Part II – I’m 63 And I Want To Spend $100,000 In Retirement & Comments Answered

This is part two of the video I did that I’m sixty three and I want to spend one hundred thousand dollars a year in retirement. We’re going to look at what we call a go go phase, a slow go phase, and then what you might call the Nogo phase, which is when you’re in your late 80s or
90s and you’re not really going anywhere except maybe the doctor. And look at
these reductions of income and see how they impact the overall probability of success. And we’re going to address a couple of comments from the first video.

 

Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, certified financial planner, professional host to the retirement income show and certified tax specialist. So before we jump into the video, I want to take a quick moment to thank our clients out there.

So many of you know that we were named in 2020, the fastest growing registered investment advisor in Texas. Amazing accomplishment. We’re very proud of that. We just received news that we were named one of the Inc. 5000 fastest growing private companies in America.

So thank you very much to our clients out there. Of course, we could not do this without you. And all of this happened before we started the YouTube channel. The YouTube channel has been a tremendous success for us.

But without the clients that have been with us year after year after year and placed their trust in us and their faith in us, we wouldn’t have received this accomplishment. So I want to say thank you very, very much.

OK, so we talked about on that last video, and thank you, everyone, for commenting. We talked about do you have enough to retire and spend one hundred thousand dollars a year in retirement? So it’s not just about spending one hundred thousand dollars a year.

It’s about being able to maintain that purchasing power and your standard of living and what you’ve grown accustomed to over time. So what I’ve done in this plan is I address some of the comments, but this is typically how we do planning for for families and also for individuals.

A lot of the comments simply mention that, hey, I’m probably not going to spend one hundred thousand dollars a year all the way through retirement. Some people absolutely plan on that and want that. But a lot of times we tailor these investment plans or these income plans to where we have what we call the go go years
, where we’re younger, we’re spending money, we’re traveling, we’re doing things, and we want more income during that period, but we plan on tapering that back. So we show that here with a reduction in spending goal. And then we have the slow go years.

Now we see the spending goals still exceed the go go years over time. And that’s because of inflation, even though in today’s dollars, the purchasing power of your money will provide today reduces initially inflation over time causes us to need to withdraw more and more to keep up and maintain that purchasing power throughout retirement.

And then we have this last reduction here, which is what we call the no go years. And we see that we get the drop and we’ll go through these individual numbers. Now, just to refresh on the situation, this is a married couple, 63 years old, both of them are 63.

The husband was working, the spouse was not. The spouse takes spousal benefits and the husband defers until age 70. They have 1.5 million dollars total saved for retirement. A million is in their retirement account and five hundred thousand is in non IRA.

So the spending goal starts out at a hundred thousand dollars. But what we’ve done to analyze this is we’ve broken it down to a sixty thousand dollar base budget to cover fixed costs or overhead.

Here is the basic living expenses of sixty thousand dollars a year.
And then what we’ve done is we put in the go go years, which during that time frame; and this is from 63 to 75, so about a 12 year period where they plan on spending about forty thousand dollars a year additional.

 

And then the slow go years during the slow go years here, this forty thousand goes away and then the spending is twenty thousand on top of the base expenses. So, what this looks like is we’re spending a hundred thousand from63 to 75, and then from 76 until 90 we reduce that from one hundred thousand in today’s dollars by twenty grand to eighty thousand. So we have the go go years, the slow go years. And if you remember the last video, just spending one hundred thousand straight through retirement resulted in about a sixty five percent probability of success.

So not ideal, but it’s not zero. But what I wanted to look at here is to go through a what if analysis and look at a sensitivity analysis of various spending scenerios, different periods of longevity and how it impacts the overall probability of success.

So first off, I just want to say with this basic plan here, it comes in at ninety six percent. I’m very confident with a ninety six percent probability of success. That means out of one thousand simulated retirements, in nine hundred and sixty of them, this couple passes away with money.

Now, what if they wanted to spend more during the go go years? Let’s bring it up to fifty six thousand. So this is 60 plus 56, OK, or one hundred and sixteen thousand dollars per year until age seventy five.

Well, it drops down to about eighty three percent probability. So if you were a client and you were coming in, with this particular situation, it’s not that I would tell you we can’t retire, because all we’re looking at is a snapshot in time.

Part of the retirement plan and working with a financial advisor is looking at this over time and staying connected to your plan, staying. Connected to your money, because as account values change, as tax policy changes, as you’re spending needs change, as your health changes, as everything changes throughout retirement.

All of these numbers and probabilities will fluctuate. There is no silver bullet. There is no simple answer to yes or no, can you retire and maintain that purchasing power? The power in retirement planning and working with someone who understands retirement, investments, risk, income taxes, is the ability to get it all input,
and stay connected to your plan twenty four hours a day and then review it with a professional who can go through and make adjustments and understand who you are and the circumstances you’re facing, and then have a conversation with you about what your options are,
the impact of those choices, and then look at it from a probability standpoint, from a mathematical standpoint, and help you make better decisions based on more insightful understanding of the impact. So now let’s say this is $83,000 and said, you know what, Troy,

I just think this is good. $116,000 is good. But maybe during my slow go years, I just plan on spending a little bit less. Can this increase the probabilities? Yeah, it brings it back up to ninety one.
So from 63 to 75, if we wanted to spend one hundred and sixteen thousand dollars a year, looks like we could do that pretty confidently if we reduced from seventy five to ninety the slow go years.
The anticipated increase. Now, what does this mean? Remember in the slow go years this goes away. You’re no longer spending that fifty six thousand on top of your base expenses. It’s 60 plus 13.

Now that’s in today’s dollars in reality in the future,
that’s $73,000 that you’re spending 15 years from now, from age 75 to 90 because of inflation. You’re still going to have to pull out one hundred and twenty, one hundred and thirty thousand, something like that. But it’s doable in this instance.

So, now what if they said, “you know what, the sixty thousand is good for me. I’m going to get rid of that and I want to see if I can max this out.” OK, 71 percent. Not ideal. Realistically, we may need to spend more in those slow go years depending on your health,
maybe not. Also, this is a good tool, if you don’t understand your longevity and you want to be a bit more aggressive with your spending in the beginning years. You’ll see general rules of thumb out there: Take 3.5% take 4% based on what we’ve seen over the years.

The most important thing, there is no hard set rule for for anyone. You need to stay connected to your money. You need to understand what your accounts mean for your security. The only way to do that is to have some type of financial plan.

Now, one of the limitations of this software is it doesn’t take into account tax strategy. We have to use a couple of different softwares in our own team and things that we’ve designed proprietary tools to help do tax analysis and analyze how those decisions can improve retirement.

This one considers the spending order of assets to be in what I call the conventional wisdom sequence, where essentially we’re letting our IRAs defer and then we’re taking from the non IRA assets. Now, for my experience, again, for about 80 to 85 percent of you.

This is the exact wrong order to to withdraw from your retirement. When we overlay the tax planning on top of what this software provides us, this, for most of you is going to get this particular scenario probably up from 71% to 77% 80%, 82%, 85%. Tax planning can make a tremendous difference in your particular scenario. It may not. For for some of you, it doesn’t make much of a difference and the antiquated conventional wisdom method of withdrawal order from your retirement accounts and non IRA accounts may make sense for you.

OK, now I want to look at a few what if scenarios. So this is what we would call a sensitivity analysis. Let’s say someone came to us and they said, Troy, I’m thinking about buying a second home or I’m thinking about taking Social Security earlier or the plan that we have in place, I’m about to retire
and my wife wants to get a boat or we just want to spend an extra ten, twenty thousand dollars a year above what we had originally planned for. All of these things come up and we need to run analyzes to see how they impact the overall retirement.

So based on this couple that we’ve been going through here, I want to look at a few different spending scenarios for the go go and the slow go years. So, we have the basic living expenses, both retired. Sixty thousand dollars across the board, all three of these what if scenarios.
Mary alone retired. So when he passes away, the income stays the same because the base living expenses stay the same. Now we have the go go years. Right now we talked about forty thousand for twelve years until they’re seventy five.

That’s what we’re going to adjust. So in this first, what if for sensitivity analysis, we’re going to say, you know what, what if we spend sixty thousand per year in the go go years? So now it’s one hundred and twenty until they’re age seventy five as opposed to one hundred.

This one, you know what, Troy, we’re thinking about getting a second home and that’s going to add an extra fifteen hundred dollars a month to just our base expenses. We’re going to finance it for 30 years. So for that purposes, we’re going to look at, let’s call it an extra eighteen thousand a year.

So we’re going to increase the base expenses to seventy eight thousand. Keep the go go in the slow, go the same. Then this one, let’s say this particular, what if, you know what, Troy, we’re thinking about spending much more in the go go years, but we don’t need to spend it for as long.

How does that impact the overall probability? So we’re going to increase the spending, but also we’re going to do it for eight years instead of twelve. And we’re going to increase this to, let’s say, seventy five thousand. So that’s 60 plus 75, that’s one hundred and thirty five thousand, but not for 12 years as these other scenarios
only for eight. We kept the slow go the same in all of these. What if let’s look at the calculations. OK. The base scenario was ninety five, this was what we’ve been looking at the entire time. We have seventy five for this scenario, forty six for this scenario, and then eighty nine for this one.

So the most unlikely scenario, the one that probably we don’t want to explore is this one, because it’s just not a good probability of success just to refresh. We increased the seventy eight thousand, which is the base living expenses.

We kept the go go at 40,000. So in this particular scenario, I would tell you, look, it’s not highly probable here that we’re going to be able to make it as far as buying this other home. Now, that doesn’t necessarily mean you can’t buy the home and add that increased expense.

What it means is we need to pay a lot more attention to the plan as time goes on. And we probably need to look at either selling the existing home in three years, five years, eight years to have a cash infusion, pay that mortgage off.

Many scenarios here that could play out. But this type of insight into the choices that you can make in retirement is what can make or what can lead to a higher probability of success in regards to the decisions that you have to make at this stage of life.

Now, I want to address a couple of comments in the video. Somebody said, I don’t have the names of the people that made these comments, but one comment and there was a couple along these lines, “Troy, did you ever answer the question, can they retire at sixty three, spend one hundred thousand dollars a year?”

The very simple answer is no, I didn’t answer the question, and that’s by design. These videos are only designed to help open up your eyes and help you understand all of the moving parts as it’s related to retirement.

When you take Social Security affects your taxes, it affects your income and affects your account balances how much income you take from your IRA, from your non IRA. All of this impacts your taxes, impacts your retirement, impact your account balances.

Every single decision you make at this stage of life is interrelated to some other facet of retirement. It’s completely different from the accumulation phase. There simply is no single answer to can you retire? You need to manage risk.

You need to have an income plan. You need to have a tax plan. This is why we call it Retirement Process. When you look at all of this in totality and then have a relationship with a trusted person over the years that you can have these types of conversations with and do this type of
analysis, it leads to better sleep at night. It leads to more understanding of the impact of the various choices that you can make. And ultimately, I believe it leads to a much higher probability of success in retirement, which means higher account balances, more income and less taxes.

Now, the second comment, and I wish I could stay here and do these forever; but somebody said that I was making this way more complicated than it needed to be. And no, I’m not making this more complicated than it needs to be.

Again, the purpose of the video is to open up your eyes to how complex retirement actually is. Sure, you can follow the general wisdom out there. Invest your money, put it in 60 percent stocks, 40 percent bonds, and take four percent a year.

And then you won’t ever know what that plan means for your security. Do you have enough? How long will it last? Can you maintain your purchasing power? How you pay less tax? And the big one, if something happens to you
will your family be OK? Having an investment strategy of simply stocks and bonds and taking four percent out? That is not a retirement plan. Retirement is complex. Every decision is interrelated. So let me repeat myself. Retirement is complex.

All of the decisions are interrelated. If you want to follow a 1970s developed retirement strategy of putting 60 percent in stocks and 40 percent in bonds and taking four percent out, be my guest. But it is antiquated. It was developed when interest rates were much higher.

Bonds were yielding much more. Interest rates were anticipated to go down. Therefore, bond values would go up. Also, the stock market is a completely different animal today. We believe in capital markets. Investments are one part, but we need the plan.

We need to stay connected to the plan. If you’re ready to become a client of ours, if you want to partner with us, there is a link down below. Please click it. We will schedule an appointment and we will get the process started.

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