How Much Is "Enough" To Retire Early?

And that's what I'm so excited to go through today , because a lot of you are going hey , I've saved and invested well , but I don't know what is enough . And how do I think through that ? And it's very common for a lot of you that reach out to me you move the goalposts back . Once I have $2 million , I'm going to retire . No , just one more bonus .

Now I'll just wait one more year . Three more years go by and now you don't have your same level of energy and your health . And now you're going hey , why didn't I retire early ? And I can tell you , for most of you , it's because you're going . I'm going to need this money for 40 plus years .

I want to make sure I don't run out and that's like base case , that's like level one . Yeah , I do not want my clients to run out of money . That's obvious . I also want to make sure you don't leave anything on the table and most of you are , and that's not a bad thing .

But I want to make sure that by the end of this episode 15 minutes you have clarity . And I'm not in any business of rosy pictures . You guys know this . But if you're like , hey , I have a general sense of what I want to spend and when I might retire , that's not bad .

But I want to make sure you're like , oh my gosh , when I do retire , I'm in an awesome spot . Now I'm going to retire and hope . If markets do well , I'm going to be okay . I don't like hope as my strategy . So I'm going to hop in today and show you guys this framework of what is enough and how to think through it . So I'm very excited .

Every episode is exciting to me , of course , but I got a few quick things before we hop in . The first is I got a funny email last week from someone one of you and you asked to be anonymous and I'm going to keep it that way and you said Ari , why don't you have introductory music for the show ?

It doesn't seem as professional and I'm glad that they asked this , because if you're a longtime listener , you'll know I actually used to have an intro music and all these fancy things , and the reason I got rid of it is because , quite simply , I listened to a lot of podcasts and I just skip that stuff , to be honest .

So I want to hop right into the show . I'm tuning in for a specific reason , like most of you give me this information and then along the way , I'm putting in stories because I think it's going to resonate . So I promise it's not tangents for tangents sake . There's a reason I'm doing so . So that's why I got rid of the music .

So hopefully that answers your question . And then I always make sure that I'm going over a review of the week , or I'm at least going over one of those main reasons . When I ask you to download my ebook , it'll say what's something you're so excited to never worry about again once you retire ?

And I've got some very funny responses and I've got some odd responses , but one of the main ones I want to go over today is people keep putting boss as the main word . So what are you so excited to never have to worry about ever again once you retire ?

My boss or deadlines , and these just are themes that keep coming up and up and up , and normally there's a lot of variation , and last week it wasn't . There was about 60 or 70 of you who were saying it's my boss , it's having to worry about deadlines and it's not having my own time and my schedule .

So I want you to have that back and that is why I love this stuff . So someone asked me in person last week why do you love this stuff ? And I'm like well , I don't really love tax strategy and investments , like it kind of sounds like you do . So I don't really know what you're saying right now .

I go no , I love that stuff because you can go live an awesome life If you can use tax strategy or you're investing a certain way so you can retire six months earlier or a year earlier . That's the reason I love this stuff . So of course , I optimize numbers . I do love this , but it's for a greater purpose .

I think too often people get lost in the numbers and then they don't actually go live an intentional life . So that's why I'm going over those brief examples and I want to hop right in . So this was prompted by a listener question . It came from Leslie and Brian and they said it is totally fine to use their names .

So , leslie and Brian I know you're listening to this right now and here's what they told me very simple email . We have two and a half million in pre-tax assets . We have 300,000 in CDs and another hundred in our Roth IRAs parentheses wish we started earlier . We all said that . So , leslie , brian , don't ever worry , everyone says they wish they started earlier .

But you're in a good spot . And their question is quite simply Ari , we listened to your show . We want to retire early . Do we have enough ? And I think that's a lovely question and I will sometimes hear everything that a person just said 2.5 million pre tax . So that's like 401Ks and IRAs , 300,000 in a CD .

We don't know if those CDs are in an IRA it's unlikely based off the way they frame this question but you can put a CD in an IRA , so FYI there . And then 100,000 in each of their Roth IRAs , so call it three million bucks . They're saying do I have enough money to retire ?

And I'll have someone come to me when I'm doing a planning session with them and say , hey , I'm so sorry , you don't have nowhere , you have nowhere near enough . They go what do you mean I have like $3 million . It seems like a lot of money . I go , yep , nowhere near enough . They're like why I go ?

Well , because you just told me you want to spend 25,000 every single month . That that's unrealistic . If that's your goal , there's nothing wrong with that goal , but you have nowhere near enough . We need six , seven , eight , nine , 10 million dollars , if that's your goal . And they're like well , okay , what are my options ?

I go well , you have options , and here's what they are . Quite simply , you can work longer , you can spend less , or you can say , oh my gosh , what are the big changes I can make in my life ?

And for some people it's hey , it turns out when I did my cash flow spreadsheet , which I'm gonna put a link in my description if you guys haven't filled this out yet , this is something I do want you to fill out so you have a clear sense of what am I expecting in terms of costs in an early retirement , because there's variation , health insurance and travel

and all these other features . I want you to think through those correctly . The point of this is it really depends on how much you want to spend . So that is the first place . I will start with people , not . What assets do you have ? Not , what's your social security strategy ? Not , are we doing Roth conversions ?

People will come to me and they'll say , all right , I did a Roth conversion . You're gonna be so impressed and more often than not , I'm upset . And the reason I'm upset because I wish they did nothing at all . It's actually biting them in the butt . I wish they did nothing at all .

Not because Roth conversions are bad , but , like anything , it just depends on your situation . If we have big RMDs , required minimum distributions that are gonna occur in the future , roth conversions can be awesome .

Sometimes they're not so awesome and I wanna make sure that you are spending what you wanna spend and not just implementing fancy tactics because a neighbor told you to or a friend , or you just feel like you're getting ahead by doing so . So the first place , I'll start . If someone says do I have enough ? I'll say how much do you wanna spend ?

That would make you feel you're living your dream retirement . They're like I don't know . I go yeah , of course , how could you know ? But let's start . Let's get 80 , 90% of the way there . Don't let that analysis paralysis stop you , because it stops a lot of people . It's like I don't know what I'm gonna spend exactly .

So let's just say 8,000 a month or 10,000 a month and move on . I don't really want you to move on , I actually want you to go . Okay , let me get a clear sense of what are the basics . And for most people that come to me , 6 to 8,000 a month . That's like your core expenses . And for some that's including a mortgage .

For many it's excluding a mortgage . It's hey , 8,000 a month . That's bills , groceries , gas , car expenses . That's like normal stuff . 6 to 8,000 a month . Then they're saying we still wanna travel tremendously because we haven't got to to the degree that we'd love . For some of you it's slow travel , for some of you it's the opposite .

It's like I wanna do long travel , six , nine months and a lot of places . So whatever travel looks like to you let's assume it's $20,000 a year I say great . So if we take a hypothetical here , let's assume you wanna spend 8,000 a month , that's your core expenses . That's 96,000 a year . Let's say 100 to make it easy .

So $100,000 a year is what this couple hypothetically wants to spend , just so they can get by , if you will . I know it sounds bad , but $100,000 , those are their core expenses . Okay , that's just the majority of people who come to me . It's not good , it's not bad , that's the reality .

Now they wanna spend 20,000 a year in this hypothetical for the next 20 years on fund vacation . Awesome , let's factor that in addition . So now 100,000 base plus 20,000 every single year for 20 years of travel , that's $120,000 a year . And I'll ask them and I'll pause , I'll say I'm giving you a blank check and that blank check is here's 120,000 every year .

Do you feel that would really allow you to do everything you wanna do ? And some people say you know what ? I ran some numbers , we'd end up saving it . Like , that's the reality . We just couldn't spend that if we tried .

And others are saying , ari , I wanna do all of those things you just said , and if I could do it on a first class ticket , that is a dream of mine . I say , great , let's factor it in . I'm in no business of rosy pictures . I wanna make sure you can spend what you wanna spend . So we'll take it a step further and go wait a second . I retire early .

What about health insurance ? Is that gonna be covered ? Are we gonna have subsidies to help out with that ? Or , and if you haven't heard my previous episode on this . I invite you to go check it out , not maybe right now , but after this episode and I think I titled it . I have $2 million . Should I do Roth conversions or healthcare subsidies ?

And the point is , once you retire early , you have an awesome opportunity . You can say should I try to keep my income really low ? And the benefit of doing so is your income is low for many years and you can go . This is awesome . I pay taxes at such a high rate for many years .

Now I have a low tax bracket because maybe I'm 60 and I don't have any more income . Or you can say can I be strategic during these years between 60 and Social Security and RMD's beginning , where now you're gonna be able to be amazing in terms of going ? Let's be smart here .

Maybe I should fill up these low brackets , like the 12% bracket , or maybe the 22% bracket , because if I don't do anything at all , my RMD's those required distributions which are only applied to your pre-tax assets like your 401ks and IRAs they might kill you in the future where you're gonna be paying 30 , 40% plus taxes .

So my Roth conversion analogy , which many of you know by now , is that cauliflower idea of . Can you please eat a little bit of vegetables , eat a little bit of cauliflower today , so in the future your whole plate isn't cauliflower , which happens to a lot of people . So I have a whole episode dedicated to trying to compare .

Should I do Roth conversions , which increases your income , or should you try to keep your income really low for healthcare subsidy purposes so that you're getting tax credits ? So that's a separate episode .

But if we're coming back to this hypothetical here and this hypothetical by the way , leslie and Brian , I know this isn't exactly what you wanna spend , but this is , for a large majority , what my clients are spending . So that's why I'm coming up with these numbers . So 100,000 basic living expenses , another 20,000 a year on travel .

Now , if you're gonna retire at 60 , I'm saying that's awesome . Now I don't know when Leslie and Brian wanna retire , but at 60 , you can pull from those pre-tax assets and there won't be any concern . But in what I mean concern , I mean it's not gonna pay you any . There's no penalties .

You're above 59 and a half , so you can take those assets as you see fit .

However , if you wanna use CD proceeds and those CD proceeds are not in an IRA , that can keep your income really low because you're just saying let's live off of this , let's call it $300,000 of CDs , and that's gonna keep your income really low , allowing you to do other tax planning techniques . So that can be an awesome feature .

Now , if you're coming to me , leslie and Brian , you're like all right , we're 57 , I'm going ooh , this makes it a little more difficult . We're gonna need to make sure the CD can last until we got to tap into these other accounts . Now , leslie and Brian did not mention social security , they did not mention pension , they did not mention rental income .

So all of these features need to be added on top of this . But real quick , let's go to their question and address it directly Do we have enough to retire ? That was what they asked me , and I will tell them yes if they want to spend 100,000 on basic living expenses , plus $20,000 every year on travel for 20 years .

And the reason I will say yes , I'll say yes comma assuming you do the right things along the way , and that's why this work has so much nuance if you want to retire early because if you look at a standard withdrawal rate I mean , if you've ever heard of the 4% rule , what it is is it's saying if you have a million bucks and you take 4% out of your

portfolio , you can be rest assured you will not run out of money for 30 plus years . Now you're going okay , that sounds good . But , guys , this is based on that traditional retirement . That's not most of you . Most of you , hey , I don't want to retire at 65 and pass away at 95 .

It's if I can retire at 55 or 60 , that's a whole lot more attractive to me . So this 4% rule really isn't applicable to you guys . It's based for 30 years . It doesn't assume you invest in a diversified strategy . So I don't love it , but let's just use it as a starting spot . So if we're taking 4% and saying , okay , what's 4% of $3 million ?

That's $120,000 a year . So if you were to take out 120,000 every single year for 30 years , the 4% rule would say you know what this couple could do it 100,000 basic living expenses , 20,000 for travel . But this is excluding health insurance , it's excluding , maybe , additional gifting to children , it's excluding legacy planning . So it's excluding a lot .

So this is why , once again , go download my cashflow planner . I have a video walking you through exactly how to think through your expenses , which most people , by the way , don't think through their expenses because they're just like I wanna get a great return .

Tax strategy , estate planning , that's all awesome stuff , but the reality is your expenses are one of the biggest , if not the biggest , variable that is in your control . That I wanna make sure we are looking at wisely . Now let me be crystal clear . I do not want you to go all right , I think we could do it on 8,000 a month or 6,000 a month .

I don't want you to do it on 6,000 or 8,000 a month . I want you to really dream big and go your dream retirement . How much would you really spend If you could ? I'm giving you a blank check . What would you put there ?

And if you're like I really would love to spend 15,000 a month , that's 180,000 a year I say awesome , I want you to be able to do that . And if you work one more year , this is possible . Or if you work two more years , this is possible . But too often people just don't plan effectively and then they retire and go .

Hey , I think I'm in a good spot , but I'm just not sure . If markets go down , what do I do ? And I want you to think about this differently , because this couple once again , leslie and Brian you're sure , ari , how much is enough ? I will tell you . It's really tough , but once you retire , you are now your own employer .

What I mean by that is when markets are doing well . I need to give yourselves a bonus . I need you to say you know what . We are gonna give ourselves a bonus and we're gonna take an extra trip this year because markets did well In other years . I need you to say you know what .

We're gonna temporarily cut back on some of the big expenses , not saying we spend 120 a year , 120,000 , now we're gonna spend 80,000 . I'm saying , instead of 120,000 a year , can we now spend 105 or 110,000 ? Can we temporarily cut this by a little bit so that you can see what that could do for you long term ?

The less you have to withdraw when markets are coming down , it can create hundreds of thousands of dollars of more assets over your lifetime and that's not unrealistic . So how much is enough ? I'll tell you , brian and Leslie . I'll ask do you have a pension ? And if you don't have a pension , perfectly fine .

But for those that do have a pension , your investment strategy needs to be very different . I was gonna say super different . But you know , very is probably the best word here to be a professional . The reality is you need to be very different , and here's how different .

Let's assume you want to spend $120,000 a year and you say you know what , ari , I have a pension . My pension covers $120,000 . Say , okay , well , you're $3 million . That can be invested way differently than your neighbor .

And if your neighbor has no pension , he needs this investment portfolio to be able to create income for him so he can't be subject to as much volatility . But if your pension covers everything you need , I'm not saying it's not fun when markets go down , I'm not saying that at all .

I'm saying that $3 million it can fluctuate a whole lot more because you're not fully relying on it . So the point here is people say what's your age , what's your risk tolerance ? That is not how you build an investment portfolio . What you do instead is you say how much income do you need ? And you go well , maybe 10,000 a month or 12,000 a month .

I say , okay , let's use that as a starting spot to determine what amount we should have in fixed income and what amount should be in what I call the war chest Super safe assets , cash , cd , money market instruments , inflation protected securities .

Going back to your question of how much is enough , it totally depends on how much you wanna spend in what would create a fulfilling retirement . And if , brian Leslie , you're listening to this episode going , you know what . We think that we really need $200,000 a year to be able to retire confidently .

I'd say that's totally fine , maybe working one or two more years so that you do have enough to do so In other instances . If you're like no , we ran the numbers in 120,000 a year , super realistic for us .

I think that we could retire early with confidence I'll say well , let's not use that 4% rule I talked about before , because it's really not applicable to an early retirement and it doesn't account for taxes . So what I mean by that is if you have a million dollars and you wanna take 4% out , that's $40,000 .

But wait a second , we really might need to take out 50 or 55,000 to end up with 40,000 in your pocket after taxes . So we always have to go . We need to be factoring in taxes and inflation into all of this , or we're just not planning effectively . So there's a new study that was done , and this was done by someone named John Guyton .

It's called the guardrails approach , which says if you invest well , you think about tax implications , you think about inflation and you withdraw from accounts in a certain order . So , pre-tax , cds , roth , iras , brokerage , just being more intentional throughout this process , it's reasonable .

You can withdraw between 5.2 to 5.6% of your portfolio and not run out of money for 40 years . That's a whole lot more applicable to most of you who wanna retire early . So if we're going , okay , what's about 5% of and I'm just using 5% to be conservative 5% of $3 million here . I'm just doing that on my calculator . That's $150,000 .

So what this is saying is if this couple said you know what ? We wanna spend 150,000 every single year for the rest of our lives , which is unrealistic . Most of you are gonna spend a whole lot more in the first few years . Why ? You have your time , you have your energy , you have your health . I want you to go do it .

Then maybe you spend a little bit less between 75 to 85 ages and then maybe it shoots back up at the end where you're like , hey , I don't wanna die with 5 million bucks or 10 million bucks , I wanna leave some assets to children .

Or I don't have children and I just wanna have these assets go to a charity , I say that's fine , but I'll tell my clients , sometimes I need you to spend more because if you don't , you're on track to have too much money , and that's a real risk , by the way , when we look at this as well .

So Back to the example $150,000 a year , their portfolio , if they invest well , can absolutely generate that . So , brian Leslie , if you're listening to this going , hey , do we have enough ? And you wanna spend $120,000 or $150,000 a year , you can absolutely do so . Now you have to be smart about it .

You don't just pull from it every single year , regardless of what markets are doing , but you're saying , hey , am I on track ? Absolutely . Now if you said you know what , we need to be happy and we need to spend $20,000 a month , $240,000 a year , I'd say we're probably not there yet . And the problem with that is we need to go .

Okay , that $20,000 a month , is that starting immediately ? Is that shifting over time ? How might your expenses change ? And do you have big projects that you need to tackle before you retire early ? Because that makes a big difference here . If you wanna do a home improvement or you're thinking about moving , or you name it .

We wanna tackle as much as we can before we retire early . So once you retire , it's not . We have health insurance and vacation costs and on top of that we have to do home improvements . Ideally , we're taking care of a lot of that before you retire so that once you do , it's hey , we can just spend on what we wanna spend .

Now there are always gonna be home improvements and little things . You wanna shift that I'm okay with . But I wanna make sure you're thinking through this the right way . So , with this all being said , I'm excluding Social Security here . I'm not saying Social Security won't be there .

In fact , it probably will be there , because people have been saying it won't for so long and it's still there . What I'm saying is let's not plan on it . I don't want Social Security to be your retirement strategy . So for this couple . They wanna spend 120,000 a year .

I'm telling you , brian Leslie , you could spend up to 150,000 with your current assets if you invest well . That's excluding Social Security . So you're likely in a very good position if you have that $3 million to retire early .

Now I don't know if you're 55 , I don't know if you're 57 , I don't know if you're 62 and if you're actually able to pull from all of these accounts in certain ways . But this is a starting spot . When someone says , do I have enough to retire Now , if you're going to wait , I don't have $3 million , I have a million dollars . Can I retire ?

Do I have enough ? Use the same logic here . Really , use my cash flow planner or any planner the one I designed is for an early retirement , so I think it's applicable for most of you and ask yourself okay , if I wanna spend 80,000 a year , can I do that on my $1 million ?

But I have a little bit of pension , I have a rental income or I have Social Security or I might do part-time income , and can that help bridge that gap ? Absolutely , I want you to get really creative with this . That's why this stuff is so cool is you don't have to do the traditional retirement , you can go .

You know what I'm gonna create an early retirement . That resonates with me . So , with all this being said , if you're going already , this sounds like a lot . I wanna work with someone on your team who specializes in an early retirement . That's , of course , the work we do , and we don't just do it . We love doing it .

We work with a very limited number of people where we feel we can add tremendous value . If we think we can only help a little bit , we'll tell you and go hey , I just don't think this makes sense and in fact I don't let anyone move forward unless they're excited .

If they're like , hey , I think we should do this , but I'm not sure I go , we're probably not the right firm for you . So go check out our Google reviews , go check out our Yelp reviews , see what people say about working with us . Don't just take my word for it . So hopefully this has been a helpful episode to think through how much is enough .

And then the quick mindset shifts . I tell everyone is careful about moving those goal posts . It's really easy to work six more months and work one more year and then three more years , and it's because it's familiar . It's what you know .

I actually want you to do the hard work to say look at how much you might need to retire that cashflow planner which you're gonna see in the description of today's episode .

Download that and start working through your cashflow and how much you need in retirement , and then ask yourself do I have a plan that tells me how much I can take every year , so that I'm gonna be okay . So these are the things I want you to really start to think through if you're serious about an early retirement .

Even if you're five years out , most people wanna go through a process to know what they're on track for . I'm not saying you're gonna go retire tomorrow . In fact , most of you aren't . You're not gonna list this episode and go , wow , I can do it .

But I want you to go back to work going oh my gosh , I'm here because I have a plan and my plan says I'm only working two more years because that's when I know I am in that fire movement of recreational employment where you're working because you want to , not because you have to .

So if you haven't heard that analogy the fire movement very popular financial independence , retire early . I have my own definition financial independence , recreational employment .

So if that recreational employment definition resonates with you , my only request here I try to do all of this content to make it as helpful as possible , because I want all of you to retire early with confidence . I do not want you to have to retire again . That is a nightmare when I see it occur . It's life , it's reality .

But people come to me and they retired early , but they didn't do it effectively . And I want you to be like , oh my gosh , I'm gonna retire early and I'm in an awesome spot . I'm not second gas , going out to eat or taking that trip or doing these fun things . I want you to do exactly what you wanna do .

So my kind of request here of course I cannot work with all of you , even if I wanted to . If you don't mind leaving a review of what's resonated most with the podcast , you can do that on Apple and iTunes . If you can go to YouTube and leave that same review . So helpful . I wanna help a million people retire early . That is my goal .

So thank you for helping me accomplish that mission . Thanks , guys .

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 .