Do We Have Enough To Retire (And Never Go Back To Work)?

They're both wrong , and here's why I have clients that have $500,000 and they are retiring and they're spending north of 15,000 a month , but they also have a pension that covers the majority of their needs . Other clients that have $3 million are nowhere close to retiring if they wanna spend 20 , 25 , 30,000 a month .

So to me it has nothing to do with the portfolio amount in everything to do with what you actually want to spend in retirement and if that's sustainable , if you have a portfolio that's actually reflective of that .

Meaning you might wanna spend five , 10 , 15,000 a month , but maybe you're only spending 10,000 a month the first two , three years when you're retiring early , when you have your energy and your health and your traveling and your pain for health insurance and Medicare hasn't kicked in , then maybe a mortgage goes away , so even less is required for your portfolio , and

then at that point maybe medical expenses shoot up , so maybe you do need more again . So don't marry that expense number . Too many people make that mistake . What I'm gonna walk through today is specifically how you can know if you are in a position to retire . Now you might listen to this episode and go oh my gosh , this really made me think differently .

I think I am in a spot to retire , but I love what I do . Great , don't stop working . People often think when I talk about early retirement , it's me saying here's when you should stop working . That's not what I'm talking about at all . In fact , I talk about what the RE stands for .

So if you're not familiar with the FIRE movement , it stands for Financial Independence Retire Early . I don't like that definition . I prefer Financial Independence , recreational Employment . Most people don't wanna do nothing . They just wanna know they're going to work because they want to , not because they have to .

So one of the first things I'll show a client when they become a new client is hey , here's your RE , here's when you'll know you're actually working because you want to , not because you have to . And then they go oh , that's good to know , but I'm gonna keep working cause I like it , or you know what ?

No , I'm gonna take this job that pays a whole lot less and , yeah , I'm gonna enjoy it more . So that works great . I wanna make sure you're not leaving anything unnecessarily on the table , but that you also don't retire too early . So I often say I'm the meanest early retirement advisor because I never want you to have to go back to work .

So today I'm gonna walk you through a way to think about if you know you're in a position to retire and some common myths that are probably creating head trash .

So head trash is what a mentor of mine once coined the term for , when someone's like I think I'm on a good spot to retire , but I don't know , and if markets don't perform well , maybe then I'm not , or do I have to hope taxes are gonna be a big expense ? How do I even think through that for retirement ?

So what I'm gonna walk through today is my framework so you can understand if you're in a good spot , and , once again , some of those myths . Now I do like to start with client stories , give you a financial example and then , of course , hit you with the logic behind all of it .

So I am gonna go ahead and start with a recent review , and this one comes from Lewis3249 , who says really enjoying listening to Ari's show find extremely informative .

I find it's the only content that specifically is earmarked for an early retirement , especially like the idea that he talks about renting in retirement and how you shouldn't die with the most amount of money . You don't get any extra points in the grave . So , absolutely true , I tell everyone .

Some people come to me that they really wanna travel and they just wanna be a homeowner At the same time . They're like , hey , I wanna have a home base , but should I consider renting ? And so I'll do a whole rental analysis . So that's what that specific listener is alluding to .

If you're not familiar , now we're gonna start with my client story , which is there was a client that came to me . This is Ari . I don't know if I have enough to retire , because I just feel weird . I'm like you feel weird . That's why you don't think you have enough to retire . What do you mean ?

They go well , I'm 53 years old and my coworkers seem nowhere close to retiring . So how on earth could I retire ? I go well . What cars do your coworkers drive ? They say , well , most of them drive Audi's and Mercedes Benz , and I go nothing wrong with that . Those are nice cars . What do you drive ? But what will I , to be honest , drive it to you ?

To Corolla ? Is that embarrassing ? I go no , it just shows where your values are . It's not good or bad . I have clients that love boats and clients that just never wanna have a boat a day in their life . So it's not good or bad . So we started talking more about their situation . They go well , I do think I wanna spend a whole lot less than my coworkers .

So should that change my retirement ? I'm like no , no , no , no , no . Absolutely the idea that because you are maybe 52 or 53 or 54 and you're listening to this , and maybe your coworkers are in their 60s and they're nowhere close to retiring One , that they might need a whole lot more for their satisfaction in life .

Maybe they have parents they're taking care of , maybe they want a second home , maybe they want a vacation and do first class and , you know , do all these other expenses that you might not want to do now . If you want to do these things , I say great . I'm in no position to tell anyone retired too early .

I would just rather you work one or two or three more years so that you can do all these things that you want to do . So it's a very basic story . But the client was like , hey , I just think maybe I needed the gut check from an advisor that just because I'm 53 doesn't mean I can't retire , so hopefully that was helpful .

Now the logic for today I want to start with and I've got my little list here , so of course , you guys can all watch me on YouTube and see me go through my list . If you're listening on the podcast apps , that works great as well . But number one is make sure your retirement expenses are realistic .

Now a lot of you have already done this work and you're like yeah , I know , I want to spend 4000 month or 8000 or 10000 or you know what . No , I actually haven't tracked any of this and I should , but I want to make sure that you're all being really intentional with this .

Now what I want to make sure of all else is that you don't make the mistake of essentially going well , today I'm earning 400000 and so you know , I think maybe I'm gonna need 400000 income in retirement , which most of you aren't going to do that .

But I want to make sure you don't make that mistake , because here's what might be happening maybe you have $40,000 between you and your spouse . You're contributing to a 401k . Maybe now , if you're call it , have 400000 income and moving 40,000 out .

Maybe now that's $360,000 that you're actually bringing in , because what I'm doing is backing out before those pre-tax contributions . So now , if I back out federal taxes that you're paying on the 360,000 because once again 40,000 is going to 401ks the federal taxes on that , just making an assumption here of 67,000 . Now you have 293,000 that's coming in .

Maybe you've got , let's call it , 10 to 15,000 going to a brokerage account of extra savings . I'm going to keep it at 13 to keep it really simple . So $280,000 is coming in the door . So right off the bat , you don't need 400,000 in retirement . You would need 280,000 to just keep the standard of living you have today .

Now that does not include state taxes or other deductions such as pension medical insurance . So it's likely that number is high . It's just . This is how you start thinking through this . So let's assume super simple all state taxes and deductions come out to 40,000 a year . That would mean you'd have 240,000 a year .

After taxes and deductions , that's $20,000 a month . So people come to me and go how much can I spend ?

Well , if you wanted to spend 12,500 or you want to spend 15,000 a month , so 15 would be 180,000 a year I'd say , well , you can easily do this because right now , look at the income you have coming in and they go , yeah , but Ari , one day I'm not going to have that income . I go exactly right .

What we want to do is start to understand what are the income sources you need and can you replicate that sustainably , meaning , can your portfolio now start to generate this income that you've been creating through salary ? So people often say , yeah , like 20,000 is coming in today .

I get that , but you know my expenses are only 12,000 and so really I feel like I need a whole lot less or a whole lot more and I'll say where's the rest of the money going ? Meaning , 20,000 is coming in . You say you want to spend 12,000 . What I often find is people are spending a whole lot more . That's why I bring this up .

Maybe it's travel and new cars and family support , and because they're not regular expenses , people just aren't accounting for them . So the most accurate way to determine expenses is with a cash flow spreadsheet , and we have one of those , of course . So you can see in the description of this podcast episode , I've got my cash flow spreadsheet .

You can go ahead and check that out . So that's kind of level one . Level two is like what if you want to live elsewhere ? Maybe you live in Portugal or Spain or the Philippines , and so you don't know what tax they're going to look like . Maybe it's a lower cost of living , maybe you want to help your son or daughter with college .

What about health insurance ? Because you're going to need it to come from somewhere and certainly Medicare is gonna help , but that doesn't turn on until 65 . So maybe you're going . What do I do during all those years ? Make sure you have enough money for these unexpected expenses and understand that some of them might be very temporary .

Too many people don't factor any of this into the planning . They just go yep , I need 2 million or a million and a half or 3 million , and then I can retire . What you need to do is really understand how expenses are gonna change throughout retirement . So I would almost say start there and then simply say let's start making some assumptions with taxes .

Now some of you are going hey , there's a lot to this . I even know of Social Security . There's something called Provisional Income Tax , where only a portion is taxed and it's based on my income . And then all of you not all of you , some of you get the paralysis analysis where whoa , whoa , whoa , there's a lot to this . I'm hiring an advisor .

Others of you are going hey , this is what I wanna do in retirement . I love tax law , in which case , great Like , hopefully this is helpful for you where I wanna make sure you're not simply making these common tax mistakes . What I'm gonna tell you now , which is where people go yeah , you know , I think I'm gonna add on taxes at 15% .

Well , that sounds great , but in reality , income taxes are very different compared to just what most people think . It's a marginal tax bracket system , and so it depends where you pull income from the tax implications .

I mean , if you just take an effective tax bracket of 15% , that's great , but in reality it might be 25 or 30% , maybe only for a first three , four , five years . Maybe we're doing Roth conversions and you're doing other planning tools , and then all of a sudden now it's a whole lot less , and so you need a strategy that's changing over time .

From there , what I'll tell a client is okay , you're gonna retire , you wanna spend I don't know 12,000 a month , I'll call it 144,000 a year or 150 . What are all the different income sources you have ? Because most people just start with a pension and stop there .

What I want you to do is say , okay , you have pension , you have portfolio , you have rental income , you have social security , and the timing is gonna vary with all of this . Let's assume you have 50,000 a year keep it super simple from a pension , you wanna spend 150,000 a year ?

Okay , well , 100,000 has to come from your portfolio to supplement the difference there . And then you have social security , and maybe social security is also bringing in 50,000 between you and your spouse . But that doesn't start for five years . So , okay , we wanna spend 150,000 a year , we've got 50 covered , meaning 100,000 has to come from our portfolio .

But in five years from now , social security is getting turned on and then only 50,000 is required from our portfolio . So you might wanna learn actually how social security gets taxed , and I have different videos on that .

But the idea here is you wanna understand what are the all in income sources and then what's the remainder that actually has to just come from your portfolio . So that's just called the reverse engineer aspect of portfolio timing .

It's not rocket science , but this can make you think a lot differently , because if you go wait a second , 100,000 has to come is coming , should I say , from my pension and social security in the future ? And yes , it's adjusted for inflation . Maybe there's a cola , a cost of living adjustment on your pension , maybe there's not .

Social security generally grows at 2.6% as opposed to inflation , which historically is 3% . So you need to make sure you're factoring all of this in . But the idea with all financial planning is that once you dial in the rental income , pension , social security , it's how much needs to come from your portfolio , quite simply .

And if 50,000 is required from your portfolio , and maybe 100,000 is required for the first few years , but if it's 50,000 for the next 20 , 30 years , okay , you might be in a really good spot a better spot than you think and once again , I don't want you to ever retire too early where you can take 50,000 out , and if you're taking that from a $2 million

portfolio , that's extremely sustainable .

And I really want to make you think differently about this , because if you're taking $50,000 out , for example , and you have a $2 million portfolio , that's a 2.5% withdrawal rate and so that's extremely sustainable , to the point where I would argue you could probably take out a whole lot more and not die with $5 , $10 million , unless that's a specific goal of

yours . What I don't want to have happen and this is really real and it's crazy to think about it , but I have clients in their 80s saying , ari , please go tell your clients , the money's not worth as much at this age and go spend it when you have your energy and health .

So understanding how much you can spend is what I talked about last week in the withdrawal rate episode . Today is just understanding . Can I make it happen ? And so what you really want to know is what are these income sources , how does that change and how should my investments be reflective of that ?

And so , understanding how much you need in retirement , that's where you start . Do I need 4,000 , 5,000 , 10,000 ? How much do I need to be happy ? Okay , great , keep it super simple 10,000 a month Okay . Number one is gut check . Can you spend 10,000 a month ?

After you factor in all your different income sources , before looking at Roth conversions and withdrawal strategy and all those things , can you make it happen on the bare bones of your portfolio ? Some people it's yes , I can't . Well , great , now maybe you can retire and then the optimization begins after that .

But if you have quite simply $3 million and you go , hey , I'd love to spend 80,000 a month in retirement . Well , excuse me , 80,000 a year . Right there , you're less than a 3% withdrawal rate . You're at 2.7% . Yeah , if you're following the right rules and invested the right way and that's a big assumption you absolutely are in a position to retire .

Now some of you are going I don't have 3 million , I might in the future , but I've got Social Security and I've got pensions and rental income . Okay , factor all of those things in and say do I have a strategy ? That's connecting all the dots . And you might find , yeah , you are in a good spot to retire . Or you might find you know what ?

No , I need one more year of income . You know what ? No , I need two more years or three more years because I've got a home renovation or I've got a big travel that is coming up that I really have always dreamt of doing , and that's gonna be 30,000 a year . So the point here is not to stress you out . It's actually to the opposite .

It's to say I want you to know the earliest you can retire and still do everything you wanna do . And what you might find is that if I forced you to spend 4,000 a month in retirement , you'd go all right , that's no problem . What if I forced you to spend 12,000 a month ? You might go all right , I could find a way to do it .

Or you might go no , to be honest , I would just end up saving more . And then we say , great , can we do more charitable giving ? Can that start reducing your taxes ? Can you start really implementing the pro level stuff here ? I wanna make sure you understand that Social Security is gonna come on at 62 , or 67 , or age 70 .

And the timing of that needs to be connected to every single aspect of your plan . Most people simply go yeah , I think I've got a million bucks or two million and that sounds good . I think I can retire . The numbers look good . I've got the six-cell spreadsheet , but it's not accounting for all the timing .

It's not accounting for how Social Security gets taxed . It's not accounting for actually where I'm gonna pull income from in the tax implications .

So making sure you have something that actually connects all the dots , that's gonna give you a whole lot more confidence and shifting your investments is one of the biggest things that you need to be aware of , because this is and this is the last thing I'm gonna leave you with of the mistake that I see people make is they have everything in the S&P 500 , or

they have everything in one part of the market and the risk you run is significant and , once again , not rocket science , but it is very real that if you have a million dollars and markets go down 40% , that's a $400,000 loss . That's significant .

You can't afford to take on that level of risk , and so what a lot of people do is they're too heavily invested or they're marrying an asset allocation essentially 60% equities , 40% fixed income and going hey , I think that sounds right , when in reality , what they need to do is , if you might need a lot more from your portfolio , you might need to be a whole

lot less conservative later in your career . You're like what are you talking about ? Here's what I'm saying . Let's assume you're tired , age 60 , and you wanna draw , let's say , $60,000 , and you have a million dollars in your portfolio . Well , if you're drawing $60,000 , that's a 6% withdrawal rate .

We can't have your money fluctuating in a volatile manner because if markets go down , call it 20% or 30% well , now your withdrawal rate's not 6% , now it's 7 , 8 , 9% , and that is not sustainable , and you never want to have to go back to work because you didn't invest well .

So maybe you're having a whole lot more in fixed income or cash during the years , you're spending a whole lot more . And then what happens is now , oh , social Security gets turned on . So once that happens , maybe you can be a whole lot more aggressive in your portfolio . And you're like , what do you mean more aggressive ?

I thought , ari , I was getting older , why would I become more aggressive ? And what you wanna do is , as you have more guaranteed income , you wanna be more aggressive because you have the ability to do so , and I've given this example before , but I'm gonna give it to you again .

Client came to me with $3 million and they said , ari , I don't want a lot of ups and downs in the market . I'm gonna lose sleep . And I said I don't want you to have a lot of ups and downs either , but you have the ability to take a whole lot more risk than an average retiree because you have a pension that covers all of your needs .

So if your $3 million went to zero , you would still be okay . I'm not saying you're gonna be happy . You'd be very unhappy . I recognize that . But the reality is , if you didn't have a pension . You could not have that as 100% equities because you just could not weather those downturns and still meet all your income needs .

That's where I tell everyone you can't have a cookie cutter approach .

It has to be customized to your goals and too many people are not , I find , doing the deep analysis , other advisors not doing the deep analysis because they don't specifically work with people trying to try early and implement all of the tax and withdrawal techniques that I talk about in my episode .

So hopefully this was helpful , giving you some insight as to even considering am I in a position to retire ? Work out your expenses and don't cut the little ones . Don't cut . Yeah , I think I can afford coffee , but I don't know I can make it home for a quarter instead of buying it for five bucks .

That's not near as impactful as investing the right way and having the right allocation . So not cutting the wrong expenses . Having an investment strategy , having a plan so that if markets do take a downturn or should I say when they do take a downturn you're going to be executing Roth conversions if they make sense for you .

You're going to be proactive with your retirement . You're going to be reading tax law , understanding okay , brackets are changing in 2026 . Should that change my retirement timing ? Maybe it should , and too many people don't even factor that in .

What about health insurance and starting to layer on those called short term three to five , maybe 10 year expenses if you're retiring at 50 or 55 or 60 before Medicare kicks in and then from there going , let's layer on all these different income sources and understand how much actually has to come from my portfolio alone .

So hopefully this was helpful to allow you to start thinking through it holistically . Now , if you're listening to all of this going well , there's a lot to this . I want to partner . That's , of course , what we do . If you're listening to this going well , I love this stuff .

Oh my gosh , this is what I want to do in retirement Don't pay us , because I don't want you overcharged unnecessarily . So the majority of people come into us . They have an advisor , they're not getting the holistic planning services that they're looking for and they reach out to us for that reason .

So hopefully , if you're listening to this , this resonates with you and feel free to , of course , reach out and be happy to have that conversation with you . Thank you guys for listening , and I recognize I'm not going to work with all of you .

So , if this is even somewhat valuable , I do ask that you leave a review on Apple , on the iTunes app , or just shoot me an email . I love hearing from all of you . So my email is ari at root , financial partners with an s on the endcom , and I look forward to speak with you guys next week . Love you guys .

Thank you for listening to another episode of the early retirement show . If you have a question that you want answered in a future episode , you can always go to my website early retirement podcastcom that's early retirement podcastcom and you can go ahead and submit a question that I'll look to answer in a future episode . Thank you all for listening .

Please do rate it , review it and share it with someone who you think would benefit from this information . If there's anyone out there that you know , I certainly appreciate it and I will see you all each week . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice .

Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only .