$1M Saved for Retirement – Can I Retire?

In today’s episode, we’re tackling the big question: Can you really retire with $1 million? 

• We’ll look at what the data says about how much people actually have saved

• How other assets like Social Security and pensions fit in, why your spending patterns matter more than you think

• Then we will finish up with the key planning opportunities — that can make all the difference.

Listen Now:

The Smart Take:

0:00 – Intro

2:50 – Common assumption

5:12 – Framing the Question

12:00 – Adding Up All Your Assets

16:07 – Understand Spending & Needs

23:30 – Important Planning Opportunities

31:53 – Managing Taxes

 

Learn more about the Retire Smarter Solution ™: https://www.truewealthdesign.com/ep-45-retire-smarter-solution/

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The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

Tyler Emrick, CFA®, CFP® – About – Contact

Episode Transcript:

Walter Storholt:

Hey, it is time to Retire Smarter. Walter Storholt here alongside Tyler Emrick, of course, a CERTIFIED FINANCIAL PLANNER and Chartered Financial Analyst at True Wealth Design. We’ve got a great episode today. If you’ve got a million dollars safe for retirement, can you pull that trigger or not? We’ll see if we can give you some clarity on that question because it’s a really common one we’re going to talk about with Tyler on today’s episode.

Before all that though, Tyler, we’ve turned the page to September here, 2025, for those who are viewing this video around that timeframe. You must be excited with the kids back in school and excited for that time of year, huh?

Tyler Emrick:

We’ve got all the feels going around. My oldest started kindergarten. I don’t know if we mentioned that on the last podcast. So the Emrick household, it’s been quite unique. I do drop-offs at the school in the morning, so it’s been pretty fun. So I got breakfast duty, and then on to dropping off at the school. So it’s been good, and my daughter’s been loving it, so hopefully she can maintain that enthusiasm. We’ll see. But yeah, kindergarten is good.

Walter Storholt:

That’s great. Have you seen the Nate Bargatze skit where he is on the boat as George Washington and they’re talking about why American is the way that it is?

Tyler Emrick:

I have not, huh-uh.

Walter Storholt:

Oh, you’ve got to see it. Okay, yeah, that’s a must-watch. So I’ll send you the link after the show today, but he’s got a bit in there about… he’s trying to explain to the soldiers how America’s going to be different. He’s like, “We’ll have 12 grades, but it’ll start with kindergarten.” And then someone says, “So what will the next grade be called?” And he’s like, “First grade,” and they’re very confused as to why this is. So anyway, you’ll laugh a lot more to it when you go see the clip.

Tyler Emrick:

Absolutely. No, no, fair enough. But yeah. So school, fall time, it’s all good. Now looking forward to the fall leaf cleanup that I have ahead of me.

Walter Storholt:

True.

Tyler Emrick:

But outside of that, that’s pretty good. Well, and you’re still getting out for the outdoors, you’ve got a camping trip coming up, so I think we got a little bit of time.

Walter Storholt:

We’re going to Yellowstone. Yeah, so first trip to Yellowstone’s coming up here in just like a week or two, and so we’re getting pretty excited for that. So I’ve got the big lens camera behind me, batteries charged up, ready to go, so I can’t wait.

Tyler Emrick:

It should be good. Yeah, Yellowstone is a pretty popular destination. Obviously, we meet with a lot of retirees and families, and Yellowstone is always up there pretty high on the list. That and, for whatever reason, the train ride up in northern Canada or up in Canada, I don’t know if… the Scenic Trains, if you’ve heard about that, but that seems to be a pretty popular go-to destination and events.

Walter Storholt:

Or European river cruises seems to be another big one that all of a sudden you started hearing about out of nowhere.

Tyler Emrick:

Yes. So yep, we catch all those. So it’s always fun to have those conversations to see how people are using their wealth and taking advantage of the experiences and the opportunities that they want to. But yeah, Yellowstone should be a pretty good one, so definitely enjoy.

Walter Storholt:

Well, good transition point for us then, Tyler. Let’s talk a little bit about that vision for retirement that people have. And I know it often starts with, I don’t if you want to call it a magic number or a rule of thumb or just a general target, but a million seems to have been that starting point for a lot of people to try to reach, of course, in their savings over time. And for a while, it was this assumption of, “If I can get to a million, I’m pretty sure I can retire at that point, I should be good.” Is that still a takeaway and a big question on people’s minds these days?

Tyler Emrick:

I think it is, I mean, especially as you start getting closer to retirement, you start getting serious about like, “Well, how is this actually going to work?” I think it’s a natural thing to be thinking about, “Well, hey, do I have enough?” And a million seems to be a pretty big milestone that families are targeting and hitting. And there’s even been some articles here lately that say, “Well, a million isn’t enough.” We’ll get into some studies that show that. But yeah, we figured it would be a good topic to start into.

And as I think about that magic number, I might be dating myself, but do you remember the old Voya commercials that had the orange squirrel and the numbers were floating around everybody’s head?

Walter Storholt:

Oh, yeah.

Tyler Emrick:

That’s the only thing I’ve been thinking of when you said magic numbers.

Walter Storholt:

That’s the magic number.

Tyler Emrick:

Everybody has their own personal magic number they’re shooting for.

Walter Storholt:

I thought they were ING commercials or something like that. Was it Voya?

Tyler Emrick:

Don’t put me on the spot. I don’t know, might have to test that out.

Walter Storholt:

I thought the squirrel and people sitting on the park benches with their numbers and walking around with their numbers like ING or something like that.

Tyler Emrick:

Okay, if it’s not Voya, it’s ING. Voya, hey, I win. We’ll have to check that out.

Walter Storholt:

They say marketing works, but I don’t know, it’s been a while.

Tyler Emrick:

We remember park. It has been a while, it has been a while. Well, Fidelity puts out their rule of thumbs too, 10 times your final salary to retire comfortably. I mean, obviously there’s the 4% rule that we’ve talked about many a times and some of the cons and how that might not still be applicable, but there’s all these things out there.

So if you’re listening and you’re maybe approaching or getting close to that million dollar mark and you’re really thinking like, “Hey, how is this going to work? Do I have enough, and what are some of the things that I need to be thinking about?” this is the podcast for you. We’re going to paint that picture and show what that really means and how you might be able to make that number work, which is awesome.

But as always, when we’re prepping for some of these podcasts, we’re always looking at data. And I thought it would be good to maybe frame or just set the tone for, well, how much is a million dollars in the grand scheme of things? And one of the studies that I want to reference and highlight-

Walter Storholt:

By the way, Tyler, while you make that transition, ING turned into Voya, so we were both right.

Tyler Emrick:

So we were both right. Okay, fair enough. We’re both right. But the data that we’re going to be using, Walt, is going to be from a Schwab study, so Charles Schwab, they do a participant study each year. This is from the 2024 study. And they’re always just trying to get a gauge and just wondering, well, how are people feeling? What are they thinking about in terms of retirement? And a couple of the questions, I think, are pretty prudent to the podcast today, and one of which was, well, the average age the individuals are expecting to retire. And that age really hasn’t changed much. Actually in prior studies it was 65 or 66. It actually went down and now it’s 65 in the latest study, which I think is probably pretty natural, Walt. I mean, put you on the spot, I’m curious, what do you get at 65? The old quizzes Kevin used to do. I’ll see if I can sneak one in here. Do you know what you get eligible for at 65?

Walter Storholt:

Medicare, right?

Tyler Emrick:

You nailed it. Heck yeah. So that’s a big one. I mean, healthcare is always on everybody’s mind. 65 is when you’re going to be eligible for Medicare. You retire before then, obviously you’re going to have to figure out and think through what are you going to get for healthcare.

And then the other thing that came out of the study was how much they think they’ll need for retirement. And it was actually a larger number than what I thought. It was over a million, Walt. It was 1.8 million is what the study said. So the individuals thought that they needed…

Walter Storholt:

That is a lot more than I would’ve guessed, yeah.

Tyler Emrick:

… at least to have- And I can imagine there’s a number of clients that I work with that are going, “1.8 million? I’ve been retired for five years on less than that, living very happily.” So I think obviously a lot of that has to depend on your lifestyle, your spending, when you want to retire. Where you live can certainly impact that as well.

But when we get down into some of these surveys, even though the EBRI survey that we’ve referenced in the past on here, that digs in more to retiree confidence, like, “Hey, going into retirement, how confident are you that you have enough?” And about 80% of retirees feel pretty confident after retiring and being retired and they’ve lived it, but heading into retirement or pre-retirement, those numbers are much less, so people are much less confident about retirement. Those numbers dropped to about 60% of individuals surveyed said that they were confident about how much that they had saved for retirement.

So I think the inflated number,” Hey, I need 1.8 million to retire,” goes hand in hand with this whole adage of like, well, hey, until you’ve lived it, until you’ve been in it, until you get a feeling for what it’s like, you’re going to have some apprehension in there, and you might think that you need a little bit more than what you actually do. And that shows up all the time in these studies. So there is one other-

Walter Storholt:

Two things seem to make sense to me there, Tyler, just that if we expect to retire earlier, we expect to need more. So as that retirement age number goes down, you would expect the amount you need to then start going up a little bit. So that seems to make sense, but also important to keep in mind, this is confidence, this is expectations. This is not necessarily reality or what’s true. This is just the sentiment of folks that are approaching this retirement world.

Tyler Emrick:

You nailed it. And I think that’s reflected in that number of like, well, hey, heading into retirement, 60% of individuals surveyed felt confident with how much they had saved. A couple of years into retirement, that number jumps up to 80, getting that feeling in.

Walter Storholt:

Much better than going the other way.

Tyler Emrick:

Absolutely, absolutely. Well, and that’s what we want to try to avoid. Hey, planning, being planners. As I think about a financial advisor, one of the biggest peace of mind a financial advisor can provide is that, hey, helping you plan for that unknown and helping you gain some of that confidence to be able to make some of these decisions. I mean, these are big life decisions. When to retire is not something that someone normally wakes up with, and then the next day, “Oh, I’m going to go ahead and pull on the trigger. I’m done working.” Normally, there’s quite a bit of thought and mulling around of, “Well, how is this going to impact me, and am I going to be all right?” So certainly it’s right where a planner is going to fit in.

So we talked a little bit about the Schwab study and what came out that from asset-level expectation and confidence heading in. Kiplinger referenced, which when you do a simple Google search, Kiplinger comes up all the time, but an article I came across referenced the Federal Reserve Survey of Consumer Finances.

Now this one’s a couple years old, but really what this study was taking a look at was, well, how much do individuals have saved for retirement? And the two age brackets that I really paid attention to was individuals between 55 and 64 and individuals 65 to 74. I’m going to actually just lump them in together because the numbers are pretty darn close. So these are individuals maybe 10 years out from retirement and individuals maybe 10 years into retirement as you can think about it.

And they went in and they did the median and the mean of assets that they had saved for retirement. And now the mean is just a simple average, and the average was just under 600,000 bucks roughly, is how much the average individual from their survey had saved for retirement. The median was much, much lower than that. So we’re going back to the middle school math here, but of course, the median is a number that just kicks out some of the big outliers on either side and gives us just a true middle. And that number was actually closer to 200,000. So the median individual between 55 and 74 had a couple hundred thousand dollars saved for retirement, which is a really stark difference than even a million.

I mean, if you’re sitting here and you’re listening and you have a million dollars saved for retirement, you’re on the top end of what retirees have safe for retirement. I mean, you should really be patting yourself on the back and really taking that as a, “Hey, you did something right and did a pretty good job as you think about approaching retirement and starting to save for it.”

Now whether that’s enough, that’s a different question, but certainly you’re ahead of the game as you think about some of these numbers. Those numbers were actually a little bit lower than what I expected. I could imagine even generations before, those numbers might be even a little bit lower.

Walter Storholt:

Yeah, that median number is a bit shocking.

Tyler Emrick:

It is.

Walter Storholt:

That tells me there’s a more people on the left side of that mean number than there are on the right side, and definitely some outliers skewing things there.

Tyler Emrick:

Yeah, absolutely. So as we start, I thought that would be a good way for us to frame this question. So as you’re thinking about, well, hey, where do you stand as it relates to some of these statistics? And I think the most important thing is you start thinking about, “Well, hey, I’ve got a million dollars saved for retirement.” Well, what else is there to consider as you think about assets and what’s going to come to fruition as we think about retirement?

One of the first points that we want to think through is taking a look at everything that you’re going to have available to you, and maybe not just what you have in your 401(k) or inside your IRA. So these would be things like for some listeners, they might have a pension plan. Certainly what we know, those have gone by the wayside and less and less individuals have access to those.

But certainly as you think about if your employer is offering a pension or maybe you’re a state employee or a federal employee and you have these pensions that are available to you, that is going to be a tremendous asset that is available to you, that is going to likely pay you a paycheck throughout the entirety of your retirement. Huge, huge benefit, and you start pairing that with this million dollars that you have saved, that is really going to provide a pretty nice floor and give you a good foundation as you think about, “Well, where’s my money going to come from in retirement?”

Other things to think about would be just more tangible assets as well, whether that be… Real estate’s probably, Walt, the most common one that we come into, certainly if you have a rental or two out there that could produce income for you in retirement and maybe not show up in that investable asset number that we have there.

Maybe less common is to think about your primary residence too. There’s things out there like reverse mortgages and things like that to where if you’ve done a good job and you’ve paid off your house and you have a lot of equity in there, well, using that equity might be something that you can fall back onto as well.

So pensions and real estate, I wanted to at least mention them for what I was talking about, but the big one, which most everybody’s going to have available to you is going to be social security. Walt, I don’t know how many podcasts we’ve done on social security, partly because it’s important, but it impacts a ton of listeners as you’re thinking about your own situation and what’s going to be there for you in retirement.

Walter Storholt:

Well, and hopefully it’s a stress relief valve for people, like, “Okay, if I don’t have a million,” and you’re saying, “Well, before we panic about that, let’s go and look at some of these other levers, some of these other tools in the tool belt,” like you mentioned, reverse mortgage. Doesn’t mean that’s our first line of defense or the first tool that we’re reaching for, but it’s a tool, we’ve got it on the hip, we can go take a look at it and see if it’s needed, if it plays a role in our projects of retirement. Social security is just going to be one of those tools we go to faster.

Tyler Emrick:

You nailed it, 100%. You’re getting an inventory of what’s going to be available to you and how you might want to use it and when. I mean, social security… I mean, the statistics show that on average social security is going to replace about 40% of your pre-retiree income. Now of course-

Walter Storholt:

That puts it in perspective because that’s something that I feel like I’ve… despite all the conversations about social security, that never sank in of, so how big of a deal is it to what my lifestyle is going to look like? So that one stat right there just sort of jumps out to me.

Tyler Emrick:

Oh, you got it. Well, and it is on a scale too, right?

Walter Storholt:

Sure.

Tyler Emrick:

So the lower income individuals, that might be a little bit higher. If you’ve been on the higher end of the income spectrum for your working career, maybe that replacement is a little bit lower, and that’s by design of social security when you get down into the numbers. But on average, the average social security payment’s a couple thousand dollars a month. So the average individual is getting a couple thousand dollars per month.

Now that is a far cry from the top end on what you can actually get from social security. If you’re an individual that was paying in the max for a number of years and you waited and delayed till 70, you could be getting just over 5,000 bucks a month from your social security benefit, which is a pretty stark difference. But if you think of a dual income household, these numbers can be a pretty nice amount from social security that you have coming in, and we don’t want to lose sight of that for sure.

So the first step is to taking a look and saying, “Well, hey, what…” Like you mentioned, I think you put that really well, what tools do you have in the toolbox? Where are your assets besides just what you have in your IRA and your 401(k)? I think your attention also should then shift to once you have that, well, what are you going to need? Gaining some type of understanding for what your spend is and what your need is is extremely important.

And early in my career, I don’t know if I really put the importance on it that it deserved. I was one of those advisors early in my career where I would actually just take direction from the family or client that I was working for. “Hey, how much do you need to retire? What are you spending on a month-in and month-out basis? And even for the individuals that might know that down to a T, because certainly there have been families that come in with a very nice spreadsheet, and they track all that, and they really try to stay on top of it.

What I think can be easily missed is, well, how is your spending going to actually change over the course of retirement? We’ve talked about this a number of times on the podcast, and most of the studies… We can go to Morningstar. Morningstar did a study in 2021 where basically, what came out of that study was that retiree spending actually in real terms declines by about a percent per year in retirement. So about 1% less in spending each year that you progress throughout retirement.

So if we’re using a number like I used to and just saying, “Well, hey, how much do you need to retire?” And we assume that you’re going to need that throughout the entirety of retirement, that’s probably a bigger nugget than what you’re going to actually need when we get down into how that spending’s going to actually change.

One of the best ways that I’d like to explain this is talking about that retirement spending smile by David Blanchett. He was on the podcast a few years ago, did a wonderful analysis on it and talked about some of the details, but really it’s getting to this idea of your spending changing throughout retirement and slowly declining. The way he explained it was it’s a steady decline early in retirement each year, and it bottoms out in your early-80s or mid-80s, and then it starts to increase again, creating this smile because of healthcare costs increasing as you age.

And the way they framed it in his paper, David Blanchett did, was that if we assume that your spending is linear throughout the entirety of retirement, and in actuality it’s going to have this more smile-like structure, then you’re going to need to have… you could have actually about 15% less accumulated wealth and get the same results because that dip in spending for all those years, you’re missing that you’re not going to have to actually cover that. So for someone that has a million bucks saved, that’s, what, 15%, easy math here. If my math’s on, 150 grand less.

I always used to say, “Hey, you might have to think or you might think you have to work a couple more years than what you actually do if you take a very basic approach to your spending.” So I think that’s a very big concept aside from, hey, understanding and get a handle for all the tools you got in the toolbox and assets that you can use. Hey, what are you going to use those on?

Now it’s not going to be perfect, and your preferences, well, they’re likely going to change. Maybe it was a Yellowstone trip, and the Yellowstone trip turned into the train ride up in Canada. I don’t know. And inevitably that’s going to potentially change. But you having a framework that you can use to make some assumptions on to get an idea of how it works, I think is just truly, truly invaluable. So you go into it with the understanding that, hey, this might change, and we can certainly update the plan to reflect those changes, but having at least a decent baseline is much better than just saying, “Hey, I’m going to need six grand a month every month for the rest of my life.”

Speaker 3:

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Walter Storholt:

It’s like buffer is a good thing, but we don’t want too much buffer because…

Tyler Emrick:

We don’t.

Walter Storholt:

… this is a balance of also wanting to enjoy our lifestyle. And if, man, I would love to retire at 60, but I can’t because I assume I’ve got to make it to 65 in order to do this. Well, if we have way too much buffer, that’s five years worth of fun and doing what you want to do that you could have had, and so that’s what you want to help unlock for people, right?

Tyler Emrick:

Oh, absolutely. Well, and too, I mean, if you maybe found this podcast, you’re wondering if you have enough, and if you’re wondering, “Hey, do I have enough?” Well, the assumption is that you can make a big difference, and I think that spending is going to matter.

Now if budgeting is your thing, great. If it’s not, there are a multitude of ways that we can get in and get these numbers. When families come on and meet with us for the first time, this is part of that sort of onboarding process, and we take some time to dive down into it. We’re not necessarily going line by line on their credit card or on their debit card and saying, “How much did you spend going out to eat this week?” It’s more so getting a framework for saying, “Hey, let’s take a look at a 12-month period. Typically, it would be for the prior year. I can pull from your tax return how much money you made, how much went to taxes, how much you saved in your retirement accounts, and how much was left, what was the pot?”

Now if we take that pot and then we say, “Well, ooh, I replaced my air conditioner last year and spent 10 grand there.” Well, hopefully you’re not replacing an air conditioner every single year in retirement. Let’s peel that off, and let’s start to get down into a number that replicates, well, you and you’re spending and what you need to live the life that you’ve become accustomed to.

And then on the back-end, we can start building in and on top of that number, all the things that might change in retirement. So we can build in travel for the first handful of years, we can build in car purchases, we can build in that your mortgage might be paid off five years into retirement, and then get a more accurate representation of your true need, and then build your plan around that, and then say, “Hey, is a million going to be enough to meet these spending needs?”

And then, of course, as with everything, we’d like to test, test, test. So maybe we run a bear market test and say, “Well, hey, what if you lose a bunch? Is that still going to be okay? Hey, what if you had a long-term care need? How does that affect it? What if one of your spouse passes? Is the other spouse going to be fine?” This is that planning dynamic, and when you think about working with a financial advisor, this is the exercise that they’re going to take you through, so that way they’re using data to help you make some of these decisions. And the one that we’re talking about today is the biggest one of all, can I retire, and do I have enough? So spending is, I think, a big, big piece of that.

So we’ve got assets available, we’ve got spending, all right, well, now we can get into the fun stuff. Well, where are the areas of opportunity? What are the key planning items that families at this asset level or should really be paying maybe extra attention to as they think about their situation and where they might be able to pull some levers to make their situation look better or worse?

Walter Storholt:

Yeah, these are the opportunities where your CERTIFIED FINANCIAL PLANNER, your chartered financial analyst, your financial advisor, should now be taking you down these roads that we’re about to talk about.

Tyler Emrick:

Correct, absolutely, because once we have that plan in place and we have a framework for what that looks like. Well, now the question is is like, well, how do we make some of these big decisions? And there’s going to be no bigger decision for someone at this asset level than social security. We’ve harped on it quite a bit, but making sure that you get that decision right, I think, is a very, very big deal, and it starts with understanding with social security, well, what benefits are afforded to you? Just like when we started going down this path of what assets are all going to be available for you towards retirement? With social security, especially for individuals that have been married or are currently married, you have three benefits afforded to you. You have your own, you have your spousal benefit, and then you have, potentially, a widow’s benefit once your spouse passes.

So understanding the interplay between those and which ones are going to be applicable to you, I think, are extremely important. And then, of course, as you think about, well, especially in a household that has a husband and wife and they have two benefits, well, does one of you delay till 70 and maybe one of you take it earlier and getting that decision right? Because as you think about having a million dollar saved for retirement, is it enough? I would suspect that you’re probably worried about, well, hey, is it enough?

And one of the things that you can do to protect that I’m going to run out of money issue is having a higher social security benefit for longer. Because even if you spent through your assets, but yet you waited until 70 and you go from getting two grand a month to five grand a month, those averages we’ve mentioned before, well, that five grand a month, even if you ran out of money, is going to give you a much, much higher floor in your 80s and 90s if you end up living that long. So it’s protecting you against that worst-case scenario.

So understanding what benefits are available to you and some of those claiming strategies and dial in, well, hey, should I take it early, should I delay, I think should be really high, if not priority one on your list as you’re diving into your retirement planning.

The next one is going to revolve around investments. And I have on my notes here, well, I think I put, what, investing with a purpose. So what do I mean by that? Because I think a lot of individuals would tend to say, “Hey, I need to get more conservative. I’m heading into retirement. Hey, I’m worried about running out of money. I can’t afford to risk my money in retirement.” And I think those can be dangerous ways to look at it potentially, and I would offer up maybe another perspective or maybe another way to approach that decision. And if you’ve done your planning, it’s going to be pretty easy for you to back into these two numbers.

But they get to two concepts, so there’s two concepts here. One, can I afford to take on risk, and two, or two, can I afford to have my money in cash or put it under the mattress and not earn another dime on it? What we’re getting at between those two questions is if you’re saying, “Can I afford to take on risk,” what we’re trying to avoid here is the fancy term like sequence of return risk, and this would be the concept of maybe taking on too much risk. “Hey, if I have all my money in the stock market and the stock market goes through a 2008 drop, drops by 35%, does that affect and does that change what I’m trying to accomplish from a retirement plan standpoint?” I think it’s a big question as you think about, “Hey, I’ve got a million bucks saved for retirement. This is my nest egg. I’m trying to incorporate it or I’m trying to protect it. If I drop by 30, 35%, what does that do?”

If the answer to that question is is my spending does not change, well, then that means that you can afford to potentially take on more risk, and we can continue to have a conversation down there.

The second question gets to the fact of how much rate of return do you need to get on your money to make it work? Can you afford to be conservative? Can you afford to put your money in CDs in cash? Because when we start projecting out a retirement over a 30-year time horizon, there is going to be a number that you have to get from an investment performance standpoint or a return standpoint that makes that all work.

The question is is how low can you dip that down and still say, “Hey, I can accomplish all my goals, and I feel comfortable with some of that buffer,” that you mentioned, Walt, or that safety margin is the number that we come into it, and then use that to then say, “Okay, here are my guardrails. Here’s how much risk I can take on without getting into a situation to where emotionally I’m uncomfortable, or, hey, I have to change my spending in retirement. And then on the other side of that guardrail, what rate of return do I need to get to accomplish all those goals?” And then we can go and develop a portfolio that meets those two goals and doesn’t get you into a situation that’s uncomfortable.

I think it’s easy to get into a defensive mode and you’re trying to protect what you have, and I think some families can leave quite a bit on the table by just saying, “All right, hey, I can’t afford to risk it. I’m going into retirement.” I don’t know if that’s necessarily the case. If you build a good plan around your portfolio and understand that, “Well, hey, if some of my investments are down, I’m going to go to these other investments and pull from those, and let those other ones recoup, even if it takes one year, two year, three years for that money to recoup,” which even in some of our worst case scenarios, going back to the Great Depression or the great financial crisis of 2008, you’re still going to be okay because you’ve got this other pot of money that you can use to then ride out some of those upswings.

So investing with a purpose, knowing your required rate of return number, and knowing how much risk you can take on, I think, is really that level two or that next thing to paying attention to once we get past that social security and how it fits in.

Walter Storholt:

I love your description of the guardrails. It reminds me of when I was learning how to drive for the first couple of months or year or two. I had the tendency to really ride the middle of the lane, the middle line, because I liked knowing where I was. So I would gravitate toward the middle of the line.

Didn’t bother me that the other cars were an inch away flying by me at 55 miles an hour the other direction, because I knew where I was. And other people I see on the road go the other direction, right? They’re scared of that middle line, so they run to the opposite side and they ride way too far in the right side of the line. So technically, we’re doing okay, right? We’re still in the lines, but there’s this tendency to run to one guardrail or one side or the other of this debate when really what we want to try to do is keep learning and keep understanding that sweet spot of riding in the middle of those lines.

So we’re not scaring the people to death that are coming at us head on, and we’re also not putting pedestrians and bikers in danger by riding too close to the shoulder. We hit that middle of the road. That’s the right mix for us. Same thing here in the financial landscape it sounds like, because we’re putting these guardrails, but we don’t necessarily want to run to one of the two. We want to continue to narrow in right down the middle of our particular path that we need to drive down.

Tyler Emrick:

Excellent way to put it, Walt. Yeah, no, 100% agree. And I think this-

Walter Storholt:

I still tend to go a little close to the middle, to the centerline, but that’s just me.

Tyler Emrick:

When I was learning to drive, the only thing that really stuck out is my dad yelling at me for being too close to the yellow. He is like, “Go on the other side.” So no, I guess.

Walter Storholt:

Yeah. I learned driving a big truck, so I felt like I was outside of both lines driving that thing.

Tyler Emrick:

That’s fair. Pulling a camper or something like that [inaudible 00:31:48]. But I think that segues into the next thing that I had in my notes here, which I put in as tax bracket management, but it’s really getting down to this idea of managing your tax situation, and that might be counterintuitive. “Hey, I’ve only got a million bucks. My tax situation isn’t that big of a deal. Why is this big?”

Well, throughout my career growing up, I worked with a lot of healthcare professionals, and I’ll never forget a time where, this was a handful of years ago now, where I actually had a nurse come in, and she had retired already, and she actually had done a great job saving. She had a 403(b) account through the hospital system, just like a 401(k) for those of you not familiar with 403(b)s, and she had accumulated a great amount in there, and I had noticed that she had done a distribution right after she had retired. And I started to ask her about it, and it was because it was a pretty hefty one, and she’s like, “I just decided I wanted to pay off my house. I was heading into retirement, I didn’t want a mortgage heading in retirement.” I think she had a little over 150,000 left, and she’s like, “I just wanted to get it, I just wanted to cash it out and pay out. So I cashed it out, I paid that off, and now I’m wondering what to do with the remaining amount inside of my account.”

And I look back on that situation. I mean, here she is, a nurse, saved a great amount of money, was heading into retirement, and by doing a distribution like that, I wish I would’ve had a chance to talk to her beforehand because she had worked that entire year, so she had almost that entire year. I think it was around October when she had retired, somewhere around the fall timeframe. So she had almost a full year of wages. Then she stacked on top of those wages. She was a single individual, single nurse. She stacked another 150-some thousand dollars on top of it. The tax bracket that she was in, she paid 12 to 15% more in taxes on that distribution than what she should have.

Now you start thinking about what that is on $150,000 distribution, that is some real dollars that she paid where she didn’t really have to, if she just would’ve did that distribution over the course of two or three years or pulled out maybe more in the next year where she didn’t have all that income, she would have saved herself a boatload in taxes.

So I think about someone like that and someone who is worried about running out of money, you need to make sure that you’re maximizing all of those distribution plans and not getting yourself in a situation where you make one of these kind of oopsies thinking that, “Hey, I just want to get back to square one. I want to get back to where it’s comfortable.” I mean, very commendable, “I want to go into retirement without a mortgage,” but do you want to do it at the cost of 15 or $20,000 more in taxes in her situation? I would argue that that 15 or $20,000 is super important to her, and saving that could have real ramifications in the long term. So I think that’s where planning comes into play.

And with that example, it was on one end of the spectrum, but I would argue, it could be on the other end of the spectrum as well.

I’ve sat in meetings before, and one in particular where I had an individual, it was a prospect, so we were just talking for the first time. It was a referral from one of the families that I work with, great individual, but he was very proud that the last couple of years he was able to keep his taxable income basically down to zero. He’s like, “I lived off my savings. I haven’t put any money from my retirement. I’m a few years in.” And he was really happy and commendable about that. “I had paid nothing in taxes.”

And there’s some truth to that. Hey, he did, he went a couple years without paying anything in taxes, but when I talked to him a little bit about required minimum distributions and that, “Hey, this retirement account, you’re going to have to start pulling out distributions. And oh, wait, that’s going to stack on top of your social security, and now you’re going to be in a higher tax bracket than what you would have. You would’ve been able to pull out at a 10 or 12% rate. Now you’re going to have some of your money taxed at 22.”

I think that’s on the flip side as well, because I think it’s very easy. In his case, he was very focused on one thing and didn’t quite understand some of the levers that were coming down the pipe, and I think that’s really where having some type of financial plan put in place would help alleviate and paint some of that picture of what it does look like because it’s hard, Walt.

I mean, looking at even some of the numbers when I run a plan that’s 20, 30 years down the road, the numbers can get astronomical, they can get big, sometimes they can not make sense, but that’s the reason why we do it, so then we can take that, digest it, and say, “Well, what does that mean for the decisions that I’m making in the here and now?” And maybe you would approach things a little bit differently. And as you think about maximizing what you have saved, those decisions can go a very, very, very long way.

And even still going back to your guardrail comment, I gave two examples of the extreme, but even if we’re thinking we’re down the middle of that guardrail, “Hey, I set up a monthly distribution out of my IRA, covers all my spending, and we’re done it for the last couple years, and it’s working out great.” Well, the question is is it really working out great? Hey, you’ve got $20,000 more of room in the 12% bracket where you could pull money out and pay at 12%. Does it make sense to maybe do that and start doing some Roth conversions? Managing that tax bracket on your end and saying, “Does it make sense to take out more? Do I want to stop and push some spending out to the next year?”

Thinking through how you’re using your money in retirement is basically what I’m getting at here as I think about that third level and that third idea, “Hey, Social Security decision, got to get that right, investing decision, got to get that right.” The third is more that management of how you’re using your money and how you’re paying taxes on it, I think, is really where you can pick up some really meaningful dollars if you do it in the right way.

Walter Storholt:

Yeah, it’s a great coverage of those three major steps there, Tyler. And you got really animated talking about the taxes there, my friend.

Tyler Emrick:

Excited about taxes, I guess. Could you say that?

Walter Storholt:

So that really struck a nerve on the tax talk with you, I love it. But you bring up a great point because you kind of threw out the number 15k, 20k for somebody from just that one decision.

Put it in perspective, three trips to Italy for somebody. Three years of their global trip that they want to do, it’s that plus trading in their car to get a new car in retirement. It’s those kinds of things. We could keep lists. What are the things you can do with 15k to 20k during your retirement years? The kind of lifestyle that unlocks for somebody.

And again, this is one decision that led to that. So you can imagine if you have five, six, seven decision points similarly in your retirement life, you’re going to have a huge area of opportunity to improve. So I think that really drives it home and drives this whole concept really deep for me at least.

Tyler Emrick:

Oh, you got it. I mean, I’ll never forget when I went into financial planning, my mom’s like, “Oh, why are you going into financial planning?” I was like, “Yeah, I’m going to be your financial advisor.” And she’s like, “We don’t need financial… We don’t have any money.” And I’ll never forget that. And as I grew in my career and understand the importance of it, I was like, “Well, thinking back on it, really, my mom and dad needed planning more than someone who had 3, 4, 5 million saved and could afford to make mistakes.”

When you are trying to maximize your savings and living and worried about do you have enough, these decisions can be crippling if you make them wrong. So my family didn’t have the margin of error to be able to not make some of those maximizing decisions. So I think it’s that much more important as you think about how much you have saved. And if you’re a little worried about, do I have enough? Well, one of the ways that you can ensure you have enough is to make financially maximizing decisions, or at least understand when you’re going off and maybe not doing it for other reasons, but being very deliberate about the decisions that you make.

Walter Storholt:

So I guess our final answer is it depends, right? If a million is going to be enough. I’m sure people could see that coming.

Tyler Emrick:

It’s only took us, what, 30 minutes, 40 minutes to get down there? But no, I agree.

Walter Storholt:

I’m sure folks could see that one coming. But the why behind it, it depends, it’s so important. And that’s why you got to come in, have a conversation, look at your specific situation and make the plan from there. So how do you do that? How do you make that first step with a financial advisor and start talking in more detail about your plan and your future?

It’s very simple. If you’d like to talk to Tyler and Kevin Kroskey and the team at True Wealth Design, you just go to TrueWealthDesign.com, click the Let’s Talk button and you can schedule an introductory 20-minute call with an experienced advisor on the team. See if you’re a good fit to work with one another. Discover where some of these gaps in your plan might be, and start putting the plan in place to go along that more successful financial and retirement path.

Where can you save these dollars? Where can you make these big important decisions in your financial life and make them before you make the mistakes? Not try to fix the mistakes afterward. That’s huge. Being a problem solver and a mistake fixer is great, Tyler, but you’re even more valuable when you’re a mistake avoider, right? And that’s what you guys are in the business of doing.

So again, go to TrueWealthDesign.com. It’s linked in the description of today’s show and schedule that 20-minute visit with the team. Tyler, great catching up with you. Thanks for all the details on this episode today, and we’ll talk again soon.

Tyler Emrick:

Absolutely. See you on the next one.

Walter Storholt:

All right. Take care, everybody. We’ll see you next time on Retire Smarter.

Speaker 4:

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