Welcome to the Healthy and Wealthy Retirement, where your Certified Retirement Counselor Mark Struthers takes a holistic approach to retirement. Going beyond finances and embracing holistic well-being, this YouTube channel will address not just the financial part of retirement, but also the social, the physical, and the emotional parts of retirement. Everything you need for healthier, a wealthier, and a happier retirement. Music.
Here is your host, Mark Struthers. Hi, welcome to the Healthy and Wealthy Retirement, where we give you the tools and knowledge to increase the chances that you're going to have that healthy and wealthy and happier retirement. My name is Mark Struthers, and we are coming at you from Edina. Normally, we film in Chanhassen, but we are in the beautiful Edina, Minnesota. And today, we're talking about expenses. We're doing a number of videos on expenses.
It's odd. I don't think we have ever done anything on expenses. I don't think we've done a blog post on expenses. And it's something that occurred to me over the last six months about how tough it is for folks to wrap their arms around expenses. And it's not like many or most things, it's easy to put off or not even think about especially finances or something as far as weight as retirement,
But expenses are crucial. Expenses are something that you really have no idea how much you're going to need, if that pension is going to be enough. You have no idea of kind of the risks involved in retirement or even taxes to a certain degree, unless you have your arms around expenses. So there are two things to really kind of try to understand. One, what are you going to spend at retirement? Quite often that's related to what you're spending before retirement.
You can use rules of thumb, whatever it is, just trying to spend some time on it. The other one is how spending changes. What makes expenses, I think, a little challenging is because folks view it the way my teenage boys view changing the car tire. They never actually do it. I mean, in my day, we had to practice. Gen Xers are maybe a little too self-sufficient. Their response is, well, I'll figure it out. I'll YouTube it. I'll look at the manual. And it's possible you could.
If you get lucky and it happens on a wide shoulder on a sunny summer day. But the best part is to train a little bit and think about it or spend some time trying to make sure you can do it. And that's the way expenses are, is that people are trying to think, well, it'll be easy. It's tougher than you think. So for our conversation today, we're not talking about the number at retirement. We're talking about how that number changes.
And today's topic is guardrails. So there are five main models, we call them, for how spending will change in retirement. The first one, our baseline, is inflation-adjusted spending. Meaning if you're spending $5,000 at retirement, just making up a number, and you have 3% inflation, you assume that throughout all retirement, not a horrible number. For core inflation, not healthcare, we assume a little bit less. But for 3%, after the first year, you're going to adjust spending to $5,150.
And then the next year, because of compounding, you're going to do 3% on the higher amount. So you could think in terms of, depending on your inflation rate, of inflation doubling every 24, well, maybe we'll call it 22 to 32 years. I think in retirement, if you start off spending $60,000 a year, easily $120,000 to keep pace with inflation, to buy that same basket of goods to maintain your standard of living.
Quite often when you look at numbers, it goes up to something more like $130,000, $140,000, again, depending on the timeframe and their inflation rate. And that's just to maintain your standard of living. The problem is most people don't spend like that. That's why we did two videos on reality, really. And I'll zoom in on here a little bit. That the way people spend in retirement, they usually spend more initially.
And then things taper off or things decline, except for healthcare. That makes us smile. So we always account for healthcare separately. But the two models we use to try to get at this are retirement spending smile after the same name. And then retirement stages. It's just a way of accounting for what's probably going to happen. Now, when you do these models, it means that pension is probably going to be more effective. It also means that you need to get to a smaller amount.
And as we always talk about, it's about making an informed decision. Some folks say, you know what? I don't want to take a chance. That's fine. Just so you realize what that looks like, not just from a... Portfolio longevity standpoint, but also from a, are probably going to pass with more money than what you started with. The one we're talking about today, guardrails, this is a way that many people like turn to for portfolio longevity.
Because the core of it is if the market's up, you increase spending, the market's down, you decrease spending, thereby allowing you your portfolio to last long. But where I find this to be most effective and why I like it, although a lot of folks who have a really tough time wrapping their arms around it, is it allows you to take more from your portfolio initiative.
When you think about the 4% rule, and the 4% rule is a little complicated, so please check out some of our other videos in writing, it says that if you go back throughout history, You start off with a certain portfolio type, and what is the maximum amount you can withdraw before the worst possible time in history and still not run out of money? That number is 4%. Sussequent studies make it more like 4.5. Again, there's rules around these, so just don't take it at face value.
But the key there is you have to retire before the worst possible time in history, and you don't make any adjustments. Music.