How Long Will Your Money Last? The Real Math Behind Retirement Success

In today’s episode, we’re tackling these topics:

📉 Do You Know Your Required Return? Most people don’t — yet it determines your entire investment strategy.

📊 Sequence-of-Return Risk – What happens if you retire into a 2008-style crash?

🔍 Monte Carlo Simulations – Not a Formula 1 race — a tool that models thousands of possible retirements.

🧮 Retirement Smile Concept – Why your spending won’t stay the same over 30 years.

💸 Smarter Withdrawals – The order of withdrawals can save thousands in taxes.

Listen Now:

The Smart Take:

Go Deeper Into the Conversation:

0:00 – Intro

7:22 – Let’s talk returns

20:40 – Let’s talk withdrawals

29:02 – Getting solid financial guidance

 

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:

Tyler Emrick:

If you’ve ever wondered how long your money will last throughout retirement, you’re not alone. Today, we break down the real math behind retirement success. What return do you actually need? How to build a withdrawal plan that works in good markets and bad, and why flexibility in your plan really matters, all coming up today on Retire Smarter.

Walter Storholt:

Welcome back to Retire Smarter. I’m Walter Storholt alongside Tyler Emrick, of course. He is a CERTIFIED FINANCIAL PLANNER, a chartered financial analyst and one of the wealth advisors at True Wealth Design. Visit truewealthdesign.com to schedule your 20-minute discovery call with an experienced advisor on the team. More details on that later on in the show. But Tyler, it is great to be with you again. We’re releasing this episode on Thanksgiving week, so happy Thanksgiving to you, my friend, and you got some good turkey or something in the plans?

Tyler Emrick:

Well, happy to report I still got plenty of Halloween candy in the household.

Walter Storholt:

Nice.

Tyler Emrick:

So even though we have offloaded quite a bit, this might be two episodes in a row we’ve talked about the Halloween candy because it is still testing my willpower to-

Walter Storholt:

Nice.

Tyler Emrick:

Stay out of it, for sure.

Walter Storholt:

So is the leftover stuff the worst of the bunch where you’re like, “All right, I’ll finally eat this.” Or have you been saving some of the best stuff?

Tyler Emrick:

I hadn’t saved anything. We’re definitely down to the worst. The Reese cups are gone. They just go right to the fridge and go.

Walter Storholt:

You’re down to the what? What is it? The Good Joys or the Mounds or the…

Tyler Emrick:

Nothing that bad. Nothing that bad.

Walter Storholt:

Crackles?

Tyler Emrick:

Although I was pleasantly surprised, I found a Butterfinger left into one, which was-

Walter Storholt:

Ooh, very nice.

Tyler Emrick:

A blast from the past. I didn’t see that one too much this year.

Walter Storholt:

I’m not a big candy guy, but I love some Butterfingers. There’s something about-

Tyler Emrick:

I’d like to say-

Walter Storholt:

That crunch and the stickiness of it on your teeth, oh, it’s so good.

Tyler Emrick:

If I told you my favorite candy bar, it’d be very… A Heath bar. Probably no one has ever… Or not Heath, but excuse me, Skor, the old Skor bars-

Walter Storholt:

Skor?

Tyler Emrick:

Which were the toffee. I know.

Walter Storholt:

[inaudible 00:02:04].

Tyler Emrick:

My grandma always had it in her house back in the day, so that was always a treat.

Walter Storholt:

S-K-O-R?

Tyler Emrick:

S-K-O-R, yeah. Spelling is not my strong suit. Math, I got you, but I think it’s S-K-O-R.

Walter Storholt:

I have never heard of a Skor bar.

Tyler Emrick:

Oh, you see it?

Walter Storholt:

Although I love toffee, so [inaudible 00:02:22]

Tyler Emrick:

It’s just like a Heath bar, if you’ve had a Heath bar, I guess is [inaudible 00:02:25] one.

Walter Storholt:

It’s right up my alley, so…

Tyler Emrick:

There you go. See, my candy expertise is showing through. But no, the candy is still there. Weather is starting to change here around Ohio. Fall leaves are gone. Like I said, we got a little bit of snow as we talked about on the last podcast, so we’re all ready for the holidays.

Walter Storholt:

Very nice. Well, hope you have a great Thanksgiving with your family-

Tyler Emrick:

Oh, [inaudible 00:02:47].

Walter Storholt:

And enjoy some time away, hopefully from not doing too much work over the holidays and taking a little break, as for all of our listeners as well.

Tyler Emrick:

You as well. Absolutely. Well, we had a potluck in the office. I’m starting to smell it here today, so it’s actually-

Walter Storholt:

Nice.

Tyler Emrick:

Coming through. So I’m going to get my first Thanksgiving meal here this afternoon, so [inaudible 00:03:08].

Walter Storholt:

That’s Tyler’s way of saying, “Get the show on the road so I can go eat at the potluck.”

Tyler Emrick:

Let’s go. Let’s go. Let’s go, so [inaudible 00:03:14].

Walter Storholt:

Here’s a great segue for you, Tyler. When it’s Thanksgiving time when you’re making your meals, and then when you’re done eating, you’re like, “All right, let’s put the leftovers in the fridge, and what are we doing? Are making Turkey sandwiches? Are we just going to put everything in individual boxes and have multiple Thanksgiving meals over the next couple of days?” There’s always that question of how long can you get away with those leftovers in your refrigerator? How long are they going to last? Well, we’re talking about how long your money will last in retirement today. See that? I knew you’d like that.

Tyler Emrick:

That’s a great transition. That’s a great, great setup, and you hit the nail on the head wall. We’re going to take a look. Well, if anybody is listening and you haven’t retired yet, I’d say it’s probably one of the biggest questions that we get as advisors is, “Hey, do I have enough? How long is my money going to last throughout retirement?” I’d argue that even individuals a handful of years into retirement can still have those questions. Big change.

Walter Storholt:

Especially if something changes, right? Like, “Hey, the market has crashed, now how long will my money last?” Right?

Tyler Emrick:

Oh, absolutely. Well, and this year, the markets, we’ve had a pretty good market. The Russell 3000 is up almost 14%, international stocks have done really well. I think the MSCI All Countries World Index is up maybe 19%, somewhere right around there. Even the bond market has done very, very well this year. So to your point, normally when things are going well, unless you’re on the doorstep of retirement, getting ready to put in that notice and say, “Hey, I’m pulling the trigger,” it’s all pretty good. It’s when we experienced that volatility in some of those downward markets to where it really, really hits home. Think back, could you imagine what it was retiring in 2008 or 2007, and then we have a great financial crisis and your money is halved.

Walter Storholt:

Or the pandemic even, right? That was my parents. They were maybe a year or two from retirement, but it was the first time that they ever really panicked or paid attention when that market started dropping a little bit.

Tyler Emrick:

Absolutely. Hey, 30% or so in one month, that’s [inaudible 00:05:15].

Walter Storholt:

You’re now staring… And there’s a big difference when you’re 10 years from retirement and that one or two, things hit a little differently.

Tyler Emrick:

They do. Absolutely. That’s what we’re getting into today, and really, as I was doing some of the prep work for the podcast, when we talk about this topic, because we have in the past, I always think back to an article that I’d seen a couple years ago when the article was pretty much saying, “Well, yeah, if you want your nest aid to last longer, all you got to do is earn more money or spend less. Change your withdrawal rate.” I was like, “Oh, it’s that easy.” And I always think back like, “Man, I’m going to do a whole podcast on just spend less or make more return on your portfolio.” Just that easy. Well-

Walter Storholt:

It is kind of like losing weight though because there’s all these diets, all these trends, all the fads, all the this, all the that, and at the end of the day, I think if you talk to almost any nutritionist, they’re going to just be like, “But at the end of the day, it’s just taking in less calories.”

Tyler Emrick:

Sure.

Walter Storholt:

Burning more calories than you’re taking in, that’s really what the math comes down to.

Tyler Emrick:

Absolutely. So less Halloween candy, right? But-

Walter Storholt:

Yeah. You’re making it a little hard to burn all that off. That’s right.

Tyler Emrick:

Absolutely. So as I think about it, and I was thinking through like, “Well, hey, how are we going to structure today? How do we want to reiterate?” I think there’s going to be, let’s take those two points, let’s just earn more money and let’s adjust our withdrawals and maybe get down a little more granular into those high level topics and really give some action items to the listeners to, well, what does that even really mean? How can we look into those two items and really have some actionable steps that we can do to make sure or ensure you’re going to have enough and to give you some confidence there to where, if you’re a couple months out, you’re waiting to pull the trigger on retirement, let’s get you over the hump and get there.

Walter Storholt:

On the surface, it’s pick up a second job or stop drinking Starbucks every day. That’s how people interpret what you initially said there. It sounds like you’re going to show us some other ways we can interpret the way to make this happen, this goal of going up or down in one of those two categories.

Tyler Emrick:

Absolutely. And the market is doing pretty well, so let’s just start talking about and jump into returns and how we think about it for our retirees and individuals on the doorstep to retirement. And when I think about returns, the first thing that comes into my mind as an individual that’s trying to get an understanding of do I have enough, is really starting with the question of what rate of return do you need to be successful in your plan? What rate of return do you need to have enough and not run out, live the life that you want in retirement and be fine? What is that required rate of return? And I don’t know if that’s necessarily something that pops into people’s minds when they think about, “Oh, my portfolio and what return that we’re trying to get.” Well, what’s the minimum? What’s that required? Right?

Walter Storholt:

Sure. We’re mostly just either maybe comparing to other people or comparing to some sort of maybe mutual fund or benchmark, like, “Oh 7%, that sounds okay. I’ll take that.”

Tyler Emrick:

Correct.

Walter Storholt:

You’re saying we need to look at that number a little more seriously and not just off of feelings.

Tyler Emrick:

Right. Or just not being in the camp of just like, “Well, hey, shouldn’t I just want the most return possible?” Isn’t that the-

Walter Storholt:

True.

Tyler Emrick:

Isn’t that just the generic answer? And the reason why I like to focus on what is that required rate of return, what do you need to get on your money to make things work is because that will help you determine what investments do you have? What should your portfolio look like? Because if you know that you need to get 3.5% or 4% return on your money to make your plan work, well, then you can back into and say, “Well, what type of a portfolio has historically returned 3.5, 4%?” And that can be a starting point of, “Well, hey, I need to have a portfolio with this amount of risk to meet that very much very, very low hurdle of required rate of return.” And it gives us that starting point.

We could then take it one step further and say, “Well, if I invest my money that way, I have X amount in stocks and X amount in bonds, and historically it’s going to meet the return requirement that I need,” well, then we can take it one step further on the flip side. And at the beginning of the podcast, we were talking about like, “Hey, 2008, great financial crisis.” We can then say, “Well, how did a portfolio at that level of risk react in 2008? How far would it have likely dropped? And dollars and cents, how long would that have dropped? Would I have lost 100 grand, 200 grand, 300 grand?” And then you can back into a portfolio that’s going to potentially meet the rate of return that you need to make the plan work. But then also, which is just as important, be comfortable in a position to where, “Well, hey, even in one of the worst case scenarios like a 2008, I still have a very decent understanding of, well, how much money is at risk? What would be my portfolio loss?”

Because when you’re in the thick of it and your accounts are down, it’s very hard to not get emotional about that, especially considering your retirement and you’re living off of that money and you start to see your accounts drop. I could only imagine what ”08 was like, or March of 2020 was like for some of those retirees that just went, and we want to always have something that you can go back on and lean on as a foundation to say, “Well, okay, we planned for this. We tested for this. This was an expectation at some point down the road.” Because inevitably markets aren’t always going to be rosy and averaging 15, 20% per year, right?

Walter Storholt:

Yeah. It’s easy for everyone, I think, to identify with the pain of seeing your account go down 20, 30, 40%. It’s a little bit different once you’re in it and you’re withdrawing that money, that’s a different level of pain when you’re also taking money from the account while it’s down. I don’t think you can really put yourself in those shoes until it’s happened to you in retirement. And if you haven’t planned for it, by then, for a lot of people it’s becoming too late.

Tyler Emrick:

It is. Well, and this idea of pain I think is a good little segue too, because getting back to that-

Walter Storholt:

Not to prey on people’s pain today, but…

Tyler Emrick:

But I did make that comment, like, “Well, hey, why would I not want to just get the most return possible?”

Walter Storholt:

Sure.

Tyler Emrick:

And I do think it goes back to that pain aspect. Because to get a higher expected return, well, you have to take on more risk. At least that’s what history tells us, right?

Walter Storholt:

Kind of the no pain, no gain concept, right?

Tyler Emrick:

Sure. And if you get into a situation, I think an individual that maybe isn’t following the markets all the time, it’s maybe hard to quantify just how frequently the market drops by 10, 15, 20%. These are common occurrences, and when you get into a situation to where you’re not comfortable with that volatility and you’ve shot for the most return possible when inevitably, then, the worst thing that could happen is as you call your advisor and say, “Hey, I can’t handle it anymore. We’re down too much. I need to sell out.”

And inevitably, what are you doing? You’re selling out likely at some point at the bottom, or maybe it has more room to run, but then you got to get back in and make a right decision on getting back in, which is just as difficult. And oftentimes, or more often than not, you’re going to miss that rally whenever it comes and it’s going to cause more pain and suffering and really put you in a worse off situation than if you would’ve done that work upfront, “Hey, what’s the required rate of return? What portfolio is going to get that? All right, let’s back test the portfolio and see how much would we expect to lose?” And start to wrap your arms around what that would look like from a dollars and cents standpoint.

So shooting for that most return possible can sometimes get you in trouble if you’re not prepared for that volatility. I would take it one step further. And when you think about it in terms of your plan, this whole idea of sequence of return risk, which Walt, I know you’re familiar with it. If anybody’s listened to the podcast, we’ve talked about it at any given time, and we’ve talked about it multiple times, excuse me, in the past. But this idea of sequence of return risk is the whole concept of, “Well, hey, what if you do retire into a bad market?” You retire, the market drops by 20, 30%, your accounts drop, and what does that do to your spending plan? What does that do to your plan results? Are you in a situation to where your plan can absorb a big loss and you still can spend the way that you have planned to and gone from there?

Because we definitely don’t want to get into a situation to where your plan couldn’t afford the risk that you were taking on, you drop, and then to your point earlier, you’re going back to work or you’re worried about what you’re spending at Starbucks or whatever the case is. This is a very legitimate concern for individuals that have retired in ’08 or even going back further to the tech crash in the 2000s, maybe COVID of March of 2020. So this idea sequence of return risk, I think really shows up when we start thinking about, “Well, how much risk should we take on?”

We know we need to figure out this required rate of return, and we have an idea that it’s going to help us determine how much risk we should take on with our investments. That’s great. We could even take it one step further and use it to not get us in an uncomfortable situation where your accounts drop too much and you take on too much risk and you open yourself up to this sequence of return risk. Now the question becomes is, how do you even find that out? “What is my required rate of return?” “Okay, that’s great. What do we need to do to get there and back into it?” And this is when we get into that whole idea world of like, “Well, hey, you need a financial plan.”

That is what a financial plan in its most basic form is trying to tell us. We’re taking an inventory of your assets, we’re taking an inventory of your expected spend, and we’re just extrapolating that out over the next 30 years. And each year we’re saying, “Well, let’s assume you get a different rate of return and let’s see if that runs you out of money if you lose too much earlier in the year.” If you don’t, that’s good, that’s successful. The fancy term for this is called Monte Carlo simulation, where we just test different returns each year, run it out 30 years and see what do you have left? Well, when we do that, one of the ways that we can use that Monte Carlo simulation is we can tick down the average return that you get over that 30-year period and see what the results go to, and back that return down to 3%.

“All right, results still look good? Okay, well let’s back it down to two.” And it’s this manual process of us just trial and error figuring out and saying, “Well, okay, when do those success rates and those plan results get to an uncomfortable level? All right, that’s at a return of roughly 3.5%t. All right, that’s our required rate of return. That’s our starting point.” And I think all too often I hear families come in, and especially new families that were considering working with True Wealth, and they’re like, “Well, yeah, I worked with an advisor. They told me I was going to die with 30 million bucks. They ran this plan, this simulation, Monte Carlo simulation, and I think I’m going to be fine.” And I think that’s great, but then the question is, when you go through and do a plan, how are you using it?

What good is that information that it says, “Well, hey, you’re going to pass away with 15 million bucks. You’re good. All right, let’s move on. Let’s close the book and let’s not use that plan anymore.” I think where the magic happens with an advisor and all that work that goes into creating the plan is, one, how can we use that plan to make better decisions in the here and now? One of those would be backing into that required rate of return number. The second thing we can do is what we call bear market test, which is us testing that sequence of return risk that we talked about earlier. Let’s see what the plan looks like if you were to have all your money in stock, you were to lose 40%. Does the plan still work? And that’s going to give us these parameters and guide rails to create a better portfolio that meets your needs, not only from a required return standpoint, but also from an emotional standpoint, when we have that volatility that you’re not going to get into an uncomfortable situation.

Also, we can even expand that plan out further. “Hey, I’ve got this big number left at the end of the plan. That’s great.” Well, let’s talk about that. Do you want your estate that big? Should we change how you’re spending now? You’ve got enough wiggle room in here, should we go back and think through the life that you want to live? If not, okay, well if we’re good there, well, let’s look at how this impacts your estate. Is there some estate issues here? Is there some estate tax issues here? Let’s get an inventory of how your income changes over that plan and look at it relative to your tax rates. Well, what’s your tax situation look like? I can’t tell you what the tax code’s going to be like in 20 years, but at least we can use the information that we have now, the code, and say, “Well, hey, do you have a big issue when you turn in your mid-seventies and you got these required minimum distributions that have to come out of your retirement accounts, does that jump you up into the next tax bracket?

What if you’re married and your spouse passes? Does that mess your tax bracket up? So going through the exercise of the financial plan is one thing, using it to actually make a better informed decision, I think decisions now, I think is where we get lost a little bit when we work with our advisors, when we say, “All right, hey, everything’s good. Just keep doing what you’re doing.” That plan is really there to make better informed decisions in the here and now. And I think that one of those decisions is backing into that required return number and thinking about it that way.

Speaker 4:

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Walter Storholt:

The problem is, I don’t think every financial plan is doing that level of detail. They’re not backing into that number of the required return. They’re not looking at it. They may just make an assumption, “All right, we expect you’ll make 7%, so let’s build the plan around that,” rather than looking at it the other direction. So I think that’s huge. They may not be running Monte Carlo simulations. Which by the way, I just have to point out again, my favorite financial term.

Tyler Emrick:

Is it? It’s a good one. It’s a good one.

Walter Storholt:

It just sounds good. Like, “I want to run a Monte Carlo simulation.”

Tyler Emrick:

That [inaudible 00:20:15].

Walter Storholt:

Sounds good. I’m just-

Tyler Emrick:

It does.

Walter Storholt:

I’m driving a Formula 1 car down the streets of Monaco and about to get on my yacht afterward. I don’t know, it just has this aura about it, the Monte Carlo simulation.

Tyler Emrick:

Not too bad.

Walter Storholt:

Well, that makes sense, Tyler.

Tyler Emrick:

It’s about returns, right?

Walter Storholt:

Yeah.

Tyler Emrick:

Just to recap real quick, it’s not about just making more money. That’s always great, but it’s finding that required rate of return, understanding how much risk you can take on inside your plan so you don’t fall subject to the sequence of return risk. And I’ll do a little bit of a teaser as we move into thinking about withdrawals, but do you have enough runway in your portfolio to still live the way that you want through a bad market? Which is, I think at the crux, when we get to the end of talking about your withdrawals and not just, “Hey, spend less,” but really thinking about how you’re going to use your wealth in retirement, this idea of a runway I think is pretty impactful. And we’ll probably finish up with it today on the podcast, but-

Walter Storholt:

Like the story of the guy who had 30 million, and it’s like, “When you die, you’ll have 15 million left.” Plenty of runway to work with here.

Tyler Emrick:

Plenty. Plenty of room.

Walter Storholt:

“You’re in good shape.”

Tyler Emrick:

Yes, absolutely. I have plenty of wiggle room.

Walter Storholt:

Some people’s runway may be less, but runway nonetheless, that’s what we’re going to look for.

Tyler Emrick:

It is. Absolutely. And I would even say, when we think about runway, we’re even thinking it one step further and saying, “Hey, you can think of it that way. How much wiggle room is left and the safety margins at the end of your plan?” That’s great, but I would even argue you can go even a little bit more granular, and as you’re thinking about your distributions, how much runway do you have in your portfolio for distributions and pulling money out that’s maybe not as subject to the market? If we have an extended period to where the market is down two years, three years, whatever the case may be, and it takes some time to recoup, how much of your assets could you live off of before you would actually start to sell those stocks? So a little bit of a teaser in there when we get into it. But again, chuckling on the, “Hey, just spend less.” Let’s unpack that a little bit.

Because we talk about retiree spending quite a bit on the podcast, and I think one of the biggest issues with the financial plans is when advisors just go in and say, “Well, hey, how much are you spending per month? Let’s assume that’s going to be consistent and linear throughout the entirety of retirement.” Most of the data, if not all the data and research that we have read says that’s really not how your retirement looks. Your retirement spend isn’t always consistent and linear through your sixties, seventies, eighties, even nineties. So this whole idea of, I don’t know, while you probably have ran into the 80% spend rule, 80% of your pre-retirement income is what you’re going to need in retirement. And I think we even did a whole… Oh, we’re going really far back on the podcast where we did the rules awry on that one. So if anybody is interested in the 80% spending rule, we certainly have talked about that a little bit more in depth.

Walter Storholt:

You’re back to the episode 5, 6, 7, in that time period.

Tyler Emrick:

Are we going back there pretty far?

Walter Storholt:

Yeah.

Tyler Emrick:

Absolutely. But this idea and these rules, this goes back to the fact of these rules aren’t really made for everybody. These rules of thumbs can get you in a little bit of trouble because if you start thinking-

Walter Storholt:

Episode 92 was when we did that.

Tyler Emrick:

Oh, was it that?

Walter Storholt:

When we did that specific one. Our original rules gone awry series was at the very beginning. But yes, episode 92, which would’ve taken us back to 2022 when we redid that series with that new rule in there.

Tyler Emrick:

Oh, right in the thick of COVID. We were going back to… Well, a rough year in the market 2022, for sure.

Walter Storholt:

Yeah.

Tyler Emrick:

We definitely think about spending a little differently. We really think of it in terms of, we’ve thrown out retirement smile before, which is basically this idea that you are spending… Traditionally when we look at retirees in the early sixties, their spending is probably their highest, and then it slowly starts to trickle down each year throughout retirement until we bottom out in your mid-eighties, and then we start to see it increase again due to healthcare costs. So if we think about that, that’s a dip. And we think of it in terms of a retirement smile. So if you’re doing your planning and you’re assuming that your spending is going to stay linear throughout the entirety of retirement, well, you’re assuming that you’re going to need a lot more money than what you actually do. So this can impact when you actually retire and all that good stuff.

Now, when we get down into the nitty-gritty of, well, in practical application, how do we think about income? Because a lot of retirees on their mind, they’re like, “Well, hey, if I’m going to retire, obviously I’m not going to have a paycheck coming in. How do we think about getting the money we need to spend?” And a lot of times that answer is… Well, a few different things. Maybe you have a pension, maybe. Certainly most people will have Social Security that would come in at some point. So a lot of times that gives you a little bit of a floor that’s coming in on a month in, a month out basis. Some families will set up a monthly distribution from one of their accounts to get to make sure that at least their core spending needs on a month in, a month out basis are met from something that’s coming in monthly. So Social Security, pensions and maybe a withdrawal from their accounts.

And then, well, from time to time there’s going to be big expenses that come up. Maybe there’s a big trip, maybe there’s a car purchase, something like that, so then you can go into your other accounts and do ad hoc distributions as needed. But when we start thinking about, well, how can you manage this appropriately? I think thinking through, well, what does that withdrawal plan look like? This is our busiest time of year. One of the reasons that it is, is we’re looking to the upcoming year for families and saying, “Hey, where’s your money going to come from?” We need that core maybe monthly. Do we have a car purchase? Do we have a travel coming up that we need to plan for? And then two, which account are we going to use to do those? We want to do those distributions in a tax smart way.

We just had new tax legislation that passed in the summer, that’s impacting retirees and their withdrawal plans and how much they might want to pull from a retirement account or a Roth or a brokerage or whatever the case may be. So thinking through that, “Hey, priority one, we got to get my spend.” And then priority two needs to be, how can we do that in a tax smart way, I think is certainly going to add a tremendous amount of value and help protect that nest egg too, because we’re saving in taxes. The other thing that I want to make sure that we touch on, which was a little bit earlier, was this idea of a runway. We’re going to go through volatile markets. Depending on the risk that you’re taking on inside your portfolio, you might have a one-, two-year period, maybe longer where your accounts are down or your stocks are down. Well, where are we going to pull from? Not only which account, but which investments are we going to pull from inside of those accounts to get you the money that you need to spend?

Just because the market is down, if you’ve done your planning, that shouldn’t really impact much of your spending. If you’ve got enough safety margin, if you’ve planned for those distributions, you should have enough runway inside your portfolio to where you can pull from assets that are not down during volatile times in the market that you can live off of and then still get the assets and the money that you need. So when we dive into the families that we work with, some families have five years, six years, up to 10 years of runway inside their portfolio. These would be things like bonds or interest bearing investments that maybe wouldn’t have quite the volatility in a bad market that a stock would.

So having that I think not only would give you some peace of mind, but also help do your withdrawals in a very tax smart way to where you’re not always saying, “Ooh, my account is down. We need to kind of cut back spending.” Or, “Hey, we’re up 15%. Let’s spend a little bit more.” There can be some of that dynamic spending in there, but obviously you got to have the confidence in your plan to be able to do it. And if you don’t have that confidence and you haven’t done the plan work, it can make it hard, and we certainly can tighten up during times of a bad market.

Walter Storholt:

It’s a great point, but a great example of where that’s the problem, lack of confidence leads to the oversimplification of the problem and just saying, “Ugh, I got to get a second job. I got to spend less. We got to stop eating out.” And you just go to immediately cutting off those high level areas rather than a well crafted plan that’s going to give you permission to say, “Hey, we can keep spending the way we want to because we know we can take it. We know we can take it.”

Tyler Emrick:

It is. Well, and I think this is where advisors can, I don’t want to say prey off of the volatility and the worst case scenario, but this is where you get into situations where you see individuals and families come in and they’re like, “Hey, my prior advisor told me to put all my money in this annuity. I wouldn’t lose any money in a bad market.”

Walter Storholt:

Kind of like, “Hey, if I don’t like the game, why even play it?” Right?

Tyler Emrick:

Yes. And it’s so easy to get in front of someone that maybe doesn’t know your full financial situation or isn’t communicating how markets work and understanding and educating. They’re more so preying off of that fear and saying, “Hey, just put your money into this product and it’s going to solve all your needs.” Very rarely, Walt, as you know, very rarely is there one single strategy, a product, a investment that is going to solve all your needs and do it in the most efficient way possible. It’s just not out there. If it was, we would be doing it. But there’s not. It takes some rolling up of your sleeves and creating this plan and having someone in your corner that can educate you to a point to where you can feel confident making some of these decisions, not necessarily going all in on one particular thing or the other.

Because I think I mentioned it a little bit earlier in the lead-in, that idea of having flexibility in your retirement plan is crucial, crucial. If you don’t have flexibility… What do I mean by flexibility? Well, I mean you can start pulling your money that you need from a different account. Maybe you can pull it from a different investment. Hey, tax laws change. I don’t want all my money coming from an annuity or an IRA because now I’m losing the senior bonus deduction, or whatever the case is. That’s what I mean by flexibility. I think it means going into the upcoming year saying, “Where are my advantages? Where are my areas of opportunity,” whether it be tax or investment. And, “Hey, I know what I need from a spend. I know I can spend it because I’ve done the plan, I’ve done the work, I’ve tested it. Now we just need to figure out where’s that money going to come from and how am I going to get it?”

And that’s what I mean by building in that flexibility. I talk about flexibility quite a bit with the families that I work with because I truly believe that’s where… And being nimble… That’s where you can add quite a bit of value over the long run and certainly extend that nest egg and make sure that you’re not going to run out.

Walter Storholt:

Somebody may say, “Well, what’s the big deal with flexibility, with efficiency? Why do I have to be efficient? I’m in retirement. I’m not worried about efficiency. I just want to make sure that I can pay the bills and be fine. What’s the big deal with trying to accomplish that goal?” And I think that’s where you’re trying to drive home, “Hey, okay, I can go get…” I’m just going to pick an annuity. “I’m going to go get an annuity. It’s going to give me my…” I’m just picking a random number, “$5,000 a month for the rest of my life, and I’m going to cover all of my expenses and at least I won’t go hungry.” Is the mentality.

What you’re saying is, “Yeah, but it’s an incredibly inefficient way to do it because you could have done it these other ways and not only been able to cover your expenses, but also fund the European trip and five extra visits to the grandkids every year and passing money off to charities that are important to you and make your dollar go as far as it possibly can.”Let’s not let fear keep us from doing all of those other things.”

Tyler Emrick:

Oh, absolutely. Well, we could spend an hour rattling off all the whys, right?

Walter Storholt:

Probably. Yeah.

Tyler Emrick:

But you’re right. That is the why. Why to you do anything? The thing is, you’re trying to make your wealth work the best for you, whatever that is. It can be anything, but at the end of the day, that’s where the efficiency is going to come in and give you the flexibility and the confidence and sleep factor and all this other good stuff I think goes into it from there.

Walter Storholt:

But I see why on a first pass, why someone may be like, “Whoa, this one-size-fits-all magic bullet type solution is very attractive,” because Immediately taking care of that worry and that my-house-is-on-fire feeling of, “I’m not going to be able to afford the basics,” and so, maybe you get blinded to the benefits of the rest of the little extra effort to do proper planning. That’s just my guess.

Tyler Emrick:

Oh, retirement is going to be one of the biggest life transitions you ever go through. It’s definitely up there. There’s unknowns. Hopefully you only do it once, so it’s not like you’re consistently retiring and you can get better at it and go. It’s a big unknown.

Walter Storholt:

It’s a good point.

Tyler Emrick:

There’s a lot of emotions that are in there, so all the more reason to find someone in your corner that can speak to your language and has the same values that you do and can help you through and make those decisions. Not leading with fear, but leading with possibility and making sure that that plan is in place and has plenty of flexibility and levers to be able to pull no matter what comes up in the next handful or 30 years, right?

Walter Storholt:

Yeah. Well, if you’ve made it this far through the episode, you can probably see the illustration, the difference between different financial plans. So you can probably raise your hand and identify, “Yeah, I’ve been through this type of planning before.” Which if that’s the case and you’re aware of that, fantastic, that’s a great sign. But I would be willing to bet that a lot of people haven’t and aren’t raising their hands and they’re saying, “Yeah, I didn’t talk about any of this stuff with my advisor.” Or, “When I bought an annuity or bought some other product, we didn’t go through this level of detail. How can I do that? I want to go through this level of detail before I pull that trigger on retirement.” Or, “I’ve recently retired and maybe I need to take a second look at things.”

Well, that’s why True Wealth Design has the opportunity to have a 20-minute discovery call with an experienced advisor on the team, lets you see if you’re a good fit. You can very quickly find out if there are some gaps in the plan and where there might be some ability to maneuver toward a better financial plan. It opens up that conversation, and it’s a free conversation with the team. Again, 20-minute discovery call to see if you’re a good fit. You can sign up for that, schedule it at your convenience by clicking the link in the description of today’s show. It’s, of course, at truewealthdesign.com, and just look for that, “Let’s Talk” button and you can schedule that time to meet.

Tyler. Thanks for walking us through this great conversation today. I hope people will take you up on the discovery call and have more in-depth conversations about their financial future and retirement with you. And it doesn’t hurt to talk these things out and ask those kinds of questions.

Tyler Emrick:

No, not at all. It was fun. We’ll catch you on the next one for sure.

Walter Storholt:

Go eat a Skor bar, my friend.

Tyler Emrick:

That’s right.

Walter Storholt:

I got to go find one and eat it. It looks pretty good.

Tyler Emrick:

It is.

Walter Storholt:

I’m going to try it. Awesome. Take care everybody. Happy Thanksgiving. We’ll see you again next time right back here on Retire Smarter.

Speaker 5:

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