A Wiser Retirement®

319. How to Retire Early Without Running Out of Money

• Wiser Wealth Management • Episode 319

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Early retirement is a dream for a lot of people and it can be possible, but only if you plan for it the right way. On this episode of the A Wiser Retirement® Podcast, the conversation tackles what early retirement really means, why so many retirees run out of money, and what steps you can take now to retire sooner without sacrificing long-term security.

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SPEAKER_06:

What would you do with an extra 10 years in retirement? Stay tuned today. We're going to talk about ways you can retire early without running out of money.

SPEAKER_02:

Welcome to a Wiser Retirement Podcast, where we cut through the noise and bring you real, honest conversations about investing retirement and building lasting wealth. No sales pitches, no gimmicks, just everything your financial advisor won't tell you.

SPEAKER_06:

I'm Casey Smith. Today I'm joined with William Medcalf. How's it going? Rock star, certified financial planner, and now a new designation, William. That's right.

SPEAKER_05:

Tell me about it. Certified in blockchain and digital assets. So just did a course on that over the past few months. And uh yeah, uh, we have another advisor here who also has that designation. It's just a little bit more specialized, a little bit more knowledge on an area that I really didn't know about.

SPEAKER_06:

Yeah. Um, so but now you're like the blockchain digital asset expert. Something like that. Along along with Andrew. And he's Andrew's the other one that has our has that designation. Uh, I have actually everybody working on that. Um some we have a few that are about to sit for the CFP. So that's their concentration right now. But that's something that I want all of our advisors uh to be experts at is blockchain and digital assets. Uh so we have the future. So congratulations for doing uh you that's two things this year, CFP and uh that's right. Uh the designation's weird because it's like C B C B C B D A. C B D A. It makes me think of those stores on the right side of the road, you know, vape and oh yeah, yeah, right? Yeah. I don't know if marketing no DHC in this one. Yeah. Yeah. I don't know if marketing thought about this clearly. All right. Well, let's start with a uh with a wiser stat um according uh uh with our topic today. So according to a simulation uh by Morningstar Center for Retirement and Policy Studies, about 45% of Americans who retire at age 65 are projected to run out of money during retirement. For those retiring as early as 62, the risk climbs to about 54%. Uh that data is for normal retirement age, I should say that. Um it highlights the magnitude of risk for early retirees. Uh and honestly, you know, I we can break this down. You know, why why do we think that 45% of Americans who retire uh at the um age of 65 are gonna run out of money. 54% at age 62, what is it for 55 or 50? Right?

SPEAKER_05:

Right. Exactly. I I mean this just comes down to like most Americans, a lot of Americans, they just don't I don't think they know what it costs to retire, and I don't think they maybe even have a handle on what they're spending now. Yeah. And so if you have a bunch of different things going on, it's not clear that you know, maybe what you're spending. And if you don't know what you're spending, and then maybe you do some bad math that, you know, gets you to the conclusion that you can retire, then it doesn't really work out very well. So um obviously if you retire early, that just magnifies that risk because it's just more years that you're not gonna have income.

SPEAKER_06:

You know, I I there was a time period where um our local uh electric company, they uh had pensions. Uh the pensions are still there, but they're smaller now for retirees. But back in the day, uh they were coming out with pretty big chunks of investments. And what I would see happen is there was no financial discipline. Here are people who uh they didn't have a college education, not that that necessarily matters, it's right. You can educate yourself on money outside of college. In fact, I don't know if college educates you about money, quite honestly. But but but they would receive like, for example, a supervisor or a manager received like a three million dollar pension. And they this couple came to me and said, Hey, I'm uh I'm at this brokerage firm and I think they've mishandled my money and they had$300,000 in the account. And this brokerage firm is not known for good ethics. Uh they they talk a big game. We can get you 10% a year, you know. And so these uh more uneducated investors would fall for that. Right. So I thought, oh my gosh, we got one. Like, you know, we're gonna we're gonna get an attorney and we're gonna bury this guy. So I said, Well, bring me all your statements from the last three years. And I start pouring through all the statements, and it became very apparent that there were very large withdrawals. The only thing that the broker probably did wrong is they weren't withholding taxes. So they created a tax snowball. So if you take$300,000 out of an account, you don't withhold any tax, yeah, and you go back the next April and you pull that money out and you don't withhold tax, yeah. It creates this snowball. Right. Uh, and there is no tax planning being done because he's not a wealth advisor, he's a broker, right? Most of these places on on all the street corners are brokers, not mostly tax advisors, right? So that's that was an example of a person that should have had a great retirement that couldn't handle um a large account and ended up uh living on social security three years into retirement. They went through almost a million dollars a year. Yeah. Which is which is insane, right? Yeah. So it it's it's um it's probably some mismanagement in the in the data. Uh also I think that people don't plan.

SPEAKER_05:

Yeah. I think that's I mean, that's what it boils down to is like you have to know what you're actually able to spend. You can't just kind of keep spending what you are spending and hope for the best. Yeah, that doesn't really work out over a long time period.

SPEAKER_06:

It's you know, the unemployment's low, but it's a competitive dot market. I I think even when you're older, there's still age discrimination. It's something that people don't don't really talk about. Yeah. Uh you can get fired and maybe sue somebody, but it doesn't mean that they have to hire you. Anybody has to hire you. So that's still age discrimination is still out there. Exactly. So if you're 55 to 60, uh 65 for sure, and you're trying to go get a job earning what you earned a few years prior, yeah, or 10 years prior, because you didn't you didn't get you didn't work long enough. Yeah, um, it's gonna be really hard. Especially unless you're gap, unless you're variants. Yeah, and then yeah, yeah. Yeah. And do you know anything about AI? Right. Right. So there's there's so many things, but um, but let's uh let's let's start breaking that down. So let's define what is early retirement?

SPEAKER_05:

What does that really mean? I guess the most basic way you could define that is just retiring before social security age at age 67, which is the full retirement age. Um, I mean, most people kind of in their head, I guess, have age 65, but really I feel like at our firm, when we're doing planning, it's kind of like if you're retiring in the neighborhood of, you know, basically like pre-60, I feel like that's when it's like that's kind of early retirement. Yeah. Um, but you know, there's not a hard definition. Um, the longer you have to sustain whatever income you have to live on, that's I mean, that's early retirement, especially when we talk about healthcare. So we'll get into the differences, but healthcare is another thing that really is um expensive if you retire before Medicare age, which is 65. Um, so those are the two big ones I would say.

SPEAKER_06:

Yeah, and the only exceptions I can think of are military that are on TRICARE, and then um some government and very large companies that offer retiree health care at a pretty low cost. Yeah. It's almost like they incentivize you to retire early from from that perspective. Yeah. But for the rest of us, it's pretty it's expensive. Yeah. Especially with uh ACA credits being changed. Yep. Healthcare gets very expensive.

SPEAKER_05:

Yeah. Um, you know, so another thing that I guess you could add to this definition is just because somebody says that they're retiring early doesn't mean that they're never gonna work again or maybe fully retire. Um, so that's you know, that's another thing to consider that can help kind of parachute you into retirement if you want to look at it that way. You know, if you're one of our pilot listeners, you obviously know that a lot of guys that have high seniority drop a lot of trips and then, you know, they're they're flying maybe once a month or something like that. So there's different ways you can do it just depending on your career. Um but um but yeah, so I mean early retirees kind of we've already touched on this, but the big risk is just a longer time horizon for you to make whatever savings you have last longer. And then if you're waiting on pension or social security, you have to bridge the gap to get to those as well and make a good decision on what options to select there.

SPEAKER_06:

I think that's an error, another error people make. They try to take the social security early when really they they probably have a large enough uh investments in reserve that they can spin that down more heavily at the beginning and then use uh pension later pensions and social security and then reduce what they pull out of the portfolio, sometimes maybe back to zero for a while. So they kind of recoup over time. That's something that is really I think it you know, you work a lot of of uh clients uh as they're as their planner, and don't you see that in the meetings where where they're like they say people tend to this segregate it down to just security or you're trying to say?

SPEAKER_05:

I'm looking at a plan and it's uh you know, we're talking about this amount, let's just say eighty thousand dollars, and they're then they're thinking that social security is gonna come in and it's gonna be on top of that. It's like, no, we're aggregating everything together because we're looking at it comprehensively.

SPEAKER_06:

Good good planning software will take all the sources, come up with a maximum number, and you're just pulling different amounts out from different buckets at different times, right? But it's it's the same number going forward plus inflation. Right. Yeah, yeah. That's the part that people don't always get. Yeah. All right. So let's go through you you've written out a few steps here. Um, know your number. What is what does that mean? Know your number. Yeah. I mean like the Fidelity commercial, know your number.

SPEAKER_05:

Kind of. I mean, this is a that's a term you hear a lot thrown around, and I think it doesn't really substitute for planning. So that's what I want to say first. Um, but it is kind of a good back of napkin kind of way to think about retirement. And maybe it can give you an idea of if you're close or not. So the first thing that's really important, this is for you know, people that feel like, you know, they're ready to retire now. The the number one thing I think is understanding what you're spending in retirement, what you're planning to spend. Because that really drives everything else. Because if you're not spending in line with what the plan says you can do or whatever, you know, you calculate, then that isn't gonna work. If you're overspending, that's just not gonna work. So um, you know, estimating your annual spending and then also accounting for what's gonna change in your lifestyle. So maybe you're spending a lot on, I don't know, uh sports or for your kids. I don't know, this sort of stuff. Um, you know, maybe expenses related to work, you know, clothing, you know, budget changes. I don't know. But travel can increase that too.

SPEAKER_06:

So it's like there's considered I find that people actually have spent less money. Yeah. Yeah. And and I'm not sure what the effect on why that is, other than they seem to just want uh calm and simple for a little while. Yeah. And then after a certain period of time, things definitely ramp back up.

SPEAKER_05:

Yeah. Yeah, or maybe they get grandkids and then it's like we're just spending a ton on that, or we're traveling all over the place to go see them. So yeah, there's definitely things that change for sure. Um, and obviously, Casey, you alluded to this already, but you know, some people when they're doing planning, they don't think about inflation. You know, you can't just calculate I'm just gonna use the number again, 80,000 into the future indefinitely, because that's probably not gonna be a lot in 30 years.

SPEAKER_06:

When milk's$30 a gallon, how do you gonna afford that on eighty thousand dollars a year? Right.

SPEAKER_05:

Yeah, yeah. And obviously, over the course of a longer retirement for people that are retiring early, that that's just gonna be even more compounded. So um yeah, and another thing there is like having large one-off expenses in the future. That kind of goes into what we're talking about about new cars, right? New cars, big truck, H V A COM But yeah, just kind of have an idea of all of those things.

SPEAKER_06:

Understanding your expenses is just kind of like part one of our of our part one. Right. And then uh then withdrawal rate, like how much can you actually pull out? And people when you retire as well too. That yeah, but how long? Right. So how much do I need, how long will I need it, and how much can how much income can I generate during that time, during that time period? Yeah. So a lot of people use this thing called the 4% rule, which I think is people only use half of it. Like they don't use the whole, the whole thing. Yeah. So they say I can pull out four percent per year and I'll be fine. Right. Well, hopefully the market's going up. But even if the market goes up, it may not go up by enough each year to cover your inflation. So how you're supposed to do that is you would do four percent the first year. The next year you have let's say it's two percent inflation. Uh you do four percent times one point zero two. And I say that very importantly, you don't add two percent to make six. Yeah. Right, right. You're not money really fast this way. Yeah. But if you do four percent, uh add two percent to that. So four times one point zero two, that's your number. Uh, that's what you pull out the next year. And then one point zero two on top of that. Whatever, whatever the CPI is, uh consumer price index is for that year, that's how the four percent rule. So you could do that in an Excel spreadsheet, and that'd give you an idea of what uh reasonable income would be from your investments. Then you'd add your social security to that. Yeah. Uh the safer strategy is to use a three to three and a half percent withdrawal rate, which I think uh our software gravitates more toward the lower side. Yeah. It's not quite four percent.

SPEAKER_05:

And it's not, I don't think it's calculating everything based off of just the four percent rule. It's not kind of showing us that so that we can see what it is being withdrawn. But that's a good point, is like planning software is gonna take way more into account than just straight math because straight math isn't really reality. It is correct. Um, and life is not linear. Yeah, exactly.

SPEAKER_06:

So we can just to clarify that point, yeah. What our software is doing is using a thousand different stock market scenarios and coming up with a probability of success. It's not, it's not running a six percent rate of return or seven percent rate of return. Uh it does a it does a linear one, but then it's it takes out inflation. Yeah. So really your net on our retirement portfolio is showing like three, three and a half percent. Yeah. But what we're focused on is the thousand different variations, including the really bad ones. Yeah. To make sure the plan still works.

SPEAKER_05:

Yeah. And um, your point about the three to three and a half percent is, and then this is something I at least I had I didn't know. I guess if you looked in our planning software and the kind of like the guts of it, it would actually make sense. But I just had never thought of it this way. Is, you know, if you do retire earlier, the the percentage uh that you would take off your portfolio actually does decrease as you calculate that out. So that's what if you were to cal retire, I don't know, really early, um, then you would actually have to decrease the four percent rule to be in line with that. And that's not something I actually realized until researching for this. But yeah, um, again, you know, if you're doing actual planning, it's not being calculated based off the four percent rule. This is just a good idea to get kind of a number for you. Correct. So there's a way we you that you can calculate it. Basically, if you're doing four percent, you would take your annual spending times 25. And so if that's a hundred thousand dollars per year, that would be a$2.5 million portfolio using the 4% rule.

SPEAKER_06:

Yeah, yeah. Usually reversing the math I just did.

SPEAKER_05:

Exactly. Exactly. That's another way to do that. Um, but again, this is just a very simplistic back of napkin kind of number.

SPEAKER_06:

Yeah. So same thing. If you needed$400,000 a year in retirement, yeah, you just divide that by for the uh four percent. Right. Right. And that's your starting point.

SPEAKER_04:

Yep.

SPEAKER_06:

Back of the napkin math, though. Yep. I would not plan on that. Right. Like I would not plan on that number is that's your final number. Yeah. Oh, yeah, variability. Oh, we we need to talk about that for a second. So you're probably not gonna pull out the exact same amount every single year. Yeah. And what of our planning techniques actually is to show travel budgets for 10, 15 years. You're probably not going anywhere in your 90s, maybe not even your 80s. So let's say we're gonna travel or do other things for 10, 15 years, and then we're gonna probably cut it out. That seems reasonable. It allows you to retire on more initially. Right. And then uh honestly, uh we do budget for cars and big expenses, but I I would say typically our software is so conservative, the market typically exceeds what we think it's going to do. Right. Uh so in that scenario, um, there it creates uh excess. Right. And then with the excess, you get the phone calls hey, I want to buy an eighty thousand dollar car. Uh, we run it through the plan, and then say, Yeah, just pay cash. We'll wire the money to you. Uh, and and that's it. It's recovered through the plan. But if you're living on the edge, like you need every city pen single penny, we're really working hard to make this plan work, uh, it's gonna be a lot harder to pull that off. Right. So live below your means helps.

SPEAKER_05:

Yeah. And I mean, that's kind of a key thing of like retiring early, I would say, in general, is just making sure that you are living under your means. Cause again, overspending is is not gonna look good, you know, if you're retiring a you know, decade earlier than most people.

SPEAKER_06:

You gotta be living under your means anyway, yeah. To retire early, because you have to be a big, big saber. That's a good point. Yeah. I I saw so I'm not doing as much planning anymore because um I have rock stars like William and Michaela and Shauna. But uh in our team meeting yesterday, one came across the table that I saw that that had um wanted to retire by 50. Yeah. Uh, and I'm like, okay, well, this is not gonna work. Yeah. Like you can't say I don't have any extra cash flow and then say I want to retire 50. Like they're gonna realize that they're gonna have to go to 65, quite honestly. Yeah. So you you you have to have a sense of reality of what of what's happening.

SPEAKER_01:

Before we jump back into the episode, do you know if you are ready to take off and launch into retirement? Get your pre-retirement checklist, a free guide from Wiser Wealth Management from cash flow to social security. We've got your account down covered. Go to wiserinvestor.com slash guides to download your free guide today. Now let's get back to the episode.

SPEAKER_06:

Let's go ahead and move to our step two. Um, build multiple income streams. So let's talk about that. Uh, sequence of return risk. This is something that I've I've been seeing a lot in the in the um financial news. Uh, why don't you explain that to us?

SPEAKER_05:

Yeah, so sequence of return risk is basically trying to explain what would happen if the bottom fell out of the market right as you were trying to retire. That's kind of a simple way to think about it. Because if you have no other income, let's say you quit your job and you can't go back right as the market goes down, and that's the portfolio that you are trying to live off of. Basically, you withdrawing money out of that account while the market is down is a risk because it is harder to recover from that, or you really can't recover from that in the same way that you could if you had either income to live off of or a cash bucket set up off of that you don't actually have to subject that to market risk. So sp spending off a portfolio that is down is what that's basically describing. Yeah. Um, and you don't want to do that.

SPEAKER_06:

And then our solution for that is actually creating cash buckets. Right. So you technically you should build your cash bucket in good times. We've had seems like nothing but good times in the last decade. Yeah. But you'd be building this up inside your investment portfolio. So nothing you have to do outside the portfolio. Right. You can do it there, but you don't have to. Right. Uh, but you build up this cash bucket where you have two years of reserve and your monthly income is coming from that reserve bucket. And if you um have a really bad year like 2022 is our last big one, you just wouldn't you wouldn't pull money from the portfolio side, you'd pull it from the reserve side. Yeah. And then when the market rebounded in 23, we simply took those gains and we put it back into uh the cash reserve. Yeah. We built that back up because we we had spent that down over a year uh in the in those reserves. That that's a uh a case for having an active uh manager, uh not active in the sense of buy sell, buy sell, but active in the sense of the market's here, we need to replenish our cash. Market active planner is that's probably that's a word. We're active planners. Yeah, exactly. But you you want to stay ahead of that inside the portfolio so that um your your client's not stuck in a position where they're having to liquidate and the market's down 20%.

SPEAKER_05:

Yeah, and and that's a good point because uh, you know, a lot of the basically all the plans we build are they're building in a stress test that's testing sequences of return risk. Yep. And so it's we're not we're not giving anybody a plan that's saying you can't return if the market's down, or you can't retire if the market's down. So all of our clients could retire if the market was down in the year that they were planning to retire. That's what we're planning for. But a lot of people make different decisions when they're in that situation. And so because we're saying that you can do that doesn't mean a lot of people would choose to do that. If you have the option to continue working, a lot of people end up doing that. So that's a good point to think about as well is just because you say I'm gonna retire this year, and then something you know out of your control happens, it doesn't mean you have to retire that year.

SPEAKER_06:

Correct. Um, so that's another way to mitigate that. So people you think about different income streams in retirement. Uh you know, people think income streams, this must be real estate and pension and dividends is another one people think of separately. Yeah, yeah. So so I actually I think I just I just took it right off your sheet. I'm sorry. Yeah, no, that's okay. But but yeah, so so that's the I gave you the answer. I I thought we were gonna expound on that. Uh but look but looking at income stream options, yes. Uh dividends are are part of that. Um I I would say I'll I'll put on my investment manager hat, going to buy dividend stocks, those trade at a tremendous premium. Uh people still do it. Uh and if you did it, if you've done it over the last 10 years, you're you don't have a very good rate of return. So it's it's a combination of growth and income. Yes. Not uh growth and income from the equities from the stock. Obviously, bonds are always going to be income, but you you need those growth stocks that keep up with inflation. Yeah. Where I don't know that value stocks have uh over the last 10 years. That'd be a good Andrew question.

SPEAKER_05:

But yeah, probably not they probably haven't overperformed inflation by as much as growth for sure. Yeah. Yeah.

SPEAKER_06:

Obviously.

SPEAKER_05:

Yeah. Oh, I guess the other point I would make here too is uh kind of like what we mentioned earlier, like just because you have other income streams doesn't mean that this is separate from your retirement living expense. Because, like again, when we do planning, it's like this is your number that you're spending each year, and we're taking all everything together. It's not necessarily separate from your plan in that sense, yeah, but it is a good way, like for example, with real estate, you know, is a good way to hedge against down market downturns because you just have that steady income coming in. Yeah. And there's tax advantages to some of these as well, like real estate. So those are good to have, but it's not required, I would say.

SPEAKER_06:

Yeah, and I don't know. Are we going to talk about part-time work? Because that could be an income stream as well. Yeah, that's get out of the high stress job and do something that you enjoy doing. Uh, I we actually have a client now that is uh he might be listening. Hey, Bob. Um, he has he cleans carts at the golf course one day a week. Yeah, he gets free golf yeah the rest of the week. It's I think he does it like on Sundays or something. Yeah. He's a cart guy. Yeah, takes the cart, cleans it, hoses it down, puts it back up, and uh they give him free golf.

SPEAKER_05:

Yeah, we have a client, another client that uh they they retired up in the mountains. They're building a house actually right now, and um they their part-time work was just going to work at an apple orchard like two days a week. So it's like you know, they get to be up in the mountains in the fall, you know. People are always happy at an apple orchard. What could go wrong? I know, right? Like rain's the worst thing that you've got going on. Okay. That's true.

SPEAKER_06:

Unless you're inside selling to people. All right, there you go. That could be that could be it. Yeah. Um, all right, let's talk about healthcare. This is this is the elephant in the room. Uh, guys, our listeners, gals. Uh man, it's so expensive prior to age 65. Yeah. There are some techniques that we've been able to keep healthcare costs down for people. Uh, you know, first of all, um, if you're in that situation or you're curious, we'll connect you with Logan Steele. He's our healthcare guy. Uh, that's all he does is healthcare. He's not selling any other any other products. Yep. Uh, he actually handles the healthcare for our company, saving$50,000 this last year premiums. Uh so thank you, Logan. Yes. Uh, but but he's our go-to person for healthcare prior to retirement. He really does a good job of educating our clients on ACA subsidies, things of that nature. But once you kind of walk us through you know some of our options uh prior to 65.

SPEAKER_05:

There's there's definitely, you know, the ACA marketplace with subsidies, that's one. If you're if you're lower income in the sense of how you take distributions, that's one way that we can actually help because you can actually get subsidies um, you know, in that situation. Um, but that depends on how the portfolio is being managed. And so that's one way that we can actually help with that. Um and and we try to take everything in, you know, in consideration together. So we're not gonna, you know, do certain things in the portfolio that are gonna make less money than the the actual subsidies uh would make or save for you. So there's some nuance there with that. Um Irma's kind of uh the same discussion where it's like we're you know, it just depends on your situation, basically, is what I'm trying to say. So um, you know, there's there's other options like health sharing ministries. I don't think we've I don't know if you've ever recommended that for a client.

SPEAKER_06:

Um I've you know I've I've seen people do it and then they typically leave because they're just concerned that man if real something really big happens, like they don't have to pay. Yeah. So that becomes an issue.

SPEAKER_05:

And you know, there are high deductible health plan options available, you know, with an HSA. So I guess the point, the point of that is if you are saving in a HSA prior to retirement, that's another good way to prepare for this, especially retiring early. Yeah. Um, you know, because you have this huge bucket of tax-free money that you can pull from to help cover these higher health costs.

SPEAKER_06:

I mean So stop spending your HSA money. Put your HSA money in the account, leave it alone, and then leave your deductible in there. Yeah. And then every everything above that, go invest it, you know, put it in the SP 500 or something, but don't don't don't let it sit there in cash, but don't don't be spending the account down. Just let it build up.

SPEAKER_05:

Yeah. I mean, that's we say this probably all the time, but the HSA is the only account that has three tax advantages. And so it's, you know, you get a deduction for it going in, it gets to grow tax-free, and then you get to take it out tax-free if it has you know, if it's used for medical expenses. So um that's the best way to use that account is to save it and invest it if you have the the appropriate time horizon to do that. So um that's another thing there. I mean, the bottom line is it is just expensive. The healthcare is expensive pre-retirement, so that's just something we can mitigate by planning.

SPEAKER_06:

Yeah. Um tax strategies. So I I would say that uh this is step four. Um if you're gonna be retired for a long time and you're gonna retire early, so 50, you have a problem in that you can't withdraw even from your 401k at age uh 55. 55. So you can do 55, you can do withdrawals, but at age 50, you can't. You need to have money in brokerage accounts. Yeah. And then between if you do an IRA rollover from your 401k to an IRA, then out now it becomes 59 and a half. Right. So don't be coerced into rolling over your 401k to anybody uh if you think you're gonna be retired prior to 59 and a half without other resources. If you've got a couple million dollars in a brokerage account, then you're probably gonna be fine. You go and do the rollover. But if if that is your primary source, you need livity in your 401k account um so you can withdraw money. Yeah, it's kind of a pain because 401ks really aren't retirement portfolios, they're really built for growth. Yeah. So it you're not gonna have the best investment options in there. Yeah, but you'd also don't want to pay the 10% penalty.

SPEAKER_05:

No, that's a that's a very good point. Um, you know, another thing here, you there's different spending order too. Like Casey just mentioned brokerage is is the main thing we want you building. And I mean, we're telling a lot of our clients that aren't even trying to retire early that they need to be saving to a brokerage account after they've already gotten their other deductions or maxed their other accounts because it just gives you so much flexibility. Yeah. And I think that that's that's what a lot of this is about, too. You know, like I said earlier, it doesn't mean you have to retire early, just having the option to for some people is really good. It makes them happier at work. So just giving yourself flexibility with a brokerage account is is a really big um boost to your portfolio, I would say. Think about this for a second.

SPEAKER_06:

So you're probably a pretty good saver if you want to retire sooner or you have a business that you're gonna liquidate. But think of this. If you are maxing out 401k, you're doing all that pre-tax, then you start adding money to a brokerage account. That brokerage account becomes very large. So let's say$750,000 or a million dollars in this brokerage account. The allocation that you have for your um large cap, your SP$500, remove that out, create a new account for direct indexing, invest that money in direct indexing. It's it's the SP 500. It's just you own, you're the index owner. Right. Look at it that way. Yeah. And then you get to keep all the tax credits that the ETF companies would normally be keeping for themselves. Right. So you generate tax credits, probably about six percent of what that balance is in the SP. You create maybe over, let's say, five years prior to retirement, um, a million dollars, you probably have generated six percent would be on what's in the SP 500, so probably about$450,000. Uh so let's make it lower than that, let's say$300,000. You you've you've probably generated over$150,000 worth of tax credits on your Schedule D. Yeah. So when you retire, you're pulling money out of the portfolio live on, but then you don't have to pay capital gains tax. Yeah, but now you have no tax because you have these capital gains credits sitting there. This is how this works if you've planned out well in advance. Exactly. And then if you have no income, you have an income stream, but it's not taxable, you have no income. That's a great opportunity to then go back to those IRAs and convert from IRA uh to Roth, which you're gonna have to wait to. Do until you're 59 and a half, right? Uh to do those conversions. But that that's just a kind of a dream scenario if you plan ahead of time uh to to build up um the cash that you need to live on, but also reduce your tax liability to something very, very low.

SPEAKER_05:

Yeah. No, that's a great point because I mean having those tax loss losses built up over time is huge because you can just live tax-free for essentially tax-free for you know years.

SPEAKER_06:

So what's the retirement spending order?

SPEAKER_05:

Yeah, just going through quickly, uh, we obviously keep a cash bucket and then recommend our clients keep cash on the outside. And then we'd be pull so you pull from there first, um, then we would take it from the taxable brokerage, and then we would go on to traditional IRAs or 401ks that are pre-taxed. So um, and then we usually leave the Roth IRAs or Roth accounts last um just to maximize the tax-free growth on that. So that's kind of generally how those are invested, how the how we think about withdrawing from those. Another thing that we can do um to just help with overall tax burden is asset location. So if you're a managed client here, then you know what we invest in your overall portfolio is going to be the same, but depending on the account, there's different ways we match the investments with the different types of tax treatment. So that's another thing we can do as well.

SPEAKER_06:

So let's talk about our risk. We already talked about sequence of returns. Yep. And if you're a wiser client, uh, we're not worried about that because we've already uh simulated the great financial crisis happening the day you retired. And we want a hundred percent probability that you won't run out of money before age 95. If that were to happen, you might be leaving less money to your beneficiaries, but you can still maintain your lifestyle. Right. Uh, what else are we concerned about?

SPEAKER_05:

Yeah, so I mean, longevity risk is one we've kind of already touched on, you know, just living a longer period of time without have with having a limited income or you know, um no income.

SPEAKER_06:

So that's one. I saw the stat today that if you're under the age of 60 today, you you have a very, very high, very, very high chance of making it to age 100. Yeah. With with modern medicine and things that are coming down through from development through development. Yeah. Uh you know, how many times do we sit across the table from a client and go, I'm not gonna live past 80? My mom died to live past 78, or my dad was dead at 62, or you know, whatever. But you're living longer, uh, people. There they can literally print like 3D hearts on a 3D printer right now.

SPEAKER_05:

So yeah. And that's why we always plan, that's like our default is planning to age 95 for all of our clients. Um, and we have some that are actually like I have longevity in my family and we push it out a little bit. So it just, you know, it depends on your genetics too. But um, but yeah, I think modern medicine is really gonna push the limits of this.

SPEAKER_06:

So that means is when you have a retirement, when you go into retirement, people think I have to get really conservative. You don't, yeah, actually. Your money has your money's been kind of sleeping and growing, but now it's awake and it's your lifeline. Right. So you can't get grandma grandpa on us and get down to like all CDs at the local bank. Yeah, you're gonna you're you're gonna be dead in the water in about 10 years. Yeah. So you you have to keep risk on. Yep. I think at a minimum it's 60 stock, 40 bonds, but a lot of families are going take now to 7030. Yeah. At the Schwab conference this year, I watched the whole presentation on why 8020 is a new 6040. Yep. But because because the government most likely is gonna screw all this up. There's gonna be a high inflation, yeah. And maybe you need to be more 8020 in your portfolio than than than 6040. Yeah. It's uh I I'd say 6040 to add some digital assets or 7030 and add some digital assets to your portfolio. Um, but you could do 8020, you just have to have enough cash reserve to withstand the volatility of the 80-20.

SPEAKER_05:

Exactly. Like uh, you know, if you have as long as you have that significant reserve and then the bond portion is uh, you know, substantial enough to mitigate a downturn, then yeah, I mean you can invest very aggressively. So lifestyle creep is another thing that I think we've already touched on a little bit. Um, you know, if you're spending outside of the bounds of of what your plan allows, um, over a long time horizon, that's not gonna look good. I think I've already said that, but um, that's another significant risk to retiring early.

SPEAKER_06:

So I don't know if you have anything to add, but Yeah, yeah, I you know, I I think at a wealth management firm, we have the opposite problem. We have people who've been good savers and I beg them to go do things. Yeah. Like if you're 80 years old and you're not moving around as much anymore, maybe you need help getting out of bed, who knows? What is it you wish you would have done? Yeah. Uh so it's really hard to get good savers to switch and do lifetime trips because they're so expensive. Right. We we have um we have a client recalled me yesterday actually, and he's going to he he's uh he's single, uh he's uh uh in his 70s and he is headed to um Antarctica. Yeah uh by himself on a cruise. He's like he told me I should be doing something, I'm gonna go do something. Yeah, that's awesome. It's expensive to go to Antarctica, by the way. But you know what? He needs to do it. Yeah. This is this is something he I guess he's always wanted to do, and yeah. Now he's gonna go uh discover what's it, South Pole? That's the South Pole, yeah. Yeah. He's gonna see the bad elves. The South Pole elves. Um, so you know, good for him. We have other families that finally have realized that CNN is not representative of the world, that it is safe to travel. There they can go do things. Yeah. Uh but it took a long time to get there. We've had other clients I've had to send this, has been a couple years ago, but we went to eBay and we bought like a box of old postcards from different random places and we mailed it to them with a note that said pick a place. Yeah. You guys have to go do something, you know. Yeah.

SPEAKER_05:

Well, and that's the thing is like if uh if we're doing all this planning and we're managing the portfolios like we are and all this, it's like that's great, but if it's not enabling you to do the things that you really want to do, then like uh what's the point? You know, like you really should this should basically, you know, rest your mind and give you the the latitude and the the ability to just go do and live your life, do the things you want to do.

SPEAKER_06:

So yeah, I I think the part that that's harder is the people who are here who are building wealth, but then they're spending too much and trying to rein them back in. Those are always the interesting conversations, but those are typically never the retirees uh for the most part.

SPEAKER_05:

Especially people that are trying to retire really early too. Yeah, you know.

SPEAKER_06:

Yeah, absolutely. Yeah. All right. So let's talk about some action plans for you guys, uh, step by step. Calculate your annual spending, uh, project your retirement budget, kind of best case, worst case scenario. Don't your retirement budget isn't your bare bones budget. It's all the stuff you want to do and what that's gonna cost. Yes. And it's okay to put it in different buckets for different time periods. That's where using software helps uh uh figure figure that out. Uh determine your withdrawal rate and target number. Uh identify income streams you can build now. So that brokerage account, uh, maybe maybe it's getting a rental house paid off so that it's 100% cash flow when when you hit retirement. Yep. Uh look at your healthcare plan. That's gonna be expensive. Don't go, we'll just take care of it. You need to have a strategy before you hit the uh exit button on the on the job. Create a tax strategy. Uh that's what I love about this place is we are all well versed in tax. Not all of us are CPAs, some of us are, but it you don't have to be CPA to understand tax and estate planning. Those are two different things. Yep. We're not doing your company books and doing depreciation. That's what CPAs are for. Right. But but when it comes to tax planning for retirement, uh any advisor here is is an expert in that. And then stress test it. If a market goes down, you live longer, can it can you do it? And the good news is is we do all this here. Yeah. Uh and we even give you a portal to get to to uh build upon once we're done with the planning. You can go log in and change all the stuff yourself, yep. Uh, which is pretty cool. So now we have a new segment for me. I think Shauna had has already done this when she was uh leading our last podcast, but we have a new session called uh three questions in three minutes. And what we're doing is we're gonna ask this to every guest, but as each team member comes through one time, we're going to ask you these questions. All right. So here we go. Let's wrap up with this one, William. Uh, what's one what's a money mistake you're weirdly glad you made?

SPEAKER_05:

I had trouble thinking about this. Uh, but I think so I worked, I was in college for two years before I transferred to U UGA. I worked all through that. I worked in high school, all that, right? The first semester that I was at UGA, I decided not to work. And I think that was really great because I I ended up making you know long-lasting friends and found my wife and all that stuff in that semester. And so that one that one ended up paying off. I lived off savings there for a little while.

SPEAKER_06:

So it wasn't a money, but you're saying because it was a money mistake because you you just say a new job for me.

SPEAKER_05:

All my savings, so yeah, having a girlfriend's not cheap.

SPEAKER_06:

So no, no, no, neither is having a wife, but yeah, right. For most of us, anyway. All right. If you could only uh if you could uh could only travel to one place, where would you go and who are you taking?

SPEAKER_05:

So I thought about this one a lot. I I've always wanted to go to like Australia, New Zealand, just on you know, down under whatever. Yeah, uh, you know, it just seems really like it's a very rugged like scenery, and I think it looks really beautiful. So that's one thing. One place I'd want to go, Alaska's another. Yeah. Um, and I would take my wife probably. So yeah.

SPEAKER_06:

I thought you were gonna say the forerunner. Well, I can't take it over the ocean, so maybe Alaska, but wife's a good safe answer. Uh what's something you believed strongly 10 years ago that you don't believe anymore?

SPEAKER_05:

Well, I I thought that I would have more time in the sense of like, I thought that when you grow up, and this is a really dumb idea. So this is a 15-year-old or 16-year-old thinking this, right? Right. But I thought that I would have more time to do other things. And I think I wish I, as that somebody that age, I wish I had taken more advantage of those years and not just kind of goofed around. Uh yeah. Yeah. And that's it's not like a it's hard for anybody to realize that it's exactly because your parents try to tell you that, but it's it's one of those things where it's like, you know, I could have been doing something, uh, you know, whether it's more productive, I don't know. Working on something important to me. I don't know.

SPEAKER_06:

We have so many young people here now. I'm waiting for some. I don't think anybody's quite young enough, but I'm waiting for somebody to say Santa Claus. Yeah, 16 that would be a little weird.

SPEAKER_05:

A little pushing it, but yeah. No. So I don't regret it, obviously, but uh those are those are good answers. Well thought out. Thank you.

SPEAKER_06:

All right. Well, you know, let's wrap up here. Um you know, early retirement is something that's not out of reach. You just have to plan for it. You have to be aggressive, just like anything in life, you have to make good choices. So when you think about uh, you know, am I gonna go travel now or do I want to travel later? Am I gonna spend$400 to go eat out to eat with my family at a nice restaurant constantly, or am I going to cook at home and put more money in my savings account? It it Dave Ramsey has a saying, live like no one else today so you can live like no one else tomorrow. Yeah. Uh and that's that applies to early retirement. Uh the fire, the fire, we haven't talked about fire, but the fire movement uh is is is uh I think that's probably dying out a little bit. I don't hear about as much as more. I think inflation killed it in 2022, quite honestly. Yeah. But a lot of people are like, I want to be done with this rat race and I want to be out of here by 40. Like that's radical in in how they do that. So so it's it's um it's not something that's out of reach. And you might find through the planning process that you can't actually do it. I will say that uh in our and at least in our case, a lot of times we say, okay, you can't retire at 60, it's gonna have to be 65. But then the market outperforms our benchmarks, the the um uh there's more income or those little extra money that was saved. And so every year, instead of adding more money to spend at 65, it can simply just reduce the the age in which you retire. Yeah. So there's a plan is never a plan you do once. A plan should be updated on an annual basis.

SPEAKER_05:

It's a living document.

SPEAKER_06:

It is, and that's what we do for our asset on assets and our management clients. Those plans are looked at uh consistently throughout the year. And they're all little, there are always little changes um as we go through them. Yeah, so don't be discouraged uh by by the fact that it's maybe harder than you than you think it is. Um, thank you for listening to today's episode. If you're interested in learning more about wiser wealth management, I want to schedule a consultation to meet with one of our fiduciary financial advisors, like William here. You can do so by going to wiserinvestor.com or clicking the link in the episode notes. We'll see you guys again next week.

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 vehicle, or 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 guest 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 here now. Past performance is not indicative of future performance.