Latest / TaylorMade Retirement with Taylor Demars, CFP® / I'm 60 With $3.5M Saved. How Much Can I Spend in Retirement? (Full Breakdown)

Transcript

I'm 60 With $3.5M Saved. How Much Can I Spend in Retirement? (Full Breakdown) · TaylorMade Retirement with Taylor Demars, CFP®

• 0:00
  SPEAKER_01: Today's content is pulled from Taylor's YouTube channel.
• 0:04
  SPEAKER_01: If you want to watch the video version or catch more great content, subscribe by clicking the link in today's show description.
• 0:13
  SPEAKER_01: Welcome to Taylor Made Retirement, where we explore what it takes to build a retirement that works for your money and your life with third generation certified financial planner Taylor DeMars.
• 0:28
  SPEAKER_00: The most common retirement question I'm asked is how much can I spend so I don't go broke before I croak?
• 0:34
  SPEAKER_00: And for better or worse, the answer is a little more complex than a single number.
• 0:38
  SPEAKER_00: So today I'm breaking down exactly how I answer that question using a real client scenario we're working with.
• 0:44
  SPEAKER_00: You're gonna see the good, better, best versions of their plan to answer their initial question, but also show some simple improvements we've made in order to make things happen that they didn't even know were possible.
• 0:56
  SPEAKER_00: The couple we're talking about today is John and Jane Toe.
• 0:59
  SPEAKER_00: They're both 60 years old with about 3.5 million saved, and they came to us wanting to know if they could spend$11,000 a month after taxes.
• 1:08
  SPEAKER_00: John had been running the numbers on his own for a while and feeling optimistic about their plan, but Jane was adamant that they needed to wait until retiring at 65.
• 1:18
  SPEAKER_00: That's just what made sense to her.
• 1:19
  SPEAKER_00: They weren't on the same page yet.
• 1:21
  SPEAKER_00: And now whether you have this exact amount that this couple has saved or something different, it doesn't really matter.
• 1:28
  SPEAKER_00: The principles and processes I'll show you today still apply.
• 1:31
  SPEAKER_00: So to begin, let me break down where the financials are at, and then we need to walk through what inputs we're putting into their plan because as the saying goes, we don't want garbage in to get garbage out.
• 1:42
  SPEAKER_00: So John and Jane Doe have a net worth of about$3.5 million,$1.25 inside of John's IRA, and he's got a$60,000 IRA.
• 1:51
  SPEAKER_00: They have a joint brokerage account of about$550,000, and Jane has about$800,000 in her IRA with a home that they own worth about$850,000 with no mortgage.
• 2:03
  SPEAKER_00: They're both 60 years old and they have two children.
• 2:06
  SPEAKER_00: Now, the first thing we start to look at is analyzing how much are you really wanting to spend?
• 2:12
  SPEAKER_00: And it's not as simple as just being able to say, well, I want to spend$11,000 like John and Jane were supposing they'd start with.
• 2:19
  SPEAKER_00: It gets a little more nuanced than that.
• 2:21
  SPEAKER_00: It's worth the exercise to break down your bank statements, credit card statements to see where are my dollars actually going?
• 2:27
  SPEAKER_00: What expenses am I going to continue in retirement?
• 2:29
  SPEAKER_00: And what expenses might I be adding when it comes to retirement?
• 2:33
  SPEAKER_00: So when we break it down, we like to be able to look at people's goals.
• 2:37
  SPEAKER_00: So this is an overview of where we arrived at breaking down their expenses.
• 2:41
  SPEAKER_00: Now, they had said they would like to be able to retire at 60, but maybe 65 might be the more conservative choice.
• 2:47
  SPEAKER_00: And when we broke down their expenses and broke it down by different categories and different timelines, we found that their month-to-month spending actually came out to be around$9,000.
• 2:56
  SPEAKER_00: For most of our clients, this is the number that represents gas, groceries, eating out, splurges, et cetera.
• 3:02
  SPEAKER_00: Really, most everything in their life except for housing, healthcare, and some of these miscellaneous goals that we'll talk about here, such as what the healthcare costs might be, which we'll get to in a bit, what their long-term care costs might look like.
• 3:16
  SPEAKER_00: We don't want to ignore the elephant in the room because it's not certain whether anybody's going to have this cost, but it's good to know whether your plan can support it.
• 3:25
  SPEAKER_00: So as a starting point, we put clients in assuming that for the last three years of their lives, they're going to have$74,400 in today's dollars in some form of long-term care expenses.
• 3:38
  SPEAKER_00: Where does that number come from?
• 3:40
  SPEAKER_00: Well, if you go to care scout.com, you can actually estimate what your long-term care costs will be for your local zip code.
• 3:48
  SPEAKER_00: But the national average is that$74,400.
• 3:52
  SPEAKER_00: So that's where we start until we get into healthcare planning in a separate session.
• 3:56
  SPEAKER_00: That actually helps us be able to find out what the actual cost is forecast to be for a client based on not only their geographic area, but based on their uh genetic history, how they've taken care of their health, as well as what their preferences are as far as actually having help from family members versus professional help.
• 4:14
  SPEAKER_00: On top of that, goal, they would like to be able to travel, but they realize that they're not going to be traveling at the same pace forever.
• 4:20
  SPEAKER_00: So, like many clients, they broke down their vacation spending by the go-go phase and the slow-go phase.
• 4:25
  SPEAKER_00: The go-go vacations look like, hey, once we retire, we want to be able to spend$20,000 in today's dollars until we're 70 years old.
• 4:34
  SPEAKER_00: So a strong number of years to be able to use their wealth while they have their health.
• 4:39
  SPEAKER_00: Then they realize at some point they might be able to still vacation, but that might look like from age 70 to 80, spending about half as much in today's dollars.
• 4:49
  SPEAKER_00: Their dream goal is to be able to help their two adult children with getting set up with a really safe new family car.
• 4:57
  SPEAKER_00: They would love to be able to give their kids a leg up, not spoil them, of course, but help them out to the tune of about$50,000 for each of their children one time.
• 5:05
  SPEAKER_00: But for themselves, they realize that they're going to need to re-update their car from time to time.
• 5:09
  SPEAKER_00: So we have a goal that starts now and goes through their age 80 when they may not be spent, you know, driving as much, and they rotate cars every four years, spending$50,000 out of pocket, assuming they'll be able to trade in or sell their car for the net difference of how much they want a new car for every time.
• 5:28
  SPEAKER_00: One expense that isn't reflected here yet has to do with their home.
• 5:31
  SPEAKER_00: So for housing expenses, we've plugged in some numbers around their property tax, insurance, and maintenance costs that are considered evergreen and adjusting upward with inflation each year.
• 5:40
  SPEAKER_00: Now, as I mentioned, John and Jane weren't exactly on the same page as to when was the responsible age to retire so that they could do these needs, wants, and wishes for retirement.
• 5:48
  SPEAKER_00: John felt that they might be able to retire sooner.
• 5:50
  SPEAKER_00: Jane was a little more cautious and wanted to work until 65 to be on the safe side and make up for that healthcare gap before Medicare kicked in.
• 5:59
  SPEAKER_00: But after plugging in these numbers and making the projections as far as what was realistic for the retirement, we found that they had an overwhelming possibility to make these numbers work, to the tune of being able to have a 97% Monte Carlo score for retirement.
• 6:14
  SPEAKER_00: This means that they will be in over a thousand different scenarios from the best of the best to the worst of the worst, being able to have 970 of those cases where they don't go broke before they croak.
• 6:25
  SPEAKER_00: Visually, we can see what that looks like here in this visual Monte Carlo projection.
• 6:30
  SPEAKER_00: So we can see their assets starting here at age 60 and how they progress over time.
• 6:35
  SPEAKER_00: And the median outcome means that they end up with about 8.4 million dollars in today's dollars.
• 6:42
  SPEAKER_00: Now, there's a chance that they get much more than that, there's a chance that they have less than that.
• 6:46
  SPEAKER_00: This is projecting whether they have great years back to back, which would be especially helpful if it was an earlier retirement.
• 6:52
  SPEAKER_00: But especially in earlier retirement, if they're not prepared and they have several poor years, then the numbers might tread downward over time.
• 7:00
  SPEAKER_00: So the short answer for Jane was you're right, age 65 is a fantastic outcome.
• 7:05
  SPEAKER_00: Almost too good to be true, actually, because with a 97% Monte Carlo score, you will have oversaved and underlived.
• 7:12
  SPEAKER_00: Not what most people are going for.
• 7:14
  SPEAKER_00: In fact, what John was leaning toward was trying to find that trifecta of finding what was very rare in life, a balance of your time, wealth, and health.
• 7:24
  SPEAKER_00: If we go back a couple decades, you'll remember that early in life, call it in your 20s, you had plenty of time, great health, but not the wealth that you would hope for.
• 7:35
  SPEAKER_00: So you spent the time to build up your skills, get a job, build up a career, sacrificing your time, and let's be honest, probably your health as well, to be able to build up the nest egg that you're looking at today.
• 7:46
  SPEAKER_00: As I see clients I'm working with in their 80s and 90s, they many times have more money than they know what to do with.
• 7:53
  SPEAKER_00: And they have plenty of time to be able to use it.
• 7:55
  SPEAKER_00: The problem is they don't have the health to go out and actually use it.
• 7:59
  SPEAKER_00: You're trying to decide what do you do with your health span?
• 8:02
  SPEAKER_00: Because sure you might live until 90, maybe a few years less or more.
• 8:07
  SPEAKER_00: That's your lifespan.
• 8:09
  SPEAKER_00: But your health span is the number of years that you feel good and actually are able to get out and feel like you're able to make the most of retirement.
• 8:16
  SPEAKER_00: And I would argue that the term wealth span is when you're able to find the holy trifecta of your health, wealth, and time to be able to make the most of what you've been working and saving a lifetime to do.
• 8:28
  SPEAKER_00: And that's where John was coming from to say, well, yeah, 65 seems like it's more than enough.
• 8:32
  SPEAKER_00: What if we are losing trading dollars for years that we'll never get back?
• 8:37
  SPEAKER_00: And that's where we looked at being able to say, fine, what if we're able to find not just the good plan, but the better plan and see if we can make age 60 work?
• 8:47
  SPEAKER_00: And at a money 72 Monte Carlo score, that isn't enough to make me feel like it's a resounding success.
• 8:53
  SPEAKER_00: In fact, it's below my comfort zone and sweet spot of an 80% Monte Carlo score.
• 8:58
  SPEAKER_00: With a 72% score, it's saying that of a thousand scenarios projected out, 720 of them were not projected to go broke before we croak.
• 9:08
  SPEAKER_00: Visually speaking, they've got a chance to be able to have about$2.6 million in ending assets in today's dollars, but there's also a chance, a 5% chance, that they run out of money in their early 80s.
• 9:20
  SPEAKER_00: Probably too close for comfort for most people, as well as myself.
• 9:23
  SPEAKER_00: 80% is our sweet spot because it's the overwhelming number of cases that the plan works.
• 9:29
  SPEAKER_00: We're just baking into the assumption that there's going to be a 20% chance that we're going to need to make some adjustments over time.
• 9:35
  SPEAKER_00: So the question becomes how can we turn this into something that is viable?
• 9:40
  SPEAKER_00: We still have the$9,000 of monthly spending, the go-go, the slow go vacations.
• 9:45
  SPEAKER_00: And in fact, we haven't even baked in being able to help Sarah and Michael be able to spend for those family cars.
• 9:52
  SPEAKER_00: So we know that's not even on the table if we can't get our own retirement to work.
• 9:56
  SPEAKER_00: So we start to look at a couple different options of how we move the needle to make a five-year early retirement feasible.
• 10:03
  SPEAKER_00: The first thing I look at with clients is okay, you told me how much you want to spend, but what does that actually translate to in life?
• 10:11
  SPEAKER_00: You're probably familiar with the go-go slogo no-go phases of retirement, which hits people at different times, but is a common theme among unfortunately everybody.
• 10:20
  SPEAKER_00: So for most client scenarios, we like to reflect that inside of their spending.
• 10:24
  SPEAKER_00: Most people are unknowingly assuming an inflation-adjusted spending pattern, meaning you're going to spend$9,000 per month every month adjusted upward for inflation until the day you die.
• 10:35
  SPEAKER_00: But think about it.
• 10:36
  SPEAKER_00: How many 60-year-olds do you know that are spending like 90-year-olds?
• 10:40
  SPEAKER_00: Not many.
• 10:41
  SPEAKER_00: They may be spending on different things, vacations versus healthcare, but their dollars aren't going towards the same categories, which is why we want to break things out in order to be more realistic and accurate.
• 10:51
  SPEAKER_00: And to that point, that's where we break it down for a retirement spending stages methodology, reflected here by for most clients as a starting point.
• 11:00
  SPEAKER_00: We say, well, between the time that you retire and your mid-70s, let's assume you spend that$9,000 per month.
• 11:06
  SPEAKER_00: Every month, still adjusted upward for inflation, but inevitably our mind and our body will tell us we want to do a little bit less.
• 11:13
  SPEAKER_00: So what if we reduce our spending by 20%?
• 11:17
  SPEAKER_00: It's that month-to-month gas, groceries, eating out, miscellaneous.
• 11:20
  SPEAKER_00: And that goes down from our mid-70s to our mid-80s.
• 11:24
  SPEAKER_00: And then from our mid-80s and beyond, we're spending 20% less than that.
• 11:30
  SPEAKER_00: So many clients are comfortable with that approach, which is what we're doing for their scenario to be able to adopt a more realistic and accurate scenario that helps them feel like they are not overspending unsustainably, right?
• 11:43
  SPEAKER_00: We're still overspending, but we know that it's able to support the rest of the plan, which I'll show in a minute.
• 11:49
  SPEAKER_00: So that's the first thing we're going to adjust.
• 11:51
  SPEAKER_00: The second thing we're going to adjust is the tax strategy.
• 11:54
  SPEAKER_00: As you might recall, a hidden weapon inside of their plan is this brokerage account.
• 11:59
  SPEAKER_00: Being able to have these funds, which are taxed differently than their tax-deferred accounts, the IRA, 401k money, that every dollar gets taxed at the most expensive rates, these dollars get taxed at capital gains rates.
• 12:11
  SPEAKER_00: Up to a certain level of income, taxed at 0%, but still above that, taxed at 15%.
• 12:17
  SPEAKER_00: In any case, once you get taxed at 15%, you are almost certainly being taxed at 22% on your income and your tax-deferred withdrawals.
• 12:27
  SPEAKER_00: So the brokerage account fund allows us to be more flexible with our plan and be able to design in a way that allows us to keep our income lower on paper.
• 12:36
  SPEAKER_00: Let me show you what I mean.
• 12:38
  SPEAKER_00: We're able to forecast what their taxable income is going to look like in retirement, assuming the base plan at retirement age 60.
• 12:45
  SPEAKER_00: You can see how their income is above this green line over time, which is the top of the 12% income tax bracket.
• 12:51
  SPEAKER_00: So they're already going to see a chunk of their income projected to stay within the 22% income tax bracket and a few handful of years where they poke into the 24% when they're rotating those cars.
• 13:02
  SPEAKER_00: Now, being able to instead find a plan where they are actually optimizing their situation and implementing a raw conversion strategy is where things get exciting.
• 13:12
  SPEAKER_00: Because instead of assuming all their dollars come out of the tax-deferred bucket as the bread and butter of their income, like most people do, we're going to leverage that secret weapon I mentioned of the taxable funds that they're going to use for income to keep their income low on paper for the first few years of retirement.
• 13:28
  SPEAKER_00: In contrast to this scenario without any tax optimization retiring at age 60, we can see what their options look like if they would do a Roth conversion and a tax optimized withdrawal sequence.
• 13:38
  SPEAKER_00: We can see how their income is projected to push them into the 24% income tax bracket.
• 13:44
  SPEAKER_00: But using that secret weapon I referred to of the taxable funds, we can still keep their income low on paper and do some Roth conversions in this these early years, which is the green bar showing that how we fill up some of those tax brackets.
• 13:56
  SPEAKER_00: And now turning off the other scenario layered on top, we can see how they're keep we're keeping their income from ever bleeding up into the 24% tax bracket.
• 14:05
  SPEAKER_00: And in fact, for a majority of the time, out of the 22% also, which is why it's following this green line here.
• 14:12
  SPEAKER_00: And eventually their income drops, not because they don't have any more income, but because they're able to live entirely off of tax-free funds.
• 14:19
  SPEAKER_00: I think this is another point that most people get excited about because they're building up a tax-free bucket, but overlook how to actually actually leverage it along the way in retirement.
• 14:29
  SPEAKER_00: Because I feel like there are three great reasons to be building up tax-free funds, which of course no one wants to argue with.
• 14:35
  SPEAKER_00: But in practice, what we see clients doing is first of all, using those Roth funds to keep income low when they have expected expenses.
• 14:44
  SPEAKER_00: Think of the vacation, the travel, the splurge.
• 14:48
  SPEAKER_00: And you may feel like, well, of course, why wouldn't somebody do that anyway if they've got millions of dollars set aside?
• 14:53
  SPEAKER_00: From firsthand experience, I see people having that friction of additional taxes keeping them from doing the things that they told themselves they would do anyway.
• 15:03
  SPEAKER_00: The the trip where they pay for everybody to join them on a family cruise or stay at a beachside resort.
• 15:08
  SPEAKER_00: They say, Well, if we take out 50 grand from our IRAs, we're gonna be paying tens of thousands of dollars potentially in taxes.
• 15:16
  SPEAKER_00: And so they skip the trip.
• 15:17
  SPEAKER_00: Or they say next year.
• 15:19
  SPEAKER_00: The Roth IRA serves as a tool to be able to say, Well, you're not gonna pay petty in taxes, so what are you waiting for?
• 15:27
  SPEAKER_00: The second area is for unexpected expenses.
• 15:30
  SPEAKER_00: That's replacing the roof, a chronic illness, maybe a one-time sickness.
• 15:34
  SPEAKER_00: And these potentially expensive scenarios are also helpful for the Roth IRA.
• 15:39
  SPEAKER_00: So you're not taking a double gut punch from a huge withdrawal that you didn't expect and a big tax consequence.
• 15:45
  SPEAKER_00: And the third scenario is one that most people don't like to think about, but can be a lifesaver.
• 15:49
  SPEAKER_00: And that's when inevitably, in a married couple, one of you is going to be the last man or woman standing.
• 15:56
  SPEAKER_00: And even though the lifestyle for the surviving spouse isn't cut in half, the tax brackets treat you like you do.
• 16:02
  SPEAKER_00: So suddenly the same withdrawals from your IRA may force you into higher and higher tax brackets that you never asked for.
• 16:09
  SPEAKER_00: So having the Roth funds being built up is what's really available in your back pocket to be able to say, hey, should something happen to me sooner than later, my spouse is taken care of because we've got funds that are going to support them without bumping them into those more expensive tax brackets.
• 16:24
  SPEAKER_00: In any case, you can see visually how this really impacts them over time to stay under lower income and stretching their dollars further without working a day longer or saving a dollar more.
• 16:35
  SPEAKER_00: If we break it down visually within this tax bracket table, we can see how they start out with making Roth conversions to the tune of about$130,000,$135,000 in those early few years.
• 16:48
  SPEAKER_00: That's what these green bars are in early retirement.
• 16:51
  SPEAKER_00: But being able to then convert may feel like it's only, oh, three years worth of conversions.
• 16:57
  SPEAKER_00: You can see how their tax-free bucket suddenly went from that$60,000 figure up to about$536,000 and only compounds from there.
• 17:06
  SPEAKER_00: So by the time that they reach, say, RMD land in age age 75, they've got$2 million of tax-free funds built up for at a minimum those three cases I mentioned earlier.
• 17:19
  SPEAKER_00: That's really powerful because the taxable bucket is what is able to fund their needs, wants, and wishes in early retirement, as you can see from that bucket being whittled down right here.
• 17:29
  SPEAKER_00: You can see the taxable bucket fund being whittled down here.
• 17:32
  SPEAKER_00: And then meanwhile, the tax-deferred bucket is also being whittled down to the tune of how much we're converting into the tax-free one.
• 17:40
  SPEAKER_00: So if we come back to our analysis page, we can see if we toggle on just making those two changes I referenced, the GoGo slogo, no-go stages of spending, as well as the tax optimized plan, the impact is pretty surprising.
• 17:54
  SPEAKER_00: You go from a 72% Monte Carlo score with$2.6 million in assets at the end of life to an 87% Monte Carlo score with$5.6 million.
• 18:05
  SPEAKER_00: This is the difference between the good plan and the better plan here on the left.
• 18:10
  SPEAKER_00: And this is where we start to get really excited.
• 18:12
  SPEAKER_00: I'm summarizing here because there's a lot more elements to planning, but by the end of our major planning decisions instead of our five retirement planning pillars, we start to ask ourselves with an 87% score and$5.6 million of vending assets, what are we doing?
• 18:27
  SPEAKER_00: What are we waiting for?
• 18:29
  SPEAKER_00: Why wouldn't we retire at age 60?
• 18:31
  SPEAKER_00: And in fact, can we spend a little more?
• 18:34
  SPEAKER_00: Now, it felt like you know, John and Jane in this case had laid out all their goals and everything that they wanted to be able to do from the monthly spending, the vacations, and even being able to help Sarah and Michael spend on those family cars that we talked about to the tune of$30,000.
• 18:50
  SPEAKER_00: And we can see how it's supported.
• 18:52
  SPEAKER_00: In fact, I think I said$50,000 earlier rather than$30,000.
• 18:57
  SPEAKER_00: So we can see how that impacts the plan to be able to say if we just spend$20,000 more per child at a one-time expense, does that hurt our budget?
• 19:06
  SPEAKER_00: And the Monte Colour projection is marginally impacted, not enough for them to be dissuaded from doing so.
• 19:13
  SPEAKER_00: This is where I see some clients have their eyes light up and bring up things that they hadn't told me anyway.
• 19:19
  SPEAKER_00: Because you see, when we start our retirement planning process, many people get so excited about being able to jump into the plan.
• 19:24
  SPEAKER_00: Or worse yet, they want to just start talking about the portfolio, like most advisors, and say, here's how we're going to manage your money.
• 19:31
  SPEAKER_00: We feel, like many other advisors out there, that a plan built best starts with your purpose, understanding how we want to begin with the end in mind.
• 19:40
  SPEAKER_00: And we do that within our discovery session, asking questions about your hopes, fears, dreams, and joys, which helped break out some of those goals we've already talked about for their scenario.
• 19:49
  SPEAKER_00: But once we actually get into the planning, go from the purpose to the plan, we are able to then apply it to the portfolio and see how it's projected over time.
• 19:58
  SPEAKER_00: An 86% Monte Carlo score means that they have an overwhelming chance of being able to make a plan work.
• 20:05
  SPEAKER_00: And at this point, this is where clients start to get a little bit of a glint in their eye and say, you know what?
• 20:09
  SPEAKER_00: For example, I had a client this week who said, I had a fantastic massage this week.
• 20:14
  SPEAKER_00: And so she went in on her own time in between our planning sessions and added a self-care budget, which I thought was fantastic.
• 20:21
  SPEAKER_00: So it's things like that that start to pop up that people may not have brought up before, but they don't give themselves permission to add to the plan until they see how the numbers are supported.
• 20:31
  SPEAKER_00: So when we go into the goal scenario, we can add that same goal.
• 20:37
  SPEAKER_00: We'll call it Jane self-care.
• 20:41
  SPEAKER_00: Put it in Jane's name.
• 20:42
  SPEAKER_00: We'll say it starts this year, we'll say it's every year, and you know what?
• 20:46
  SPEAKER_00: What the heck?
• 20:47
  SPEAKER_00: We'll just say it's indefinite.
• 20:48
  SPEAKER_00: And let's be generous and say, let's say she's spending$500 a month, so$6,000 a year on this self-care.
• 20:55
  SPEAKER_00: Think manicures, pedicures, out, days out with the girls.
• 20:58
  SPEAKER_00: And I think that adding this line item does two things.
• 21:02
  SPEAKER_00: One, it gives clients the peace of mind of knowing that they can support the spending, right?
• 21:09
  SPEAKER_00: Because I had a client bring in a miscellaneous goal just this week and they said, Oh, well, why don't we just bump up the$9,000 month-to-month spending figure?
• 21:16
  SPEAKER_00: Which we can, assuming it's an indefinite goal.
• 21:19
  SPEAKER_00: But when we add it here as a separate line item, it's it's it suits my OCD mindset to be able to say everything is lined up.
• 21:26
  SPEAKER_00: And I feel clients enjoy it too because they now feel like they have the permission to spend.
• 21:30
  SPEAKER_00: So John doesn't give Jane the the guilt or grief to say, well, are you sure you can spend another$500 this month?
• 21:38
  SPEAKER_00: Let's find out.
• 21:39
  SPEAKER_00: We go from an 86% projection of success in the Monte Carlo score, revise down to 80%.
• 21:46
  SPEAKER_00: You might say gulp.
• 21:47
  SPEAKER_00: What if that's even sustainable?
• 21:49
  SPEAKER_00: Keep in mind I'm being a little too generous here because I'm assuming that goes from now at our age 60 until we estimated that they would pass away at age 100.
• 22:00
  SPEAKER_00: We're making the assumption that for the next four decades, she's going to spend six grand every year, every year, every year, adjusted upward for inflation.
• 22:07
  SPEAKER_00: Maybe not so realistic, but what the heck?
• 22:09
  SPEAKER_00: Whether it's her self-care or it's splurging, uh, I had another client, the husband said, you know what?
• 22:15
  SPEAKER_00: I take a trip every year with my college roommates.
• 22:18
  SPEAKER_00: And I want to feel like that's added to the plan as well.
• 22:20
  SPEAKER_00: So we added Guy's trip as another miscellaneous goal to their plan.
• 22:24
  SPEAKER_00: This is where we get to start to be able to see the good plan, the better plan.
• 22:29
  SPEAKER_00: And now we're looking at the best plan.
• 22:31
  SPEAKER_00: Because coincidentally, here we're seeing an 80% Monte Carlo score that still gives me the full green flags of being able to feel comfortable moving forward with a retirement, not starting in five years, but today, when they've got the health, wealth, and time to be able to take advantage of their wealth span and use their life savings like they had hoped for all along.
• 22:52
  SPEAKER_00: Now, I know what you might be thinking is this sounds too good to be true.
• 22:56
  SPEAKER_00: This all sounds like you're punching some buttons through and seeing some visuals pop up.
• 22:59
  SPEAKER_00: What I like about being able to model things out with clients is actually breaking down the cash flows and be able to see year by year how does the money actually play out.
• 23:08
  SPEAKER_00: And when we look at the tax optimized plan, we can look at year one, if they're their first full year of retirement in 2027, to be able to say, no more income coming in, right?
• 23:18
  SPEAKER_00: No pensions, no social security, no wages, right?
• 23:20
  SPEAKER_00: And see how their expenses are broken out line item by line item.
• 23:24
  SPEAKER_00: So these are all on future dollars.
• 23:26
  SPEAKER_00: So not the exact$9,000 figure forever, but in this year, it's going to be$108,000 to the month-to-month expenses.
• 23:34
  SPEAKER_00: And then housing expenses is broken out, like I mentioned earlier, for taxes, insurance, and maintenance, healthcare expenses is another line item that has yes been added to the plan.
• 23:44
  SPEAKER_00: You might have been thinking, what about the gap between now and Medicare?
• 23:48
  SPEAKER_00: The same thing that was keeping Jane on the fence about whether age 60 was viable at all.
• 23:53
  SPEAKER_00: I don't know the exact number that's going to cost for your scenario, but yes, it can be expensive.
• 23:57
  SPEAKER_00: As a starting point, I like to say, what if it's$1,200 per month per person and see where the numbers land from there?
• 24:05
  SPEAKER_00: Because I'm not a healthcare consultant and an expert in what is the best plan for your scenario, we partner with a platform I pay for for clients to help them give a direct one-on-one consultant to be able to walk through what it might be the best options for their scenario.
• 24:19
  SPEAKER_00: I have clients that have great health that just want to make sure that their catastrophic needs are taken care of.
• 24:24
  SPEAKER_00: I have other clients that are taking very expensive injections on a regular basis and the need to make sure that their care is covered.
• 24:31
  SPEAKER_00: So this healthcare planning provider allows people to evaluate their Cobra, private, public healthcare options to know not just what's the bottom dollar, because we don't want to let the cost drive the decision, but what's the best coverage options for your providers, prescriptions, and just basic needs specific to your situation.
• 24:49
  SPEAKER_00: So for John and Jane's situation, yes, it was expensive.
• 24:54
  SPEAKER_00: It was going to cost them$28,800 a year.
• 24:59
  SPEAKER_00: But as one client that I like to quote said, this is just the cost of freedom.
• 25:03
  SPEAKER_00: Being able to unlock five extra years of retirement when they have the health to use it is worth it for many of clients once they know that the numbers can support it.
• 25:12
  SPEAKER_00: There's also the argument to say, well, what about ACA healthcare subsidies?
• 25:15
  SPEAKER_00: That's a conversation I've addressed in another video and a topic for another day.
• 25:19
  SPEAKER_00: But in any case, it is an option to be able to optimize for healthcare subsidies.
• 25:24
  SPEAKER_00: In John and Jane's scenario, we made the decision to fill up our income instead with Roth conversions because it played out better in the long term from a quantitative perspective to bolster their plan, but also a qualitative perspective for those reasons I decided earlier about being able to spend on unexpected expenses, expected expenses, and taking care of a surviving spouse.
• 25:45
  SPEAKER_00: A little bit of a tangent there.
• 25:47
  SPEAKER_00: But to answer, yes, we are breaking down healthcare here.
• 25:50
  SPEAKER_00: We can see their go-go vacation goal is accounted for, Jane's uh self-care expenses taken care of, and we've also known what we're projected their taxes to be on a year-by-year basis.
• 26:00
  SPEAKER_00: If we jump out, say five years, once they have started healthcare with uh Medicare, the first full year, I should say, we can still see that there is a significant expense here of$22,431.
• 26:13
  SPEAKER_00: That's the in non-inflation adjusted number of what we project their out-of-pocket dollars and premiums will look like at that point.
• 26:21
  SPEAKER_00: So we can still see that their month-to-month expenses are are in place.
• 26:25
  SPEAKER_00: Their go-go vacation is still in place, and their plan is expected to withdraw$212,991 in that year when they are 66 years old.
• 26:38
  SPEAKER_00: Many times people like breaking down the cash flows just to know that they're knowing that every dollar is accounted for, and we're not overlooking their various income sources.
• 26:46
  SPEAKER_00: So, in their scenario, we had forecasted that they would start their social security at age 70 for John and Jane's full retirement age.
• 26:56
  SPEAKER_00: You may ask, why do we do that?
• 26:58
  SPEAKER_00: We find that there's a trifecta of how to analyze when the best timing is to start Social Security.
• 27:05
  SPEAKER_00: Most people just think of one angle, the quantitative aspect, to say, how much can I get the most dollars out of the system?
• 27:11
  SPEAKER_00: Which is a fair argument to a point.
• 27:13
  SPEAKER_00: And you can run numbers and spreadsheets all day to be able to say, when will you break even and get more dollars out of the system?
• 27:19
  SPEAKER_00: That's just one aspect we look at.
• 27:21
  SPEAKER_00: And for John, that's what he thought he needed to do in order to be able to maximize his plan.
• 27:27
  SPEAKER_00: But the second angle we look at is the qualitative aspect to say, well, there are some reasons that it's better to claim earlier.
• 27:34
  SPEAKER_00: A common one that I see is regardless of how much money someone has saved for retirement, once they've turned on their social securities income stream, they suddenly overnight start spending more.
• 27:45
  SPEAKER_00: Something about having a fixed month-to-month cost of a living adjusted expense number coming in no matter what feels good to them and they feel greater permission to spend.
• 27:55
  SPEAKER_00: So starting earlier resonates with a lot of clients, and which is what we've done to prepare the best of both worlds for John scenario, where he's claiming at age 70, and Jane is able to claim at her full retirement age of 67.
• 28:08
  SPEAKER_00: So now that we've broken down the cash flows, there's one more element to their plan that may be making you question whether this is really viable.
• 28:15
  SPEAKER_00: And we mentioned earlier their withdrawal rate.
• 28:17
  SPEAKER_00: You've all heard the 4% safe withdrawal rate, which is presumes that you can take your nest egg, withdraw 4% on an inflation-adjusted basis from year to year, and you shouldn't run out of money.
• 28:28
  SPEAKER_00: And so the saying goes.
• 28:30
  SPEAKER_00: And I wouldn't argue with that in this video, except for the fact that it's oversaving and an underliving.
• 28:36
  SPEAKER_00: So we can break down for their now best version of their plan what the month-to-month, year-to-year withdrawal rate actually looks like.
• 28:45
  SPEAKER_00: And for their scenario, most people, proponents of the 4% rule, might gasp because starting an early retirement, we're already withdrawing to the rate of 8%, 7%, even 12% in the year that they're going to rotate a car and then 7% and so on.
• 29:00
  SPEAKER_00: But we know that's sustainable because as we forecast over time, we know that there's going to, well, you can see it visually, the go-go slogo, no-go phases of retirement.
• 29:09
  SPEAKER_00: Later in life, their portfolio is projected to grow enough and their withdrawal withdrawal rate is projected to drop down enough to the point where they're going to be withdrawing less than 1% of their portfolio.
• 29:20
  SPEAKER_00: Later in life, you can see this spike, which is where we accounted for those long-term care expenses coming in at the last few, three years of each of their lives.
• 29:29
  SPEAKER_00: This is an important element that most people overlook as well, because as much as we don't like to think about the possibility of going into a long-term care facility, it many times can be what I've seen firsthand is the torpedo that sinks as your sinks your financial ship.
• 29:42
  SPEAKER_00: So while I don't have a crystal ball to be able to tell you whether you have long-term care uh needs in your future, it's helpful to be able to know that if needed, your Nestex supports it.
• 29:52
  SPEAKER_00: Because this whole plan is assuming that their portfolio supports the spending, even before they talk about having to sell their home, which is paid off already.
• 30:00
  SPEAKER_00: And if you haven't paid it off already, certainly should be so by the time you incur long-term care expenses and sell it to self-insure.
• 30:08
  SPEAKER_00: By now, you've seen the progression of John and Jane scenario from going from the good to the better to the best scenario of how their plan was laid out.
• 30:16
  SPEAKER_00: Same dollars, same timeline, but with drastically different inputs in order to make the plan work.
• 30:22
  SPEAKER_00: If this resonated with you and you're interested in seeing how your plan actually gets affected with an approach similar to this, feel free to use the link in the description below where you can start a call with me to see what our retirement readiness roadmap process looks like for your scenario.
• 30:36
  SPEAKER_00: We feel that there's a five-step approach that needs to cover the five planning pillars covering income, taxes, investments, estate planning, and healthcare planning to know that you have the confidence of your timeline, your spending being viable for your situation.
• 30:50
  SPEAKER_00: Now there's one more thing that we haven't talked about in this video, and that's the investment allocation for a John and Jane situation.
• 30:56
  SPEAKER_00: And in another video, I'll break down exactly how we reverse engineer a tailored investment allocation for our client scenario, not just today, but how we adapt it over time using a framework for the buckets income methodology specific to each person's situation.
• 31:11
  SPEAKER_00: In John and Jane scenario, we're assuming an 8% annual return because we're not using an overly conservative scenario.
• 31:17
  SPEAKER_00: That's a cookie cutter approach that too many people use that leaves money on the table and doesn't allow them to be able to leverage as much of their portfolio as they could otherwise.
• 31:28
  SPEAKER_00: If you want to see that video, subscribe to the channel or let me know in the comments what other things you'd like to see me broken down.
• 31:34
  SPEAKER_00: Thanks for watching this breakdown between the good, better, best plan, where we started with the affirmation that yes, they could spend$9,000 per month with a retirement age at age 65, gone to a better plan where, yeah, they can make age 60 work with a couple levers of planning.
• 31:51
  SPEAKER_00: But the best scenario, in my opinion, is where people come out of their show and start talking about what they really wish could happen if they could wave a magic wand.
• 31:58
  SPEAKER_00: If you're interested in seeing what is possible for your retirement scenario, you can click the link in the description to book a call with me.
• 32:04
  SPEAKER_00: I'll walk you through what our retirement readiness roadmap process looks like, and we'll see if we're if we're a fit for you.
• 32:10
  SPEAKER_00: Our goal is to be able to see every client have the five retirement planning pillars covered income, taxes, investments, estate planning, and healthcare planning so they can know whether they can actually retire on their terms and spend the ideal amount that they want without feeling that they're at risk of going broke before they croak.