How Much Can I Spend in Retirement?

Understanding how much you can spend in retirement is complex, influenced by various factors including lifestyle, expenses, and resources. We provide insights into budgeting for retirement and highlight the significance of professional planning in your path toward financial security.

• Highlighting the uncertainty around retirement spending
• Importance of assessing current and future needs
• The dynamics of retirement spending phases
• Avoiding one-size-fits-all retirement savings guidance
• The significance of budgeting before and during retirement
• Addressing taxes and account diversification
• Engaging with professional advisors for customized plans

Have a topic or question you'd like Mark and Evan to address in a future episode? Email us at info@masterplanretire.com or call 770-980-9262.

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Advisory services offered through MasterPlan Retirement Consultants,

Visit masterplanretire.com to access our retirement checklists, podcasts, and schedule a complimentary consultation.
Call 770-980-9262 to speak directly with someone about your retirement planning needs.

https://masterplanretire.com/

Catch all episodes of our podcast at https://www.masterplanyourretirement.com/resources/episodes

Listen to Mark Fricks on Saturdays at 12:00 p.m. on XTRA 106.3 FM WFOM.
Sign up for one of our upcoming events at https://www.masterplanyourretirement.com/events

Purchase Mark’s book, The Road Less Traveled: Turning Your Retirement Worries Into an Excursion of a Lifetime, on Amazon: https://a.co/d/4fx94Al

Advisory services offered through MasterPlan Retirement Consultants, Inc., a Registered Investment Advisor in the state of Georgia. Insurance, tax and commodities services offered through Fricks and Associates, Inc. dba MasterPlan Retirement Consultants. The aforementioned are affiliated companies.

Transcript

Speaker 1 0:06

How much can I spend in retirement? Hey folks, welcome back to Retirement Roadmap with Master Plan Retirement Consultants. My name is Evan and with me, as always, retirement planner Mark Fricks. It's a great question, mark how much can I spend in retirement? How much you got, I'd say all of it. How much can you spend All of it?

Speaker 2 0:26

How long will it last, depending on how much you love your kids all the way to the last dime? That's right, that's absolutely right. But yeah, that's a great big picture question and so hopefully today we can take the big factors and kind of narrow them down to some smaller things to think about as well. So I think it's a great show. It's probably the most difficult number to come up with. When we work with a client. They kind of look at us like a deer in headlights in the beginning, but we walk them through it and begin, you know, again, narrowing it down. And so we're going to talk about that. What does it take to narrow it down? And I would encourage those listening to get help. It's good to have an outside force kind of guide you through that, and that's exactly what we do with every new client is what do you need? Because you've got to peg that number down before anything else will work.

Speaker 1 1:11

Yeah, and it's extra confusing because every other week there's an article on the you know the major sites and papers and magazine and everything else. Everything's online now, I guess. But this is how much you need, this is how much you need to retire if you plan on retiring this many years, and there are so many blanket statements and we've discussed those before how you really can't take too much away from those articles other than a concept.

Speaker 2 1:37

You know, what's interesting is is I've been hearing for 10, 12 years that you need $1 million. Don't we have inflation or something that would change that?

Speaker 1 1:45

Yeah, I don't know if that's.

Speaker 2 1:47

Again, it's just a shot in the dark. It's a nice round figure and we've got people, as you know, that have retired to the nest egg of $100,000 or $200,000, up to $5 or $10 million and beyond, and they all worry about running out of money, don't they?

Speaker 1 2:11

Right and ideally, retirement spending would align perfectly with the client's needs. So, just as you said, we have people who have greater assets, who have retired and and maybe cutting it kind of close, and then we have people with lower assets who have retired and maybe they're living really comfortably and at ease, and it really just depends on your individual need and individual case and how we can map out that plan.

Speaker 2 2:26

It also depends we've talked about this a little bit before but maximizing every part of their retirement too. So when you're looking at income, you know you, uh, you save for a nest egg but you retire on the amount of income that nest egg can produce. So first you need a bigger nest egg, but then you squeeze every bit of that lemon juice out of that nest egg to create that income. And there's many factors we address to maximize each area so that that number becomes as large as possible. But again, today we're looking more, I think, at what is that number and how do you determine that?

Speaker 1 2:59

So before you can set a number, you need to understand a few factors, and there are many more factors to consider, but some basic ones to start with are just your needs. What's your monthly need right now, where you are, what are your retirement income sources and what are your retirement assets or other assets that may be used?

Speaker 2 3:19

to produce income Right, and there's so many things to look at because, let's say, I'm five years from retirement. Well, the first thing we include is cost of living. A lot of people say, okay, I can live on $5,000 a month, yeah, but what in five years? What's that going to be equal to? So so many people come in with some ideas, but they kind of forget about inflation. You know, yeah and so, but also, you know, we begin thinking about what's going to change between now and retirement, whether that be one year away, five years away. And more will change than you think it will. Sure so, and we walked through that and I think we're going to walk through some of that here as well.

Speaker 1 3:52

Yeah, and some of those changes just big picture changes. And we've discussed the reverse bell curve of retirement spending. You start out spending higher at early years of retirement the go-go years, yes, absolutely Traveling, spending money, doing that kind of fun stuff, the things that you've waited so long to do, and then it tends to slow down a little. Maybe you're local more often.

Speaker 2 4:12

You're getting older, you don't want to travel as much. You've kind of seen what you want to see, maybe in your mid-70s to 80s, whatever age you might be right. Maybe your grandkids are older, they're not coming over as often, right? You know things like that. So we kind of go, we call those the slow go years. So you spend less money. You know, you're kind of settled in.

Speaker 2 4:32

You know, as I get older I'm less likely to go to a live football game. It's a lot of trouble, it's cold outside. You know you got people spilling drinks on you. I'm kind of old and curmudgeonly now because, you know, sitting in my nice living room, great room with a big screen TV, a fridge over here, a restroom over here and a kitchen back here, it's really nice. So it costs a lot of money. But I know that's kind of a microcosm of our example, but I think it is a good example.

Speaker 2 5:04

We tend to pull back some. Maybe we play golf less because we're older. I mean, whatever it may be, but I've seen it with my parents as they slowed down in their mid-70s where they kept traveling with their RV. They were afraid to pull an RV on the road anymore. So all of that means your expenses go down. Now it's really hard to map that out on an income plan, which we do for every client, so we were more linear. But we revisit it every year and so we adjust that number as time goes by. Just had a client this past week. We had established their income need. They were doing fine for about six to nine months and then their daughter was injured and had to move back home and now we had to turn on extra income.

Speaker 1 5:45

So it's not a static number, but we do need to come up with a good average number to build upon and then inevitably in the later years of retirement for most people, we have increase in expenses again for medical reasons long-term care, anything like that.

Speaker 2 6:00

More deductibles, more pharmaceuticals that aren't covered. My parents, again in their 90s, were at the doctor two, three times a week, one or the other, and there's cost associated with that. Medicare A and Medicare B and supplements don't cover everything. There's always some out of pocket expenses, so that's just going to increase as we get. And then the last few years many folks experience long-term care needs. Suddenly you are bringing a sitter or having adult daycare or whatever it may be, and so that just keeps increasing. And so again, it's not a linear plan, but we do need to come up with. What do we feel like the first few years that our needs are going to be based on our lifestyle and many other things that we're going to touch on.

Speaker 1 6:42

Yeah. So, starting out, you want to take stock to determine your own retirement income number. Take stock of your projected everyday expenses now. How those might adjust. Your life expectancy is also really important to consider. How many years are we projecting to plan for? I would always plan for a little bit more than you might expect. You might mess up and live too long. What are your projected costs? Are you able to maximize retirement savings until you get to that point? Can you budget now to maximize your savings? What are your resources Other than your retirement savings? Iras, 401ks, roths, things like that? What are the resources that can cover unplanned expenses? Long-term care insurance, annuity products, health insurance, anything like that? What do you have now that can produce something? So you know what is your gap and what might you need to convert some of these to tools to help you in the future? Your real estate, so your home. It's great if you have no outstanding mortgage balance or maybe at least a low rate. Will you own your home by the time you retire?

Speaker 1 7:44

That'll affect your income, your budget, excuse me. You even have the option of selling it or obtaining income in the future through a reverse mortgage. We have a few clients who have taken that strategy as well, especially in the later years of retirement. There's a lot. I hope everyone's writing these down. But this is why it's so complicated, because you have to take stock of everything you have and understand how each individual aspect, each tool, each account, each bucket whatever you want to call it how each one of them work individually and how they can affect everything else around them.

Speaker 2 8:13

Then when we're sitting out and down with a new client, we toss on ideas they hadn't even thought about before. But I think even before we get to that, evan, one thing I want folks to think about is there's a question on our data gatherer when we're working with the new clients how much money do you need per month in retirement? And what we're talking about is kind of that floor of need. You know I'm not talking about how much do you need to go to Europe. I'm talking about utility bills, you know gas bills, car payment, house payment, and so one thing I would say, start thinking about is what is coming into your house now after taxes, after your 401k contribution, after anything that you won't have in retirement. Maybe you don't have disability anymore If you're not working. You know, if you've got disability at work or you've got it at home, that's not going to be expense and we actually have a budget worksheet we can send folks if you request it. It's a post-retirement needs and it goes through every single thing. Haircuts we don't think about haircuts. I don't think about haircuts anyway, but you know, whatever else it may be. But also, what will you not be spending? Again, I kind of just went through a list of after-tax money. But let's say you're bringing in $6,000 a month but outside of your 401k you're saving $1,000 in checking. That's $1,000 of income you don't technically need in retirement, leaving in your accounts.

Speaker 2 9:36

Are you going to be living in a different place? Are you downsizing which in our area probably means the same payment, right, but still are you downsizing? Or you've got a couple of clients in lost suites with their kids not as an intrusion, it's just it was something they really wanted to do. Are you going to buy a second home? Is that part of your dream? Maybe build that in? Are you paying cash or doing payments on that? Are you going to move closer to kids or something? That's a pretty big cost nowadays, right, and so what's going to be happening at retirement? And even over the first few years, it's going to change those needs. You know more and more people are working having to go into the office now. So maybe you save on gasoline If you're new clothes you have to buy if you're going to the office. I mean there's so many little things and again, that budget we can send to you, that budget worksheet, can certainly help you as well. So we'll be telling you here in a few minutes how you can request that.

Speaker 1 10:34

I think that's a perfect segue. I mean, that's one of the things that's so powerful about our early meetings, our initial consultations with potential clients, whether the individual becomes a client or not, those first two meetings. We look at this stuff, we discuss this stuff with you. We run over your what are your dreams and hopes, like what scares you or keeps you up at night. We take all those assets and we understand how they function and how they'll affect your retirement. We map all that out for you and we create a preliminary income projection of what it's going to look like in retirement.

Speaker 1 11:05

If you know, without any planning, without moving things around, what happens if we just put the key in the ignition and turn on your retirement at your intended time, how long is your money going to last? And that's what we call nirvana. That's just. That's no planning, that's with no outside influence, disney World, and then we'll stress, test that. Throw some bear markets at it, raise taxes, raise cost of living, long-term care, passing of a spouse. You know we do all these reports and all this organization for you in those initial consultations.

Speaker 1 11:34

Those are all complimentary, by the way, right and so and I tell this to people quite often, especially at seminars, when we're inviting people to these complimentary consultations Look, we are a business, that's not a secret we're trying to keep from anybody. We do like new clients, in fact, we love new clients, but if we can meet with you and we can give you a better vantage point of your own situation and your own retirement and you can leave understanding your situation more, we are really thankful to have the opportunity to help you out along the way. So again, that's a lot of really good information. Feel free to take us up on that. You can go to our website, masterplanretirecom, or call us at the office at 770-980-9262. Great thing about that website Evan is.

Speaker 2 12:23

First of all, there's a little green button. I think it's green. Is it green? That's your favorite feature.

Speaker 1 12:26

It is green, okay, kind of a weird green. You are colorblind, I am colorblind.

Speaker 2 12:30

So anyway, it says schedule a meeting okay, and that's our calendar and you get to pick a spot. It could be morning, afternoon, some evenings, even an occasional Saturday, for that complimentary consultation. The first one is about 45 minutes of chat, like you said, and then it includes a second complimentary meeting with all those reports. So, masterplanretirecom, or, as Evan said, give us a call at 770-980-9262.

Speaker 1 12:55

Right, so, as we said, the first step, take stock. So you got to take stock of what you have In order to plan a trip. First, you got to know your starting point. Number two start saving. A great goal to start with is 10% of your monthly income. After you satisfy those emergency savings goals, determine what you need that's easily accessible, that's liquid for emergency savings. Maximize those savings. Retirement vehicles whether it's employer-sponsored plans, self-employed retirement accounts, iras, roths, things like that when you determine to save and grow your assets, will depend on everyone's individual situation.

Speaker 2 13:35

And two things about that. Those folks that are already into their 40s, 50s, 60s, that already have a good sized nest egg, it's time to start protecting it against huge market losses. You're too close to retirement to take a 30% dip. So we've got three or four methods we use to stabilize that money. Still get some good growth, but take some of the risk out of it. Make adjustments. It's not going from a 60% stock, 40% bond. It's not as simple as that anymore. It is much more complex, ending up into maybe six, eight, ten different accounts that each work differently, and also start planning on the taxes in retirement and begin having a good strategy to reduce taxes in the future. And so, don't you know, especially if you're over age 50, I would encourage you to contact us. We have so many different methods to get that money more stable, because if you're 35 years old and you lose 30%, you'll make it up in two or three years and actually you're buying.

Speaker 1 14:30

Just don't sell at a loss.

Speaker 3 14:31

No don't sell at the bottom. Don't sell at all if you're 35 years old.

Speaker 2 14:35

But you know again, 50 and above, you don't want to go back to work right and 2006, 2007,. Those folks that weren't working with professionals lost a lot of money and they put off retirement, and so we don't want that to happen to you.

Speaker 1 14:50

We've had people come in the door who retired, who are already retired or who are saying hey, I'm retiring tomorrow. Um, so anytime is a good time to start talking about your retirement, but the earlier the better, I'd say. If you're within five to 15 years before you are intended or ideal retirement, you need to start considering this stuff and saying what things can I do now? What moves or what changes can I make right now to really maximize that retirement?

Speaker 2 15:18

And you touched on the tax diversification. So let's talk about that for just a minute. If you have an account at work, a 401k, a thrift savings plan, a 403b or whatever, most of those plans now offer a Roth portion, and so we've talked about this before. But the basic difference is that traditional money you've been putting in all these years, you've had a good feeling that year because it reduced your taxes that working year. So that's great. But it's going to grow tax-free.

Speaker 2 15:47

But guess what happens in retirement? It comes out. Your retirement money comes out fully taxable. What is your tax rate in retirement, by the way? If you can tell me, we'll hire you okay, but we don't know. But we certainly think it's going to be higher over the coming five to 10 years and just when a lot of us are hitting retirement. So let's go ahead and start shoveling more money into the after-tax Roth, because it comes out tax-free forever and when your kids inherit it comes out tax-free. You've solved two people's tax problems or more. And so, again, diversified Some traditional, some Roth, some taxable Backup money is taxable. Let's get that diversified, not only among asset classes, but among taxes.

Speaker 1 16:30

I love I love that. Yeah, uh, we discuss asset diversification all the time investment diversification, but uh, tax diversification just as critical absolutely so.

Speaker 1 16:41

Also, make sure you understand your contribution limits. So, um, it can be difficult for a lot of people to max out contributions per year, and that's understandable. But do as much as you can. If you are one of the lucky ones who has more to save, understand how much you can, of course, get your match at your 401k or 403b or whatever you might have at work if you're blessed with that. But once you hit that match, are there better vehicles to put more? If you have more to save, are there other vehicles, whether a Roth or an IRA or certain other products, that might be more beneficial to your retirement? Again, that's a conversation that you're going to have to be honest with yourself and preferably go to a financial professional to help you maximize for your specific situation.

Speaker 2 17:25

Yeah. So if you're putting in let's say, your company matches five, you're putting in 5%. That's a great scenario. But suddenly now you can put in 10%. I would think about putting that extra five into an outside Roth or IRA that can be actively, professionally managed. 401ks, thrift savings plans, can be slightly managed if you hire someone, because you can only make so many changes a month. Some of our portfolios make a change every week, sometimes a couple days a week, and so they're constantly monitoring the algorithms and looking at what's happening in the economy and the stock markets to make those changes and by the time you make a change in your 401k two weeks later, you've missed the boat, whereas those money managers are making them every day. That can't be done in an employer-sponsored plan like a 401k or a thrift savings plan. So that overage, throw it into something private where either us or somebody that's a fiduciary that you know can professionally manage that and pick up that extra couple percent in earnings.

Speaker 1 18:25

Professionally manage that and pick up that extra couple percent in earnings Our producers are going to have to get the bleep button ready, because I'm about to use the B word and that is budget.

Speaker 1 18:37

So here's a quick question Would you rather budget now and tighten your spending and live accordingly now while you're preparing for retirement, or would you rather have to budget and make sure? I mean, you're're gonna have to budget anyways, hopefully on some extent, but would you rather have to have a strict budget once you've retired and don't have that paycheck coming in, don't have potentially the same income on its way in? So that's going to do a couple of things. First of all, you're going to set yourself up with more savings. You're going to set yourself up with greater longevity in retirement, hopefully. But it's also going to set something internal for you.

Speaker 1 19:10

If you can develop that discipline now and figure out okay, where are my dollars going? Where am I spending my money? How can I budget? Where can I cut things that I might not need, distinguish those needs from wants If you can set that behavior early, it's going to not only help you get to retirement, maybe even sooner. It's not only going to help your retirement last a little bit longer, or potentially a lot longer, but you're going to carry that mindset through retirement as well.

Speaker 2 19:38

Well, and also, budgeting doesn't mean anymore to me having 12 white envelopes with cash in them. There are apps out there now that can certainly automatically help you budget, or something as simple as opening three checking accounts. And this checking account, at the beginning of the month I put so much money in to cover my static bills and loans. And then the next one might be my floating bills like utilities, and the third one's, food and fun. And if I run out of money in food and fun, which is where the leftovers went, then I quit having well, at least fun. I don't want to quit having food, but something as simple as that. We can talk to you about how that works. Very simple. I call it checking A, B and C budgeting. But again, it's just how strict you want to be. I think the stricter it is, the harder it is to stick to it. So we try to make it a little bit more simple than that.

Speaker 1 20:29

So we just have a few minutes left. But I want to jump to our first big question how much money do you need to save for retirement? So this is obviously. We've already talked about how these numbers that you see in articles and everything else you can only take them with a grain of salt. But I do want to share some numbers and explain why.

Speaker 1 20:46

That's not the full picture. So generally it's recommended the blanket statements that an individual have 10 to 12 times their annual income at retirement age. So, for example, if your annual income is $70,000, you should have $700,000 to $840,000 in savings for retirement. Another suggested metric is taking your desired annual income in retirement and dividing it by four percent. So if your desired annual income in retirement is seventy thousand dollars, you would need seventy thousand divided by point oh four, which equals one point seven five million for retirement.

Speaker 1 21:24

Now I know a lot of you almost drove off the road just now. These numbers are not accounting for so many other factors. For one, this is looking at retirement accounts what is in that bank or that Schwab account or 401k. The only thing this is looking at is sitting there, savings money. It's not looking at how you can maximize those. It's not looking at different tools and what tools do things better than others. It's not looking at how you can maximize those. It's not looking at different tools and what tools do things better than others. It's not taking into account what's your Social Security. If you've got Social Security coming in the door, you're not taking as much from those accounts. It's not looking at pensions, other income sources, such as rental houses, part-time work, which can be extremely powerful in retirement, even a few years of part-time work. This is why you can't look at these and just Well look at the difference between $800,000 and $1.75 million with two different formulas.

Speaker 2 22:14

And I think neither one of them have anything to do with how much you need. I mean, I love you, sharing, kind of these things.

Speaker 1 22:21

It's good to hear we talk about it all the time, but it's good to break it down and say you cannot rely on this. And we haven't touched on many other variables, such as tax strategy, which we mentioned a little bit, but there's so many more concepts and ways to break it down.

Speaker 2 22:36

If you're taking money out of a traditional IRA, you're having to take out 30% more to get the same amount of money than if you were taking out of a Roth. I mean that's huge. So it's so many. I mean we look at 12 and 15 different areas. Probably at least eight to 12 of those deal with money income maximizing, taxes, anything to do with money coming in the door and when's the best time to turn on social security. We make that payment bigger, less money coming out of our accounts as well. So so many things to look at, so many moving pieces, and we've been doing this a long time. Our business is not centrally software driven. We use software, but we also use our expertise and experience and the changing economics of retirement to put that plan together. So it's kind of a combination of all that. Yeah.

Speaker 1 23:23

And I'm going to keep kicking these articles, these Blinkit articles, while they're down, these numbers. First of all, articles make money because people click on them, so these numbers are supposed to excite. You, entice, you cause fear. The problem is fear will also make people not act or decide not to give something in the wrong way. Right. Seek a financial professional. Talk about your own retirement Truly. Understand where you stand and what your retirement can look like, but you know the best advice is to contact us.

Retirement Consultation Advisory Disclosure

Speaker 2 23:53

Complimentary Consultation MasterPlanRetirecom. Until we see each other again, plan well and prosper. Take care. Roadmap Radio with Mark Fricks of Master Plan Retirement Consultants. To schedule a complimentary consultation, go to masterplanretirecom or call 770-980-9262. Thanks for listening and remember plan well and prosper.

Speaker 3 24:20

All matters discussed during the show are for informational purposes only. Each individual situation may vary and the opinions expressed here may not apply to everyone. Materials presented are believed to be from reliable sources and no representations can be made as to its accuracy. All ideas and information should be discussed in detail with one of our qualified representatives prior to implementation. Advisory services offered by Master Plan Retirement Consultancy and Registered Investment Advisor in the state of Georgia, Mark Frick's and Master Plan Retirement Consultants are not affiliated with or endorsed by the Social Security Administration or any other government agency.