How Much Money Is Enough To Retire?

In today’s episode, you’ll learn more about:

• Why “enough” often keeps moving
• Behavioral biases that affect retirement decisions
• Why many retirees struggle to spend after decades of saving
• The difference between financial independence and financial confidence
• Practical ways to think differently about retirement

Listen Now:

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The Smart Take:

Go Inside the Episode: 

0:00 – Intro

5:25 – Your Brain Was Built to Protect You

8:43 – ‘Enough’ Keeps Moving

13:27 – Financial Independence vs Financial Confidence

16:55 – What I’ve Learned From Retirees

22:21 – A Better Question

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The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

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

Episode Transcript:

Tyler Emrick:

Today we’re talking about a question that doesn’t show up on any financial planning checklist. When does financial security finally feel like enough? I’ve worked with retirees who have a few hundred thousand dollars saved, others who have several million. What’s fascinating is that many of them worry about the exact same thing. The fear isn’t always running out of money. Sometimes it’s never feeling like you have permission to enjoy what you’ve spent your entire life building. I’ve come to believe there is an important distinction that doesn’t get talked about enough. Financial independence is a math problem, but financial confidence is a mindset. Today we’ll talk about why that happens, what behavioral research teaches us, and what I’ve learned after years of helping people transition into retirement.

Walter Storholt:

Hey, it’s time to retire smarter. I’m Walter Storholt alongside Tyler Emrick. He’s a chartered financial analyst, a certified financial planner and a wealth advisor at True Wealth Design and always helps us learn a little bit more about the financial world. But today’s a little bit more of that softer side of planning perhaps. We’re looking at this kind of touchy-feely subject in this retirement planning conversation today, Tyler. Tell us about this.

Tyler Emrick:

Oh, absolutely. Well, it’s hard to get us away from the math, right? So anytime we can venture away, hey, I feel like it’s a good thing. And I think that doesn’t make what we’re talking about today any less important. Honestly, I feel like it’s probably even more important as you start thinking about your retirement journey and what that looks like. And I was going to open up the podcast with a question to you, Walt, to maybe set the stage a little, but it’s like, hey, if I were to ask you, when do you think someone finally feels financially secure? What comes to mind? Anything pop in? And I’m setting you up here a little bit too.

Walter Storholt:

The only thing I can think of, because I get that, even not at retirement, still feeling that financial security question, you can assess that at any age. I kind of would be asking you, Tyler.

Tyler Emrick:

Fair enough. Hey, that’s great.

Walter Storholt:

Do you think I’m financially secure?

Tyler Emrick:

Well, and that’s the point, right, Walt, I mean, the point of that question is it’s not really a number. A wide breadth of families that I’ve worked with over the years. Some extremely financially secure. Others new. just kind of starting their journey, but that question in their mind a lot of times is the same. Am I going to be okay? And that’s whether you’re 35 trying to worry about, are you saving enough, to 55 and you’re worried about, ooh, do I have enough to actually pull the trigger and go? Or hey, say you’re in retirement a handful of years and you’re in your mid-70s, that still question of, hey, can I spend more? How much can I spend? Do I need to cut back?

But the crux kind of the same no matter what. And as we kind of think about financial, I have been in financial planning all my career, so I always look at it from the standpoint of getting someone to financial independence is often the easy part. But helping them feel financially independent is really much harder and much more nuanced. That’s because financial independence, that’s that math problem. I can calculate it. We can back into it. We understand it. But that financial confidence is something that people have to develop. And when you’re transitioning into retirement and changing and uprooting, I don’t know, everything after a long, happy work history, that’s a change. And that struggle can be difficult for a lot of retirees to wrap their arms around, for sure, for sure. So that’s what we want to explore-

Walter Storholt:

I had a-

Tyler Emrick:

… and talk through a little bit.

Walter Storholt:

… conversation with a couple of folks recently, and we were doing a little though experiment and we said, if somebody said, I’ll give you any amount of money, we pick different amounts, just pick a million. I’ll give you a million dollars. But the catch is you can never work again. So you’ve got to live on that million the rest of your life. And we kind of talked like, what’s the minimum number that it would have to be for you to take that deal?

Tyler Emrick:

Take the deal?

Walter Storholt:

And that was an interesting-

Tyler Emrick:

That’s a great thought experiment.

Walter Storholt:

… thought experiment and it made me think, well, it’s basically just retirement. Okay. I’m stopping working for the rest of my life. What’s that number look like? So I don’t know. It just got me thinking in those terms a little bit. And then you realize the math you start doing in your head and like, well, but I might want to work. Well, but what if I do run out? What if this doesn’t last? What if I mess it up?

Tyler Emrick:

What do I want to do? Because you quickly turned from the math. Yeah, you hit the math. You got to get the math part, but I’m sure a lot of other thoughts were like, well, is that going to be enough to travel or to do this or gift to here-

Walter Storholt:

Would I actually increase my lifestyle-

Tyler Emrick:

… or hey, take care of myself.

Walter Storholt:

… or would I actually live more carefully because now I can’t go back to work?

Tyler Emrick:

Oh, correct. Oh no, absolutely. Well, I think that’s a great thought exercise. Take it one step further and think about just in general like, all right, hey, you’ve saved this money your entire life and now you have to use it. I mean-

Walter Storholt:

You’ve got all that emotion built up behind it, that momentum, not just handed to you, but yeah.

Tyler Emrick:

Yeah. And you worked hard for it. I mean, because normally to get to a spot to where you’re financially able to retire, a lot of times you’ve set up good habits. You save, you invest, delayed gratification a little bit. Prepared for uncertainty.

Walter Storholt:

Sacrificed. Yeah.

Tyler Emrick:

Sacrificed. And when you think about transitioning into retirement, that retirement question and how you use that wealth to its best use case, you got to change. Some of those same habits can kind of prohibit you a little bit to use that wealth in a way that’s going to enrich your life. And our brain almost works against us in these scenarios because there are some behavioral biases, and just think of them as tendencies that are very well researched.

And the two that kind of popped into mind as I was thinking about the podcast today was one would be like families. And it’s very well documented families have or individuals have what we call loss aversion or this aversion to loss. And the research would suggest, or the way to think about it is, a loss hurts about twice as much as an equivalent gain. So that pain that we get from seeing our accounts drop down is way worse than the joy that we get from seeing our accounts kind of going up and to the right.

Walter Storholt:

That’s a great point. If I give you $1,000, hey, great day. I appreciate it. Thanks. I’ll take that. But if I take away $1,000 out of your pocket, you’re going home pretty grumpy.

Tyler Emrick:

Oh, it’s rough. Heck yeah. No, absolutely. Well, and we see this idea of loss aversion show up in all kinds of decisions that you make as a retiree. And that loss aversion is what set up some of those good habits that we talked about too. But it’s always easier. I like to think of it in the form of like Social Security.

One of the reasons I feel like a lot of times when I explore conversations around when to start Social Security, the decision is like, well, it’s a lot easier to take that Social Security versus living off those assets that you saved and that pot of money that you built up and you’re actually having to take from it. So it’s a lot easier to take from the government, and say, hey, give me what I have versus starting to use that money and take from what you’ve saved and you’ve accumulated.

Walter Storholt:

That’s a great point.

Tyler Emrick:

And you spent all that time to go up. So it’s like that mind and that transition is totally different from going from working and into retirement to where you have to start thinking that way. And well, what’s the math say? I know emotionally how it feels, but this idea of loss aversion was the first one I had wrote down.

And the other one was just what we call status quo bias. Which is just, hey, as humans, we tend to keep things the same. If it’s broke, don’t fix it. Did I say that right? If it’s broke, don’t fix it.

Walter Storholt:

If it ain’t broke, don’t fix it.

Tyler Emrick:

If it ain’t broke, don’t fix it. I was going to say. All right, hey, come on. We got to get my quick little hits here.

Walter Storholt:

Maybe in Ohio-

Tyler Emrick:

If it ain’t broke, don’t fix it.

Walter Storholt:

… you’ve got a different term for it.

Tyler Emrick:

Yeah, that status quo bias is another one that kind of pops up. So all these good behaviors that you’ve done, we got to be mindful of them as we start thinking about that transition into retirement. And also, Walt, this idea of what is enough? Well, this idea of enough is almost like a moving target by design. And some of that has to do with things that are completely out of your control. Inflation, market headlines. All these impact that number that you have in your mind that you’re going to need to be able to use.

Some things that are in your control are going to change. Family goals, longevity, life changes, what you’re trying to accomplish, healthcare. Any of those types of things can kind of pop up, change, and you kind of got to readjust how you’re thinking about your money. So when we talk to a lot of retirees and we’re kind of thinking about, hey, do I have enough? And we’re building this plan, and we’re doing all these fancy stress tests.

The reason why it’s an iterative process, and something that we go through each year and we place so much important on, is because that goalpost tends to move. And helping and having a conversation with families around, well, how is the boat going? What direction are we going into, will really help I think you be better stewards and families be better stewards of the assets that they’ve accumulated.

The fancy term that I always kind of equate it to is this idea of a dynamic spending throughout retirement. And what it is is essentially saying, hey, if you’re tracking how your wealth is changing over time, you’re tracking kind of those spending habits. And this isn’t necessarily like tracking down in a budget, but hey, when we do a plan update, that’s what we’re doing. We’re kind of looking at results and assets and spending expectations from the prior year and how did we do? Did we meet those expectations? Did we exceed those expectations? Where did we fall?

Walter Storholt:

You though you were spending $1,000 a month eating out, but it was really 3,000.

Tyler Emrick:

3,000. Right. Or on the flip side-

Walter Storholt:

We’re a little off here.

Tyler Emrick:

… even lower, right? Well, a lot of times I find a lot of families where they’re probably overly conservative on their spending assumptions, thinking they’re going to go and do all this travel, thinking that they’re going to go and do all this. But then-

Walter Storholt:

So it goes each way.

Tyler Emrick:

… when they transition, it’s hard to do it. Think about it. If your goal is to maybe take two or three trips a year, but your entire working career, you’ve done one. And then now you have to use that money that you’ve accumulated and saved for that. That’s a challenge mentally. No matter how some random financial advisor says, “Hey, you’re in good shape. Go, you’re in good shape.” It still takes some time and some working through and getting over some of these just things that got you where you are that are great that you need to kind of be mindful of and kind of think through.

But this idea of like, well, the last few years in the market have been tremendous. Inside of a lot of our plans, maybe we’re assuming a 5, 6% annualized rate of return. I mean, families have gotten double that. I mean, quite a bit more, depending on the risk and portfolios and all that good stuff. But when you start having a really good tailwind from a market, you spend what you expected, what you’re starting to find yourself is when we do these plan results, they keep getting better and better and better.

So the question becomes is is like, are you having real conversations with your advisor on has our goals changed? Should they change? Should they be adjusted? How should we think about our spending? And should we utilize some of that good habits that we’ve had early in retirement we’ve been able to capitalize off of? Or are we fine or are we doing everything that we need to?

So it’s this idea of always taking a look at where you stand and trying to quantify like, all right, hey, should we change any of our behaviors or our spending behaviors or anything else that we didn’t think was possible, but now is, and we want to kind of take advantage of it. So that goal of like, ooh, what’s my number? It changes. The goal is adapting your plan, I think, to how life unfolds. And that’s why we always all the time are kind of talking about building in some flexibility to your retirement plan. Having some flexibility on where you could pull from, what accounts that you use, and building that on a year in and year out basis or having a team that can build it for you. I think that really adds a lot of value as you think about what you want to do with your assets throughout retirement.

Speaker 3:

What would your life look like if you designed it around your true wealth? It’s a powerful question, and one that True Wealth Design helps individuals, families and business owners answer every day. With a fully integrated approach to financial planning, tax strategy, investments and business advisory, their team can bring clarity and confidence to every part of your financial life. Take the first step toward a stronger financial future with a no cost, no obligation discovery meeting. Just click the link in today’s show description to get started.

Walter Storholt:

When you mentioned the enough keeps moving, I thought initially you were going to go in the direction of talking about lifestyle creep. In our accumulation years, when we think about that question of what is enough and what feels like security, and oh, I’m content, this is enough. And then we keep up with the Joneses and we move into the bigger house and we get the nicer car, and we add in the pool, and the this and the that. And you feel that enough keeps-

Tyler Emrick:

Enough.

Walter Storholt:

… moving. Interesting. You revealed a whole nother element of what that could be just through that.

Tyler Emrick:

Yeah. Well, and there are times where we got to think through that too, right, Walt. I mean, those are maybe some of the tougher conversations. And those are some of also the reasons why we build inflexibility and we think of that spending dynamically or as an interval process. Because hey, there’s inevitably going to be a time in the market, we haven’t had one for a while, but maybe your positions or your accounts are down for a period of time, a year, two years. And then you maybe are tightening up those spending or really being thoughtful about where you’re pulling from assets and how your spending goes. So that’s how we use those plans or those financial plans to help us spend and use our wealth efficiently.

But this idea of financial independence and financial confidence I think is a really important one. And I’ll say it again. Financial independence is a math problem. We can solve that. We’re good at that. The financial confidence is truly is, it’s a mindset. And I think it’s our job as financial advisors to kind of bridge that gap and give the confidence for our families to be able to use that wealth that they’ve accumulated.

I was sitting with an individual that’s been a client for a number of years just this past week, and she was contemplating a move. I mean, that’s a big life change. Hey, do I want to uproot and maybe get a little bit closer to my kids? What kind of goes into that decision? What’s possible? And when we think about how a financial plan can help us with that is like, hey, that’s great. We can do the math on, well, hey, let’s kind of model in. Let’s assume you buy a house at X amount. Let’s assume it adds this amount of living cost, being in a higher cost area. She was in a pretty low cost area for retirees, thinking about moving to a little bit bigger of a city.

So having that conversation around, hey, what do we think life’s going to look like in that new city? What do we think some of those expenses are might going to change? Hey, have we started looking at what it would take to get a house that we would want inside that area? But we’re able to then go and update that plan on the fly, communicate the math and the actual impact. And that’s great. But then there’s the whole adage of like, well, hey, emotionally, how does that feel using those plans, spending that?

I mean, she made a comment to me like, “I hadn’t even thought about getting a house that’s that expensive, but you know what? It might take that. I haven’t even thought about looking on Zillow or being in that area.” So when we have those conversations and we explore kind of like, well, what does a move mean to you? And then this is what it means from the plan and the math standpoint. Marrying that turns from, hey, can I afford it? Okay. Yep, check. But how would this improve my life and how would I use it? And how does that change the outlook of what retirement looks like for me? That conversation switches very, very quickly.

Walter Storholt:

It’s pretty eye-opening, right? Like, okay, we did the plan and it totally changed the direction of what’s possible, the trajectory of it.

Tyler Emrick:

Sure. Oh no, absolutely. Absolutely. And we have these types of conversations all the time. We work with a lot of retirees. And the happiest of those retirees all the time are talking about experiences, family, relationships, giving back, finding some type of purpose. And going back to the old Maslow’s hierarchy of needs, some of those ones that are a little bit higher on the pyramid, to kind of make sure that you are thinking about retirement in a way that’s going to be fulfilling, I think is extremely important.

So it’s like the money becomes the tool, not the goal. Money becomes the tool that you use to get to whatever that goal or whatever it looks like. In her case, it was, hey, potentially moving closer to her kids. But I have another individual that I’ve worked with for a number of years. And from time to time, most years he has this comment that he says that he sticks with me, but it’s like, “Hey, I’m doing better than I deserve.” “How are you doing?” “Oh, I’m doing better than I deserve.” And it kind of comes back-

Walter Storholt:

That’s the Dave Ramsey line, I think, right?

Tyler Emrick:

Is it?

Walter Storholt:

He’s the one that says that.

Tyler Emrick:

Oh, got a little Dave Ramsey pick. I didn’t know that. And I’ve listened to my fair share of Dave Ramsey. But hey, doing better than I deserve. I’m going to have to ask him if that’s where he got it from.

But this idea of it stuck with me because my conversations with him have always kind of been this iterative process of like, hey, what the financial plan started with right when he retired and what it’s kind of grown to over the years after he’s gotten more comfortable with what is my spending kind of like in retirement? How do I want to start looking at it? Hey, you keep telling me my plan results are tremendous. I’m going to die with X amount, way more than what I even expected.

Well, how do I challenge it? How do I use that? Do I want to do something with it? Or is that what I want? Do I want to die with X million dollars, and I’m fine with that? But over the years, his plan, we’ve continued to add in goals. He’s very charitable inclined. So his gifting to church and charities has kind of ballooned in the last handful of years, but it wasn’t like a immediate switch in retirement, like, ooh, I want to do this. It was settling in, getting into retirement a few years, getting more and more comfortable with the plan, and being like, all right, man, these results are pretty reasonable. We’ve stress tested it. We’ve looked at the bad case scenarios. I kind of got a good feeling where I was at. Well, how can I use my money? Well, I want to gift.

And exploring that and going down that path is I think very impactful as I think about what a good financial advisor is there to do and lead and kind of marry that together. And this is not uncommon. I mean, I’m just picking out a random one, but I mean literally the meeting I was in two days ago, the individual was talking about retirement feeling more comfortable. They used to stress about making the decisions and the impact and understanding all the levers. And their comment was just like, “Hey, I feel much more at peace about just living my life and understanding and being able to have a team that I can go to to ask these questions to or whatnot.”

But he had made a comment like, “Yeah, even I was on a retreat and a couple individuals actually couldn’t afford the retreat, and I just paid for it. I didn’t think about it. I just did it. And I want to be able to do more of that.” So that was some of that why. And it’s like he got enjoyment out of it. It wasn’t like, “Hey, how much money do I have to have? Can I do it? Ooh, what if I did this?” It was just a, “Hey, I want to do this. I feel comfortable enough with my plan and my finances and kind of where we stand to be able to do it.”

And I feel like getting to that point as a retiree could feel, it’s got to feel just so, I mean, a sense of relief as far as not having to necessarily stress on it. Because the topics that we talk about and dive into, it’s not lost on me that they’re heavy. They’re big, they’re impacting. I mean, the relationship families have with money is always fascinating to me over the years. But it’s always phenomenal when I can see that relationship with money just in our clients getting better and more comfortable and then more confident and using that wealth that they’ve accumulated.

Walter Storholt:

Yeah. I identify with that one a lot. I feel like a lot of people are probably like those two stories that you shared where it’s kind of that put your own gas mask on first. And once you unlock that confidence and that independence, man, you can’t wait to help other people start putting on the mask. And it’s really hard to do when you’re not quite sure about your own safety net and your own success quite yet.

Tyler Emrick:

It is.

Walter Storholt:

And so for folks who get to retirement, and they get these plans and then the plan’s going well and they start to see that comfort really starts to increase, they’re just like, all right, let’s get charitably inclined here.

Tyler Emrick:

Or whatever it is. Whatever it is.

Walter Storholt:

Right. It might be other things, but I’m just saying that one-

Tyler Emrick:

[inaudible 00:21:40] yeah.

Walter Storholt:

… resonates with me.

Tyler Emrick:

That one stuck with you. Yeah. Well, and as advisors, those are the funnest problems, not problems to solve, but like, ooh, where’s the money going to come from? What should we do? Donor advised fund. A bunch of giving… All these fun solutions that we could pull off the shelf to kind of throw our name-

Walter Storholt:

But it could be a trip. It could be, I’ve always wanted to take this trip and I don’t have the confidence to go do that. And now I do. It could be I want to move and be closer to the grandkids, but I wasn’t comfortable enough leaving my paid off house to go and tackle this challenge, or whatever the case may be. Lots of different whys.

Tyler Emrick:

Moving from the West Coast to the East Coast or whatever it is. I mean, come on. Those are big, wonderful life decisions that, working through them and having those conversations, I feel like ad a lot of value. So we started the podcast today on like, hey, how do I know if I’ve had enough? And I think as we’re kind of wrapping up and we’re getting to the end, I would kind of urge the listeners to be like, well, hey, the question isn’t necessarily do I have enough? But starting with what am I trying to accomplish with my money that I already earned? What’s going to make a more fulfilling life for me, I think is a really good secondary or maybe even a better starting point than do I have enough? And then have a team around you or if you’re doing it yourself, or whatever it is, to hash out these ideas and making sure that you’re using the wealth that you accumulated to its best use case, whatever that is for you.

Walter Storholt:

Yeah. None of this is really possible though without a great plan. If you don’t have that plan in place, then it’s hard to unlock this confidence, this independence. And so that’s what you’ve got to take care of and address. And if you’re getting closer and closer to retirement, and you don’t have that plan in place, you’ve probably still got a lot of question marks about your future. You probably don’t have some of this confidence and independence in what your future’s going to turn out to be.

So it’s a great rallying cry to get that plan in place wherever you are along the spectrum right now of planning for retirement, or still accumulating, but getting a little bit closer to that date. Now’s the time to start thinking about these kinds of things and putting the plan in place and getting the most out of life, out of your finances, and what you’ve worked so hard over your lifetime to accumulate and build. Make the good choices now.

If you want to set up a plan with Tyler and the great team at True Wealth Design, it’s very easy to do that. All you’re going to do is go to the description of today’s show. So whether you’re watching on YouTube or listening on your favorite podcasting app, just go to where you see that show description. It’s called show notes sometimes. Click in there, you’re going to see a link, and that’s going to allow you to schedule that 20-minute discovery call with Tyler or an experienced wealth advisor on the team and have that one-on-one chat about where you are right now, where you want to go, how’s it going to happen? How are you going to get there? Where are the gaps in your plan? All those question marks start to get answered.

And you’re just going to set up that call to see if you’re a good fit to work with one another. So click that link in the description of today’s show or go to truewealthdesign.com and you can explore further there as well. Tyler, thanks for the help. Really appreciate it. And we’ll catch up again soon.

Tyler Emrick:

Absolutely. We’ll catch you on the next one.

Walter Storholt:

All right. We’ll see everybody again right back here on Retire Smarter. Take care.

Speaker 4:

Information provided is for informational purposes only and does not constitute investment, tax, or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.