Can I Realistically Spend $10,000 in Retirement?

[@pattylovesneal]

The fact that she has a pension of 50k per year, this would really make their net worth about 2.5 mil because that is what you would need to spin off 50k a year and also have the extra to get to 10k per month. It is a bit misleading because if she didn't have the pension, there is no way that they could even consider this!

[@pattylovesneal]

Also, why doesn't John keep his part time job for 5-7 yrs making 30k a year? Just another option.

[@Kevin-fh5ci]

Yes, this is what I don’t like about these click bait titles.

[@Kevin-fh5ci]

Make the title I’m 60 with $1.2 million and $50k pension and want to spend $10k a month and there’s no need to watch. And they also happen to have a brokerage account that almost crosses the 7 year time to ss…smh

[@ThePeakFP]

Correct. Also partially what I wanted to illustrate with this video - is how important it is to think of retirement in the context of how much you WANT to spend to maintain standard of living, and then evaluating from there. Without the pension, they would need to consider working longer, making serious spending reductions, or a combination of both.

[@albedo0point39]

For me, the glaring fact is that from the point their pensions all kick in, they have 90% of expenses covered from that alone. So really, they don’t have any serious ‘money running out’/longevity risk here.

[@markb8515]

Thanks Eric for another very informative video. You did a great job of explaining the options that the couple in this case study have to retire when they want to.

[@ThePeakFP]

Very welcome

[@lifethroughalens9878]

All these retirement videos love using an example where at least one of the partners has a healthy pension plan. Maybe it's legit in that the current crop of at/near retirees come from a generation where it was more common, but it certainly doesn't apply to this extent anymore. Yet, watching all these videos you'd think just about everyone has a pension.

[@ThePeakFP]

Haha. Yes I do think you are correct actually. I think there is something about current demographic of retirees that still have legacy pensions, but they will soon pass through the chamber so to speak and we won't see these anymore. For me, when I create videos, I'm often using a scenario that is top of mind, and now that you've pointed it out I am noticing that several clients and scenarios I recently worked on included pensions which ended up in the demonstrations in my videos. Next set of videos won't include a pension!

[@Sylvan_dB]

Short answer: Yes, but only for about 11 years.

[@ThePeakFP]

They could retire for 30 years if they were willing to use some kind of dynamic retirement spending strategy. They could also likely spend $10k a month for the first few years in retirement if they were willing to make spending adjustments later in retirement OR flexibly based on market performance.

[@davidfolts5893]

This is another excellent vid from Peak Financial Planning; thanks very much!

[@ThePeakFP]

Glad you liked it!

[@sbayles5593]

The other thing these scenarios can’t take into account is the probability that one of them will die before the other or end up in a long-term care facility. No way to predict real life which makes it almost impossible to tell how long your money will last unless you are actually wealthy.

[@ThePeakFP]

The other way to tell how long your money will last is to have a method of tracking spending and income year by year and adjusting behaviors as needed. We do this in all other areas of our life. And data shows most people still do this in retirement. Most people are prudent - they do not steer themselves into a car crash by spending ignorantly without regard for their future....

[@pensacola321]

NFW... The pension helps greatly. But they would need at least $12,000 a month gross and there is not enough money there.

[@pacaguy]

Lol. $12000 per month wouldn't be enough in Caifornia to have a post tax $10k income.

[@ThePeakFP]

Correct. They certainly can't live for 30 years on $10k inflation adjusted each year without being willing to make spending cuts based on life events in some future years... And those without a pension will almost certainly never be able to accomplish this.

[@LoveFrank-cp7tv]

My husband and I were fortunate enough to be able to pay off our mortgage early. We were both still working, and took the payment amount that we had been using to pay off our mortgage faster and we put it straight into investments. We were able to retire early because of almost 7 years of putting away what would have been our mortgage payment as well as maxing out our 401K/403B plans. Thankfully we were taught by both of our parents the value of living within our means. Thank you for your advice. I know it will help people. we are interested in investments that could set me up for retirement , I mean I've heard of people that netted hundreds of thousands during these crash, I listened to someone on a podcast who earned over $650K in less than a year, what's the strategy behind such returns?

[@Sylvan_dB]

How risk adverse are they? Sometimes the only realistic answer is "No." For example, they could divide 60:40 into SPYI:QQQI for an approximate (RIGHT NOW!) distribution rate over 12.5%. If this is in a pre-tax account, they are almost certain to end up in trouble. In a Roth they could reinvest over 3% and (RIGHT NOW) it looks like that might sustain indefinitely. In a taxable account those funds intend their income to be classified as 60% long-term cap gains and 40% short and they try to tax loss harvest to further increase tax efficiency. I own a small percentage in SPYI and QQQI and there is NO WAY I'd put 100% of my assets in those two funds and plan to spend 75% of the distributions.

[@ThePeakFP]

My summary is at the end of the day they can't retire TODAY and spend $10k a month inflation adjusted after tax. They want to retire TODAY - they will therefore need to be willing to make spending adjustments over time, and the purpose of the video was to do a basic overview of the differences between 4 spending strategies, which I will do significantly more detailed videos of in the future.

[@pacaguy]

@@Sylvan_dB I wouldn’t depend on covered calls for any long term strategy. It’s a non starter . Yes, fine for temporary income or desperately needed cash flow. But over 10 years you are most likely far better not limiting upside with covered calls. Also, in a downturn, if equities drop 30%, so might the cash flow. IMHO It really comes down to the videos’s summary- without gymnastics and discipline the case study folks can’t afford to take 10k every month forever.

[@terryadams1830]

Great comparison. Thanks!

[@ThePeakFP]

Thanks!

[@Scott-xf5xb]

10k a month with 1.1M? Yes, you can, but it will only last 10-12 years depending on market performance and AA. Wait until 67. Get full SS and then you can pull it off maybe...

[@ThePeakFP]

One possible strategy certainly. Working longer. Claiming SS differently. Using a more proactive dynamic spending strategy.

[@Scott-xf5xb]

@@ThePeakFP I would suggest a lower monthly income stream say 6500 a month. The peace of mind would be worth the income tradeoff. 10k is a pretty high income especially if your home is paid off.

[@MIchaelKelcy]

Stopped the video when the pension was mentioned. Very, very few people, other than government employees, have pensions. Therefore a detailed case study is a waste of time for me.

[@ThePeakFP]

That is unfortunate.

[@Sylvan_dB]

@@MIchaelKelcy Ignore the pension part. For you (and I) the useful part is most of the video - analyzing how much needs to come out of the portfolio and what that means. Different people have different income sources but that does not change the value of understanding portfolio withdrawals. Different income sources only change total spending relative to withdrawals.

[@ivanvarykino8202]

I have a guaranteed pension from public fortune 5000. Many corps still offer some form of pension or employees were grandfathered in having been tail end of baby boom or millenial gen.

[@jeffstanger88]

No

[@ThePeakFP]

Not if they would like a 30 year retirement. They may be able to spend $10k / month in the first X years of retirement if they are willing to reduce spending in later years or if they are willing to use dynamic spending strategies as outlined in the video.

[@pacaguy]

What is the assumption for how the $1.1 mm will be invested? A 60/40 portfolio? What if there is a downturn and the $1.1 mm became $700k? Without assumptions stated for how the nest egg will be invested, I don't see how anyone can make any predictions for success probabilities.

[@ThePeakFP]

I mentioned it at the beginning Stu - they are invested 65/35 in this particular case study - of their 65% in equities a portion is in directly held stock. Ultimately the scenario I'm trying to portray in this video is how Monte carlo or probability of success is actually not all that useful a tool - far better to use actual distribution rates, monitored year by year, as well as a system based off of portfolio balance monitored year by year.