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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
I think the idea here is really, have I saved enough for retirement? You're solving the wrong problems. Welcome to the Retire On Time q and a podcast. I'm Michael Decker with David Franson from Kedric Wealth. As always, text your questions to (913) 363-1234, and we'll feature them on the show.
Mike:The purpose of this show is to not give you that oversimplified advice you've heard hundreds of times. We wanna give you context and clarity. We wanna get the nitty gritty, as they say. Now that remember this is just remember this is a show. This is not financial advice.
Mike:Keep doing some research. Alright, David. What have we got today?
David:Hey, Mike. How long does $2,000,000 last in retirement? How do I know? I guess it depends on your habits.
Mike:That's like well, that's like saying and it's a fair question, and it's a good question, but it's not a full question.
David:Okay. In your mind, what would be the full question?
Mike:So first off, you need $2,000,000. Great. Is there anything else we need to know? As in like, do you have a pension? What's your Social Security gonna look like?
Mike:How much income do you want? Like, there there's there are so many questions that go into it that I think the idea here is really have I saved enough for retirement? Yeah. And the problem with this is you're solving the wrong questions or the wrong problems. So $2,000,000 let's just do an arbitrary kind of calculation.
Mike:Alright. So $2,000,000 roughly speaking is gonna get you I'm gonna do just we'll do 4%, so about $80,000 a year, or let's do 5% or a $100,000 a year or so. Okay? So that's The
David:second growth?
Mike:That's the range. Okay. But that's an inaccurate number. And the reason is is let's say you've got $2,000,000, and you are 63 years old, and you're retiring at 63 years old, and you wanna file for Social Security at 67 years old. Maybe you take out 8% of portfolio withdrawals for a couple of years, and then when your Social Security kicks on, you're only taking out 3%.
Mike:So those are those are nuances we need to know. Here's the analogy of that, by the way, is too many people will say, I've got $2,000,000 so I can take out 80,000 a year. Gross, by the way. Because chances are these $2,000,000, it's in your IRA. Uh-huh.
Mike:So you gotta pay taxes on it. So $80,000, And what's your state income tax? What's the federal income tax bracket? You gotta do that calculation. But I digress.
Mike:So 80 to $100,000, whatever it might be. So that that's the first part of the conversation. The the second one is like, are you just gonna stick to a very rigid number? Four or 5%?
David:Oh, right.
Mike:So here's the riddle, and it's an easy riddle. If you've got rocks and sand, and you need to put it into the jar, which one do you put in first? For efficiency sake, which one do you put in first? Well, if you put the sand in first, and then the rocks in second, just imagine that for a second. You got a jar, you put the sand in first, the rocks in second, the rocks are gonna sit on top of the sand, and there's all of these gaps within the rocks.
Mike:It's inefficient. That's like saying, I can take out 80,000 or a $100,000 a year, whatever your comfortable withdrawal rate is, and you're good to go. Mhmm. That's kind of it's a it's a rough situation. But the other the other side of this coin, if I may
David:Yes. You may.
Mike:And the riddle is, if you put in the rocks first, and then the sand in second, the sand fills in all the gaps, cracks, crevices, making it more efficient.
David:Mhmm.
Mike:So you might take out more income for a couple of years, which increases your risk because you're increasing the withdrawal rate. So be very careful about the structuring of your portfolio. Maybe take it from like, a couple of CDs or maybe you do a SPIA, single premium instant annuity, or a MYGA ladder, or a CD ladder, or a treasury ladder. It's something to kind create some stability in there. Mhmm.
Mike:So if the markets go down, you don't accentuate those losses just just for what it's worth. But then when Social Security kicks on, you know, you're just you're blending the different withdrawal rates. That's the idea of the efficiencies that are here. You want context in your plan. You don't wanna say, well, I've got $2,000,000, 80,000, or is what I'm gonna get, plus the Social Security.
Mike:I'll just wait till I'm 67 years old. You're giving up years of your life because you didn't want to blend income strategies. You didn't wanna blend withdrawal rates. You didn't wanna bring context into the equation. K?
Mike:Are you with me so far on all
David:this? Yeah. I think we probably crave, like, simplicity. Right? So it seems so simplistic.
David:Like, oh, here's my Social Security, here's my annuity, then I know I can just be done with it and focus on something else, but that may not be to our advantage, think is what you're saying. We gotta be willing to blend some things.
Mike:You wanna have blending. Now there are three ways you could take this portfolio and blend the strategies. Okay? So here's a couple of options.
David:Alright.
Mike:First one is the laddered approach. So you might just say, well, you know, gosh, here's the plan, which you can go to retireontime.com and play with the retirement planning the retirement planner, basically. So it's it's a it's a simple yet pretty complicated that I'm contradicting myself. It can do a lot, but it also can keep things very simple.
David:Alright.
Mike:You put in the inputs, you see your projections, that's your plan.
David:K? Alright.
Mike:Then you can optimize that a little bit, play with the different features. At that point, then you can say, okay. Well, here's what I need for my portfolio in year one. So I'm gonna put some money over here. It's gonna grow at this rate, and that pays out at this point.
Mike:Then you've got year two. And and you can just rinse and repeat this and kind of find your income strategy in the short term and invest everything else for long term growth. That protects you from market crashes in the short term. It helps protect you from really just I don't know, the uncertainties of the market. It's it's market crashes, but also hedges against inflation.
Mike:So if everything's in fixed accounts and you get hyperinflation, you're hurting. Yeah. So you're kind of you're blending things together. You could do the laddered approach. We call it the the laddered reserves as as we call it here.
Mike:The other one's the dynamic strategy where you've got some assets in a fixed indexed annuity or buffered ETFs. So when markets go down, you pull income from protected sources.
David:Mhmm.
Mike:That's kind of a nice strategy. But do you see how all kind of these tools are being used to support a plan? Yeah. But the plan is the calculation. Is the $2,000,000 going to last for the time that you want it to last?
Mike:Maybe you only need $40,000 a year so the rest is invested for legacy purposes. Maybe you need more so you're gonna turn on the more aggressive side of the situation, the withdrawal rates. You're gonna inherit more risk with that. Are you okay with that risk? Are you aware of that risk?
David:So
Mike:it's heavily nuanced. People are trying to solve how much income or how much they need to save to be able to retire. Well, isn't the first question how much is it gonna cost for you to retire? And that number, by the way, isn't how much you're spending right now, it's how much you're gonna spend when you retire. See, when you lose work, you're kinda being paid to do an activity.
Mike:Yeah. Right? I'm gonna call it an activity, not a hobby. Not everyone likes their job, but that's really what you're doing.
David:Right.
Mike:So how much is your next activity or activities going to cost? Right. And is that going to adjust your income? Because the last thing you want, probably, is to retire and sit home and watch the news all day and doom scroll on social media. You're gonna be miserable.
David:Right. And there's probably a lot of that that happens. Right? There's a lot of that happening, and it's not we know it's not good for us to just No.
Mike:Not good at all. And so here's here's an oversimplified kind of income plan. I've got $2,000,000. What can I work with? Well, someone might say, well, let's take 60% of your assets of $2,000,000.
Mike:We're gonna put it in an income annuity, and let's say that it's gonna give you 7% payout rate, which is what it's paying out roughly today. Right. I'm not quoting any specific products. I'm giving you a general range of what I've seen
David:Mhmm.
Mike:As of late. Just remember back in the 2015, 2016, the payout rate was, like, four or 5%. Oh. So these are going to change. What is it gonna be in the year?
Mike:I have no idea. Right. But right now, because interest rates are high, because treasuries are paying out better than they used to historically for the past fifteen years, that's kind of what you might see. So you take 60% of $2,000,000, you put it into a lifetime income stream, it pays out 7%, that would be $84,000 a year guaranteed for life. That's a nice we call it the baseline reserves.
Mike:So you pair that up, and then you you invest the rest to offset inflation, health care costs, and so on. That's a simple strategy. Yeah. It's not nothing right or wrong. It's just a simple approach, but we're still missing the point.
Mike:What are you retiring into? What does your life look like? There are so many ways you can structure the income. You can structure the tax planning. You can you can you could even do that 60% to the baseline, and then maybe even take a little bit off of your invest the rest to try and front load the travel costs.
Mike:But it's still all based on the question, what do you want your life to look like?
David:Mhmm.
Mike:What's the lifestyle for you? Are you gonna be spending your time doing charitable work? Does that cost money to travel for your charitable work? Or are you going down the road to your local church or charity to help out? Yeah.
Mike:Different costs, different expectations. And so, though I appreciate the question, we want to stop asking how much do I need to save and start asking how much or really start asking the question, how much does it cost to live the life that's going to bring me happiness, joy, and well-being? I don't wanna say purpose. That's such a cliche. What are you gonna do that's gonna bring you happiness?
David:Yeah. Well, so for me, I don't know, maybe play some tennis, ride some bikes.
Mike:Okay. That's your activities. Yeah. What else? There has to be a romantic relationship involved.
David:Oh, I got that covered.
Mike:Yeah. I I think you like your wife I do. A little bit. A lot. Yeah.
Mike:She's she's pretty cool. Yeah. So romantic, then you've
David:got familiar relationships. Oh, yeah. I have friends, I have children. Family, you have children? I do.
David:Hopefully, they'll
Mike:stick around and wanna hang out with you more often.
David:That would be nice.
Mike:Yeah. Yeah. You got good kids. Yeah. Your mom too, she's a cool lady.
David:She is. She'll be around for a little bit longer.
Mike:So we've got romance, we've got the family, and then you've got friends. So if your family gets tired of you, do you have other people you can associate with? I do, yeah. Your mountain bike group? That's true.
Mike:K. Then you've got the five activities. So you've got your physical activities. Tennis, mountain biking, and so on. Yeah.
Mike:K. Do you have intellectual activities?
David:Oh, yeah. Well, I mean, yeah, there's always something more to learn. There's scripture study. There's just more secular style study. There's and then there's just sort of, you know, fun books to read or movies to watch, right?
Mike:Yeah. Yeah. Well, movies to watch, if you're into cinematography and you wanna get into the art of it
David:Oh, yeah.
Mike:If you're watching movies just to, like, try to opt out of life, that's actually worse for you.
David:So
Mike:there's a fine balance
David:in Yes.
Mike:Alright. What about so we got your physical activities, we got your intellectual activities. What about your religious activities?
David:Oh, yeah. Very heavily involved.
Mike:And if you're not religious, meditative activities. Yeah. Okay? Another one here is gonna be your legacy activities. And I don't know if you've thought about this one or not.
Mike:I read about it in the book that's soon to be published. But if you've gained knowledge and you're able to pass it on to someone, whether it's writing your life story, whether you're working in you could be tutoring someone, you could be a coach to someone, that's actually very meaningful. Yeah. And then the last one is charitable activities. So if you have all five of those, there's a higher probability you're gonna have a happy life.
Mike:You're gonna be fulfilled. You're gonna enjoy it. If you don't have all five of those, who cares about the 2,000,000 goal? Right. What do you want your life to look like?
Mike:How much does that cost? Then we can say, yeah, you've saved enough. Right. The financial services space has sold people a bag of goods that leads to depression. And that is, you need to save enough so you can stop.
Mike:Life is not about stopping, it's about starting. And when you stop working, you need to fill that time with something that's going to almost challenge you more than work. Yeah. You want to be challenged in life. You don't want to be the old, grouchy individual that's sitting on a porch, yelling at the neighborhood kids because you've got nothing better to do because you sat down all morning, you watched the news, you got upset, so you got outside, went outside to yell at someone.
Mike:Yeah. That's not what you want, yet so many people do it. And for what it's worth too, the people that don't set up the five critical components of a retirement not retirement plan, retirement lifestyle.
David:Yeah. Yeah.
Mike:Yeah. Oh, man. It's it's sad how miserable they get and how fast they get there.
David:Even if they are sitting on $2,000,000, it could be accompanied with misery if there's not this other.
Mike:Some of the most miserable people I know are some of the wealthiest people I know. It's because they don't know what to do with themselves. They obsessed over becoming the richest person, but now they're gonna end up being the richest person in the graveyard, and they're gonna be very lonely along the way. They forgot how to make or they never learn how to make meaningful relationships. Humans are hardwired to connect.
Mike:We need to connect. So do you notice the the activities are all doing something with other people? Mhmm. So let's first answer not what the financial services space wants you to answer, which is, hey, you can afford to retire because it's roughly what you're making right now. Give me all your money.
Mike:I'll give you a retirement plan. We're good to go. No. No. No.
Mike:No. Yeah. Pump the brakes, keep working, and structure your lifestyle first, then figure out how much does that cost. Give yourself some wiggle room, because life is dynamic. Then you figure out, have you saved enough to support it?
David:It's kinda like when you're in college and you you can't take the three or 400 level classes until you've taken the one or 200 level classes. You don't just jump right up unless you can test out, like, oh, I already know how to speak Spanish or whatever. Right? But you gotta you gotta take the prerequisites before you get to the Kind of. The other class.
David:So so having the having a plan, was that kind of the prerequisite to, okay, then does I have enough to fund this plan?
Mike:I would see it more of a sequence than anything. Because in college, it gets more complicated. I think the financial side of it is the simplest part.
David:Oh, yeah. Yeah. Guess
Mike:you're right. Because the emotions are the most we are complicated individuals. I see that. And so to me, I I think it's more like baking cookies.
David:Alright. Alright. Now let's hear this.
Mike:And I I bake a really good chocolate chip cookie. I mean, it is it is really good.
David:There might be somebody else here in the office that would challenge you on
Mike:the Yeah. Isaac or or see. We'll report back on that later. We're we're gonna do a a cookie cook off. But here's here's the deal.
Mike:K? When you're baking cookies, if you throw it all in there, blend it all together, and it's just it's it's not as good. There's a sequence to baking that I have found is important. Uh-huh. And people have heard this, but often they ignore it.
Mike:And and that's, you know, mixing the dry ingredients first, mixing the wet ingredients, and then you slowly add them together. Right? There's a chemical sequence that you want certain things to be blended first. Here's a fun pancake tip. Alright.
Mike:So, know, you got your dry and your wet ingredients together. You put them together here. And if you add then a little dollop of sour cream at the end and mix it very little, just a very little amount, there's an interesting chemical reaction that happens with the sour cream being something that has just the components of sour cream and how it's built with also the built in proteins in there and the acidity, it creates a fluffier pancake. But if you add the sour cream at the beginning, it doesn't do anything. So specifically in the baking industry Mhmm.
Mike:There's a proper sequence of adding certain ingredients together at certain times that leads to a better result. If you try to put your plan together first and then figure out life second, you probably won't have as good of a result if you put your life together first and then your plan second to support that life. It's an order of operations issue that people get wrong. And I think a lot of it is the hysteria of, have you saved enough? Oh, you have, based on the impartial information.
Mike:So now you can retire. Great. Retire now. Figure out what you wanna do. That's why we get I get and I get these clients all the time.
Mike:They're preparing to retire, and they're starting in retirement, and they're like, yeah. Our friends want to, like, do everything we do. And they say they've already done it, but they got bored, so they're now trying to enjoy retirement through our eyes because it's our first goal with it all, and they think that's kind of weird. I'm like, yeah, they got the order, the sequence wrong. I mean, there's so many different ways to sequence correctly.
Mike:I mean, look at dating. Right? This is kind of a weird example, but just just hear me out for
David:a second.
Mike:Okay? When you're dating, do you start by getting married and then figure things out? Or maybe do you go on a first date and see if you kind of are interested in going on a second date?
David:Yeah. And then
Mike:the second date, do you wanna go on the third date? And then you decide, do you want to eventually be boyfriend, girlfriend, or whatever your dating situation is? I don't wanna step in that landline. Yeah. And then you go into, hey, I really enjoy spending time with you.
Mike:Maybe we should get married. And then you get engaged, and then you take it a little bit more seriously, and then you eventually get married. Right? Yeah. There's a important sequence of maybe emotionally connecting first, and then later on you intimately connect, and the emotional connection needs to be before the intimate connection for a relationship to work.
Mike:I mean, any anything in life, there's a proper sequence to it, and almost without fail, when you have these sequence wrong, you experience a rough patch. It doesn't guarantee it's not gonna work out. It just means life's gonna get more difficult because you got the sequence out of line. That's all I'm saying. And retirement planning, when someone walks in or they schedule that thirty minute call with us here at Kedric Wealth, and I say, what do you want your life to look like?
Mike:They say, I don't know. I just hate my job. I say, great. Let's figure out your lifestyle first before we put the plan together. They say, are you a therapist?
Mike:No. I'm not a therapist, but I don't wanna set you up for failure. Yeah. Well, I'll figure it out later. You might.
Mike:You might not. And the odds are not in your favor. So let's Even if you're working an extra month or two, slowing down and spending this time can do so much good for your overall quality of life. That's all I'm saying. So $2,000,000, it may be way more than you need, it might not even be close to enough, it just depends.
Mike:So that's all the time we've got for this question. If you enjoyed the question, the content, and conversation, don't forget to like, subscribe wherever you get your podcast. Or if you're watching this on YouTube, always go to retireontime.com to grab a copy of the book, to attend our workshops, and enjoy our our calculators and so much more. That's www.retireontime.com, and we'll see you in the next episode.