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How Much Money Do You Really Need to Retire? · Retire and Thrive

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One of the most common questions that we heard over and over
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again is how much money do I need to retire?
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People often say, is there a chance I'll run out of money?
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But one of the things I can say unequivocally that I am fairly
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adamant on, and my opinion is pretty strong on this, that when
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you are retired, I highly encourage you to be completely
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debt free. Welcome back to another edition
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of the Retire and Thrive podcast where I help you live your
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retirement years with purpose, wealth and competence.
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This is actually episode 30. It's kind of hard to believe
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that we're already on episode 30.
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But as a reflect back, the 1st 24 episodes were tied
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specifically to the book, the Retire and Thrive in the seven
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lessons that were part of that book.
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And so the last 6 episodes have done a little bit deeper dive
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more into the strategy of some of the things that we felt were
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kind of front and center, which involved everything from cash
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flow to Social Security, taxes and so forth.
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So today, I thought what would be kind of helpful when I look
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back at all of the episodes that we've done, going back to 29
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episodes, quite frankly, I came up with the most common
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questions that people have asked to either put in the comments.
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Maybe they had subscribed and then had typed in some questions
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that they had. So I'm going to just kind of do
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a little bit of a rapid fire because there's lots and lots of
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comments and questions that we've had over over the last few
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months. But one of the most common
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questions that we heard over and over again is how much money do
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I need to retire? And I feel like this could
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almost be kind of a, a quiz, if you will, because I think we've
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talked about this before that when it comes to retirement,
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it's not an asset game, it's a cash flow game.
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So the question is, how much money do I need to retire?
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Well, I don't want to dismiss the question because it is one
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of the ones that gets asked the most.
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The answer that I'm going to give is that it really depends.
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It depends on a lot of other factors.
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And so again, if we just take a portfolio and we look at how
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much that has grown, I'm a huge believer in diversification and
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diversification is nothing more than not putting all of your
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eggs in one basket. So when we look at how much do
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you need to retire, the reason I tell you that it depends is it
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depends on other income sources and quite frankly, other assets.
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So if I've got, I know we talked about this in one of the
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episodes from the lessons that cash flow matters is if I've got
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an office building or retail building and let's say that it's
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worth 1,000,000 bucks, but it generates $70,000 a year of
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income, then that's going to reduce what I'm going to need in
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My Portfolio because again, that generates the income.
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So how much do I need to retire? If you're referring specifically
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like in your 4-O1K or 4-O3B or a specific qualified plan, it
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definitely depends. But I'm going to go back to the
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sustainable withdrawal rate. And the sustainable withdrawal
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rate is how much money can I pull out of My Portfolio without
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worrying too much about running out of money.
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I know we've talked about this before.
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Some people refer to it as the 4% rule, but I'm going to go
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back to the example of, you know, the retail strip mall
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building. If you own that and it generates
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$70,000 a year, that's $70,000 a year that you don't have to get
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from your portfolio if your portfolio is worth 1.5 million.
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And we use that 4% withdrawal rate.
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If I take 4% on 1,000,005, that's $60,000 a year using that
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4% withdrawal rate. So I start combining the $60,000
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and the $70,000 from the real estate and all of a sudden I'm
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up to $130,000. So again, the real estate
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doesn't necessarily factor in there.
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And then we add in Social Security and potentially maybe
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if one of the spouses had worked for an employer that offers a
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pension, we start adding all of that together.
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So it definitely does depend. And I do know that I had used
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the example I think was an episode 28 where we talked about
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how much money do you need? And it's not an asset game and
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it's a cash flow game, but the client that had 400,000 but had
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very strong income and the client that had two beautiful
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homes and a $2,000,000 portfolio.
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So it's not really how much you need to retire.
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But again, I feel like a little bit of a broken record when I
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say it really is focused on the income and the withdrawals.
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So it certainly is important to have a large portfolio, but more
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importantly is the income that you can generate be it from
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other sources. The second most important
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question, and I again mentioned this a couple episodes, is when
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should I take Social Security? I can't emphasize enough on the
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importance of this decision and there's so many different
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variables when it comes to taking Social Security that just
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for today. So I don't go on for several
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hours on this topic. I'm just going to touch on a few
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of them. First of all, it's going to
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matter based on not only your portfolio, but other income
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sources. So one of the myths that we had
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talked about is I'm going to take Social Security as soon as
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I possibly can because I, I want to make sure that I get it
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before it runs out. And ID mystified that by saying
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don't jump the gun and taking your Social Security because
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personally I don't see a a scenario where that's going to
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run out. Now for the younger generation,
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maybe in their 30s and 40s, certainly there could be more
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tax on Social Security and so forth.
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But for the majority of people that are in their late 50s,
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early 60s and they're deciding when to take Social Security, I
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would look at it and say, what are the 2 main things that we're
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going to look at is what are my income needs?
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How much income do I need? And second of all, what's the
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tax implications by me taking Social Security?
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Or quite frankly, what's the tax implications of me not taking
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Social Security? So if I delay my Social
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Security, then that's going to give me a bigger opportunity to
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pull from my retirement accounts.
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And why would I want to pull from my retirement accounts?
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I'd mentioned it earlier too and that is if your retirement
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accounts that have never been taxed is a large percentage of
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your portfolio, 7080 even 90%, pulling from those retirement
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accounts and getting that number down to a lower percentage can
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definitely help you down the road.
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Secondly, pulling money out of your retirement accounts prior
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to that required minimum distribution.
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The other big advantage of that is if you're pulling money out
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of those retirement accounts prior to your required minimum
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distribution, that's just going to mean less that you will need
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to pull out for at currently age 73 for that required minimum
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distribution. So when should you take Social
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Security? There is no hard fast rule other
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than there's a lots of things to factor in.
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Your overall health is going to be a factor in when to take
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Social Security. The potential discrepancy in
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your income between you and your spouse is going to determine
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Social Security, your ability to wait and taking your Social
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Security and get that increased amount, as I said, 7% per year
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up until full retirement and then after full retirement till
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70, that 8% increase, that's going to factor in there.
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And also if there's a discrepancy in you and your
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spouse's age that could contribute on when to take
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Social Security. So I didn't necessarily answer
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the question of when to take Social Security, but I did tell
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you that it is because it does depend on a lot of these
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circumstances. One of the questions that we get
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asked and quite frankly as our number one goal for every client
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of ours as they approach retirement is, and I say this
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over and over again, is our number one goal for every
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retiree is to do everything we possibly can that they don't run
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out of money. And people often say, is there a
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chance I'll run out of money? Well, we try to insulate that as
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much as possible by putting in different stop gaps, if you
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will. And those could include
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everything from how the investments are structured.
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We talked a little bit about the bucket system creating a reserve
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so that you've got emergency liquidity plus the three
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different buckets, you know, each bucket per decade from 60
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to 7070 to 80 and 80 to 90. So we do all of these different
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things, but obviously there's some things that are out of all
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of our control and that could be everything from stock market
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returns and quite frankly like 2022 bond market returns that
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were horrible. It could mean inflation.
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But one of the things we can't control is we can't control our
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clients spending. I mean, often times when we're
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working with them hand in hand, they'll tell us if there's some
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things that they have purchased and how that's going to affect
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not only their portfolio or their withdrawal rates, but also
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the taxability of that. And unfortunately, probably the
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biggest unknown is life expectancy.
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And I say that because I don't have any evidence of this, but I
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do feel like people are living longer and longer in retirement.
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And again, I think a lot of that is due to medical advances.
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And so people are living longer. And if people started saving at
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an earlier age, it's not uncommon for people to retire in
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their mid 50s. And if they live into their 90s,
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in theory, and think about this for a minute, in theory, you
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could actually live longer in retirement than you actually
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worked. And so that's just that much
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longer that the money has to last.
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So there is no, am I going to run out of money definitive
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answer. A lot of it is based on
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characteristics not only of the economy and the market returns,
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but also factors into spending, lifestyle if you will.
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And some of it has to do with longevity.
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But we can make assumptions, you know, we call that our base
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facts that we make these assumptions and then we can
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tweak them, whether it's rates of returns or life expectancies
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or whatever it might be. The next question that as we
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cycle through all the different questions that that I was asked,
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and this may be a little bit controversial, but the question
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was or several people had asked this and some people were very
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specific when it pertained to their mortgage.
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But the ultimate question is should I pay it off?
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Now, there are some people out in the public eye that are what
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what the public may view as experts.
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And some of these experts may say that you need to be debt
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free as quickly as possible. And I'm not necessarily a fan of
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that. And I think all of us remember
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there was a window and we're talking about probably from
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about 2016 all the way through 2000 and 2021 when mortgage
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rates were extremely low, very, very low.
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And of course, mortgage rates have shot up.
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And a lot of that had to do with the inflation, with the Federal
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Reserve aggressively raising interest rates in the calendar
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year 2022. And now we're starting to see
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the Fed cut interest rates. And while what the Federal
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Reserve does effects lots of different interest rates from
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the rates that you can get on money market accounts and short
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term CD's, it's not a direct correlation to mortgage rates.
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There is, there is a correlation, but it's not
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directly correlated. So actually the question, I
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think it's going to vary from person to person.
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But one of the things I can say unequivocally that I am fairly
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adamant on, and my opinion is pretty strong on this, that when
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you are retired, I highly encourage you to be completely
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debt free. And the reason for that is think
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of it this way. I don't care if you've got $1200
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in a mortgage payment or if you've got $5000 in a mortgage
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payment. When it comes to retirement, and
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I know you've heard this many times, it is a cash flow game.
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So let's split the difference here and say you've got a
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mortgage payment of $3000. If you've got a mortgage payment
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of $3000, that's just the principal and interest payment.
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We're not talking taxes and insurance.
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We're just talking about the principal and interest payment
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on your mortgage. If that is $3000, that's $36,000
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per year. And if you're retired, we need
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to figure out where that $36,000 a year is going to come from.
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Is it going to come from your portfolio?
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Again, using that 4% rule, you're going to have to have
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almost $1,000,000 at 4% to generate that 36,000.
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Is it going to come from your pension?
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Well, if your pension is 2500, you've got to come up with
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another $500.00. So it's to me, it's very, very
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important that you go into retirement or shortly after
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retirement as debt free as possible.
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Because again, thinking about it as a cash flow game, the less
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you have to worry about payments, the better your cash
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flow is going to look. And I know I did talk a little
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bit about cash flow confidence. And cash flow confidence is I
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feel really good about my position.
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But if you've got a mortgage hanging over your head, that can
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be a little bit discouraging. So if you're in your early 50s,
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late 40s and you've come into some money, does it make sense?
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I'm going to not go down that path just because it really
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varies. It varies based on your your
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cash flow. It also varies on how much
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you're contributing to your retirement.
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It varies on what you're going to do with the money that's
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going to free up your mortgage. So there's a lot of these
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factors. So I'm going to keep sticking
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mainly on this topic to the retirees, and I'm going to say
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absolutely, I don't care if you're at a 3% mortgage where
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you're at a 6% mortgage when you go into retirement if possible.
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No, not everybody is possible, but that is it.
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That is an area that I would highly encourage retirees is to
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have their mortgage paid off. One of the questions that we got
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is they said how do I know if I'm invested correctly?
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And again, that's a fairly broad question.
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I want to kind of bring that down and talk about something
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that I feel has happened over probably the last five to seven
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years. And people often talk about
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their rate of return in their retirement accounts.
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And some of it I feel is almost like kind of bragging.
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Well, I got 15%. What did you get?
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And it's not really that crucial of what your actual return is
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over the long period of time, but it is crucial.
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If you're 65 years old and your portfolio dropped 10% and the
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overall market was down 11, or if the market's down 11 and
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you're only down to, obviously that's critical, but how do you
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know if you're invested correctly?
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I think there's two components to this.
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I think the first component is, am I allocated properly given my
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risk tolerance? When I say allocated properly,
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we're talking about the percentage you have in stocks,
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the percentage you have in bonds, the percentage you have
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in cash. And then stocks can be broken up
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further based on asset class. It can be large cap growth, it
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could be large cap value, small cap growth, small cap value,
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could be mid caps in there, it could be international, could be
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emerging markets and on and on and on.
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So let's just talk more specifically about the strategic
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allocation and that's stocks to bonds to cash.
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How do I know if that allocation is proper?
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A lot of that is going to be dependent on how much income you
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need to generate from that portfolio.
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If you need to generate more, you may have to step out on the
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risk spectrum a little bit. If you need to generate less,
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you wouldn't necessarily need to have as much risk in the
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portfolio. Now, I don't want this to be a
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hard and fast rule. This is a very general
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statement. So I want to clarify this is not
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my recommendation because again, each situation is going to be a
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little bit different, but it's a very vague rule of thumb.
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If you take your age, that should be approximately the
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percentage that you should have in more safe and secure
17:11
investments. So if I've got a 60 year old
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who's retired or very close to retirement, a very vague rule of
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thumb is maybe 60% in bonds and or cash and then the remaining
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40% in stocks. So being invested properly with
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those allocations is definitely important.
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Now again, I said multiple times, this is a very vague rule
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of thumb as opposed to a 60 year old who maybe has 70% in the
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stock market. So I would simply say use that
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from an allocation more of what we refer to as strategic or a
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type of asset class. And then we get into the
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tactical allocation. Tactical allocation is
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specifically what percentage you have in all of these different
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asset classes. And inside of the stock class,
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there's tons and tons and tons of different types of stock
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asset classes like I mentioned, from large to small, growth of
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value, international emerging, all of those.
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And then we get into the bond component and the bond
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component. There's lots of different asset
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classes there too. We've got everything from
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treasury securities, we've got corporate bonds, we've got
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municipal bonds, we've got money markets, we've got high yield
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bonds, we've got foreign bonds, on and on and on.
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So I think it's really important that we today simply just focus
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on the strategic allocation that I mentioned and not get too
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granular because those tactical allocations usually it's
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important to work with someone who may fine tune those.
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I've never been a believer in trying to time the market.
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So what timing the market is a saying.
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I feel we got a lot of headwinds, so I'm going to move
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everything to cash makes me nervous.
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But generally speaking, a well diversified portfolio over a
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long period of time will bode well.
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One of the other questions that I get which kind of ties into
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how do I know if I'm invested correctly is what should I do
19:10
when the market drops? Now this actually happened
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pretty substantial the last year in April of 2025 when there was
19:21
tariffs that were being implemented.
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And I think from the start of the, the, the year, the market
19:28
actually was down over 15%. When I say market in this case,
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I was using the S&P 500. And so in this particular case
19:38
we, we took a look at all of our portfolios, we looked and said
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do we need to make adjustments or is this kind of a temporary
19:44
thing? Well, of course we didn't know
19:45
if it was temporary or not. We didn't know how long it was
19:47
going to go on, but at the end of the day, we didn't make
19:50
massive adjustments to portfolios just because the
19:52
portfolio dropped. Now that goes back to how do I
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know if I'm allocated or invested properly?
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If you've got the proper allocation, sometimes it's just
20:03
kind of a wait and see. Even though it might be painful
20:08
to open up your statement and see that there's a negative,
20:11
staying and invested in the market is much better than
20:14
trying to guess the market if the market drops.
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The last question for today, because I think we're kind of
20:20
running out of time here and the question was asked is how often
20:25
should I review my financial plan?
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I think as a as a follow up to that, we could also say the same
20:32
thing about how often should I review my overall investment
20:34
portfolio. And the short answer is, in my
20:39
opinion, both the investment portfolio and your financial
20:42
plan, at the minimum, I would review it annually.
20:46
I might have a different answer on your financial plan if you're
20:48
in your 30s or 20s, of course, because your trajectory of when
20:53
you're going to tap that retirement is quite a ways out.
20:56
But if you are approaching retirement, I think it's
21:01
absolutely critical to review both your investment portfolio
21:05
and your investment or your financial plan annually, even if
21:09
there's no changes. So my opinion is I would review
21:12
these plans annually. However, if there's changes in
21:16
between those 12 month period, I think it warrants a check up
21:20
even sooner. And those changes could be
21:22
everything from maybe your income has changed, maybe you're
21:26
deciding whether you should take Social Security, maybe you're
21:30
challenged with buying a big ticket item like a like a car,
21:34
or maybe you're looking at buying a second home.
21:36
But anytime there's anything of material change in your life, I
21:42
would say it's time to review the plan.
21:45
So we have run out of time. These were the top questions
21:49
over the course of the last 29 episodes that I wanted to just
21:52
kind of go through and answer them.
21:54
So with that being said, we're going to end this episode,
21:58
Milestone 30. And if you like this episode and
22:03
you want to subscribe, click on the link below.
22:05
And until next week, we put these out on a weekly basis.
22:10
I hope you have a great week and thank you for joining me on this
22:14
Retirement Ride podcast. Fortress Financial Group, LLC is
22:18
a registered investment advisor. Advisory services are only
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offered to clients or prospective clients where
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Fortress and its representatives are properly licensed or exempt
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for licensure. The opinions voiced in this
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material are for general information only and are not
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intended to provide specific advice or recommendations for
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any individual. All indexes are unmanaged and
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may not be invested into directly.
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Investing involves risk, including loss of principal.