It's All About The Income, Baby

Retirement isn't just about how much you've saved — it's about whether your money can reliably replace your paycheck for the rest of your life.

In this episode of MasterPlan, we break down one of the biggest and most emotional questions people face before retirement:
“How much monthly income is actually enough?”

Because walking away from a paycheck is difficult — even for people with substantial savings. And the truth is, retirement income planning is far more personal and nuanced than most people realize.

We talk through the real-world challenges retirees face, the mistakes we see over and over again, and why simply “having money invested” is not the same thing as having an actual retirement income plan.

We walk through:

0:00 — How Much Retirement Income Is Enough?
0:20 — Why Walking Away From a Paycheck Feels So Difficult
1:00 — Why Retirement Planning Used To Miss the Income Question
2:00 — The 80% Rule (And Why It’s Only a Starting Point)
3:00 — What Your Real Monthly Spending Actually Looks Like
4:00 — Needs vs. Wants in Retirement
5:00 — Why Retirement Spending Isn’t a Straight Line
6:30 — The “Income Gap” Explained
7:30 — Social Security, Pensions, Rentals & Other Income Sources
8:00 — The Right (and Wrong) Way to Use Annuities
10:00 — Why Generic Retirement Advice Can Be Dangerous
11:00 — The Hidden Costs and Fees People Miss
12:00 — Inflation, Taxes, and Unexpected Life Changes
13:30 — Stress Testing a Retirement Plan
15:00 — Why Retirement Planning Has To Stay Flexible

Visit masterplanretire.com to access our retirement checklists, podcasts, and schedule a complimentary consultation.
Call 770-980-9262 to speak directly with someone about your retirement planning needs.

https://masterplanretire.com/

Catch all episodes of our podcast at https://www.masterplanyourretirement.com/resources/episodes

Listen to Mark Fricks on Saturdays at 12:00 p.m. on XTRA 106.3 FM WFOM.
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Purchase Mark’s book, The Road Less Traveled: Turning Your Retirement Worries Into an Excursion of a Lifetime, on Amazon: https://a.co/d/4fx94Al

Advisory services offered through MasterPlan Retirement Consultants, Inc., a Registered Investment Advisor in the state of Georgia. Insurance, tax and commodities services offered through Fricks and Associates, Inc. dba MasterPlan Retirement Consultants. The aforementioned are affiliated companies.

Transcript

SPEAKER_00 0:16

How much monthly income in retirement is enough? Hey folks, welcome back. Thank you for joining us. Welcome to Master Plan Retirement Consultants Retirement Roadmap. My name is Evan. With me as always is retirement planner Mark Fricks. During this episode, we'll consider how to determine how much monthly income you'll need to maintain your preferred lifestyle during retirement. Because we know one of the most difficult things to do when pulling the retirement trigger is walking away from a paycheck. We have that conversation pretty much every meeting, don't we, Mark?

SPEAKER_01 0:50

Every probably three times during every meeting. It is the most critical part of retirement planning. And it's so interesting. I've been in the industry for over 30 years. And I mean, we really didn't talk about it in the early days. It's mostly just investing. Let's get your money invested and and things of that nature. And as I learned, I guess, before we formed this firm uh 15, 20 years ago, uh, how critical it was. Because again, I began uh understanding what the client was talking about when it came to um how difficult it is to leave a job. You know, and it's it's it's it's other things. It's it's hey, my comrades or my friends, I'm leaving, my my um skill set I've I've used all these years. We can get in all that in a totally separate episode. But really walking away from that paycheck can be a very scary thing, and and and it's just like we in in the old days would just um um just kind of say, well, we'll just take it out of your account, you know, whatever you need, when you need it, and that type of thing. And we have found that does not work. It is not efficient, it is uh in fact can be dangerous.

What You Actually Spend Monthly

SPEAKER_00 1:57

Yeah, and a lot of people don't really know where to begin. I mean, I think in our initial consultation, the hardest question for the majority of people is, okay, so what do you think you need monthly coming in the door in retirement? And that's a loaded question too, because there are certain things that are considered now that might not be there in retirement, such as work travel, work clothes, those sorts of expenses. Um however, you know, figuring out the differences between half-to money, this is what I need coming in the door to keep the lights on, versus vacation money, things like that, um, it's a much more nuanced conversation. And, you know, there's an old the old saying is about and and it's still uh pretty true, um about 80% of your current in uh need is is a good starting point, but sometimes that feels a little too conservative too.

SPEAKER_01 2:47

And and and uh I hate these formulas that people throw out there. I hate it when you say uh if you have a million bucks, you can retire. Those are so ridiculous. Um but it is a uh probably uh at least a third of uh our early meetings is is talking about that. Um, because sometimes people think about, well, my gross pay is. Well, I don't want to know that because that's before taxes and we need to treat taxes separately. But also maybe they're having, you know, they're putting in 10% of their paycheck into their 401k, or maybe they're having disability insurance deducted from their paycheck. I mean, it's all these other things. And so I want I want to know what are you spending per month? You know, and then and a lot of people don't know that, right? You know, so and and so then I'll kind of talk about, well, what what's left over each month, or are you short each month? Um and and so it's just a lot of questions we've learned from our experience to ask. Right. Uh and then like you said, what changes will occur not only week one, but also maybe in a year or two. Maybe your house will be paid for. Maybe maybe you'll have another house payment because you're buying a second home. There's other things we have to consider as well. So what's what's going to be changing in the immediate future that you're aware of?

SPEAKER_00 3:55

Yeah, and I think that what we find most of the time, again, and this is extremely personal and unique to each each situation, but I think most retirees find their core budget doesn't really change as dramatically as they expected. I mean, like like you said, housing utilities, um, just the everyday expenses, they tend to follow you into retirement.

Needs Vs Big One Time Goals

SPEAKER_01 4:14

Yeah, we we we talk about, I think sometimes I call it your minimum floor, uh floor of need or something like that. And it it, you know, we don't want and and this is where it gets again a little uh more nuanced uh depending on uh who we're speaking with, who the client is, is um, you know, do we include weekend trips? Um, you know, yeah, probably. If you if you if you know you're gonna be traveling every quarter out of town for the weekend or a long weekend, sure, that can be that's fine. But if you're planning uh a a cruise or European vacation or whatever, I don't want that included in income. Uh and we may get into this later, I don't know, but uh there's a story I tell about this guy that was a fairly new client, and um he had been instructed that he was going to need a roof in about two years. Uh, you know, he'd been talking to some folks and things like that, and so he said, I'd like to build into my income for the next two years enough to uh to gather enough money for a roof in two years. Um, you know, and that sounds reasonable, especially if you're working, but um, you know hesitantly I I said, okay, we'll build in, and we kind of divide it up over two years what we would need to take out. And so he was about three months into that, and he came in for his next meeting, and he looked at me kind of kind of funny, and I said, Well, what you know, what's what's going on? He said, Well, um, I got a new roof. I said, Really? Uh yeah, there was a hell storm a few weeks ago, and the insurance company is is putting on a new roof. And so if we'd gone, you know, and and and done that, that would have been the same thing with COVID. People that were saving up for a European vacation that were going to take maybe in 2020, nobody went to Europe in 2020 or virtually nobody did. So if you're taking money out of income, especially if it's taxed, you're taking it out of an investment that hopefully is earning 8 to 12 percent, putting into your check-in or savings account earning 2% for a two-year period, and then you don't use it for that, it's a waste. And so we divide up, long story short, we divide up money into, like you said, you know, uh you know, every month I I've got to buy gas for my car, I have a car payment, I have a mortgage, I need, I have a cell phone or whatever, stuff you know you're gonna be spending money on. Um, and then the rest, those things that are gonna pop up, whether it be once-a year property tax, whether it be two vacations a year, that's separated out. That's not income, that's wants, needs, desires, goals.

Finding Your Income Gap

SPEAKER_00 6:41

Absolutely. Uh there's a a term that we use quite a bit in these episodes, and um that is income gap. And so the first thing, like you said, that the way that we approach retirement planning, um, income and growth is the most critical. And so income, we have to tackle that first because when we're walking away from a paycheck, we gotta know where that replacement money is coming from. And so first we have to build out the income plan. Identify the sources of your income in your specific situation and then find where the income gap is. So you've got, let's say you've got social security, maybe you're one of the lucky ones who has a pension coming in a little on top of that, maybe you have some residuals from something or rental income, maybe, I mean who knows, whatever your specific situation is. You've got that coming in monthly, but then your need is here. What is that gap? How much is it, and how can we fill that gap?

Annuities As Tools Not Defaults

SPEAKER_01 7:35

And how can we fill it efficiently and safely? Absolutely. That's the two main things, and there are certain tools we use that do that. Um and and you know, we we we can create what we call a personal pension plan, which is a specially designed annuity. Um we I don't know if we're going to get into that today or not, but uh be very careful with annuities. There are some great ones out there and there's some bad ones out there. And so make sure you're talking with someone that knows how they work, but also make sure that they're fiduciary, they've explored your needs. What is the need for that annuity? Is it to provide income? Is it to provide increasing income? Do you want income that increases if you have a long-term care need, or do you want it maybe to grow? Yeah. You know, but be protected growth so it can't go down, only go up. You know, so there's a lot of ways to look at the the right annuity. What are the fees on it?

SPEAKER_00 8:24

Yeah.

SPEAKER_01 8:24

Uh just met up with a brand new client today and and they'd purchased an annuity a year ago. They had no plan, they just bought it because this guy told them they should buy it.

SPEAKER_00 8:32

I'm dealing with a client with the exact same thing, actually.

SPEAKER_01 8:34

And so now they've got a tool, you know, they got a square window when the blueprint called for a round window or whatever it may be. And and so um what are all the little the the the things that are built in? And you've got to trust who's telling you that and that make sure they're not selling it to you, that they're providing a tool. This is the problem, this is how we're gonna solve it. Okay, so that just makes so much sense, but yet it is done so infrequently that it just makes me irritated, as you can probably tell from my voice and or my face, depending on how you're listening to us today. Trevor Burrus, Jr.

SPEAKER_00 9:07

It's true. I mean, and and unfortunately, we deal with that way more than you would even expect. It might be shocking if someone comes in and it's like, well, I've had this annuity for so many years, and you know, I just put you know, I was talking to an agent, I was put into it because I went to someone and said, I need to start planning for my retirement, and that just happened to be what they did.

SPEAKER_01 9:27

And the rule is you put this much in an annuity and this much in the market. Well, that's not a rule. Right. It really isn't. It's I mean, we have guidelines we go by, but it's uh, you know, to to tackle that income gap, how much income do we need coming in per month? Okay, that's going to require this much money and this kind of a tool to provide that much income guaranteed for the rest of your life and maybe your spouse's life.

SPEAKER_00 9:48

Yeah.

SPEAKER_01 9:49

Pretty simple concept.

SPEAKER_00 9:51

It's just not followed very much. And what are the specific needs in that comprehensive plan that are related to that income? I mean, do you just need a single n life annuity? Do you need to make sure your spouse is covered? Is there a long-term care need that we could also maybe cover with that income? I mean, there's so many things to look at. Um, again, like you said, it it's it's not about the product. And it's the same with annuities, life insurance, any of our actively managed portfolios, precious metals, anything. Um, it's which of these is the best tool for the job that we're trying to complete. Um, and that's that's it.

SPEAKER_01 10:25

That's like building a house. What's the best tool to hammer a nail?

SPEAKER_00 10:28

Yeah.

SPEAKER_01 10:29

Well, let's find, let's use that tool. Let's don't hammer it with a a saw. I mean, you know, let's get the right tool for the job and not just pull something out of the toolkit. And and to further your example, um, maybe it's a short-term income need.

SPEAKER_00 10:42

Right.

SPEAKER_01 10:42

Because their Social Security is going to come on at 67 or 70, and so maybe we need income for 10 years. That's a different type of annuity. And what's the best one that will do that? And then what's the best company that provides that? And so I again uh, you know, I don't I don't want to be preaching today, but it it is irritating to me to see so many people come in. First of all, that they have no income plan, they don't really know what their income gap is or is going to be, and then they don't really have a tool that's gonna fix that. And and maybe if they were sold an annuity, um, the one today I was looking at, it's it's got about four and a half percent fees built in. You can't even see them unless you dig through the prospectus that they were kind enough to bring to me. And they were like, you know, that they had no idea, and they admitted that they just bought it, you know, type of thing. So they had no idea what they had. Uh and how are we going to work it into the plan? Because there are charges to get out of it. And so we've got to make it work because I don't want to cost them money to get out of something that was wrong in the first place. So that's another whole plan.

Retirement Spending Is Not Flat

SPEAKER_00 11:42

Well, and and you were right, too, about maybe the income gap is at the very beginning and maybe not later, or maybe there is a bigger one later. Retirement uh spending is not a flat line. And we know that. We've talked about the reverse bell curve of retirement oftentimes, and again, different for every situation. But early retirement, you're maybe spending more, you're doing the bucket list items, travel, whatever. Um while you're healthy. And in sort of the mid-years of retirement, things tend to slow down, spending's less, maybe you're closer to home, things like that. And then we know expenses tend to ramp up towards late retirement, medical needs, things like that. Um, and also just life changes um unprecedentedly and without uh surprisingly uh you know, sometimes for good or for bad. And so um, like any long-term plan, it has to be flexible. Your income plan also has to be flexible. You have to keep those considerations in mind.

How We Stress Test A Plan

SPEAKER_01 12:35

Well, things like inflation. You know, we we use a standard three and a half to four percent inflation on our income plans to show the increases, but that's that's linear. Yeah. Inflation's not linear. Inflation is this year it's two percent, next year it's six. And so what adjustments can we make? It's gotta be fluid, it's gotta be, I think uh you mentioned one time a living, breathing document, so to speak, that that's changeable. Um so it's not it it could be inflation, it could be an additional need because hey, uh our kids moved back in with us. Yeah or or our mom has has had to move in, we've got to help her out. Um I mean, I could go on with a list of 20 items, taxes go up. Yeah. So now you need a bigger check coming out of that IRA to cover the same need or take a pay cut. And so there's so many pieces and so many things we have to consider that can happen. And again, I've got a list, uh it's actually one of the items I use in some of our opening meetings of 15 things that could affect your retirement. Now, not everyone applies to everybody, but we want to make sure we find the ones that could affect you.

SPEAKER_00 13:40

Yeah, and I that's actually a great transition into referring our listeners and viewers to our website, masterplanretire.com. You can schedule your complimentary consultation there. Uh schedule now, click it, and it takes you directly to our calendar. You can find the time that works best for you, whether in office or via Zoom or over the phone. Um that's an opportunity to discuss your own retirement, your hopes, your dreams, your fears, uh, your goals. Um and basically we run a series of reports. It's a 10,000-foot view of your own retirement, what happens when we turn on that ignition of retirement, as it were, and let our money run. And that's no planning, that's where are we today? What happens to our money? Um, and then we stress test that. Uh, what happens with bear markets or increased taxes or inflation, those sorts of things. Where are our income gaps? Um, and that is your first step into understanding, okay, this is my blood test, as it were, these are the things that I need to fix, these are the things where I'm strong, but these are the areas that could trip me up.

SPEAKER_01 14:39

Right, right. And it it's it's a great way to get started working with someone because we have discovered the pain points, we have discovered the the areas that could really mess them up, and so that's what we attack, like you said. And so again, that gets back to what's the tool we use for this, what's the tool we use for that. And what if three or four of those things happen? What if we have higher inflation and taxes go up, you lose your spouse, and you didn't anticipate the fact that we have bear markets every five years on average. And so y it's not nothing is in a vacuum. So you you want to make sure you you tackle. So so somebody comes in and says, uh, okay, so um uh you know, I've got a big life insurance policy, so if my spouse passes away, I'm good. Okay, so if they pass away and you have a long-term care need on top of that, and this happens, and so uh that's what I love about the reports, it really illustrates those items.

The Reality Of Low Spending Data

SPEAKER_00 15:32

So there was some national data that uh I pulled up in preparation for this um radio show slash YouTube slash wherever you are experiencing our conversation. Um Thanks for listening, by the way. There's a benchmark that came up, and I I want to kind of get your feedback on this number. Um it says most retirees spend less than four thousand dollars a month, with the largest group falling in the one thousand to one thousand nine hundred and ninety-nine range. Um in retirement? That sounds incredibly low to me.

SPEAKER_01 16:07

That sounds like social security, and if that's not that's all they've got.

SPEAKER_00 16:11

Well, I mean this is that's what it sounds like. But but I'm from what we're seeing. Now if you're taking um the um there's a difference between the mean and the median, right? Right. So a lot of the higher earners and higher needs will outweigh the um throw it off. It will throw it off a bit. Um but what we see is uh is a little bit more than$4,000 a month need in retirement. Now, that doesn't mean that$4,000 is not a great goal to go for, but we usually see that closer to single folks.

SPEAKER_01 16:40

Yeah, that's um uh I'd like to dig into that report a little bit more, but it's also sad.

SPEAKER_00 16:46

Don't you think? Yeah.

SPEAKER_01 16:47

I mean that that's not much money. That's uh I actually uh Well right now especially.

SPEAKER_00 16:51

I mean it's it's that's a real tough number to get by on with inflation, cost of goods and services.

SPEAKER_01 16:56

Yeah, we had a I had a lady come to a class and and um I was talking to her before the class, and she basically I think she was in her early 70s, 73 or so, and she was there you know, she was retired, but she was still working two jobs. Yeah. Because all she had was social security and she couldn't survive. She's gonna have to work until she can't work, period. Yeah. Uh and because uh she's trying to live on fifteen hundred dollars social security. And I just thought, you know, and and the way she was talking about it, it made me sad because uh it sh she was sad about it. She was sad about she really will never retire. And not because she didn't want to. I mean, uh, you know, I don't know that I ever want to retire. Uh I I might want to change the way I work, but she had to. Yeah. And that was just uh broke my heart. But yeah, that's a low number. Yeah.

Social Security Pensions And The Shift

SPEAKER_00 17:49

It really is. Well, and we also know um social security b is the foundation for most retirees' retirement. However, it's only intended to be about forty percent of your replaced paycheck. Um, but we know that it's the foundation for nearly ninety percent of retirements. So the average monthly benefit is around$2,071, um, which may not be enough on its own for sure. Um it is more of a complement to a plan and not the plan itself, and not even getting into some of the uh the changes potential for Social Security on the horizon where it may be being cut back a little bit as well. Um so there you have to identify first all of your income sources um and then devel figure out, develop a plan on how to strategize for retirement income.

SPEAKER_01 18:41

Well think about those numbers and th and think about social security. So it was never meant to be the sole means, it was meant to, like you said, to to help Americans uh to plug the gap. Yeah. So what else was coming in in the 40s and 50s and 60s and 70s? Pensions. You combine those two together, you've got a pretty healthy retirement. That was before 401ks. That was before IRAs. Okay, they they came around in the late 70s and 80s. And so up until that time, you know, people were putting their money in the bank and CDs. I mean, the average American did not participate in the stock market. Okay. And and so your retirement was that pension at 65 and social security at 65, and that was probably, and then if you had a spouse, they would have uh at least social security. And so that's a that was a fairly healthy retirement. But now that they've done away with pensions, those that have have seen the future and saved well, they're gonna be fine. Those that have not, um, and don't have that big 401k, that's that's the position they're gonna be in and probably work the rest of their lives or live on a very meager amount of money, maybe with their children or whatever it may be. Uh so that's that's how how things have evolved and how companies, once that 401k came out, basically shifted the responsibility of retirement from them as an employer to the employee. They also passed the risk to the employee as well. So just that changeover has really affected retirement, and that's why I think we are in uh somewhat of a retirement crisis now.

SPEAKER_00 20:17

And now we're living longer, too. Well, and unfortunately, we don't have enough episode that uh episode time left, but that's not the only crisis that we're facing in retirement with long-term care needs, things like that as well.

SPEAKER_01 20:26

Living longer, again. Creates more long-term care needs.

Buckets For Income Growth And Safety

SPEAKER_00 20:30

Now, if you are one of the blessed ones who had a good 401k or just were able to build up some accounts for retirement that you've designated for retirement, uh, there's also a a shift in understanding of of how you use those accounts as well. Um, you know, if you've got a 401k or something similar to that, you log on, you'll see on your statement something that says like, this can b create X amount of dollars in income in retirement. It's like, okay, well, great. How's it gonna create that income? And if you're taking that 401k or that account and just moving it entirely from growth into an income producer, what's happened to the next 30 years of growth that we're gonna need? So it like you said, it's we need a and also if you're pulling from the market, Mark. Is that a is that a guaranteed safe income source?

SPEAKER_01 21:13

It's linear. Uh the markets have averaged about uh you know seven to eight percent. Um that doesn't mean it does seven to eight percent every year. Right. You know, uh the if you retired in 2007 and the market dropped 56 percent over the next 18 months and you're taking income from that, you just lost half your money, and now you still want to take out a thousand dollars a month? Right. Probably not gonna work. A lot of people went back to work.

SPEAKER_00 21:36

So And if you built yourself into a case where you don't have a choice and you have to pull out anyways, um Which is why we separate that money growth over here, income over here.

SPEAKER_01 21:46

What's the best growth buckets, what's the best income buckets? Pretty simple concept, but not utilized very often.

SPEAKER_00 21:53

Yeah. Yeah. Well, that's why we use a comprehensive holistic retirement plan. I mean, you know, those are just two. Two of the many factors that we have to consider. They're typically the first two is growth and income. Okay, how do we cover our gap? How do we get long-term growth? But even growth in itself has so many different layers to it. For instance, yeah, maybe we need something to cover the next year of that's super conservative, that we know it's liquid in there, next five years, do we have something that's more moderate, next ten years, or what about something building up for our long-term care strategy in the future? There are so many things, even then, it's not just okay, well, this is our growth bucket, this is our income. How many of those buckets do you need? What is your specific situation? What are your needs in your retirement?

SPEAKER_01 22:41

Yeah, just talking about the growth side. We see people come in with statements every day, and they have two statements from their broker, an IRA and a non-IRA. That's their two portfolios. And then if you look at them, they're both invested the same way. They have the same holdings. Okay. Our clients might have six portfolios, each one that grows differently. And so this year this one might do better than the others. The next year this one might, because this one's in gold, or this one's in dividend stocks, or this one's in growth stocks, or this is in sectors, uh, you know, technology and healthcare. And so all these different flavors react differently in different markets. So something somewhere is making money.

SPEAKER_00 23:19

Yeah.

SPEAKER_01 23:19

Every market has something making money. Those portfolios, and our job is to find it, and and that's what we do, that's what we're good at when it comes to the growth side. And like I said, on the income side, what's the best tool? I'm not worried about that growing. I want the income to grow, but that's about providing a check every month.

SPEAKER_00 23:37

The stakes are too high not to have a comprehensive retirement plan. We have both on multiple occasions and will continue to do so. I've had new clients come to us. Well, um, my broker who I have a couple of accounts with, who only sees that account or those two accounts or so. Um, you know, I asked them if I could retire. Well, they said yeah, I could retire. And I've had someone with half a million to a million dollars with that broker say, yeah, he said I could. And then I've had someone with like 60,000 or less say, well, yeah, he said I could retire. How does he know? He doesn't know your social security amount. He doesn't know the rest of your situation, he knows what's in those accounts. So you have to have a full picture before entering into reports.

SPEAKER_01 24:17

Holistic fiduciary. That's the two key words. Thanks for joining us. Uh so glad you did. And until we see you again, remember, plan well and prosper. Take care.