Have you ever wondered how much you really need to retire?
As a financial planner I get this question asked to me all the time.
Instead of boring you with my response, I thought it would be fun to hear it from someone who has literally wrote the book on the subject.
Todd has an interesting story since he was able to retire at 35 and has been living on his assets ever since.
Since then he has become a financial coach where he teaches people what he’s been able to learn from his experience.
Todd is one smart cookie and I know you’re going to love this discussion.
What You’ll Learn in This Podcast
- How much should you be saving to retire when you want.
- Changes you can make today that will help you retire early.
- Does the 4% rule (withdrawal rate) still exist?
- Dangerous rules of thumbs that you may subscribe to that are heavily flawed.
- The new way of thinking about retirement. (this is my favorite part of the podcast)
For your convenience I had this podcast transcribed with you can read below:
Jeff: At the blog, I get a lot of questions as you can imagine. One of the most common questions I get all the time though, it doesn’t matter if they are 20, 30 years old, or they’re 50 or 60, is “how much you need whenever you retire?“. There’s many different thoughts and logic on how much you need and I thought it would be interesting to bring on a guest who has literally wrote the book. How much money do you need to retire, correct?
Todd: Yeah. How much do I need to retire?
Jeff: Correct. So with me, I have Todd Tresidder. Todd Tresidder is a fellow blogger. And we’ve known each other for a couple of years now. But he is also a financial coach. He is the founder of Financialmentor.com. The book that I mentioned is one of several books that he has written on investing or financial planning related topics.
Todd has a very interesting story in that he “retired” at the age of thirty-five, which I definitely want to dive into a little bit here to beginning. I think on answering this question, “how much do people need”, it doesn’t matter if you are in your 20 to 30‘s, or in your 50 or 60’s. I want you to get something out of this discussion. So, Todd I want you to introduce yourself to my readers.
Todd: Former hedge fund manager registered investment adviser sold the company back when I was 35, which was 17 years ago. I had been living off my assets since for 17 years. So, that is where the “retired” comes from. Obviously, I still work, I’ve build the blog, and build products.
Regarding the question, it’s not about how much money you need to retire. That discussion is about what principle you fulfill in life and how people… you know. You don’t want your life to be, you know. The last great thing you did was before age 35 and you spend the rest of your life just eating bonbons and laying around in a hammock.
So, anyway, I wrote the book. The book is an outgrowth of my coaching with clients and it was that questions you said that comes up all the time and nobody had really explained it properly. In my opinion, most folks out there are fooled with half-truths. Some of them are like dangerous so they could be wrong. And they didn’t jive with my experience of what it takes, how much there is needed and how the math really works in practice and so I rewrote the book, literally.
How Much Do You Need to Retire
Jeff: That’s awesome. Okay. I think that’s what a great kick off to this discussion. I guess we’ll just keep it simple at first. But when somebody asks you the question, “How much money do I need to retire on?” How do you respond? Actually, I’m just curious. How do you initially respond to that question?
Todd: Some of the rules of them are actually remarkable and practical. Some of them do actually work enough for planning purposes just to point at directions. So, one thing I always tell people is the big step which is to retirement planning is procrastination. And so if you want to take a simple rule of them just to point a star for true north, then that’s good enough just to get started. You can find your numbers as you get closer and closer to retirement day.
And so, a number all I can play with that really knows is that for that every thousand dollars you spend, your expenses monthly, plus tax, you need about three hundred thousand dollars in assets to support. And so, if you spend four thousand a month, it’s worth forty million. You spend ten thousand a month; you are looking at three million. And again, is that accurate? Absolutely not. Does it give you that true North Star to work toward? Yes, it does. It gives you something to work toward. You can say it in one sentence.
And now people have a savings goal that they can work toward and then you can spend time like reading my book. You can refine your goals over time. But now you have no excuse for procrastination. You’ve got a point to work toward.
Jeff: Yeah, that’s good. For the younger generation, I’m talking like the gen x, gen y. And if you want to throw yourself in there feel free.
Todd: I’m not supposed to be. I’m like right on the borders. I get the brilliant of all the baby boom. They go through, they load it all out, and messed it all up. And then they go off the backyard and that’s where I am. So it better be for years. (So I’m like no man science)
Jeff: I know that with my generation especially the end of generation that precedes me, or the younger generation. Often, I see people saving five percent, ten percent or probably on a high side.
I see a lot of younger people that are, really just don’t know how much to save. And most of them think “Okay if I’m saving five percent, it’s something,” or if I’m saving enough to get the 401k match, which then equates to maybe seven percent if they are lucky. Do you have any general term? I mean, I guess, maybe based it on the numbers you shared there?
But for someone that maybe can’t grasp that equation or computation, what would you say to someone as far as how much they’re going to be saving, percentage wise, on your savings rate?
Todd: Okay. Well, the answer is for how long are you willing to wait until you retire.
Or till until you have some financial freedom. So, I have a post on my side called ‘How anyone can retire in 10 years or less.’ Okay. And literally, it’s how anyone can. And the premise of the post is it explains savings rate as percent of income, your exact question.
And so it relates it back to a basic savings and investment strategy. It shows now anyone can do it. It’s just a function of how aggressive you want to save. So, it comes from the extreme frugality world, like the Mr. Manny Mustache or the early retirement extreme world where these guys are saving high percentage of income to live on a very tiny proportion of their income and their living in extreme frugality world. You know, that’s not my cup of tea. That’s not how I define happiness.
But it works for other people. There’s no right or wrong, whatever works for you. And so, the problem with the weight, their question is phrased, is that there’s certain section behind the plight savings rates.
For example, if somebody says, there are two variables in there. You’ve got the variable of time, right? So, you’ve got a savings rate of, you know somebody else’s save, or you already save two percent of your income. The assumption is that you’re going to spend 80% of your income and if you’ve got 40 years until retirement you start at the age 20, and that equation that works with most of those two assumptions in there that they didn’t mention. And so that’s why I introduce you to how much assets you need as for your spending rate because it’s just a really simple number to work with. There are not as many variables to play with.
So anyway, the later you start, the higher your savings rate. So if you start in your 40’s, your savings rate is going to be more up like 30 percent or something. And again, that even assumes you doing conventional assets, right? You could completely turn these equations upside down by becoming a real state entrepreneur. And maybe you get a fix up house, you know, like maybe you’re a teacher and every summer you buy a junk house and fix it up and rented and you do have a repaired for five years and replaced your income. You know, if you do want a year. So, there are a lot of different models. There’s a lot of ways to skin the cat and what has to be careful about during our, just blanket generalizations because there’s many dimensions to equation.
To try to give an answer to your question, it’s kind of a sighting skill if you start on your 20’s, 10%, 15% might work. Try to add on with another 5% if you start ten years later. You know, it starts going up to 30%. It gets pretty much undo-able to save your way to retirement if you don’t have a strong savings which is based by the time you hit in your late 40’s and 50’s. Because if you haven’t become a saver by then, the percent of your income that you have to save is so huge that the chance of you doing it are pretty close to nil.
Jeff: Yeah. I think you make a good point. Because I, the folks I have run into that didn’t do a good job of saving in their 20’s and 30’s, you know. Now they are in their 40’s and it’s entirely a new concept for them. So now they try having their sacrifice and change their lifestyle completely to build save that 20% or the 30% they need which in the reality they’re not, they are only saving the 10% which means basically they are not to work longer. So, I was curious to hear your thoughts on that matter.
Todd: Well, they don’t have a savings habit, either.
Jeff: Correct. Right.
Todd: Which is, it’s a state of mind. It’s being a value statement. It’s how you express your life and how you manage your money. And so, if you are unguarded by your 40’s or 50’s, how are you going to suddenly start saving 40 or 50% of your income at that point? I mean…
It’s a very difficult change for people today. So, there are other paths, other ways of exploring. It’s not like they’re, you know, they’re not toast. You got to perch it the different way at that point. You can’t save your way to financial dependence at that point.
What Really is Retirement?
Jeff: Right. Okay, so, earlier, you had mentioned, we talked about the, I guess the traditional retirement planning model or some of the projection. I forgot the exact terminology, but you mentioned that they were either flawed and potentially dangerous. Can you touched part, some of those ideas that are out there that many people maybe hold as being still true and constant that need to be reevaluated?
Todd: Well, even the whole world, the word ‘retirement’; you know I mean, if I started a blog over again, I think I’ll rename it ‘Retire Retirement’. You know, it’s like, retirement, people think it’s about; you work till you’re in sixty-five. You work hard for forty years. You script and save like a dog and then, you do nothing of substantial for your remaining thirty years. And that’s not a prescription for a happy fulfilling life.
The whole premise of retirement doesn’t make sense. And what’s really changed now is in this world of low interests rates and increasing longevity, the math of retirement plans got increasingly difficult to avoid that many of not most people can’t achieve it, in a conventional sense. And so, it’s opening up new world.
The thing that has really changed is longevity, increasing longevity. Retirement planning where you have this reverse amortization model. We have an asset based and you’re supposed to spend out of this asset based over a period of 20 to 30 years and advertise these assets. That works for return of time price, consider a hundred and 30 years.
When you start running return of time price inside your 30 years and over, has anybody knows the exact mortgage, not that you can advertise from that assets base is really small. And for all practical purposes because there’s so many variables and so many unknowns that what happen over that 30 years. Realistic, you have to go to a pure casual basis for all those retirement plans.
That’s not whether designed in modern retirement planning and that’s just because with a 30 year to 40 year time price you simply can’t advertise your assets. You cannot spend principle safely. So, for like the first 10-20 years, you’ve got to live up for cash flow and then, once you get there like 20 years, then you can start saving and advertising your asset base.
So again, it’s just this longevity equation has really changed how the math works in retirement planning. And then you throw in record low interests rates as of this recording how may change, right? But as of this recording, record low interests rates, extremely hard to get a high enough return plus high market evaluation which will touch on a little bit here. Very hard to get a high enough mock record expectation for your portfolio in order to meet, make the mock worth for the conventional retirement planning.
What is a Safe Withdrawal Rate?
Jeff: Yeah. And I think, what would you say, one thing I, and I want to say I believe you want to guest post on my site. They talked about, you know, what’s the safer withdraw rate? This is something that is so debated between bloggers and planners and whatnot. When I first started the business, I think it was an article, something I read on SMP, was talking about like 4.7 something percent was like the magic number. If you took that number out, 4.10% of your assets, whichever assets then you should billed to outlive what you have saved. Would you agree with that statement or you do you have your own view of point?
Todd: Yeah. Like anything else, start rules of thumb are very dangerous and can be interesting guidelines, but they are not reality. Reality is dynamic. And so, whenever it makes you just static answer, then you know it is at best, the rule of thumb. It is never a reality. Technically, you know this field. And so, to answer your question of 4% rule of thumb, it’s not reality.
So, first of all, we have to define what safer draw rate is. Nick was back from research from the world ban . He did some several researches. And predates that even the great Peter Linz had made a major mistake. He looked at average returns on stocks and completely was incorrect in quoting that you could save and withdraw seven percent. Because in his average returns was down or higher therefore for you could withdraw that amount for your portfolio. And that ignores the secrets of returns risks, which just means that you get it out (for) average sequence of returns and it changes on safe withdrawal rate is. It has to do with when you retire as much as what average returns are.
And so William Bengen did some research where he did this rolling 30 year period. So, in like 1921- 51 then you got 1922- 52, 1923 to 53. So these rolling 30 year period has tried to simulate a 30 year retirement. And he tried to assess what is the minimum amount that you can earn or the maximum amount that you could start withdrawing from your portfolio and adjust for inflation, so, you keep a constant spending pattern in real dollars, right? So you adjusted out for inflation that would sustain over a 30 year period, that 30 year period. He mapped it out; found that the minimum or the maximum number that would reach all periods was wider than 4%. It’s like 4.1 something that came off from the 1960′s was the lowest point.
And that was with the inflation that worn out afterward that cause major damage toward retired portfolio for that period. And so that was the minimum number, the 4 point something percent. Now the problem with that, is that testing was done during that period on the United States was the economic prom queen of the world. We had the best market history, best period in all the data and most of the research attested on that. If you test the 4% roll on international data, it feels 100% percent of the time.
A lot of people do not understand that it is kind of an operation of the day that now what’s happen since then, is we have what’s called out of sample data, right? So the periods since all these research was done are out of sample using statistic of terms. But it’s more relevant to just throw statistical garbage at you because we’re at record low interests rates. That doesn’t exist in anyone’s sample period. We’ve never had a period of record low interest rates combined with market evaluation center on the top quartile, which is what we entered starting in 2009-2010 period.
If you do a correlation based research, which Wade Pfau has done, so it’s Wade Pfau, W-A-D-E P-F-A-U. You can find it online. He has done some research, excellent research, the correlation based. He found the, actually, safer draw rate correlations stats would be down about 1.8% as of 2008-2009-2010 range. And your…
Todd: (16:26) Down around 2% and that’s because the low interests rates leads to a lower safer draw rate and high marks it to a lower safer draw rate. So, what you’ve learned if you really looked into data, there’s two major factors that affect your safe withdrawal rate. One is the market evaluation at the beginning of your holding period or the beginning of your retirement (16:49:00). The interest rates at the beginning of your holding period and then some (escort?)(16:56:00) to that is the first 15 years returns. Those 3 factors that are all key determinant of some of your actual bill safe withdrawal rate could be in the ranges wide, your ranges and it worth from, historically, 4% to about 10 or 11%. So ranges quite wide and it are getting some function on these variables.
Jeff: That’s, I was not aware of his research. So just to hear that, I mean, it’s surprising but then again it shouldn’t be, you know. Co’z like, we have been lower interest rate period now for four plus years, and i know like right now for anybody that’s looking to retire, I’m quite the most scared I’ve ever been for anybody like that, to retiring like in the next year or two with low interest rate with the market being where it’s at. I know most people like ”oh, we’re fifteen thousand, ye-hey!” For me, I’m worth fifteen thousand, no! I’m just you know concern of correction and in-conjunction with the bond market and also with the low interests rates. Just i think just a combination of things I’ve become more comfortable in 2009 when the market was down. Surprisingly now, so that’s interesting. So, what was that percentage you again, is it one point?
Todd: His research shown us the lowest 1.8, 1.9. Yeah, I’ve recommend you got to wage his actual research and find online if you search his name. But, again the research is that Michael Kitces has also done some very good research in the field and that is K-I-T-C-E-S. Michael Kitces and he starts with very good researches well and again, is very consistent. Pictures are consistent about what you can expect looking forward in terms of safe withdrawal rates.
Jeff: Okay so is there any other things that you consider to be flawed or dangerous that are out there that people need to be aware of?
Todd: Well, a ton. I can’t pull it all up … (both laughing) discussions. We go through other questions.
The big thing is what people do retire planning and they develop their magic number. There’s this whole magic number myth. And the thing I see is it gets my craw of you all cause that is what’s working this field now is when people go for increasing amounts of detail in pursuing their magic number, thinking that’s going to get them increasing levels of accuracy. They are trying to control the outcome. My retirement calculator build the ultimate retirement calculator, very humbly named. I did it for a reason.
There was nothing out there that could model retirement like I do with my coaching clients. And so I needed a calculator that I could actually work with people on. And the other calculators will converse (19:40) false assumptions where we have problems and I needed something that could model real world retirements. So I build this thing. Soon I get comments, I get feedback. Everybody’s got an opinion. I love it when somebody (19:51) say something like, well, you’re only modeling for one person. ‘I got me and my spouse and we’re different agents. I need somebody and handle two different streams.’ My reply is, ‘it’s clearly a property for a reason,’ right? You’re one economic entity. I don’t understand this. All this stuff fits through to our community assets. You’re really one economic entity.
And if you gathered more than two people, the complication and the amount are ridiculous and it aids in their value. Well, you really get there when you start modeling real world retirement is what you find is that, your retirement security breaks down to two equations. Two simple equations which are your savings rate as a percent of your income.
So how much you spend (as these rules) as a percent of your income which we already addressed, right? So that’s the asset build up phase and then your return on investments, not of inflation. Both of those numbers are compounding numbers. That’s why they dwarfed everything else. You can go in or you can start playing with all kinds of detail. Everybody has got their opinion. We couldn’t list variable, we couldn’t add variable. I can tell you those two numbers are the game changers and everything else is like a little tiny detail. Sure it’s worth putting in, it’s worth trying to get it right, but don’t hang it up on it. It’s those two numbers that will determine your financial security.
Jeff: Yeah. Was that the inspiration? I didn’t want to mention your calculator because you’ve created a ton of calculators. I have done an awesome resource enough for my blog and other financial bloggers out there. Was your, ‘the ultimate retire calculator, was that your first creation? Everything was kind of…
Todd: Yeah. That’s what started the whole piece and created co’z I really needed it for my work in touching clients. And then it got such a strong reception, actually. One point before I got pinned on penguin updates, it was number two for retirement calculators and I was on the middle of page one for return calculators. Nowhere near that now.
Todd: But it was top rate. There have been multiple reviews of best retirement calculators and it’s in there. It’s just a really good tool because what I did was I wanted something from modeling retirement. I didn’t want something intruding some magic number. I wanted them and we can get into this if you want. It’s another round of question which is how do you use your retirement calculator right.
Todd: So, I don’t know if you want to get into that or not.
Be Careful of Financial Calculators
Jeff: Well, I did because out there, you can go to Bank Rate, MSN Money, Fidelity. I mean all these sites have some form of retirement calculator. Most of them are rather generic, UNRN, a few feels maybe some assets or investment return rate, withdraw rate, you age and poof! Here’s the magic number. Yeah. So I’ll definitely love to hear your take on how you won, how people should approach if they are using. Those types of calculators versus how those computers are still using yours.
Todd: Okay. Well, the issue in using retirement calculators is it’s just a mathematical projection of assumptions. So, the thermal truth is that your retirement projection will only be as accurate as your assumptions. Let’s look at some of them, just to look how do ludicrous this whole thing is, okay? One of the assumptions is inflation. You got PhD in Economics who have studied the inflation in their entire career. Their whole career was built on this, on being able to project this.
They can’t get it right one year to the future. You’re supposed to project it 30-40 years into the future. It’s ridiculous. There are so many variables that go on what’s going to determine the inflation including politics. Things that can’t possibly be foreseen. That for us to project the inflation 30-40 years in the future, it’s just absolutely a farce. It’s impossible to do and yet that’s what you have to do. It’s a requirement of a retirement calculator for it to work, right?
Todd: And so, right there alone you’ve negated any possibility of the magic number myth could be valid. That’s why I said I reduced it down to its queue ratios, stuff. But that’s just one assumption. You’ve got return on investment, the conventional financial planning swish. You already know what’s the conventional financial planning swish in for inflation while projecting retirement.
Jeff: 2, 3, 4 percent, somewhere in that range?
Todd: Yeah. It’s a long term historical average.
Todd: So you grab a 3% historical average. But you and I both know that the future for the United States is not (24:15) the historical average. We’ve got unprecedented debt levels, that the world has changed and so what happened for the last hundred years is not what you are going to (next see)(24:24) in your retirement. That’s not a safe assumption.
Todd: Mathematically, the US can’t pay off its debt. It has to default one way or the other. Either it has to default in kind or outright. And it is just a mathematical thing. The saying that ”the past is the future” just makes no sense. That’s what the projection of inflation would be. Now, let’s look at another one. Return on investment assumptions.
Another key assumption like pointed out earlier. You’re supposed to project your return of investment. Can’t be done! You don’t know what your return of investment would be 30-40 years in the future. Can’t be done. How about this? You’re supposed to guesstimate your life expectancy. You’re supposed to say when you and your spouse are going to die. Nobody knows that. It’s ludicrous, right? You know that you’re going to die today.
You and I could die on this interview, right now. Or we could live the age of hundred. Yeah, so all this stuff, when you just go down the list of assumptions and you will realize how insane the whole idea is. Retirement planning done right and using retirement calculators properly is about a scenario in all sense. What you want to do is you want to start modeling scenarios and seeing how well they hold up. Supposing I bought rental houses instead of aggressive portfolios. Supposing I already get dividend stocks instead of a conventional 60/40 portfolio and then spending down principle. Supposing I work two work in extra 30 years or in extra 10 years, to check the pressure of my assets. Supposing I get the inheritance, supposing I doubt, then you start modeling scenarios and see how they play out in practice of the math.
That’s a good way to use your retirement planning calculator. And that’s what mine does. So on that single page; you can change any one variable. You don’t have to re-input everything and then I’m just place it out in the numbers and engage your whole table so you can see all the numbers that you’re at. That’s my belief of how it’s done right, co’z that’s where the creativity is. It’s in the life planning.
Why to Cautious of Monte Carlo
Jeff: Right. Okay. One of the things that, some of the financial planning suffered from abuse in the past. Rely heavily on the Monte Carlo analysis. Basically for those that, somewhat somewhere to what you mentioned earlier but like, it’s just taking different periods of time. And trying to back us but once again is also using a lot of these assumptions that we’ve just spoke to. Which in your view of point of the Monte Carlo analysis just as a general financial planning tool or a some type of predictor of whether you going to have a successful retirement or not?
Todd: Okay. Monte Carlo is a big improvement over what people are doing prior of Monte Carlo. However, it’s still very misleading. And I’m kind of out in the world on this one. A lot of people disagree with me on this. But here’s the phenomenal problem, it’s that Monte Carlo has an implied assumption that the distribution is random. The results are random. So you’ll live, pull it, all the retirement planning and fell, and you’ll get back the things saying that you’re 90% confident that your money would have outlived you. Okay. So, that creates this very high degree of confidence. You’ll think, ”Oh, 90%, I’m good to go!”, right? Or ”95%, I’m good to go.”
But it doesn’t tell you anything about the five or ten percent of failures. As it turns out, those five to ten percent of failures are better conditions in what we’re facing now, in almost all cases. So, you’re actually sitting in the five or ten percent failure range right now today. Because of the economic conditions, in other words, those high failure rates existed during periods of high evaluation, and low interest rates or periods of preceding high inflation.
What it does, Monte Carlo massed a lot of internal data and important stuff to understand about how retirement planning is done correctly. It massed it over and deceives it in this facade of confidence interval. As if everything is random, and it’s not random. There’s not, there’s correlation, there’s not causation. I want to be careful on that.
For people that are experts on this, I don’t want to mislead. There’s a lot of correlation between market evaluations and expected returns going forth, low interests rates, and safer draw rates. Things like that and all that can sit in the Monte Carlo analysis. For that reason, I think it’s deceptive. I think it’s dangerous. A lot of people disagree with me.
Jeff: No, I think I want to point out and agree is that, like you said, you have a 90% chance of success. I mean, honestly, what does that really mean?
Jeff: I mean, at the end of the day, like you said, I know the tool I used as a little kind of like a speed graph, like left or right. More on the green, you’re already good. Like ”oh, I’m in the green, I’m good.” But then like you said, that’s all based of all these random assumptions. Life exempts you trying to pick life expectancy, inflation, investment return. All these other (29:33), just data to UNRN and to achieve that. I definitely, I agree with you, actually. I mean, I do.
Todd: To me, it’s just math, Jeff. I’m very confident. All I’m saying on this is that it’s very deceptive and dangerous. I just know there’s a lot of people sitting down on forums and they going to go ”oh, it’s tiresome,” crazy guy. (29:55-57) If you really looked at the data and you looked at the math and you plot where these very rates are, it’s obvious. Just go look at the data and it would tell you.
Todd: Your point is really important which is the average consumer is using this stuff and even the bolt of financial planners don’t really understand what’s operating behind that black curtain of you well. They don’t understand what the software is doing and what the implied assumptions are behind the software.
Jeff: Yeah. And like you said, Monte Carlo is an improvement on how the things used to be. I mean before, it just like a flat. You enter the data in, just a line, just been like this. It was like yeah you’re good or you’re not. I mean at least you give some credit to Monte Carlo. It gives you some variance, I guess, some possibilities, though. And I know non-working clients, I just use as a gauge. It’s definitely non-absolute. Never treated such or at least it gives them some type of reference point, I guess.
Todd: They’re all good tools. They all tell you different dimensions of the same picture. So that’s why I’m careful when I talk about Monte Carlo. It’s not like it’s broken, but it really deceives a lot of people. And I can tell you if you’ll walk out there (31:05) along then the 90% confident, I’m good to go. No you’re not. You’re in all like your sitting in the 10% failure rate, as of today. And they don’t get that at all. Then I have to spend lot of time educating on why they’re there, and they go, “Oh my God! I had no idea. This thing totally deceived me.” And that’s where my hold come from is.
Jeff: Alright!! Okay well I felt like we’ve really, all I can say hammer. I know you can go a whole lot different to it but they don’t want to respect people’s time. What I’m curious what you’d say is what are some of the direct recommendations that your approaches that you would have people consider when they’re doing retirement planning? Whether be the mimic kind of what you’ve done or most people might hear this like I can never be a heads on manager and I’ll just disconnect immediately. So how can others take on some of your approach, but do it in their own contexts where it would be relevant in their lives?
Todd: I think one of the big message is out like bringing in this interview is this whole idea of rethinking what retirement is and rethinking how you’d go about life planning. We’ve all got hard wired in our heads that you just save until you retire and then you spend down your principle. Then there’s this magical age of 65. And I’ve had a lot of success working with clients where they currently redefined their lives and they say “okay.”
When I create this asset accumulation phase, maybe at the age 40 or 50 where I work this serious career. I raise my children, get them to college, get a house, get at least partially paid down whenever I got the mortgage fixed. I’ve got these things going on. I got my financial house in order. I’ve got this based of savings will. And then I can rethink my life. Maybe my career satisfy me at that point. Maybe there are other things that I wanted to do that now that I’m no longer responsible for my children, I can now often do.
And so, you rethink your life in terms of fulfillment and you say, “how can I create sufficient cash or how can I live within my means and just let my savings compound and grow, and pursue my life in terms of fulfillment? In terms of maximum savings or earnings. And so, starting in terms rather than birth, like life planning is both school, or, death, right? Like four dimensions. Out of 5th, one in there called birth, school, work and then fulfillment, and death. Think about how I can create a new income stream, because that income stream, noticed how I opened at the interview with a thousand of monthly gross, three hundred thousand assets.
First you go to the income stream that generates poll tree, two thousand a month. You just took half a million, three quarters of a million and pressure off your assets savings, right? Two thousand a month. So let’s say there’s this example I like to use, let’s say some guys running a big CPA practice and he’s got this large staff and he says “you know I’m just done with these, I’m done with (all the) hassles, I’m done with all this work, done with paying the rent.” He just wants to be retired. So he retires, and now he works at the peak season like the October (found) season, and the April (found) season. Comes in and crunches it for two months. I need seasons, maybe four months a year. And he cranks enough money to live off for the (both of year)(34:16:00) co’z that’s the big cash for the period for the CPA business.
And so he cranks that, working underneath somebody else’s CPA office. Just comes in and cranks out does a lot of return works during that period. He’s “retired”, he’s got 8 months of the year to do whatever the hunky wants with his life. He’s taking the pressure off his assets. His assets can never compound. And they can be advertised over much shorter period as he approaches death. And he could spend an extra 10-20 years doing whatever the hunky wants with his life, by following that models.
Just start thinking in terms of different models about how they create cash flow, how they manage your life .That’s the message I’d like to drive home. There’s a lot of really creative solutions to retirement planning, they’re very exciting to pursue.
Jeff: Yeah I know. It’s just in my life, that’s definitely the approach that I’ve really been working towards. For me, I guess it was the Four Hour Work Week that really kind of exposed. Just that whole, just the idea and just the concept. And I would encourage anyone that hasn’t read that book. I mean, maybe, might not all that apply to you but just that key aspect of. It isn’t always about just working sixty hours a week. I have so many clients that, blue collar that just work their butt off, six days a week, some seven days a week.
One gentleman, he’s been on call with his job for like the last 28 years. I mean, he can never take a vacation without being worried if his office for the planning work out was going to call him to come in and service whatever they needed. And I was just thinking like “oh my gosh, I just couldn’t. So now he’s finally re-step (point forward). He saved enough. I mean, given that, he’s saved a lot and now can retire a little bit earlier. He’s early 50′s but still, last 30 years of his life for basically dawn that he spent slaving away at his job.
I just want to encourage people to just to get out of that mindset that you have to do that. Find that fulfillment, whatever that is for you. It takes some time to grasp it co’z I’m part for it, four hour work week, four years ago, maybe. And I have to re-read it again just to kind of remind myself, “okay what am I trying to get out of this,” you know. I don’t want to have to work until I’m seventy. If i enjoy it that’s one thing but I just don’t want. There are other things in my life that have become more important than that. So, I want to make sure that I have time for.
Todd: Yeah for me is not about getting out of work. I work really hard when I do work. I take about 3 months’ vacation a year. For me, work is a choice and it’s an active creativity. I’m building something that is creative and I’m passionate about. I don’t look on it as work or not work. I look on it as pursuing your life in terms of fulfillment, (it has done you a) maximum income. The idea, the way the math works which is really fascinating when you increase the compounding periods. That’s why I have you build your savings in the beginning, right? And then you’re just extending out your compounding period without drawing down the assets. And the impact on the math on that is dramatic and then on top of that, what you’re doing is you’re shortening the amount of time that you’re spending down the assets at the end. And so, that it looks really fascinating. It has amazing changes on the math of the retirement planning.
Jeff: That’s awesome. Todd this has been an enlightening discussion. I really hope this is helpful just for people. Co’z this is like i said this is a question that sounds like you get asked a lot and I get asked a lot. How much do I really need to retire? So I like the fact that we address. Just some of the common misconception people have and a lot of the common dangers and misunderstanding that are out there. But I also like the fact that when we introduced some new concept to people that just to avoid, to view it that it’s not about like we’ve talk about working 30-40 years, and just sliding away. So this has been awesome. For those that want to find out more about you, more about your books and your financial coaching business, where we’re supposed to find you?
Todd: My home base is financialmentor.com and I have all those (38:30:00)(38:32:00) to find it all from financialmentor.com.
Jeff: That’s awesome!!! We honestly could have talk for another two hours.
Todd: It’s a big subject.
Jeff: Yeah. I also too. I really love, I’ve had the luxury of having weekly calls with Todd in just this year and just the way that he approaches things, just this whole coaching perception on everything has just been really helpful. You had so many insides, I think. I know you could bring the table there. Want to do that another time though. But until next time Todd. Once again, I appreciate you having on. And for those either (approach) you’ve mentioned, I’m going to have links to, so people can access that, obviously links to your book as well. And we really appreciate man. We really do.
Todd: Alright, thank you so much Jeff. Thank you.
Jeff: Alright, thanks Todd.
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