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A podcast designed to help retirees and those nearing retirement navigate finances and life planning with expert insights from financial advisor Trevor Lawson. Tune in for practical strategies and inspiring ideas to ensure your retirement years are purposeful, fulfilling, and truly your best chapter yet.
*Securities and investment advisory services offered through Osaic Wealth, Inc. member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Branch phone: 919-546-0400.
Welcome to The Retirement With and On Purpose Podcast. I'm your host, Trevor Lawson, and this show is all about helping you not just reach retirement. But truly thrive in it. You've put in the work. Now let's make sure you can enjoy every moment to the fullest.
Today's episode is inspired by a recent ChatGPT search, so our lovely friend ChatGPTI prompted it with the, you know, the, the, the search most frequently. Googled retirement related questions. Admittedly, I'm still like using, uh, pleasantries with chat GBT, like, please, uh, help me find the most frequently, most frequently asked retirement related questions, [00:01:00] whereas Google now I'm just straight to the point, so I'm sure I'll get there with chat GBT.
But, um, I'm treating it much more, uh, as a friend. But, uh, sidebar there. So I came up with eight. Frequently Googled retirement related questions that chat GBT provided and today, and over the course of the next couple of episodes, we're going to address some of these head on. And so the top result was how much do I need to retire?
And so, um, ChatGPT being. Consider it like it is, you know, ended this search by saying, let me know if you'd like help exploring any of these topics in more depth. For instance, calculating how much you'll need to retire, evaluating social security timing, exploring low cost retirement destinations, or making sense of super IRA options.
So I said, well, why not? Let's see what, um, the general public is finding when they say, yes, please help me calculate how much you'll need [00:02:00] to retire. So we're gonna dive into the framework that chat, GGBT provided to the question, how much do I need to retire? And I'm going to provide some additional insights to that, that kind of framework, but also help you guys better understand how partnering with a financial.
Financial planner during that process can provide additional layers of, of security and peace of mind by taking this, this framework a bit deeper. So step one, estimate your annual spending in retirement. I agree with that. That's That's a great. Initial step for those that use their credit card on a monthly basis like myself, and try to put as many, many expenses as we can on there to really maximize our points.
This is easier than those that, that are not doing that. But for those that you know, use their debit card, use their credit card, however you, you capture your, your monthly [00:03:00] spend, if you go back and look at, say, the past. Three months worth of your expenses and take that monthly average. We can use that number, multiply it by 12 to get a, get an annual spend.
So ChatGPT suggests we adjust for changes. Some expenses may decrease examples. Commuting mortgage have paid off, saving for retirement, others may increase healthcare, travel, and leisure. A common rule of thumb that people need 70 to 80% of their pre-retirement income each year in retirement. That's an okay place to start.
I don't always find that to be the case. I oftentimes will see people, especially those that are very active, have a hard time adjusting, you know, their take home pay when they retire by. 20 to 30% by, by reducing it by 20 to 30%. So we oftentimes will help our clients break retirement into phases. Initial phase being your go-go years, then your [00:04:00] slow go years, and then your no-go years.
And your expenses kind of vary according to that phase. But if we start. With those go-go years, oftentimes for those, again, that are very active or wanting to go travel, wanting to, to start participating in newfound hobbies, their spending can be very close to what they're, you know, their, their spending while they're still working.
So I try to start by helping folks capture as much of their take home, pay as as possible. When we're looking at this, this spending report, step two, estimate how long you'll be retired. So this is something that I'm afraid more and more of us are going to underestimate as time goes on. Because we're, we're seeing humans live longer, but we're likely, according to your research and other AI generated, uh, searches, we're on the cusp of a breakthrough in kind of the human mortality and us [00:05:00] living longer.
So right now, financial planners often suggest planning for a 25 to 30 year retirement. I agree with that, but I don't think it's a bad idea to run some scenarios where we're looking at. 35, 40 years in retirement based on medical advances, step three factor and inflation. So cost are gonna go up over time.
We see that time and time again. The average annual inflation rate is somewhere between two and 3%. So those expenses that you've captured, we need to see those growing by two to 3% over the course of your retirement. To get a better gauge of what your ability's gonna be like to maintain your current standard of living, adjusted for inflation over time.
The good news is when you work with a financial professional, they've got software that that has all this kind of built into it. And that can make a lot of these calculations a lot easier and also run different scenarios and look at and [00:06:00] see what happens. If you know, you, you outlive average life expectancy, what happens if you, um, have a premature death?
How does that impact a surviving spouse or family? So these scenarios. Um, or something that a planner can help you, help, help you take a look at. But nonetheless, this framework that chat GBT is providing is a helpful starting place. Step four, consider guaranteed income sources social security, pensions, if there are any rental income or annuities.
So interestingly, social Security, the average, um, social security payment per month is 1900. Higher if you earned more, but consider those guaranteed income sources. So let's just say your social security was 30,000. You get a pension for another 10,000 a year. Your total guaranteed income is 40,000. So let's get a sense of what that total kind of guaranteed [00:07:00] income's gonna be.
And then we calculate the gap. So you take your annual retirement spending need that we calculated in step one and subtract your guaranteed income that we just calculated, and you find the gap. So let's just again use the example provided the spending goal is 70,000 per year. The guaranteed income between social Security and a hypothetical pension was 40,000.
So that left a gap of $30,000 a year to cover with our savings. So how do we go about doing that? Well, financial research has shown, um, over the numerous studies that a safe withdrawal rule is, is 4%. So you can safely withdraw about 4% of your portfolio each year without likely running out of money over 30 years.
And that's been tested time and time again. In some markets that number's higher, some it's lower. But four percent's a pretty good average for a [00:08:00] moderately balanced portfolio, meaning kind of 60% stock, 40% bonds. 4% withdrawal or spend down rate can, uh, increase the likelihood that you're not gonna run outta money.
So let's use the 4% rule for step six and using that, let's say the annual gap again, our, we need $70,000 to live. Our guaranteed income is 40,000, so that $30,000 gap, 30,000 divided by 0.044%, gives us $750,000 needed at retirement. So again, this is very, um, simple, but that gives you a better sense of, hey, are you, are you on track with your current saving to meet your anticipated spending?
Do you need to potentially work longer? To get there and do you need to potentially save more? Are you way ahead of your goal? And can, can think about having a higher, you know, spend rate in retirement. So this gives [00:09:00] you a, a very good kind of simple framework. Lastly, step seven here, adjust for personal factors, which I think is another, a good tip.
If you want to retire early. Obviously you need more savings if you are very risk averse. So if you, I mentioned a 60 40 portfolio, 60% stock, 40% bonds. But if you're someone that you know can't stomach having that much in, in stocks or equities, that may fluctuate in the short term, then you might wanna think about using a a three or three and a half percent ward rate, something much more conservative.
If you'll downsize a home or move somewhere cheaper, you made even less. If you expect higher medical costs for wanting to travel more, you may need more. So a quick rule of thumb that they provided is you'll need about 25 times your annual expenses saved by retirement based on the 4% rule. 25 times your annual expenses saved [00:10:00] by retirement based on the 4% rule.
So in other words, if you want 80,000 per year before social security, you need about $2 million saved. So this is a very. Simple, kind of easy framework to get started. One of the many benefits of partnering with a financial planner in this process is they've got a lot of this already built out into their software, so they can run different scenarios very easily, but typically the way our process would work is we kind of run that initial retirement checkup.
So see where you are based on what you're currently spending, what you've got saved, see what the likelihood that you're gonna be able to maintain your current standard of living is. Then once we find that kind of base case scenario, then we're gonna start stress testing it. So what happens again if we pass away prematurely?
What happens if tax rates go up? What happens if we became a. Sicker injured and needed long-term care in retirement. Once we've [00:11:00] got that kind of baseline retirement plan in place, then a planner can help you start stress testing it and help you fill or bridge any of these hypothetical gaps that may present themselves in the event of contingency before they ever arise.
And so that's ultimately one of the biggest benefits of partnering with a professional is. Kind of massaging that crystal ball, so to speak, and looking at various scenarios that could disrupt your retirement and helping you plan for those on the front end. I hope you found this helpful. Again, ChatGPT what a wonderful friend, how lucky we are to have it.
This is a great framework to get started, but there's a couple additional layers of planning that would go into this to meet, uh, my idea of a rock solid plan and, and provide the utmost confidence to a pre-retiree going into retirement knowing they can maintain their standard of living as long as possible.[00:12:00]
Until next time, be well, and I'll look forward to connecting again soon. Take care.
Thanks for tuning in to The Retirement With and On Purpose podcast. I hope you're walking away with new ideas and a fresh perspective on how to make the most of your retirement journey. And remember, retirement isn't the end. It's your time to live with purpose. Until next time, I'm Trevor Lawson. Here's to a fulfilling and thriving retirement.