How Much Do You Need To Be Able To Spend $10k/month?

So in today's podcast episode , we are going to explore exactly how much money you need so that you can spend $10,000 a month , and I'll give you a few other examples as well . Now , today's episode was prompted by listener question another great question . So thank you guys for submitting your questions .

I feel like I truly have the best podcast listeners in the world , because I listen to a lot of podcasts myself , and they'll say , yeah , go submit your question , but I know I personally never do , because I just don't think it'll get addressed .

However , I want you all to know when you submit these questions , I am literally trying to make this show as effective for you . So I'm going to give you the straight answers of hey , you want to spend $10,000 a month , or $8,000 or $5,000 , here's exactly how much you need , and then , during the latter half of the episode .

I'm going to walk you through the math of how I get there , because I know some of you are just like just tell me the answer , what do I need ? Others of you are going hey , I want to really know how this works . Where are you coming up with this ?

So I want to make sure both of you if you can put yourself in one of those buckets are getting the answer that you want . So this listener question comes from George . I'm going to read this question now and George says feel free to use my name , love the podcast and thank you for the information . You're welcome , george . I'd like to spend $10,000 a month .

From my basic projections , it seems I can do so , but I'm not sure . I want to retire early and I know this money will be needed for some time . Health isn't the greatest , but want to plan for age 95 just in case . Please tell me how much I need . So great question from George , who says I want to spend 10,000 a month .

Now I'm going to make some assumptions here , and the first assumption , george , is that you want to spend 10,000 a month after taxes adjusted for inflation . So you want $10,000 every single month . Almost think of it like a paycheck and you can go spend that however you see fit . It can go towards a mortgage payment If you sell the mortgage .

It can go to travel , it can go to whatever you'd like , but you want a paycheck to spend $10,000 a month after taxes , or $120,000 every single year in retirement . Now I'm going to tell you just a real quick answer , george , which is you're not going to spend 10,000 every single month , even if you think you will . You won't .

Because I have clients right now who are retired early and they're spending more than 10,000 , and they came to me wanting to spend 10,000 , and I'm encouraging them to spend more because in the years you have your energy and health . I actually want you to . I just want you to do it sustainably .

No , you're not going to run out later , and too many people do not give themselves a bonus when markets are doing well , because they're worried when markets don't do well . Oh my gosh , am I not going to be able to spend then , if I spent too much at the beginning ? And I don't want them to think that way either .

So what you have to do is have a plan that tells you during what time of the market , when it's doing XYZ , when can you spend a little bit more and when can you temporarily scale that back , and that's called the guardrails approach to spending . So that's one thing I'm going to address at the end of today's podcast .

But what I really want , to make sure you're all taken away , because I'm sure at some point you're thinking , yep , similar to George , I want to spend 10,000 month or 5,000 or 8,000 months . But I've got a quick fun fact for you all .

And the fun fact is , if you're thinking through what is the average cost of retirement this comes from the Bureau of Labor Statistics the answer is $52,000 . Now , that's a good place to start , but a lot of you want to spend a whole lot more than that , and a lot of you want to spend , I'll say , a little bit more than that .

It's very rare that I'll see less than that . So sometimes people are coming to me and I'm just going to come take away a few myths real quick , because I want to give you these straight answers . Trust me , I get it . I listen to podcasts as well , but I also want to make sure you are not thinking about any what I call head trash , okay ?

So a lot of people are coming to me for guidance and sometimes I'm telling them here are five things I want you to think about and here's a hundred I don't want you to think about . So here's the big one .

Okay , if you are going online and you see an article that says you need a million to retire , or two million , or five million , or 10 million , they are all wrong . Okay , now , they're all wrong not because they're bad people who are writing them , but they're wrong because they have no idea what amount is coming from social security .

They have no idea if you have a pension . They don't know if you have rental income . They don't know what you want to spend . So by just saying , hey , you need a million bucks to retire , some people will come to me and they're like , hey , I just don't think I'm on track , I've only got eight 900,000, . Do I have to work five , 10 more years ?

I go , depends . What other income sources do you have ? And they'll say , yeah , well , I've got a pension and you know it's going to cover all my needs . I go then you don't need a million dollars . So just don't be cookie cutters . You look at planning . You might have rental income , you might have inheritance , you might have stock options .

All of this has to be configured , so I just don't want any of you needlessly stressing going , oh my gosh , I don't have a million dollars , am I not going to be okay ? Also , you're going to get good growth on your assets if you're investing well , so make sure you're always thinking about that .

Now let's go to my specific examples here , and I've got a few noted down . If you're listening to this on the podcast app great , that's how you listen to most of my episodes . I imagine some of you prefer the YouTube style and I'm going to start to post this video of me recording this podcast .

So if you actually want to see me go through this , I might put a few fun examples up on the screen might help you follow along , but you do not have to . Okay , I know a lot of you are going , hey , youtube's great , but I just like the podcast app and I can put you on 2X speed and go through this .

So if you're listening to me on 2X speed , you are impressive . Okay , let me tell you that right now . So how much money do you need to live on ? $10,000 a month . Here is the answer . The answer is that I'm making some assumptions here . I'm going to give you the assumptions , give you the answer , and then the math is going to come a little later .

So the assumptions I made are the following that you are retired , you want to spend $10,000 every single month .

Okay , that's just not realistic , because there's something called the retirement smile and it's summarized by the fact that you have your go-go years , your slow go years and your no go years , which is , you might spend a whole lot more at the beginning than maybe a little bit less in your 70s and 80s .

Then you might have a whole lot more at the end and you go I don't want to die with $10 million , I need to spend more . There's medical expenses . So I'm assuming , george , that you're going to spend $10,000 every single month until you pass away . It's unrealistic , but let's just use it for simple math .

Now I'm also going to assume that you have $4,000 a month coming from Social Security . I'm then going to say , okay , if $4,000 is coming from Social Security and you want to spend $10,000 , $6,000 has to come from somewhere else . The question is is it rental income ? Is it a pension ? Is it stock options ? Like , how are you doing this ?

And I'm just going to assume it's in a portfolio , so that portfolio needs to send you $6,000 a month so that you can spend $10,000 a month , because you already have four coming from Social Security . So hopefully that follows . So far , let's keep it really simple . Now I know a lot of you are going what about taxes ? What about Social Security ?

It's taxed differently . I'm going to go through that , I promise you , but I want to make sure that those of you that tune in and go hey , I just need to know the answer . I'm already about six and a half minutes in here . I want to give you that answer because I know you guys are busy people .

So I'm looking at a sustainable withdrawal rate and if you invest your funds well , ignoring the taxes not ignoring , I'm factoring in the taxes , but without giving you the whole story of how I come up with what is the effective tax rate in Social Security , provisional income tax and all this fancy stuff .

The answer is and I just took out my calculator to literally do this with you guys on the fly is I'll say okay , if $6,000 a month is what you need , $6,000 times 12 , super simple math you need $72,000 a year to come from your portfolio . Now we have to account for taxes , and I'm making an assumption here of an effective tax rate of 10% .

So it doesn't mean every single dollar's tax at 10% . We have a marginal system . So here in the US it varies based on your levels of income , how much you spend , how much you pay in taxes . So what I'm gonna do here I just mean effective tax rate , saying 10% .

So what that tells me is about $79,000 needs to come from your portfolio so you can account for taxes and still end up with that same 6,000 a month after taxes , hopefully following so far . Now what I'm gonna do is I take that number and then I'm gonna divide that by a sustainable withdrawal rate . Now , a sustainable withdrawal rate ?

A lot of people talk about the 4% rule . Other people say you know what I heard . You talk that 4% rule , just not that applicable to an early retirement , which is true . So I'm not gonna go on a tangent , I promise you on the 4% rule . But I don't love the 4% rule because it's not designed for an early retirement .

It's designed for traditional retirement from 65 to 95 , which a lot of you have no interest in . So what I do is I take that 79,000 that needs to come from your portfolio and I divide that by 5% . Now I think you can do more than that .

In fact , I know you can because John Geithner's study called the guardrails approach shows you can if you invest well and follow certain rules . But the answer is about one and a half million bucks . Okay , it's about $1.5 million , about a little more than that , but let's just say 1.5 to keep it simple .

Meaning if you have one and a half million dollars and you wanna make sure that you can retire comfortably and spend 10,000 a month and you invest the right way and you follow the right rules and when you pull from the right accounts , you are in a good spot , okay . Now that assumes 4,000 come from Social Security .

So a lot of you wanna know the math behind this and I'm gonna go through it . But before I do that , I'm gonna give you the same example . If you wanna spend 8,000 a month , now I can do the same exact thing , whether it's five or 15 or 20 , and a lot of you know my joke by now , especially a lot of my clients .

But I grew up in Malibu , california , very affluent area , and I've talked about my parents often on the show and a lot of you are like , wow , are they okay with you talking about this ? I go , they want me to okay , because they don't want you guys to end up working in their 70s . Now they are house rich , cash poor . What does that mean ?

It means they have a home with six , seven million bucks in Malibu and it's beautiful and everyone's jealous , but they're still working in their 70s Now . Luckily , they like what they do . But I'm telling you this story because they don't wanna be working to the same degree that they're currently working . And so house rich , cash poor .

So you have a really healthy net worth , but it's not worth a whole lot because you can't stop working . The name of the game in retirement is cash flow . So I saw the risk of bad planning growing up and I saw the value of good planning and you wanna be on the good side and that's why I love doing what I do . So why am I telling you this ?

Because there's a lot of characters okay , I'm putting it nicely , a lot of characters in Malibu that wanna spend 40,000 a month , and there's nothing wrong with that . But if you wanna spend 40,000 a month , your financial plan needs to look a lot different . And it's not one and a half million bucks , it's 10 million plus . Okay , so nothing wrong .

Once again , if that's you . A lot of my clients do have those types of assets and if that's what you wanna spend , I want you to spend it . I just don't want you worrying , okay , now back to my example . So let's assume you wanna spend 8,000 a month .

Same example here 4,000 is coming from Social Security and then another 4,000 has to come from your portfolio . So , if I'm accounting for taxes , very simple , about a million dollars a little bit less than that is needed so that you can retire comfortably . Spend $8,000 a month , okay . So if you're wondering , am I even in a good spot ?

Like , how am I thinking through this ? The answer is if you have a million plus dollars and 4,000 is coming from Social Security right now , well , yeah , you're in a pretty good spot .

If you're open to investing the right ways and you don't have any gaps in your plan of insurance , and tax planning is gonna be taken care of and all this good stuff , you're gonna be in a good spot , okay . So part of my job is literally making sure you sleep better at night . Not because I'm in the business of rosy pictures . You know this by now .

I'm not . I'm in the business of you all retiring early , not second guessing . Am I gonna have to , you know , no longer go out to eat , or can I no longer travel to the degree I want to ? So those are some things to think through . Now let's go through the math .

Okay , so Social Security is taxed differently than if you're just taking money From your portfolio . Okay , so Social Security has a rule called provisional income tax , which means only a portion of your Social Security is actually included in your taxable income .

It gets complicated quickly , but I have videos on it and I have another podcast going through Social Security tax and how it works .

So I'm not going to bore you to the point where you'll fall asleep here , but I want you to know the following , which is what I was going through my example here , which I'm just looking at on my screen , if you're watching on YouTube , a maximum of 85% of your Social Security is taxable income .

Okay , so , as I'm looking at this example here , let's go back to the $10,000 a month . I'm assuming an effective tax rate , meaning a blended tax rate of 10% . So what does that mean ?

That means , you know , if you're here in the US the first , you know $20,000 or so , I don't have it in front of me , but it's tax at 10% , then 12% , then 22% , then 24% . So what you want to do is understand what is your effective tax rate now when you retire .

A lot of you are going , hey , I'm gonna be in like the 0% tax bracket , like I don't need a whole lot of income Because I have my Social Security and it's not gonna get taxed a whole bunch because my income is really low because I'm no longer working , and that's true .

But the big thing I'm harping on here , guys , is you need this $6,000 to come through your portfolio . We didn't talk about where it comes from . Is that coming from a Roth IRA ? Is it coming from an IRA ? Is it coming from a brokerage account ?

That's gonna really change your portfolio , because one , if you're gonna retire early before 65 and let's call it 55 , to take an extreme example Well , you can't just pull from your IRA . There's taxes and there's penalties .

Now you can use the rule of 55 and if you're not aware of what that means is , when you retire early , as long as you are retiring 55 or later from your current employer , you can elect to use your 401k to create income that helps bridge the gap , except pro tip . What you don't want to do is just say you know what ?

I've got this great brokerage account , but I saw already talked about the rule of 55 , so I'm gonna do that . We don't want to do that . Okay , the rule of 55 is great if you have no other options , if you have a brokerage account or if you're selling your home .

I'd rather you use those assets because more often than not , a lot of you that are coming me are going to get crushed by RMD's later . Rmd stand for acquired minimum distributions , which , when the government forces you to take out more money than you even want to .

So using a brokerage account to do things like Roth conversions and keeping your income really low , it can be wonderful . So I was just using a 10% effective tax rate in this example . So what I did is I essentially took that 72,000 or 6,000 every single month that you needed .

I said , okay , if that's what we need , let's take 10% , cut 7200 bucks and add that on top for taxes so that when I'm sending you 6,000 a month , we're not just going well , let's figure out the taxes later . So that's a conservative estimate .

Some of my clients are , in a way higher tax bracket because they have pensions and rental income and so on , and if that's the case , that's great once again . But we might need to factor in a whole lot more than 7200 bucks for taxes to spend to send you 72,000 every year .

I've seen it be three times that , and so you just need to account effectively based on your tax situation . Okay now Social Security . Once again , a maximum of 85% is including your taxable income . So if we're using my same example of 10% effective tax rate , 85% of that , 10 of 10% I know it's confusing , stick with me .

So if 10% is the effective tax rate , 85% of that is 8.5% . That's the most that's going to get taxed once again , the most for Social Security . So it's not as if you're going okay , already said , the effective tax rates 10% . That means that everything Social Security and my portfolio and dividends and interest it all gets taxed at 10% .

That's not how it works . Everything is taxed differently . So once again , going through how much you need .

If you wanted to spend 10,000 every single month , george , for the rest of your life and you have no rental income , no inheritance , you're solely have Social Security between you and your spouse of 4,000 a month coming in , I'd say one and a half million dollars . That's what you would need so you could go live comfortably .

Now you might have three million bucks , you might have four million bucks , you might have five million bucks , but I want to make sure you know what's the most you can spend .

Okay , so why I'm going to tell you this is I'm doing my calculator right here and , as I'm looking at a $5 million portfolio because a lot of you have a similar portfolio going how much can I spend ? A lot of you know my dopey joke , but I'm gonna give it to you again , which is someone came to me .

I'm not gonna say their name , but they came and said all right , I'm gonna be one of your best clients . I have a super low withdrawal rate because I don't need to take out a lot of my portfolio . I'm gonna be one of your best clients .

And I told them you'll be one of my worst clients , not to be mean , but because the goal in life is not to have the lowest withdrawal rate . If you wanted to do that , go work 50 more years . Your plan will look great . All of you are telling me you wanna prioritize your health , you wanna spend more time with family .

You don't wanna work a stressful job , you don't wanna deal with commuting Great , how soon can you retire early with confidence ? That's why we're having this conversation and I truly feel this is a conversation . So , $5 million , if we're looking at you know what's a sustainable withdrawal rate there .

If you had $5 million , I would feel comfortable saying you could spend up to $260,000 a year . Now the question is is that $5 million all in a Roth IRA ? Is it in an IRA ? So , for example , someone came to me and they're like all right , I've got a million dollars . I'm like no , you don't they go . Yes , I do . I see it in my account .

Right here I go , you have $750,000 . What you're not accounting for is taxes and they're like oh yeah , I knew that , I just didn't wanna kind of worry about it . So just make sure , as you're going through this , you're not ignoring taxes , you're not ignoring inflation and things like that .

Now , a few other factors that , of course , influence all of this that I glossed over , but I just try to keep it simple . I'm telling you guys , there's a lot to this . Don't get overwhelmed . So many people get that analysis , paralysis and it's oh my gosh taxes , oh my gosh . Social security . How do I think about all this ?

I'll figure it out with either help of a planner , which is , of course , why I exist . But beyond that , I see people not take action and they go health insurance . I don't know what that's gonna cost . I'm gonna keep working . I've never not had traditional health insurance . Don't let that be you .

Okay , I'm not saying health insurance is in a big cost it is but I'm saying make sure to absolutely think through it and know how to plan for it . Okay , the thing I want you to think through some takeaways is this ignores a pension , rental income , part-time work , inheritance . It's just a super simple example for George .

And if , george , if you came to me , this is how I'd walk you through it . Now it also depends retirement benefits , social security . What if something happens to your spouse and you're going ? Well , 2,000 is coming from me and 2,000 from my spouse . That just went away . So now what happens to this plan ? Well , now you can't spend that same 10,000 a month .

The plan needs to change . So my dopey joke , which my clients know all of these by now . So sorry , clients for hearing these again , but I don't do plans , I don't do financial plans Like , yes , you do I go .

No , I do planning because tax law is gonna change , legislation is gonna change , what you wanna spend in retirement is gonna change and I want your plan being dynamic with those changes . So , social Security benefits the latest you could collect is age 70 to maximize your benefits , the earliest is 62 .

So what I just explained today is you're getting 4,000 a month . The question is most of you , not a question . The statement is most of you are not just gonna have 4,000 . It's gonna be one spouse turns on Social Security earlier than the other . That changes the whole planning projections . There's a lot to this , but I'm just trying to keep it simple .

And then , what are your actual expenses ? So , 10,000 a month .

Some of you are like , hey , that's great , but I'd love to spend more while I have my energy and health Maybe 11 or 12 or 14,000 , because I know later I saw my parents or I saw my friends , or I've heard enough of your podcast where you talk about your client stories that I'm just not gonna spend 10,000 a month .

So how does that change the plan if I wanna spend maybe 7,000 a month and plan on that for 10 , 15 years , for maybe 70 to 80 or 70 to 85 ? Make sure to plan that . In .

The only way , in my opinion , you can effectively do this is with good planning , meaning good software that helps you do so and then a good planner that gives you the confidence to do so . So , once again , if this is something that you guys all are looking for custom guidance on it's what we love to help you do . So .

Link look in the description of today's podcast episode and you will see a link where you can apply to work with us . I hope that this was helpful , giving you some insight as to what you need in your portfolio if you wanna spend 10,000 a month or 8,000 a month . We can keep going through these examples . Let me know , guys , if this was all helpful .

As always . Appreciate you listening and tuning in . 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 , 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 .