How Do I Invest To Create The Most Income In Retirement?

They go yeah , stop being coy here , like I want to retire , but I just want to make sure I do it right . I said , great , retire right now . They're like , hey , that's kind of not what I was expecting from this conversation . I said you could retire now . I'm not sure you could spend exactly what you want .

I definitely don't want you to work until you're 85 , 90 , 100 , or even 60 . But I just don't want you to retire too early , run the risk of running out , or retire too late and go . Why didn't I retire earlier ? I had my energy and my health then . That's a fine balance . So the title of this episode is how do I invest to optimize my income ?

That's my role . Sometimes , optimizing your income is telling you to stop working earlier because $20,000 a month , that's not needed for you to enjoy your retirement . I have other clients . This is me being nice . Okay , just so you all know I joke that I'm the meanest advisor , but I'm not actually mean . I don't think so . At least you guys can tell me .

I try to be transparent and I have certain clients that want to spend $30,000 a month or they're like why am I retiring ? I can't even do anything I want to do . So there's a wide range of people Now , not right and not wrong , just kidding , it's wrong . No , it's not wrong . Okay , I'm just trying to be fun here . Here's my point .

There's a line where you start to go uh , I don't know if I need to work longer , and it's my job to help my clients figure out . What is that line ? Where is that spot where they can truly make work optional ? And that's what everything I do is all about . I just want you to know the earliest time work is optional where you're going .

Look , I'm working because I want to , not because I have to . I find a lot of my clients actually enjoy their work . They just think they don't because they're there on obligation . It's very different to work when you want to work . So , with that being said , today's episode is going to be about optimizing income .

Now , as always , this will be on the podcast app , so you can certainly go ahead and listen to today's episode there . If you want to watch the demonstration on YouTube , which I encourage because the visuals might be more helpful be my guest .

But I totally listen to podcasts as well and sometimes I find it's nicer because I'm just listening and it doesn't buffer as much because it's not video format . So don't blame me . Either way , I want you all to know this is all for educational and informational purposes only . I try to keep it fun and engaging . I am the host of the Early Retirement Podcast .

I am the vice president of Root Financial Partners and I'm a certified financial planner . And if you don't know my dopey joke on that , someone said Ari , I heard you're certified , that's important , I should hire you . I said how many doctors would you never let touch your body ? He said I don't know .

I said there should be a lot , and that's a concern that you don't know , but lots of doctors I would not let get near my body . In the same way , there's lots of certified financial planners I would not let manage a dollar of my money , let alone hold my hydro flask . Okay , so very dear to my heart , this hydro flask . So here's my point .

Today is all going to be about optimizing income , and that means withdrawal rates . So many of you have heard of this movement called the FIRE movement , which stands for Financial Independence Retire Early . Now , I don't like that movement . I'm very transparent about that . That is a lot of people who are in their 30s and 40s going .

Yeah , I'm going to work like crazy , maybe get two jobs , never talk to my spouse , sacrifice my health , not go to the gym , not eat healthy , just so that I finally have this dollar amount let's call it $2 million and I never have to go to work ever again . To me , that's not sustainable , it's not healthy . I don't like it .

And I've seen people who are 40 who have sacrificed their health I've had them on the show and I've actually gone through samples with them and they regret it . And so there's that issue . Then there's the other issue and I've shared this a few weeks ago but a really nice woman who I spoke to , who was mad that she had $3 million .

I go look , I just don't hear that all day Like , why are you so mad ? You have $3 million . She goes . Well , I think I would have been fine with 2 million , and I've been sitting for the last four years at this job where I don't have a lot of movement , and now my sciatica is really bad and I can't hike to the degree I want in retirement .

So there's a risk of kind of both cases people working so hard that they actually , you know , put themselves in a spot where they don't know what they're going to do from 40 to 100 . Now some of you are listening and you're like who are these people ? Like I have two million bucks , I'm out of here , I'm good to go , I'm not worried about that .

Great , it doesn't apply to you . Others of you are like no , I think I might be doing . The second person Like I think I have two million , finally feel the magic day that you have enough , and that doesn't exist . So what I'm going to do is help you through an example , because retirement planning is all about confidence .

So this FIRE movement I don't like and I made up my own definition . I call it recreational employment . So financial independence , recreational employment . Are you working because you want to or because you have to ? If I were to ask all of you guys what percentage ? Put it in the comments if you can in live time .

So what percentage of my clients that I say can retire early , go to retire early when I go , yeah , you have my green light . I don't know why you're ever working ever again , unless you want to . When I go , yeah , you have my green light . I don't know why you're ever working ever again , unless you want to .

Now , in light of time , I'm going to let you comment , but I'd probably say 60% of people will go yeah , if I don't have to work anymore , I really don't want to work . I've worked many years . And then they do some part-time or consulting , but sometimes they don't . 40% of people go well , that's going to keep working .

Maybe I'm going to do something different . I'm going to take less responsibility , but that's what you want to think through right now where you're at . Would you work five more years where you are right now If you knew it would pay you the same amount as today ? You couldn't get fired . Would you do it ? But you have to do it .

You can't leave after three years . You can't leave after four years . You have to stay where you are right now , making $200,000 a year from now , five years from now , or you have to leave today . What would you do ? I'll do these types of what if scenarios with my clients , not because I'm making them do it . It really helps them think differently .

And I had one client go wow , if I had to stop like I don't want to work three more years . And they told me they were very transparent about that . They're like two more years is the max . I know I've said that a few years now , but that's the real max . I said it's five more years or it's nothing . What are you doing ?

And they said I'm probably going to go get another job because I'm going to feel better , because I'm worried about healthcare , but I'm not going to do nothing . And I said great , let's assume you enjoyed that job Hypothetically . How long do you think you'd do that ? They said eh , maybe 10 years , I go .

You recognize , you told me you didn't want to work more than two years . Now you're telling me you're willing to work 10 years if you like it . They go , yeah . I said what am I missing here ? Don't you see how amazing this is ? They go , no . I said well , right now you're making $100,000 a year , stressed and not enjoying it .

Yeah , but what if you made $40,000 a year and you liked it ? You did it for 10 years . That'd bring in way more money . And they're like huh , I really thought about it that way . So , overall , this planning we talk about is about confidence . So if you look at my screen right now , I'm going to show you this is a sample case .

I'm going to explain it for those , of course , on the podcast app . But this couple is 56 and 55 . They have a 22-year-old child and they don't hate their jobs , but they're thinking , hey , when can we retire ? And so when we went through some planning projections , we said , hey , you guys work two to three more years Now .

When they first came to me , they said we want to spend six thousand a month in retirement . I said , hey , that's great . Does that include vacations and new cars and kids , college and grandkids ? And one of their kids is in grad school right now . So they're like no , I said OK , so six thousand a month is just getting us to live .

And they don't have a mortgage and in terms of their assets , you can see they've got $2.1 million . They have a home that they own and they have a rental property that doesn't bring in a ton of income but they use it because their kid lives out of it . And we had a lot of talk about that , trust me . So you can see that net worth about $3 million .

They're in a good spot , they have saved and invested well . But now they're wondering , hey , could we possibly do this earlier ? How do we think through this ? So it's the spot a lot of you guys are in . And this is a tough one , because it's like , hey , we might retire early and need healthcare for like maybe seven , eight years .

Like what are we going to pay $20,000 a month for that , or thousand a month for that , or twenty thousand a year ? Should I say sometimes , yeah , and sometimes I go it's a big cost and you should do it because your plan would support it . Now you're gonna have to pay for it . It's gonna kill you to pay for it .

But you know what , it's gonna kill you more . Not being mad at me when you're 75 with 20 million dollars wishing you retired earlier . So sometimes I'll tell a client hey , do you want to retire earlier because you really don't like what you're doing , or or would you rather spend more ? And they're like I think I'd rather spend more .

So this couple and I we had a conversation and they said , hey , we'd rather retire earlier . They don't wanna spend more money . That's not as important to them . So they said , if we had 6,000 a month , that's 72,000 a year . If we had 20,000 a year , for the first 2020,000 , $92,000 . I'm a CFP . Guys Just did it , you just saw it right there .

And then they want to do a big vacation with the family . I made them put this in . They didn't want to , but I said , hey , guys , put extra amounts for health like massage , physical therapy . They're like hey , you're just shadowing on your expenses . Onto me I said , yeah , kind 22, . But they're thinking it could be occurring Don't know exactly when .

So we've got healthcare costs . Generally that could be 15,000 bucks a year . It could be 50 bucks a month . It could be $600 a year . I've seen everywhere in that range and I have lots of videos on that . But I want to give them confidence to dream big , because the last thing I want someone retiring too early going . I'm going to run out of money .

So , once again , everything I'm explaining here and showing on YouTube if you want to play around with your own what if scenarios and run these projections , be my guest . So what you're going to see here is a really interesting graph . I'm going to explain it , of course , as well . So they're wondering can we withdraw , can we retire ?

And when someone talks about a retirement . What I think about ? You want to optimize income . The easy way out is just working longer . Yeah , I'm just going to work a little bit longer . Yeah , I'm just going to work a little longer . And they just keep pushing it down .

But what we also want to consider is hey , how much is too much , and what does our graph really look like , and how do we think about this ?

And so this graph is very interesting because you can see , and I'm going to explain it as well when they first retire , their withdrawal rates are very low because maybe they're working halfway through the year and they have income coming in to supplement it , so they just need a little bit from their portfolio .

But what about their first year of retirement where they're not working at all ? Well , if , at 58 , this couple stopped working , so in two years from now , they've got about two million bucks their withdrawal rate would be 10.6% . Is that sustainable ? Absolutely not . They would run out of money , but this starts decreasing .

So what happens is they're at 10.6% , which you guys probably know by now . I like to be in the range of five to five and a half percent if you're doing all the right things . I don't want it too low and I don percent . If you're doing all the right things , I don't want it too low and I don't want you sacrificing lifestyle . I don't want it too high .

I don't want you running out of money . So you can see here , 10 and a half percent , that's not sustainable . The next year is 12% , then it drops to seven , then in their 60s it's at three and a half . Well , that's too low . That's when I get mad at clients .

So they came to me going hey , I don't know if I'm on track to make this happen , because you say this 10 and a half is too high and this three and a half is too low . So give me some confidence . Like , what the heck do I do ? And I showed them the power of a dynamic strategy .

And what that means in fancy terms , but also in English , is Whenever you're running projections for yourself , put in it's not going to be perfect , put in your best assumptions , but dream big . So I made them dream big . I go hey , guys , vacations , big vacations , health , massage , physical therapy , yada , yada .

I say , guys , you're in a good spot , but it's not like you can just go spend everything we just discussed every single year , for example , the first year of a full retirement . They have health care costs . They might be doing a home remodel , they might downsize that's probably not for a while and they're also going to have vacations .

They're gonna take a big vacation . So I said , guys , the first few years of retirement , when it's really important , I want you to spend on your energy while you have your energy , I want you to spend while you have your health . But I don't want us to just spend without intention . And I said hey , guys , you told me you want to retire earlier .

Is that right ? They said that's right . I said great . Well , if we optimize your healthcare and we optimize , you know we're not going to change your basic living . You still got to meet your groceries and bills . I still want you to take trips . But what if you took $8,000 a year worth of trips versus $20,000 a year ?

And what you could see is their withdrawal rate just came down by 2% . So now their withdrawal rate's 8% . Well , still higher than I would like , but 8% in a single year . If markets don't do really well , that could be a big issue If they spend too much at the same time , markets don't do well .

So this is them asking themselves from a confidence perspective ? Do we feel confident or open to being dynamic if markets don't do well , that we could cut maybe some more of these costs out ? We could not vacation at all , we could live on eggs and top ramen , and I'm like guys , I don't want you to do that .

So what this is telling me is we should probably work another year , or maybe we should work two more years . And they go really why ? And I'll go , let me show you and we'll run projections .

And so now all of a sudden , I'm showing them a similar example and what you can see here is their withdrawal rate First year of retirement is six and a half percent , then it's seven and a half percent and then it drops like crazy to three percent , two percent in the one percent . I say , guys , one or two years of withdrawal rate .

If we can watch her spending these two years from 62 to 75 , like guys , it's time to spend . This is too low , because what happens up here is it jumps and at 75 , you have to spend way too much . Those are required distributions . So the mistake I see people go through is they want to optimize their income so much that they go . Well , my withdrawal rate .

You said it should be 5% . This number says 6 . I'm not going to retire If that number said six and kept increasing . That would be a problem . But if it's decreasing and you're looking at your withdrawal rate and some big potential jumps later in life , that's generally you in a good spot .

When you have required distributions forcing you to take out more than you need , that's generally where I go . Hey guys , we're probably in a good spot to either retire earlier or spend even more , what's most important to you .

So just thinking through withdrawal rates as a dynamic thing as opposed to 4% , 4% , 5% , 6% it's a moving thing , and the beautiful thing why I love this software , as well as many other things about it , is it's dynamic . So if markets do well , these numbers will shift . If markets don't do well , they will shift the other way , if taxes go up .

If you want to execute a different strategy , you can really build out some cool plans to give you confidence . So if you don't already know , you can get access to this tool in the description .

If you want to work with Root on an ongoing basis to give you confidence for income throughout retirement , of course feel free to do that , and then my only request is that you like this video and share it if you found it was helpful . If you're listening on the podcast app , please do leave a review on iTunes . It goes farther than you can know .

Same thing on Spotify , and I'll see you guys next time . Thanks , 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 , earlyretirementpodcastcom that's earlyretirementpodcastcom , 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 .