How Much Can I Expect to Spend in Retirement with a $2.5M Portfolio?
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- čas přidán 21. 07. 2024
- In this video, I cover a real-life client scenario. Rick and Sue, like many individuals approaching retirement age, found themselves at a crossroads. They were nearly at retirement, with a sizable portfolio of two and a half million dollars, yet felt uncertain. They had two questions: Can we retire? And if so, what would our future lifestyle look like?
Retirement planning isn't just about accumulating wealth; it's about understanding how much you can actually spend in retirement. And as their financial advisor, my role was to guide them through this introspective process, breaking down complex concepts into digestible steps.
We started by assessing their current spending habits. Rick and Sue had a rough estimate of $16,000 per month. As we dove deeper, it became clear that their envisioned retirement lifestyle might differ from their current spending patterns.
By meticulously analyzing their expenses we arrived at a more accurate depiction of their retirement needs. Some expenses, like mortgage payments and savings contributions, would diminish in retirement. Others, such as healthcare and leisure travel, would require adjustments.
With a refined understanding of their financial landscape, we brought them through projections and scenarios, unveiling the realities of their retirement prospects.
With the new information, we mapped out a path going forward for Rick and Sue. They realized that retirement was no longer a distant dream, but an attainable reality.
Rick and Sue’s story encapsulates an overlooked truth: Retirement planning is as much about introspection as it is about numbers. Carefully peeling back the layers of financial ambiguity can unearth a blueprint for your golden years-one built on informed decision-making.
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⏱Timestamps:⏱
0:00 - Rick and Sue’s situation
2:22 - Projected income and spending
5:17 - A snapshot of retirement flows
6:55 - James’ concern
9:43 - The good news
12:13 - A more realistic look at expenses
14:17 - High probability of success
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Very helpful. I find the case studies provide a good example for applying the concepts.
James, I find the case studies to be extremely helpful. And the way you and Ari explain your thought process is very helpful.
I’ve been watching these types of videos. These are by far the most useful- the only useful ones-- videos! Thank you for helping the average ‘Walt’.
Really clear walk through James. Extremely tight, high value the entire time.
Thank you for another thought-provoking case study.
I love the case studies! It makes me realize what we need to aim for!
Super interesting stuff. Thanks so much. Really appreciate your videos. Thank you.
This is phenomenal. We're not yet retirement age, but I am very technical and numbers driven. The most difficult part of planning is identifying the correct input factors and building a conceptual model for analysis. Everything you laid out here makes complete sense, and is going to be a tremendous help. Thank you!
These case studies are super helpful, I look forward to them every Saturday. I also really like the way you methodically structure your explanations and build these scenarios brick by brick.
Most of the cases you have shown so far have been examples of over the top success stories, where your clients not only could retire, but could spend and do even more than they had hoped. It would be very interesting to see a case where people are cutting it much closer, and where it is not immediately obvious that they would be just fine.
Thanks again for all of your amazing educational material!
I agree. Do a case study for a single person or a widower who live frugally and has less than 1mil in savings
Always helpful, I enjoy the case studies. Thank you
Excellent podcast, good value and summary!
Love the case studies! Very helpful!
I appreciate actual case studies, please do more of these.
Excellent stuff.. love the case study
These case study videos are very helpful! Thank you!
These videos really help me think about funds needed for retirement. I'm in my early 40s and starting to stress about making sure we have enough and still live the retirement we want.
Love these case studies! Keep it up.
I love your channel! You explain things well and make it accessible to lay people like me!
Would love to see Part 2 of this video where you tell Sue not to take her SS at 65 and outline a more tax efficient withdrawal strategy.
Great content.
Very helpful videos. Thanks.
Love these case studies! Thank you !! I look forward to your weekly podcasts and videos!!
I run my retirement financial plan (sans Monte Carlo) on a spreadsheet using a clear distinction between fixed and variable current costs, with inflation and adjustments for giving and travel. I can speak very highly to your methodology for evaluation and presentation.
Same here. It's good to do to really understand the tradeoffs. Also good to check in on videos like this to see if we're missing something. The net of investment return minus inflation is one of the key variables we can't control, so I'm sticking to a relatively low withdrawal rate. Question, do you put each Monte Carlo run in a separate column or an entirely new sheet for each?
I can’t imagine being 65 years old and still being “busy” with my job and speculating about retirement. My wife and I are mid 40s and ready to be done. Thankfully we can do so in a couple of years.
Congrats to you. But statistically you are 1% of the American population. Most people have bubkis saved up
The older you get you begin to understand the many benefits of employment that has nothing to do with earnings.
I think that people who are high achievers such that they would have enough retirement money by mid 40s are usually not the types who drop out of work life prematurely and idle around for the rest of their lives..
@@joachim5080, having large piles of money =/= high achiever. You ever hear of trust fund kids? Plenty of them "retired early" and are doing nothing. Having a lot money is a lot more about luck than it is drive or skill.
@@jbh5050 What are those benefits of employment which is not related to earnings?
Great content. Thanks for this.
Great video. I'm only 42 but always planning for the future.
Yes. Great Viejo. I have a similar financial plan of my own making. It's incredibly detailed and includes a monte Carlo simulation.
Amazinng examples! Well done
I really enjoy your weekly scenarios. It's kind of a logic game for me. To see whether I am right at the end. Once you showed me that they had $6000 in their proposed monthly budget was superfluous, this one was really easy. Hay their SS between the two of them almost covers their "have to" expenses.
I
Great content! Appreciated.
hey James, great to see you again and that you are now doing CZcams videos. Big THUMBS UP!
Hey James! Great to hear from you!
@@RootFP Now that I know you have a channel, I am looking forward to spending some time watching :)
For me, this was outstanding as it 95% matches my situation. That 16k monthly bent my mind a bit, till you brought it down to a more realistic range. Thanks!
Very Helpful
If your house is paid off and you’re no longer needing to support kids, getting them through college, I’m not sure what you would spend 16k a month on.
The problem these days is the kids never really go away! 😂
He did drop it down to $5500 per month. That way they can have 6 - 9 million left over when they die at 95.
Got friends who retired and had the same feedback.
They have about 60% of the income of when they were working but have more disposable income.
This includes them going to Florida for 3 months in the winter.
We have a slightly larger portfolio than that and are only spending half that much, even without us thinking about spending money before we do it. Our manager keeps telling us we need to spend some more money or our heirs will be driving Ferraris with our money after we’re gone, but old habits die hard including not going crazy with the spending.
Traveling costs a lot.
James, I watch your "wealthy people" videos and divide the numbers by a factor to get to our balance. It really helps.
Really nice video. I'm going through the same process right now. I never budget so spending amounts are somewhat of a guess. My advisor says I have enough to retire so I'm taking the leap.
James thank you and I really hope you can make more videos for single people and/or those of us who do not have that much savings.
James I really enjoyed this and understand that you are targeting a naive audience. Initially I thought “$16,000? Something fishy here”!!
I’ve gone over my numbers and simply can’t imagine not realizing any of this!! Of course your mortgage goes away. Of course your investing goes away. Maybe what I need the most help with is taxation. That seems way above my head!!!
Great information!!
If i got your retirement planning software does it have a function to help with RMD planning. I have a mix of qualified and non-qualified assets and would like to see optimal withdrawal strategies for tax planning to complement my future income from social security and some rental property. thanks. enjoy your videos.
Hi James - I really enjoy the analysis, strategic thinking, and tactics to retirement planning given a portfolio that you run through weekly. You do a great job going through the details to answers the "what if" and sensitivity questions we all are thinking about. A nice add to these weekly videos, what does this type of planning costs on a one-time or annually? I realize there are many variables depending on the needs of the client. But something at the ends of the videos that said, this type of analysis and planning cost the client $X amount, plus a monthly | quarterly | annual maintenance fee or a X% of portfolio annual fee. It seems that these types of services would pay for themselves, but this additional information would help bridge the gap and answer the question.
If you read the FAQ on the Root Financial website (linked in the description), you can see what this costs. The company only works with clients who want their portfolio to be fully managed, and charges a percentage of the portfolio to do so. Plugging in the numbers, managing a $2.5 million portfolio would cost $21,250/year. Slightly higher than the couple's Netflix budget 😆
Other CFPs work under different models, so you can probably find someone who fits your needs. The good thing is that James is sharing a lot of useful information here for free.
With that final graph, is the green section the median of the Monte Carlo model or something else? Very helpful.
Is the Retirement Planning Academy a one time fee of $197? Is it “lifetime” access or a limited time access?
I have the same question. If it is a one time fee, I’m very likely to buy. One year cost, probably not.
Same question
Looks like it's yearly
Holding my purchase for the answer!
I am curious as well. I believe it would be annual when compared to NewRetirement & Projection Lab. Which i use both to double check our #s. I might give this one a go as well.
As your videos ALWAYS are, this was super helpful. We have a lot of parallels with this couple. I'm perplexed about why their expected rate of return is only 6.5% OR did you increase that later in the analysis.
Kudos on the case studies. Keep them coming.
Please rerun this with stock market return assumptions (perhaps 2% to 10% annual returns), that makes a huge difference too
That’s done within the Monte Carlo analysis he alluded to. He goes over more detail on that in other videos.
Good retirement advice! Do you have another channel for fitness advice? Nice guns! 💪
This was very helpful. I think there were some categories left out of their budget, like taxes, home maintenance and improvement, clothing, personal care (hair cutting and nails), gifts, household expenses and mobile phone. I suspect that this could add another $3000+ a month to a couple with this net worth.
i recently gained access to the software through the RETIREMENT PLANNING ACADEMY and truly love it ... THANK YOU ...
It seemed fairly likely they grossly overestimated their expenses and the way you demonstrated to them that they were in good shape for retirement was outstanding. I very much like the process you went through to explain their situation and can easily apply the same to mine.
Your videos are among the best on the internet ... thank you ...
The one item I am slightly disappointed with is it appears my version of the software does not allow me to vary both general and medical inflation rates ... I assume they are fixed at 2.5% and 5.0% respectively ... despite this, the software is still TOP SHELF and EXCEEDINGLY BENEFICIAL ...
Is the RPA fee a one time fee or yearly?
Thanks for your comment. I called the office and emailed trying to get some answers as to what you get for the $197 academy fee and is it the exact software James uses and do you truly get lifetime access. Based on your experience so far, that all seems accurate?
budget looks ridiculous, no maintenance on house, no depreciation of cars, no thought of a new roof, new ac or major repair on 900,000 house?
Yes why do they leave out escrows that are common.
Hey James - great videos and was tempted to sign on and buy the course and software access . One thing that drives me crazy, a very small percentage of people will spend the same amount through retirement. I’ve heard this described as the go-go years (60-70 traveling like crazy fun fun fun ), the go years (70-80 slowing down), and the no go years (80+ riding my bike and sitting on the porch listening to a ballgame) . Surely the spending will decrease after 70… can the software calculate those 3 suggested declining spending tiers ? I realize healthcare costs may increase. Thanks !
James, does your software allow for incorporation of annuities? Whole Life Insurance?
I am interested in the software and looked at it and one of the frequently asked questions was do we get full access to the software. The answer was there are certain advisor assumptions that cannot be changed. I would like to understand what those are.
Quite amusing. Would love to see the breakdown of the $16k per month expenses.
This was a very good case study
I just hit 40 and am pushing to get 100% debt free this year.
Then I'll work at massing as much for investments as possible. Once I get to $3 million invested, I can retire early. I think I have 10 years of working my 9-5 left.
Building my dream garage/shop full of awesome equipment first.
Thank you
I love your videos. I have learned a lot. A lot of videos are examples of couples who have over $2 million in their portfolio. According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more. Would you make video for the majority of retirees. Most probably have between $300k-$600k in their portfolio.
good video.
I just want to know if social security is working on an increase bill for senior that will put $440 a month in their pocket?
A great start, but more importantly is what is the tax strategy on those 401ks (assuming they're pre taxed). Uncle Sam is going to take a bigger and bigger bite down the road. This is often one of the biggest financial mistakes people/advisors don't plan for until it's too late. Some of that Trust $ should be used to buy down those 401s. And IF one of them dies all the burden will be shifted to a single tax filer. 😢 Like I said it's a great start but Tax preparedness should have already started to avoid higher taxes in the near future and given the $ that hasn't been taxed Uncle Sam is licking his chops. Best of luck....get going on a tax strategy now.
Curious what you think about their home value as a percent of estate value. I've read a house should be 20-30% of estate value and theirs is 36%.
do you have any case studies of clients needing to rent throughout retirement and how that expense impacts their financial outlook?
What do you mean by self insured as far as disability and term? It shows $0-Where are those fees or can you explain how it’s already covered?
When I left my job to continue with term life insurance (job was paying premiums) it was very expensive for me to start paying.
James, have really enjoyed your videos. Intrigued by the Retirement Planning Academy. Was wondering if the software we get access to can be customized by the user to change assumptions about things like inflation rates, rates of returns on investments, or are these assumptions "locked". Thanks.
I am interested to know the answer to this question. Additionally, is this the same software and capabilities as shown on your videos?
I'm not at all credible to be answering this, but I assume this demo was based on average rates seen in the past. There are likely more sophisticated software options available that allow for better customization.
Am answering my own question here. I purchased the Retirement Planning Academy (RPA) and learned to my dismay that the version of RightCapital to which we are given access does NOT allow the user to modify inflation rates, rates of return on investments, among other things. It is a very limited version of RightCapital that doesn't have much flexibility in terms of investment/account types. I did belatedly ask for a refund via email but never got a response. If you are a DIY investor, I wouldn't recommend this version of RightCapital but still highly recommend James's YT videos. James has a real knack for explaining things, while not oversimplifying. I didn't find all that much value added from the RPA if one has watched the YT videos.
The totals of the monthly expenses both before and after are completely wrong. What am I missing?
Very interesting, but I would want to see more about that budget breakdown. 16k mo expenses with just a 2k mortgage seems a little out of whack, unless they're living the high life??
Do you include wealth management fees and taxes in the projections?
Did I miss an expense for Federal and (if applicable) State taxes?
Super helpful. I'm a 45 yo late-starter. I have a mortgage, student loans that will be forgiven in 23 years, and I contribute monthly to my retirement. I'd like to retire at 67, but we'll see. Your plan made it look a little more likely!
I would like to see this same thing with a couple retiring at 63(M) and 60(F) respectively who would have a 4M portfolio without kids and know how much to spend to die almost broke. (ie leave no inheritance behind) This is my situation. I dont know how much I can allocate to discretionary expenses - how much I can freely spend per year - assuming standard essential expenses (no mortgage etc)
Do you have any early retirement analysis?
Do you have videos where rather than withdrawing from accounts you show people living off dividends?
Very helpful to establish your retirement budget because pre-retirement numbers as you showed are so different
Your online academy allows access to the software you use in this video, what is that software? Is it lifetime access?
Appreciate to build on this comment... A one time charge of$197 for the academy grants me (the user) LIFETIME access for me to use anytime to update inputs, run full feature reports and other components of Right Capital (the software used by Root on all videos)? Would very much like to utilize this offer and opportunity, but definitely want to ensure that 1) I (even though I'm not an advisor) have full featured access and all the capabilities of a Root advisor for lifetime... Thanks in advance for confirming/clarifying!
It's called Right Capital (you can Google it). I'm not sure if it's lifetime access. But I paid for James's academy and got access to it. Seems to be pretty full featured so far.
When James said something about long term care being (roughly) $60,000 a year, did he mean that each person is paying $60K per year in long-term care insurance?? I'm REALLY stuck on figuring out if husband and I should be getting long-term care insurance because as near as I can tell, we would be paying out about $100K over the course of our retirement for only $300K of maximum coverage (each). This makes sense actuarially because my understanding is that you have about a one in three chance of needing significant long-term care. We anticipate that we wouldn't be relying on income generated from portfolio because we have generous pensions + SS and I'm wondering if we should just consider the 401K assets as our self-insurance for any future long-term care needs.
this is awesome, except that the inflation rate is a wildcard in this
Wow, 16K a month. We live pretty good on half of that and portfolio-wise I'm in that same ballpark. Maybe I should think of retiring - oh wait, I am, in a month or so ;)
Damn, this guy is financially savvy and super ripped 💪🏻
lol- I know right? I’m glad he takes the time between arm workouts to give us some good advice!!
I had initially planned to retire at 62, work part-time, and save money, but the impact of high prices on various goods and services has significantly disrupted my retirement plan. I'm worried about whether those who experienced the 2008 financial crisis had it easier than I currently am. The volatility of the stock market is a concern as my income has decreased, and I fear that I won't be able to contribute as much as before, potentially jeopardizing my retirement savings.
I think you should add a miscellaneous row in your spreadsheet. When I tried this exercise, every time I thought I had built a comprehensive list, I found a few other charges I had missed. Perhaps 10 or 15 percent of the total would be reasonable.
You are correct there is always an extra 10-15%, home repair improvement, auto, not covered medical bills like cateract surgery with multivocal lens. Insurance going through the roof.
What about the taxes on the withdrawals? Also, a 6.5% return might be risky if that is in equities. What happens if the market drops by 25%?
My opinion is you should have 3 to 4 years of savings expense equivalent in stable bonds or Treasury. That way when the market drops you can wait for it to recover in 3 to 4 years
Mr James , I have both a Roth IRA and a Roth 401K Solo. If my 1040 line 31 Sch C shows $8,000, how much can I contribute to each account?
Sounds like you are self-employed? If you have no other income (earned income) then From 1040 Line C you have to subtract half of your SS tax, so that is $565. Looks like you can put ~$7,465 between your Roth IRA and your SOLO Roth 401k. If you are over 50, you could put it all in your 2023 Roth IRA........
Hey James -- if I join RPA, will I have access to the Right Capital software to create and tweak my own financial plan? Thanks! -Chris
I recently did and have access to it ... the RIGHT CAPITAL software is fantastic ... my guess is you would have the same good fortune.
In the past (and still) I have used NewRetirement software which is about $120 per year and is VERY GOOD ... I do however like the feature in RIGHT CAPITAL of being able to evaluate CASH FLOWS where the annual numbers are available to look at instead of just graphically as with NewRetirement ... in both cases however, the ability to tweak numbers to fully understand my financial condition for one or two hundred dollars is invaluable ...
Where is the link to the Retirement Planning Academy?
This couple spends a crazy amount of money.
Retire a few years than make the spending plan in retirement. You will have more real questions to get answers to. Also someone that sez you need to look at your plan yearly after retired, run they are just fee people. 10yrs revisit your plan. The older you get unfortunately the more things become clear.
Would love to see how your case studies would be with larger Roth accounts in your retirement analysis. Say 50/50. How much further Roth accounts go because you’re paying no taxes. I’m currently 60% Roth/ 40% pretax. With no brokerage account . I’m 61, wife 57. Were both retired, plan on using pre tax retirement accounts from now till 70. Then collect SS at 70, wife collects at 67. Roth accounts double in 9 years. Then income will be whatever you want it to be at 70. SS tax free if that’s your only income and Roth assets to pull from. With no taxes ever!! Am I missing anything here? No one is talking about this plan.
That sounds nice, except how do you figure no taxes on your withdrawals from your pretax accounts until 70?
That IS exactly what THE PLAN should be!!! And they should be converting during their low-income years (retirement to SS then RMD) James has other Videos about that......
Did I miss income tax expense?
Did you back out your fee?
$2500 on charitable giving! my goodness
Has anybody spent the $197 for the retirement academy software? Was it worth it?
I am wondering the same
I asked a question about data privacy on the signup page feedback link. It's been a few days and no reply. It doesn't look like they reply to comments here either.
Can we see these scenarios without social security since it supposed to go insolvent in ~2033, just to prepare for the worst?
Why are your scenarios ALWAYS geared toward couples? Why not do some for single retirees like myself with net worth of 3.7 million?
You messed up their tax strategy. Your first 4 years they only paid an average of $3k per year, then switched to over $40K per year. Remember tax rates are progressive so having an effective tax rate of less than 2% for 4 years is costing them quite a bit of money when they suddenly need to switch to over 20%. A better optimization would have had them paying significantly more upfront. The optimum solution would be the same amount per year as that would be the most efficient.
Sometimes it's not worth it to trying to save a few tax bucks.
I could see you missed two big expenses: cost of new car every 5 years and home maintenance. That could put their expenses to be about $10k before tax. Also, $30k a year travel budget does not really give you any luxury. A round trip first class international ticket could run you $10k already. Btw, very good example. This case study suggests my decision of continuing to work is correct. We are younger, have more investments, have pensions, and similar SS. May be working to 65 makes sense.
Working to 65 or 70 when they are high income earners is crazy... they'll drop dead once they stop working. If you stop saving for retirement and drastically cut down tithing of $30k a year, that's going to help. However, their church is going to pressure (guilt) them to maintain or increase that $30k a year.
Budget is flawed. No house insurance or property taxes, car maintenance, car replacement, clothing, Christmas/gifts, housing maintenance such as a roof, replacement appliances, etc
I keep all the bills I pay in a simple spreadsheet. Everytime I pay my bills Sunday I enter a new row in the spreadsheet. I know exactly what I am spending per month and year over year. It is very simple to do.
It seems that he missed the taxes on withdrawals. 9:57
Can we see an example of a low earner? Or $60-80,000 mark? I feel defeated :/ I can’t save like these people living in California.
Keep it simple.. ya got $2.5M... take out 3% a year, that's $6,250 a month, then add Social security to that. They obviously can not spend $16,000 a month.