, we have some of the smartest people in the business. And they are our young people are working just uh working right through the CFP program, which I'm excited about. Our senior people have more designations than we can count. Um, and our our support team with led by Tiffany and Kyle and Alexa, uh, they they're the best. They're absolutely the best. Um, I'm grateful every time I walk in here because this business was started 25 years ago with just me.

SPEAKER_04:

Wow.

SPEAKER_02:

Just me, right? And so it's it's uh I have to pinch myself occasionally, but the recipe for all your business owners out there is hire people that are better than you in a lot of different things. Um, I think I still pull my weight, but yeah, snow, 100%. But hire people that are better than you in your weak areas and um success will will build from that. So uh I'm and I'm also grateful for our clients. We have such uh uh great families to work with. Occasionally we won't name names, we have people that um are very rude and hopefully they'll be nicer during the Thanksgiving holiday. But um we uh 99.9% of our clients are such a joy to work with. And I feel like I'm just a part of their their lives, riding their coattails through all the fun things that they get to do.

SPEAKER_05:

No, exactly. And it's so sweet to be able to take part in like really being a part of the lives of our clients and you know, really getting to experience life alongside them. And as you see those, you know, goals that they had years ago now become reality, yeah. It's so special to be able to see, you know, all of that happen and take place and know that you've been able to be there um through the steps of the way as well. So it's just a really special connection we get to have. Um, but also to piggyback off of you, we do just have an incredible team here at Wiser. And it is such a joy to get to work here every day and get to, or not every day, Monday through Friday. Um, but you know, getting to be here and um just experience our team. And like even since I've been here, it's grown so much. I mean, we now take up an entire floor here and we used to just be a few rooms. So it's great to um be here and just get to participate in the growth.

SPEAKER_02:

Yeah, and I will say, you know, I'm also grateful for the people who have been here and have left.

SPEAKER_04:

Yeah.

SPEAKER_02:

Um it's it that that's kind of a long list.

SPEAKER_04:

Yeah.

SPEAKER_02:

And sometimes I think about that. And but while they were here, uh, we really needed them. But in a lot of ways, we outgrew them. And and and that's what happens in a business. Sometimes you outgrow people. Uh when you're moving, it grow as fast as we do. We've met all of our growth goals for this year.

SPEAKER_04:

Yeah.

SPEAKER_02:

Uh and so when you're growing really fast, um, sometimes people need to be here for a season and they moved on and and I'm sure they're happy and we're happy for them. But uh it's it's a um uh it's it's a very wiser's a very big, very big family.

SPEAKER_03:

Yes, it is across.

SPEAKER_02:

So well, let's uh let's get into this topic. Let's stop being grateful and let's uh let's start being uh focused on is a million dollars enough to retire on? And you know, you and I sit in a position at a wealth management firm as key advisors here, and we would assume everyone has at least a million dollars, right? I mean, you know, everybody who walks in the door for the most part has over a million dollars.

SPEAKER_05:

Yeah, quite a few.

SPEAKER_02:

Um, but how rare is that?

SPEAKER_05:

Oh, that's extremely rare.

SPEAKER_02:

Like how rare?

SPEAKER_05:

Like two and a half percent of Americans actually have a million dollars in investment investable assets. That's crazy to me.

SPEAKER_02:

Only two and a half percent of Americans have a million investable assets?

SPEAKER_05:

Investable assets. So that's the big difference, is a lot of times we're thinking more so net worth. And net worth is where 18 to 20% of people have over a million dollars of a net worth. And so that's a big difference. Once you factor in your home, your property, if you have a boat, all of that gets factored into the equation, your net worth can definitely be that higher, you know, closer to a million. But that doesn't necessarily mean you have a million dollars in investable assets set aside for retirement um specific, or, you know, just set inside in a brokerage account, anything like that. And so that's where we really start to see that shift. So yes, there are 20% of Americans once you have their home value. And honestly, with the way, I mean, this was done in 2022, but it was just released this year by the Federal Reserve. Um, and so it's something that I do think even now, as we've seen the cost of homes be so much higher, I'm sure that's an even larger number if you're including homes, um, that percentage of people total net worth for total net worth that have over a million. Um, but it is important to know the difference because at the end of the day, yes, there are ways you can get your home equity out. Um, but you really don't necessarily want to use that as a first priority.

SPEAKER_02:

Yeah, that'd be like a reverse mortgage. Yes.

SPEAKER_05:

And that's not something you would want to do. So that's something that's a common misconception. Um, and we, you know, just want to make sure that you have that set aside in your true investments um and true cash that you have access to.

SPEAKER_02:

So what does the average person have then?

SPEAKER_05:

I mean, really? This was a shocking number to me, in all honesty. But those people that are 65 to 74 today, you know, they're only averaging about$200,000 in actual, you know, set aside investment assets. And then those that are over 75, 130,000. So um, much more minimal than we would think. Um, you know, just as a side note top of mind.

SPEAKER_02:

Just as a side note, that's exactly why social security will not go to zero.

SPEAKER_05:

Exactly.

SPEAKER_02:

You're gonna have your all these people lined up at food banks. I mean, that'd be crazy.

SPEAKER_05:

No, exactly. And I but I think it is something too to point out with this, and we'll get into pensions and everything later. But this generation does have a lot of pension opportunities as well that we don't necessarily see as much nowadays, which does make it to where you do have to have more invested at this point.

SPEAKER_02:

Yeah, which is which is gonna be a bigger, um, a bigger issue because you gotta be saving more and people aren't saving that much statistically.

SPEAKER_05:

Correct, exactly. So we just have to be careful there and make sure that we know the numbers and figure out, you know, is a million dollars enough for you personally to be retired? And that's the big question.

SPEAKER_02:

Yeah. Is it? I mean I don't know. I mean, first of all, I would say there's no magic number. I mean, a million dollars is a great place to start because people go, I'm a millionaire. But but when I I promise you, when you become a millionaire, you're not gonna feel like a millionaire. And it's it's inflation and all these other things, right? But um I have 20, we have 20 people or 20 million dollars who don't feel like they're millionaires.

SPEAKER_05:

No, exactly. And that's the thing is it's always you kind of always move the goalpost on yourself too.

SPEAKER_02:

Right.

SPEAKER_05:

Because but I also think we always idealize whatever that number is that we want to be at. We idealize what that number's gonna feel like.

SPEAKER_03:

Yeah.

SPEAKER_05:

And in reality, it's like, oh, it's the same as what I'm living today in some ways, you know?

SPEAKER_03:

Yeah.

SPEAKER_05:

Um, and but it is always fascinating, especially for you know, clients that come in, they maybe haven't put together like a full balance sheet of what they have in a while.

SPEAKER_03:

Yeah.

SPEAKER_05:

And they see everything added together, and we're like, you have a million dollars in investable assets, or you have a two million dollar net worth. And it's always so funny to see them be like, wait, what? There's no way you're lying. Right. It's like, no, you are in fact a millionaire. Um, and they're like, This is not what millionaires live like. And it's like, yes, it is actually. Right.

SPEAKER_02:

Yeah. If you had this number in the 80s, it'd be real high on the hog. Yeah. So now, now it's very different. I've seen studies like that before. It's like, how much do you feel like to feel wealthy? And it's somewhere between three and five million dollars liquid assets.

SPEAKER_05:

Exactly.

SPEAKER_02:

You start feeling feeling uh feeling wealthy. And typically the income it takes to build that, you might feel that okay, our family's a little different. You also surround yourself with people that are typically like you. Yes. So if if you might feel really, really uh disadvantaged, you're you're you know, everyone is around you is running or selling businesses and they all have 30 million dollars in their back pocket. Um where in reality you might be doing just fine compared to a whole nother demographic.

SPEAKER_05:

Exactly.

SPEAKER_02:

So I don't know. I I say don't don't compare yourself to others, stay in your lane. But I I think intent um as far as framing the question, uh, is a million dollars enough? We need to talk clarify what we're talking about. So are we talking about financial independence or income replacement? Um we're not really talking about a luxurious life. No, we're really talking about more can we cover the essentials?

SPEAKER_05:

Exactly. And that's kind of where our question is really taking place is is a million enough to give you your, you know, basic necessities year over year? Um and you know, basic necessities meaning, you know, healthcare, your, you know, grocery bill, utilities, you know, we always strive for clients to have mortgages paid off. But if you did have a mortgage, you know, making sure all of those payments can be taken care of. Um, and so it's not necessarily, of course, we want you to thrive in retirement. Um, but also we're starting here a little bit more baseline, um, not necessarily looking at, you know, well, what if we go on a trip to Europe every year and, you know, or what if we want to do an African safari? You know, we're not necessarily factoring those extra things into this. Um, which I mean, people can um under this, but right now that's more of a basic question that we're asking.

SPEAKER_02:

It's also a bit of a trick question because when you think about household income, you have to take into account all your resources. Yes. So you have a million dollars, you're gonna withdraw money from your account off of that million dollars, but um, you also hopefully will have some social security.

SPEAKER_03:

Yes.

SPEAKER_02:

You might have a pension, you might have some other income from various situations. Uh VA disability is a big one.

SPEAKER_05:

That's the one that's exactly what I was thinking of.

SPEAKER_02:

I feel like everybody but me gets VA disability. I wasn't in the military, but I probably had to be in the military to get VA disability. Every time we do planning for uh uh airline pilots, I feel like, yeah, I get VA disability. Just like what?

SPEAKER_05:

A lot there's a a pipeline. It's like you're a you're in the military being a pilot and then you move over to commercial at a certain point. Once you hit your year's mark, like I think it's really around 20 years, most of them.

SPEAKER_02:

Yeah, but I'm just saying that when in the military they something happened and they're getting getting payouts for that. And it's tax-free. So that's part of the uh that's part of the equation as well.

SPEAKER_05:

Yes, exactly.

SPEAKER_02:

All right. So let's talk about um uh a withdrawal strategy. I've got a million dollars, so let's start testing it.

SPEAKER_05:

Yes. And so that's where, you know, a lot of people talk about the 4% rule. This is a common rule you'll see anywhere if you're talking through or even, you know, Googling yourself, hey, what what should I be withdrawing from my retirement portfolio? What should I be planning for? And you're likely going to hear the 4% rule. And it's very um, it's a very good gauge overall. Um, but it's something to note that you want to use it wisely. Of course, 4% is, you know, great to know. But if we're talking about a million dollars here, that's 4% of that's$40,000 each year.

SPEAKER_04:

Right.

SPEAKER_05:

You know, for some people, that's great if you're not factoring in, you know, social security, pensions, all of that. For other people, you might tell them$40,000 is what they can take. And they're gonna say, absolutely not. How does anyone live on that? And it's just a very, it's a difference based on what lifestyle you're used to, which is the big part of this. And so$40,000 a year can come out of that investment account at that 4% rule. But the big thing to note here is that if you're someone that retires early, then you might actually be pulling more than 4% out of your account each year, you know? And especially in those early years, say you retire at 55. Well, you have 10 years till you're on Medicare and you have another two years before you're at full retirement age, you know, until 67, till you're at full retirement age to have social security at all. Maybe you have a pension that might start at 55. I would say, you know, most of the time we see those closer to 65, but there's definitely opportunities to have 55 pensions. Um, and so really it's, you know, you're factoring all of that in, in addition to this, that maybe those are not there yet. Those income sources aren't there. So in that 10 year lead up, um, until you start having a little bit of reprieve, you know, you're gonna have a lot that you're having to take out of your accounts. Um, more than likely the 4% rule. Say you're shooting for, you know, 60,000. Well, that's another 20 grand you're having to pull out.

unknown:

Yeah.

SPEAKER_05:

On top of that. So that's, you know, 6% of your portfolio value that you're having to pull instead of in the future, you know, that might dwindle down to zero depending on pension streams and social security streams. Uh, granted, I think most of the time they don't necessarily fully dwindle to zero. Uh, but you know, that is an opportunity in the future, potentially, that that does happen. So it is important to not stagnate yourself to that 4% because it is something that it does shift based on your scenario, based on your plan.

SPEAKER_02:

You know, well, this is where we have software helping us.

SPEAKER_05:

Yes.

SPEAKER_02:

So I think a person who is listening who's not using us as a financial advisor is going to look at a million dollars and say, I can pull 40,000. They're gonna take social security as soon as possible. On top of that 40,000. Yeah, right. And then pensions as soon as possible if that if that's there. Most people don't have pensions now. Um so it might I guess my caveat here is our software is gonna look at it differently and say you could take 60,000 out of your portfolio, but then when your social security starts at 70,000, then we're gonna drop what we pull out of the portfolio to take and take the social security, and then the portfolio has time to recover over the next decade or so. And then you go back to the portfolio later and pull out a little more because of inflation. So that I just want to clarify that's what we're talking about. Yeah. I think a a lay person is just gonna look at it as take social security as soon as possible. And that's not always the best idea. And we have lots of podcasts on on that. So I just I just want to clarify that.

SPEAKER_05:

No, exactly. And thank you for that clarification. But overall, that's a very common, you know, withdrawal strategy that we see. And it is a great one to look at. It's just a matter of, you know, and we'll even look at it when we're looking year to year, you know, making sure you are around that number once you, you know, get um into having other withdrawal strategies. Because yes, if you're above that amount year over year, then you do kind of run a little bit more on the risky side. Um, but we just want to balance that well. And so looking at all of those different opportunities there and making sure that um you're withdrawing safely is a really um big opportunity there and just making sure you're taking advantage of that.

SPEAKER_02:

Um, what I'll take this section uh in our notes here, but we're talking about asset allocation and expected returns. So sequence of returns is a real thing. So let's say you have a million dollars, you're gonna pull out$40,000, but the stock market's down 20% that year. You're withdrawing money as as the market drops, and that money, that portfolio can't rebound as fast because it's missing some of its resources, right? Uh, there's ways that we handle that. Uh, we handle sequence of return, we reduce that risk by having cash reserve set aside. So if we knew that we were going to uh pull out$40,000 a year, we would have$80,000 in reserve. We would have the rest invested and probably a$60,000,$40 portfolio. And then um, if the market did completely tank on us, uh we're not having to sell anything in that portfolio for a loss. And hopefully we were able to build that cash bucket in a positive time versus a negative time in the market. But uh theoretically, if if you had some really bad years at the front end, it could really affect your your ability to um have the same withdrawals for a long time out of the portfolio. Uh, but there are ways to mitigate um that risk. And again, that's making sure that you have about two years worth of uh it's not it's a reserve. Um and and and you're pulling money out of that every single month. And then when the market's at all-time highs, you're taking your gains and you're replenishing that reserve.

SPEAKER_05:

Yeah.

SPEAKER_02:

And today uh we're lucky we get about a 4% yield on that reserve, where in the past it was it was really hard to um uh to get those rate of returns.

SPEAKER_05:

Before we get back into the episode, have you ever wondered why annuities keep coming up as a recommended investment? While they're often pitched as a way to reduce risk and secure your future, annuities frequently benefit the salesperson more than the investor. Download our free guide, Buyer Beware, why do they keep trying to sell you that annuity at wiserinvestor.com forward slash guides. Now let's get back to the episode.

SPEAKER_02:

Uh as far as how does the 4% rule work, uh, there's a lot of tests that use 50-50. So 50% stock, 50% bonds. If you're in a 60-40 allocation, you're getting closer to that 50-50 because of that cash reserve.

SPEAKER_03:

Yes.

SPEAKER_02:

So you might have to be 70-30, 70 stock, 30 bonds with your cash reserve uh to kind of get back to that 60-40 number. Uh, but those are those are all different tests that we would do um to determine uh how we should be investing that uh going forward. Um Let's let's talk a little bit about purchasing power. So how does the 4% rule account for inflation? Because if I pull out 40,000 a year and let's say I'm getting my spouse and I get another uh 10,000 a year or 10,000 a month from Social Security, that would be the max. Yeah, right. Uh so I I've got I've got 50,000 a year that I'm pulling out. In 10 years from now, that 50,000 is not gonna be able to do anything for me.

SPEAKER_05:

No, definitely. And so essentially how that works is that you're gonna take your 4%, like you do your first year. It's the flat 4%. But then once you get to that year two, likely inflation's gone up to some degree. And so you're gonna have your 4%, but then you're going to then apply inflation to that. So it'll be, you know, after that first year, you know, your second year starting, it might be, you know, if inflation's a little bit higher than 4.08%, say, you know, and then that's what you would use to then do your withdrawals from the portfolio.

SPEAKER_02:

So the Fed rate or the Fed target inflation rate is 2% per year. So exactly. Assuming they were good at their job, that's a terrible assumption. But assuming they're good at their job, inflation really was 2%. What you're saying is I would take my 4% that I pull out, I would increase that by 2%. So the math would be 4% times 1.02 on your calculator. You're come up with 4.08%. And then that is what you would apply to your balance for that year to then to then pull the money out.

SPEAKER_05:

Exactly. Exactly.

SPEAKER_02:

And then hopefully, hopefully the balance has gone up and then you'd have even more because the higher percentage, or if it's gone down, it that helps recoup a little bit of that purchasing power.

SPEAKER_05:

So big thing there is though, just make sure you're not adding the 2% to the overall 4%. Yeah, yeah. Or not trying to be 6% necessarily. That's where you run into a little bit of a risk.

SPEAKER_02:

That's how you end up living with your kids.

SPEAKER_05:

That's the bad math on that, but very easy to do. So just make sure um you're doing that correctly because it's a percentage of the 4% essentially going up.

SPEAKER_04:

Correct.

SPEAKER_05:

Um, so just be mindful of that. But overall, yes, it's that just protecting your portfolio from that inflation, you know, protection, making sure that when you are needing to withdraw, of course, hopefully your asset allocation is set up correctly and you know, everything's, you know, still continuing to increase, or just like you were saying, if there's downturns, this is still helping you, you know, get that purchasing power out as well. So just really having that protection there. And then, you know, the big thing to also know about inflation and making sure you're protected on the longevity, that kind of thing, is also understanding what your pension plans do. You know, making sure that if you have a pension, that it has a cola adjustment, if it does, so you know, your cost of living adjustment uh similar to what Social Security would be or something like that. You know, some of them have a flat rate, some of them don't. But, you know, just making sure that there is some sort of, you know, inflation there. If there's not, then also taking that into account because not all pensions have an inflation um adjusted with them. And so you just want to make sure that you are taking that into account because just like we're saying, that 40,000 today that you're getting from a pension is not going to be the same 40,000 20 years from now. Right. And so you just want to be very mindful of that. Um, and that's a really easy trap to fall into as well when you're doing this on like spreadsheet math, you know, yeah. Um, that you just think that's going to have the same purchasing power. And at the end of the day, it won't. Um, so just be mindful of that and understand your, you know, pension planning.

SPEAKER_02:

That's how most people do their own financial planning. They they say I can retire, I get this amount of money. They don't think at all about 10 years from now.

SPEAKER_05:

Yes, exactly. And it's like it might be great, you know, today. Maybe even five years from today, you're still okay.

SPEAKER_02:

Actually, I think retiree inflation was pretty low for over a decade. And then we we hit a brick wall in 2022.

SPEAKER_05:

Yeah.

SPEAKER_02:

Um, because I we build this stuff into our planning, and I never had anybody say, Hey, I need more money per month. Um, who was already on budget. We get a lot of that, but it was already kind of on budget. No one never said, No, we're doing fine. No, we're doing fine. 2022, people were like running in here going, this is ridiculous. I'm blowing through all my all my budgets. Uh, what's going on? It's like, well, you didn't take you didn't take your increase for the last decade. You you can you can cover all this pretty easily.

SPEAKER_05:

Exactly.

SPEAKER_02:

Um yeah, that was that was surprising to everybody. Um, I I I think the uh kind of segue, another thing that you have to think about as you're doing that spreadsheet math, you have to take into account taxes.

SPEAKER_05:

Yes. This is like a hidden beast in your like retirement accounts if you don't think through it like well enough of understanding that there is going to be tax when I pull out an IRA.

SPEAKER_02:

If your million dollars is sitting inside a 401k IRA, there's nothing in a Roth and there's nothing in a brokerage account, you're you're paying all tax.

SPEAKER_03:

Yes.

SPEAKER_02:

The good news is at the income levels that we're talking about in our example, um, your tax liability is going to be fairly low. Yes. But, but, and it's gotten better with the big beautiful bill.

SPEAKER_05:

It has.

SPEAKER_02:

In fact, I would argue that you'd probably have almost no tax potentially if you didn't have any outside income. Yeah. Right? Because the exemption is only taking yes, if you're 65 years old and then you're living on$60,000 a year.

SPEAKER_05:

Yeah. No, it's very close. Yeah, it'd be pretty close to zero. Because I just did a tax projection for that the other day and it was very close. Yeah. Mm-hmm. So But they had social security already. So that's where it kind of was a little bit.

SPEAKER_02:

But but but if you're putting in$150,000 a year, um you could get you get a you could get a little sideways.

SPEAKER_05:

Yes. And it's just important to be mindful of that. You know, make sure you know that you are going to have to pay ordinary income tax and when these, you know, accounts are coming out, when you're having to pay for, you know, if your early retiree healthcare, if you're just wanting to pay for your groceries and you're pulling it out on a monthly basis, you know, you just have to be mindful of that because it is something that is factored in. Taxes don't just go away, sadly, in retirement, although it would be nice.

SPEAKER_02:

Yeah. Also, too, um sequence of uh we talked about sequence of returns, but also where uh source where you're putting money from is really important. Yes. And and I know we're we're using this um fairly simple example, but we're a wealth management firm, so we see many complicated things. So for clients that have a high net worth uh at the beginning of retirement, there's likely an opportunity for you to be converting a lot of money from IRA to Roth. And that's we've done several podcasts on that as well. So I don't want to uh sidestep into into into some that, which is much more detailed for a Thanksgiving week podcast. But um but yes, uh there there are lots of tax strategies. And I think that's what makes a wealth management firm better than most is when firms uh focus on tax and estate more so than than than other firms do. So the uh uh taxes you have to take into uh account uh into account that. Sorry, I can't spot talk up a sudden. Um and then unexpected expenses. Okay. So we have two types of people in this world. We have people that half glass, uh glass is half full and then one that's half empty, right? Yes. And in this case, uh if you are not taking two uh unexpected expenses like home repairs, emergencies, car purchases in the future, you have to be working that into your your retirement budget line.

SPEAKER_05:

Yes.

SPEAKER_02:

Uh and so that doesn't really fall on a 4% rule, honestly.

SPEAKER_05:

Yes, it's just built in over there with you know having just an additional amount that you're gonna have to pull out, whether that be, you know, you have your cash savings set aside already, which a lot of our retirees, they just have a set amount that they keep in cash at their bank that they like to have in a high yield savings account for a rainy day, if there is, you know, anything that happens for home repairs. We have other clients that they prefer to not have to pull from that bucket and they'd rather pull out of their IRA, you know, and you know, utilize that then. But definitely not something you necessarily work into your cash flow on a regular basis. Um, it's just something that when it happens, uh your plan should be able to withstand it and be able to, you know, apply uh really, you know, provide for that.

SPEAKER_02:

So I feel like we've we've recovered our risk pretty well. Sequence of returns, um, early bad years can cause a lot of damage to the portfolio. We want to have some reserves built in to avoid that. Um, big market downturns, that can scare people into doing really bad things with their portfolio. Uh, we test all of our models to make sure that if we repeated the great financial crisis, that nothing changes for the client. That's what keeps me sleeping at night. Uh, longevity risk, man. You're doing this 4% rule. At some point you do run out of money. So if you're gonna live to be 105 years old, we might need to use a 3% rule.

SPEAKER_05:

Yes. But also don't be like, we have so many clients that don't want to play until 95. And it's something that also you want to plan for if you are here longer than you even anticipate, because you don't want to end up in that really tough situation that you're still here at 95 or 92, and you thought you were going to pass away by 82, and now you're out of assets. So you just want to plan for the ultimate long-term.

SPEAKER_02:

I would say you're age 85 and you have to go to nursing home, and you're gonna consume the resources between 85 and 95 in just like three years.

SPEAKER_04:

Yes.

SPEAKER_02:

Uh, so you're also kind of um planning for the uh surprises such as such as that. Um, we already talked about inflation surprises, uh healthcare long-term care costs. Uh, you know, that should be covered if you're doing this at home. That's again that's probably covered in your inflation uh bump each year, but it's really not because Fed inflation target is two, Medicare uh inflation is typically around five. So you're you're not, it's really hard to keep up with healthcare costs. We have a separate line item in our planning um just for healthcare for that reason. We inflate it at 5.3% per year. And that's co-pays, that's uh pre uh the premiums you pay. Uh the good news is that Medicare itself is a great program. That's why everyone wants Medicare for all, right? And then the political spectrum is because it is such a good program, but it does increase about 5.3% per year. Um, behavioral drift, uh, this is where we haven't really talked into this yet, but you could you could be spending more money early and then uh uh under underestimating that lifestyle creep. So people say, Well, I'm gonna travel for the first 10 years, I'm gonna spend more money, and you kind of get used to that money, and then that when that budget kind of is supposed to fall off, it can't, uh which is why you don't sign up for subscriptions. You you pay for things as they come up, but you don't you don't let your lifestyle creep to where you have to have this every every single month. Um in our simple example, everything was done in that four percent, but in reality with planning, we have buckets of spending at different time periods, uh, which is how planning planning should be done. Uh we talked about tax risk, changes in social security policy. Uh we we've had I feel like we talk about this in a lot of episodes, but man, don't fall for the fear that social security won't be there. That's not reality. Um reality is that 25% of it may not be there, but I don't think there's a chance of that happening either. Uh that's just because a trust fund is is um uh is out in 2033, which covers 25% of social security. But that's That can be fixed.

SPEAKER_05:

Yes, it can be fixed. And they already have fixes. They just don't want to do them yet. Exactly.

SPEAKER_02:

Um, what does enough mean? Am I gonna have enough for retirement? What does that mean? People ask us that all the time. When they ask you that, what do you say? Am I gonna have enough for retirement?

SPEAKER_05:

Well, it's so subjective, you know, and it's something that you really do have to say, well, what does enough mean to you? You know? What isn't like what are those goals that you have that you want to achieve in retirement? Because that's a big deciding factor of what's enough.

SPEAKER_03:

Yeah.

SPEAKER_05:

You know, if you're wanting to make sure you can travel, you know, pretty frequently in retirement, then that's a big enough button that needs to happen. You know, there's just different things in our lives that pull us in different directions and that speak to us personally. And, you know, we talk about all the time that in retirement you need to have a routine that you establish and be involved. And, you know, it is figuring out, well, what does that enough look like? You know, even to make sure you can provide for that routine in the future and make sure that if it means that you need to, you know, keep your country club membership and make sure you can go play golf as many times as you want or pickleball as often as you want, then that's something that we need to make sure you have enough for. But, you know, other people, that's not necessarily gonna be there enough. And so it's really figuring out it's not a one size fits all. And I know that's one of the most frustrating things about finance is that it's not a one size fits all. We can't tell you, you know, 100% without a doubt, if you do this, you're gonna be set because that it's so different for every single person. And you know, it's not it's not like putting on a pair of jeans. It's not a one size fits all and one size fits one person.

SPEAKER_02:

Your million dollars might be a quarter of what you need, where someone else's million dollars might be 120% of what they need.

SPEAKER_05:

Exactly.

SPEAKER_02:

It also depends again on the sources of income. The only thing we haven't mentioned though is age. Is a million dollars enough for retirement? If you're listening and you're 25 years old, good for you for listening to a finance podcast, by the way. Um million dollars is not gonna be enough.

SPEAKER_05:

Yeah. No, exactly.

SPEAKER_02:

If you're if you're starting at twenty-five trying to save to a million dollars in thirty years, forty years, that's gonna be a drop in the bucket. Your number's gotta be a bigger number. If you're if you're 62 years old or even fifty-eight years old, it might be okay. Depends on depends on lifestyle, right?

SPEAKER_05:

It does.

SPEAKER_02:

You're in your forties, probably not enough.

SPEAKER_05:

Yeah. And that's where it really does come into, you know, what we're talking about of inflation. It's just that cost of living and that purchasing power. It changes year over year. And it gets harder to attain to that one million number or even higher than that to make that a livable amount. So definitely um that's a great point to make that we you have to take into account your age as well, because yes, a million dollars for a 25-year-old when they're 65 is not near what it needs to be, you know, because if we look at even just healthcare, you know for that far out, it's yeah, that's astronomical.

SPEAKER_02:

Healthcare is crazy. We're gonna have a big healthcare problem in 30 years um if we don't solve it. Um but if you're 25 years old and you want to hurry up and you want to save a million dollars, go for it.

SPEAKER_05:

Yes.

SPEAKER_02:

Because if you had a million dollars by the time you were 35 or 40, and that money keeps compounding, then we could apply inflation to the million dollars today and say, yeah, that could be enough.

SPEAKER_05:

Exactly. And that's the big thing, is that's where too you'll even see, I think uh it's become more popular on like if you're on like YouTube or TikTok for people in their 20s, that kind of thing, where it is that finance, you know, side of the, you know, social media where they're talking about how do you get to your first hundred thousand so then you can get to your first million by your 30, yeah, you know, or 35. And it's like that's the goal. And so many people are on that race because they know that, well, the power of compounding is right there beside me. And if I just focus really hard on these years, then by the time you know I'm 55, 60, right, I'll be feeling good about where I'm at, you know? And it's really just setting themselves up for success. And that is such a, I mean, it's a great thing that we're seeing. So I think even um studies have come out that like really the mid-20s or early, you know, even 18-year-olds are on more of a saving path than we've ever seen before. And just being very mindful of their dollars and making sure that they're setting aside what they need to. And so it's really encouraging to see.

SPEAKER_02:

Encourage that in your kids. Um, for those listening that that to have kids or grandkids, encourage or do a matching program. Say, hey, for every dollar you put in, I'll put a dollar or you know, because they're probably not gonna put that much in before they're 18.

SPEAKER_05:

No.

SPEAKER_02:

But but do do something to encourage them to be to be able to be saving. Uh, that that that does that does build. I get frustrated with my own kids sometimes. Um, you know, they they log in, they had$200 in their brokerage account, but now it's$600. It's like it's only$600. Look at the percent rate of return.

SPEAKER_01:

What did you do for that? Exactly. What did you do for that? It's only$600. It's$200. I could have bought whatever.

SPEAKER_02:

And it's like, oh dear God, we're gonna have to have a solid trust built. Um might have some spin thrifts on our hands. Um no, they'll figure it out. I want them to figure it out before they're 40, though. That's that's that's the key. Yes. And that goes into legacy planning, which could be a whole nother podcast too. It's like, how do we teach our next generation how to handle uh how to handle this stuff? Um what what else can we add to this conversation? Um what what if it's not enough? Michaela, what if people are going, man, I don't a million dollars is not gonna have enough? What can I do? Uh uh, you know, part-time, part-time work.

SPEAKER_04:

Yeah.

SPEAKER_02:

I don't mean that in a negative way. Find something you love doing and just get paid to paid to do it.

SPEAKER_05:

No, exactly. If you're someone that, you know, I'll use golf again. If you're someone that loves the golf course, there are plenty of starters that are needed, or there are plenty of someone to drive the range.

SPEAKER_02:

Or lifestyle. Yeah. We have a guy now, who uh uh he he works in the cart barn or something, but he gets free golf.

SPEAKER_05:

Exactly.

SPEAKER_02:

He he I don't know how many days a week he plays, but he gets he gets free free golf for doing that. So that's that's compensation because he doesn't have to do it, right?

SPEAKER_05:

Exactly. And that's the big thing is finding those opportunities and they're out there. Whatever it is that you're interested in, you can find, you know, an opportunity that would speak to that as well. That would be a part-time employment, something that's available to you.

SPEAKER_02:

Delaying retirement. Um, I would say it's easy for me to say this because I'm a hustler, but I would say hustle.

SPEAKER_05:

Yeah.

SPEAKER_02:

Like maybe you need to shut off the world, stop paying for things you shouldn't be paying for for five years, four years, three years, two years. They went up, I plan recently. I was like, you guys need to buckle down for 12 months. If you buckle down for 12 months, time solves it and your savings account will solve it and you'll be in great shape for the rest of your life.

SPEAKER_04:

Yeah.

SPEAKER_02:

And the response was, uh, I was like, it's 12 months.

SPEAKER_05:

Yes.

SPEAKER_02:

Like 12 months, and you're you're just you're gonna be debt-free and you're gonna be, you know, doing all things you want to do. You just gotta do this for 12 more months.

SPEAKER_05:

Yep. And it's having that internal audit with yourself and being really honest of what are we spending money on? Because there is definitely you want to enjoy life, reducing lifestyle. But making sure that you're, you know, being mindful of what you're spending because I know all of us, especially in the day of subscriptions, have way too many subscriptions than we need, you know. Right. And so it's auditing that, you know, maybe it is only$5 a month, but I mean that adds up. Uh, and so it's just, you know, making sure that you're, you know, really taking a fine true financial audit of yourself, you know, pretty frequently to understand what am I spending on money on? What am I being wasteful on? If it is something that you're in that I'm really towing this line of being prepared or not prepared for retirement, because at the end of the day, it really is something that you you want to have your resources working for you well, um, but you also have to steward them well to have them work for you as well.

SPEAKER_02:

So is a million dollars enough? I don't know. It depends.

SPEAKER_05:

It depends.

SPEAKER_02:

Man, I hate that answer. I hate that when I call my attorney and say, hey, what about this? And he's like, I don't know, it depends. I'm like, oh, that's gonna cost me a lot of money to get an answer. Dang it. Um so yeah, it really depends on your withdrawal rate, the rate of return, inflation, your lifestyle. Uh I say most importantly, other income sources. Um, you know, those it it just it just depends. So take take these risk and these assumptions that we've told you in the podcast, apply that to your situation, and maybe that will help you um make that decision. Or hey, call Michaela. Michaela will help you too. Thanks for listening today's episode. If you're interested in learning more about Wiser Wealth Management or want to schedule a consultation to meet one of our fiduciary financial advisors, you can do so by going to wiserinvestor.com or by clicking the link in the episode notes. Uh, we also have a couple other podcasts related to this. Make sure you're ready to retire. Episode 276, and what are the best and worst states to retire in? So if you're thinking about moving from those high-tax uh areas, episode 217 gives you some guidance. And then we do this uh thing on YouTube, also called a wiser retirement. You can watch more videos there related to this, which we've uh linked here in the episode notes. Thanks for listening. We'll see you guys again next week. Happy holidays.

SPEAKER_00:

Thanks for listening to a Wiser Retirement podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review. If you have any questions about anything that was discussed today, head to wiserinvestor.com and reach out. This podcast is strictly for informational purposes only and is not to be considered as investment advice or solicitation to buy or sell any financial products, securities, digital assets, or any other investment vehicles or a basis to make any financial decisions. Wiser Wealth Management Incorporated is a registered investor advisor with the SEC. The host and or guest may personally own securities, digital assets, or other investment vehicles mentioned on this podcast. Neither the host nor guests of the show are compensated for their participation, and no referral fees are paid to or received by any host or guest for clients, listeners, or similar interests. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, insurance professional, andor legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.