Are You Too Late for the Gold Rush? Plus: A Retirement Rule That Might Be Broken

Summary

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Podcast Summary: NerdWallet’s Smart Money Podcast

Episode: Are You Too Late for the Gold Rush? Plus: A Retirement Rule That Might Be Broken
Hosts: Sean Pyles, CFP®; Elizabeth Ayola
Guests: Ana Hohoski, Sam Taub, James Bashel
Release Date: January 29, 2026

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Overview

This episode dives into two hot personal finance topics:

1. The meteoric rise in gold and silver prices, analyzing what's truly driving this "gold rush," who should (or shouldn't) get involved, and the practical role precious metals play in diversified portfolios today.
2. The utility (or obsolescence) of the traditional “80% of income in retirement” rule—why it came about, whether it still holds up, and smarter alternatives for planning your financial future.

Financial journalists and guest experts weigh in with actionable advice, relatable anecdotes, and tips for balancing risk, reward, and reality—whether you’re investing for growth or planning a long and fulfilling retirement.

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1. Money News Roundup: The Precious Metals Frenzy

[00:30–16:15]

Why Gold and Silver Matter (and Why Now)

• Safe Haven Appeal:
  • Gold and silver’s core value is their intrinsic worth and historic role as currency hedges, not their resistance to volatility.
  • “Precious metals are safe havens because their prices are supposed to move independently of most other things in financial markets and the economy, especially money. When currencies lose their value, precious metals have a long track record of holding theirs.”
    — Sam Taub [01:56]

Drivers Behind the Record Prices

• Gold at All-Time Highs:
  • Institutional buyers (central banks, hedge funds, wealthy individuals) are loading up to counter geopolitical uncertainty, tariffs, and a sliding US dollar.
  • “Gold tends to hold its value really well against a declining currency… Large institutions are buying gold as a hedge.”
    — Sam Taub [03:05]
• Silver’s Extra Volatility:
  • Silver is both a precious and an industrial metal—demand spikes with industries like electronics and EVs.
  • “Most of the global demand for silver comes from industrial applications like electronics and photography…”
    — Sam Taub [03:39]

The Impact of Current Events

• Headlines Fueling Price Surges:
  • Geopolitical flashpoints (like tariff threats or tensions with other countries) can trigger short-term gold price jumps.
  • “When we’re talking about market volatility due to these tariffs, we have to keep Taco in mind. That’s the acronym for ‘Trump Always Chickens Out.’”
    — Sam Taub [04:31]
• But Don’t Overreact to News:
  • Short-term swings usually revert to long-term currency trends.
  • Most financial advisors don’t recommend day-trading gold.

Should Everyday Investors Join?

• Gold as Portfolio Diversifier—Not a Jackpot:
  • “Precious metals aren’t something that’s going to make you a big short-term profit. Some are skeptical about including them at all, others say 5–10% of your portfolio as a diversifier and ‘apocalypse insurance’.”
    — Sam Taub [07:48]
• Timing Purchases/Sales:
  • Timing is less important for long-term investors.
  • After metals outperform stocks, rebalance to maintain your allocation goal.
  • “You’re probably selling off some gold holdings just to bring your portfolio back down to the 5–10% allocation you’re targeting.”
    — Sam Taub [08:36]

Physical Gold: Doomsday Insurance or Hassle?

• Owning Bullion/Coins Pros & Cons:
  • Physical metals are a last-resort asset if financial systems collapse—but come with costs and complexities (safekeeping, selling, maintenance).
  • For most, gold ETFs or funds are simpler and easier to manage.
  • “There’s a case for physical precious metals as doomsday insurance, but as a portfolio investment, you’re probably better off buying shares of a gold ETF.”
    — Sam Taub [12:21]

The Dollar’s Slide and What’s Next

• Dollar Weakness Powers Gold:
  • “Some portion of the gold rally is just that the dollar isn’t what it used to be… The US Dollar Index is down about 11% over the past year, which is a pretty huge slide.”
    — Sam Taub [13:06]
• Big Stories to Watch:
  • Japan’s weak yen (potential coordinated intervention could push gold higher)
  • Looming US government shutdown (could further damage confidence in the dollar and boost precious metals)
  • “When we can’t get it together to fund the government… international investors lose confidence and tend to buy alternative investments like gold.”
    — Sam Taub [15:52]

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2. Listener Money Question: Does the 80% Retirement Rule Still Work?

[20:42–42:16]

The Origins and Intent of the 80% Rule

• Historical Reasoning:
  • The rule was meant to account for decreased work-related expenses (commuting, work attire), not a universal truth.
  • “There was this assumption that about 20% of your pre-retirement costs were associated with work… So, 80% was ‘enough’.”
    — James Bashel [21:27]

Why It's Too Simplistic

• Life in Retirement Changes:

  • Some costs may fall, but travel and healthcare can increase.
  • Spending can surge early in retirement (travel, health) and may be unpredictable.
  • “If you look at your expenses today and say, ‘what am I going to spend in retirement?’ you’re going to have a very different list… I often have clients say, ‘well, I spend $10,000 a month. In retirement, I’ll spend $8,000…’ I say, ‘what’s going to change?’”
    — James Bashel [21:54], [22:31]

• Healthcare and Inflation Are Major Factors:

  • “A report from Fidelity found that retirees may need more than $170,000 just to cover healthcare costs in retirement.”
    — Sean Pyles [23:40]

Better Ways to Plan: Rules & Approaches

a. The 80% Rule

• Best as a starting point. Generally, too limiting (“less aspirational”) if taken as gospel.

b. The “Rule of 1000”

• For each $1,000 of desired monthly retirement income, plan to have ~$240,000 saved.
  • “They said, ‘there’s probably a 5% withdrawal rate and a 5% growth rate…’”
    — James Bashel [26:00]

c. The 4% Rule

• Safest/most conservative guideline: Withdraw 4% of your nest egg per year in retirement and, barring catastrophic markets, your assets should last.

  • “You can withdraw 4% of your retirement savings annually to fund your retirement… That 4% feels very conservative and risk averse and something that’s very manageable.”
    — James Bashel [27:43]

• Easier to calculate and communicate.

• But:

  • None are a substitute for a custom plan; most people underestimate their own expenses (by a lot!).
  • “Very few people are good at tracking their expenses… Most people underestimate how much they spend.”
    — James Bashel [28:47]

Real Planning > Rules of Thumb

• Use robust planning software and run “Monte Carlo” simulations to account for market volatility, inflation, and lifespan variability.

• “We want to have the variability of each of these factors considered in the plan—when we oversimplify, we often kill the complexity… to our detriment.”
  — James Bashel [30:01]

• Why rules of thumb are popular:

  • Simple, easy to remember, and at least a starting point for most listeners.
  • “I think people find these rules of thumb appealing because they give something to latch onto when the variables might be really hard to follow…”
    — Sean Pyles [30:40]

New Realities for Retirement

• Many Expect to Work, at Least Part-Time:

  • 37% of Americans expect to work part-time in retirement (T. Rowe Price report)—not just due to financial shortfall, but for purpose.
  • “What financial independence is: giving you the choice to do with your time what you want to.”
    — James Bashel [32:15]

• Risk of Not Saving Enough:

  • Relying solely on future work is risky (job loss, health, changing industry/AI, etc.)
  • “The opportunity to work in perpetuity is a risk you’re taking… Saving is actually a risk management tool.”
    — James Bashel [34:28]

For Those Who Struggle to Balance Saving vs. Spending

• Oversavers:
  • Don’t penny-pinch your entire retirement; strike a balance between enjoying today and safeguarding tomorrow.
  • “We are often telling our clients to spend more rather than save more… Live life throughout your life, not just for the future.”
    — James Bashel [39:02]
• Undersavers:
  • Don’t procrastinate or assume "something will work out." Start with a plan—even a basic one is better than none.

Actionable Steps & Takeaways

• Know what you spend (use tools like Monarch Money, Rocket Money, etc.).
• Use the 4% rule as a quick check, but get real with your numbers.
• For peace of mind and confidence, consider working with a financial professional who can model your unique scenario.

Key Quote on Planning:

“Having a plan is what allows you to have a baseline against which to make decisions, and that’s going to make you feel psychologically confident that you’re going to be okay. And that’s the very first step.” — James Bashel [41:21]

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Notable Quotes & Memorable Moments

• "When we're talking about market volatility due to these tariffs, we have to keep Taco in mind. That's the acronym for Trump Always Chickens Out." — Sam Taub [04:31]

• "There's a case for physical precious metals as doomsday insurance, but as a portfolio investment, you're probably better off buying shares of a gold ETF or something. It'll be a lot less of a hassle." — Sam Taub [12:21]

• “You’ve worked really hard to get there. You want to be able to enjoy your retirement. So when you get that 80% cap, in many ways you’re immediately starting from a more restrained base, and that's less aspirational.”
  — James Bashel [22:59]

• "Very few people are good at tracking their expenses... 95% of people underestimate how much they spend." — James Bashel [28:47]

• "We want to live life throughout our life, not just for the future." — James Bashel [39:02]

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Timestamps for Important Segments

• Gold and Silver: Safe Havens, but Not Guarantees — [01:45]
• Drivers of the Gold Rally — [03:05]
• Geopolitical Events and Prices — [04:31]
• Bullish Price Forecasts and Investor Risks — [06:11]
• Practical Advice for Adding Gold/Silver — [07:48]
• Physical Metals vs. ETFs — [10:11]
• The Dollar’s Impact on Gold — [13:06]
• Potential Market-Moving News Ahead — [14:08]
• Listener Q: 80% Rule and Retirement Planning — [20:42]
• The History and Shortcomings of 80% Rule — [21:27, 21:54]
• Healthcare, Inflation, and Spending Patterns — [23:40]
• Comparing Rules: 80%, Rule of 1000, 4% Rule — [26:00–27:43]
• Simulation-Based Retirement Planning — [30:01]
• Work in Retirement and Risk Management — [32:15–34:28]
• Balance Between Living and Saving — [39:02]

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Final Takeaways

• For Precious Metals:

  • Gold and silver can diversify portfolios and hedge against currency decline but are not a path to fast riches.
  • Day-to-day market timing is not advised for most; long-term allocation (5–10%) suffices for “apocalypse insurance.”
  • Physical ownership makes sense for worst-case scenarios but is impractical for most investors.
  • Watch the dollar—currency moves matter as much as metal demand.

• For Retirement Planning:

  • No single rule (80%, Rule of 1000, 4% Rule) should dictate your retirement plan.
  • Use rules of thumb as a starting point, but tailor your plan to actual spending, goals, and life changes.
  • Consider professional advice and robust financial tools for confidence and peace of mind.
  • Strive for balance: Enjoy your present, but safeguard your future—don’t fall into the trap of either extreme.

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Listen to future Smart Money episodes for more practical, research-backed money advice, and don’t forget—you can always send the Nerds your money questions!

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Transcript

[Sam Taub]

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[Sean Pyles]

Gold just hit another record high against the dollar. This episode what it means for your finances and your portfolio. Welcome to Nerd Wallet's Smart Money podcast where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Pyles.

[Elizabeth Ayola]

And I'm Elizabeth Ayola. This episode we're discussing whether you need 80% of your annual income in retirement. Where did will come from anyway? But first, our weekly MONEY news roundup where we break down the latest in the world of finance to help you be smarter with your money. Our news colleague Ana Hohoski is back to talk about precious metals.

[Ana Hohoski]

Hey, Elizabeth. Hey, Sean. And yeah, like Sean mentioned, gold is hit a record high, but I'm also thinking about hitting estate sales this weekend and seeing what grandma silver is going for because that's also higher than ever. They've both hit unprecedented levels recently and it's going to have implications for the economy. So today our investing colleague Sam Taub is here to talk about why investors are flocking to precious metals. When uncertainty hits, what drives swings and how politics and the global economy move prices. And we're also going to talk about when it's worth having some physical metals in your portfolio. Sam welcome back to Smart money.

[Sam Taub]

Always great to be here, Ana.

[Ana Hohoski]

So first off, let's do some level setting. You always hear that gold and silver are safe havens, but what does that actually mean? And why do investors steer toward them during times of uncertainty?

[Sam Taub]

So the fundamental reason why gold and silver appeal to investors is that they're intrinsically valuable, meaning they're rare and they look pretty and they're traditional symbols of wealth in cultures around the world. This is an important distinction. When people say that gold and silver are safe haven investments, they don't mean that their price stays level over time. And as we're going to discuss later on, both can have some pretty dramatic price swings. But precious metals are safe havens because their prices are supposed to move independently of most other things in financial markets and the economy, especially money. When currencies lose their value. Precious metals have a very long track record of holding their value by increasing in price in that declining currency over the long term, even if we're talking about thousands of years, gold is remarkably consistent in how much stuff an ounce of it can buy in, even though its money price can vary wildly over time.

[Ana Hohoski]

Yeah, the prices do seem to change. Gold surged over $5,000 per ounce this week. What's driving this remarkable run over the last six months?

[Sam Taub]

A lot of it is large institutions like central banks and hedge funds and also just really, really wealthy families and individuals buying gold to hedge against geopolitical uncertainty. Things like tariffs and the market volatility that comes with them, as well as hedging against a decline in the value of the dollar. As we talked about before, gold tends to hold its value really well against a declining currency.

[Ana Hohoski]

What about silver? Because its swings have been even more dramatic, even more volatile. What's influencing silver prices?

[Sam Taub]

Silver is a precious metal, so it's subject to the same kinds of precious metal trends we were just talking about. But the thing about silver is that it's also an industrial metal. In fact, most of the global demand for silver actually comes from industrial applications like electronics and photography, rather than things like jewelry and homewares. So another part of the silver story is strong demand from things like computer chips, for AI and for electric vehicles.

[Ana Hohoski]

So we talked about geopolitical uncertainty. Let's talk a little bit more about specifics. We recently saw a clear example of how gold reacted to geopolitical events. Tensions around Greenland and President Trump's tariff threats escalated and then prices fell when he pulled them back. How much do single events like these still move gold prices? And why does that happen?

[Sam Taub]

Geopolitical events can cause short term fluctuations in prices, but those generally don't last. And over the long term, prices tend to revert to longer term trends driven by things like currency value. You're going to hear me say that a lot in this episod. In particular, when we're talking about market volatility due to these tariffs, we have to keep Taco in mind. That's the acronym for Trump Always Chickens Out. And I want to say this in as politically neutral a way as possible. Maybe Trump gets intimidated by the market volatility that his tariff threats cause and he backs off because of that. Or maybe his intent is always to use the shock of the tariff threats to force a deal. You could argue either way with that. But the point is, ultimately, a lot of these tariff threats don't last, and neither does the short term volatility around them, including in gold prices.

[Ana Hohoski]

Now for investors who are watching news events play out, they're keeping track of all these factors that play into gold and silver prices. How do you separate short term headline driven moves from longer term trends when you're thinking about precious metals?

[Sam Taub]

For the reasons we just discussed, I don't think it really does any good to pay attention to the headline driven moves unless you're trying to day trade gold and silver, which is not something that I personally have a lot of expertise in. And it's not the kind of thing that you'll hear a lot of financial advisors saying is a good idea to try to do. But for the rest of us, precious metals are just a portfolio diversifier that you buy and hold in order to reduce risk.

[Ana Hohoski]

Now recently, Goldman Sachs had made a pretty bullish call. They forecasted that gold could reach 5,000, but we've already gotten there but $5,400 by year's end. What's your take on these forecasts? What are the risks for investors if they're going to be buying into this optimism?

[Sam Taub]

Again, we got to talk about the distinction between kind of the short term reaction to this kind of news and the long term reaction in the short term. These kinds of stories are often kind of self fulfilling prophecies. Traders often interpret an increased price target from a big investment bank as a bullish signal. When Goldman raised that price target on January 21, I think it was the price of gold increased a lot more steeply than previously and it's up about 6% or so since then. At the time we're recording this now it's important to note that this is one of those news driven price movements. And don't get me wrong, Goldman Sachs has some very smart people trying to estimate what the year end price of gold is going to be. But that doesn't mean that those estimates are perfectly reliable. I mean, we're only a month into 2026 and a lot could happen in the next 11 months that could derail that $5,400 per ounce prediction. So I don't think it's a good idea to take that prediction as a given and buy into it for the long term.

[Ana Hohoski]

Still, people are getting really excited about gold, about silver. So if you're an everyday investor and you're thinking about adding one of those to your portfolio now, how do they think about entry points? What factors are going to matter when you're deciding whether to buy in and when should you do that?

[Sam Taub]

For everyday investors Precious metals aren't something that's going to make you a big short term profit. If you talk to different financial advisors. Some are kind of skeptical of the idea of including precious metals in a portfolio at all. But others will say that they should make up a small percentage of it, maybe 5 or 10% of it, and they just serve as a diversifier and also as kind of apocalypse insurance. And we'll, we'll talk more about what I mean by that later. So that's a long haul investment. And I don't really think the entry point or the timing really matters much if you're talking about a time horizon of years or decades.

[Ana Hohoski]

So on the flip side, does timing really matter when you're thinking about selling or taking profits in precious metals? Are there any signals that you would look for in that case?

[Sam Taub]

Again, for a typical long term investor, precious metals aren't a way to get rich. They're just a small static component of your portfolio. If you're investing for retirement or something like that, you're probably not going to try to take profits in the small portion of your portfolio that might be invested in precious metals. But I will say this. After years where precious metals have outperformed the stock market, which includes last year, you'd probably want to rebalance your portfolio. And what that means is that you sell off the pieces of your portfolio that have done better than the rest and you buy a little bit of the pieces of your portfolio that have underperformed so that you bring everything back to its target mix. So after 2025, if you have a gold allocation in your portfolio, you're probably going to be selling off some of your gold holdings just to bring that portion of your portfolio back down to the 5% or 10% allocation that you're targeting now if you're trading gold. Again, I don't know that much about precious metals day trading. We talked about Goldman's $5,400 per ounce price target for the end of 2026 earlier. I'd say if gold goes above that level well before the end of the year, that might be a good place to throw in the towel and take profits. But again, that's, that's my uneducated opinion.

[Ana Hohoski]

Sam, with so much up in the air and all of these commodity prices swinging so rapidly, what are some of the common mistakes that investors who are new to precious metals are going to make?

[Sam Taub]

A lot of people who are newly into precious metals are interested in physically owning them. And I think maybe we should talk about the pros and Cons of that. Earlier, I touched on how precious metals are intrinsically valuable and also how they can kind of be apocalypse insurance. And what I meant by that is if something really, really bad happens, like a war or a huge economic collapse or something else that disrupts the financial system and people's ability to cash out conventional investments like stocks and bonds, physical gold is still physical gold. I find that in a lot of cultures and in a lot of families that have faced severe adversity in the recent past, maybe they've had to flee from their homeland or something. You sometimes find this tradition of passing down some gold jewelry or silver homewares or something. And in these families, Grandma will often tell you that it's kind of insurance in case things go really bad again. And there is some validity to that use case for physical precious metals, Gold ETF shares or silver futures contracts aren't necessarily going to hold their value and be redeemable in a doomsday scenario, but grandma's jewelry or the family silverware actually might. Now, having said all that, on the flip side, keeping precious metals physically can be kind of a pain in the way that, like, other investments usually aren't.

[Ana Hohoski]

Right. Like if you're not Scrooge McDuck and you don't have a vault filled with gold coins to swim in.

[Sam Taub]

Exactly. And you gotta have the diving board for.

[Elizabeth Ayola]

Right.

[Ana Hohoski]

Yeah, very critical.

[Sam Taub]

That's really important. Yeah. You have to keep your bullion safe. And that might mean like paying for a safety deposit box. And that's an ongoing cost that could eat into your returns. And you also have to take care of it. Like, silver in particular has to be protected from the air or else it, like, oxidizes and darkens and then you have to polish it and it's a whole thing. And you also have to find a trustworthy buyer and physically take it to them if you want to sell it. We have an article about how to buy gold that discusses some of these pitfalls of keeping physical precious metals. And the lead editor of the NerdWallet investing team, Arielle O', Shea, has an entertaining story that she recounts in that article about some of the difficulties and complications that she found when she was trying to sell some gold jewelry that had been in her family. So, point being, there's. There's a case for physical precious metals as doomsday insurance, but as a portfolio investment, you're probably better off buying shares of a gold ETF or something. It'll be a lot less of a hassle.

[Ana Hohoski]

Switching gears slightly, what does the silver and gold rally mean for the US Dollar?

[Sam Taub]

Well, I think the better question is what the US Dollar means for the silver and gold rally. Yeah, some portion of the increase in price in precious metals is just that the dollar isn't what it used to be. And gold and silver are fulfilling their historical role of holding their value when the currency is in the toilet. The US Dollar index, which measures the value of the dollar against a basket of other currencies, is down about 11% over the past year, which is a pretty huge slide for the world's reserve currency. Usually it just bounces around by maybe a percent or 2, but 11% is really big. If you look at the price of gold in another currency, like the euro or the Swiss franc, it is still up, but it's up by a lot less than the dollar price of gold.

[Ana Hohoski]

All right, one last question, Sam. What are some of the big news stories right now that are still up in the air that could move the needle one way or another? There's a lot that I can think of. But you know, what's in your perspective?

[Sam Taub]

There are a number of things. We just talked about how declines in the value of the dollar can push up gold, and there are quite a few uncertainties right now about what's going to happen next to the value of the dollar. One of those is a story that involves the Japanese yen. And I have to warn you guys, this is really complicated, and I'm kind of hanging on for dear life trying to understand the story myself. So bear with me here. Japan's currency, which is the yen, has been really, really weak in the last few years. It's been really, really low in value, and that's starting to become a real problem for Japan's economy. It's causing a lot of painful inflation over there, and it's making the Japanese people, frankly, poorer in purchasing power terms. Now, Japan is a US Ally, and it's also one of the world's largest economies, the second biggest in Asia after China. And it's pretty important to the global economy as a whole. So this is something that we've decided is kind of our problem, too. And there have been whispers that there might be some kind of coordinated US Intervention to support the price of the yen in recent days. This would basically be a thing where we buy and hold yen, which could actually kind of devalue the dollar against the yen to an extent. So that could push the dollar down and gold up even more. It's dramatic stuff. The other potentially bad thing for the dollar is that there's a possibility of another government shutdown coming up. I think it's like the deadline is this weekend, if I'm not mistaken.

[Ana Hohoski]

It sure is, Sam. It's Friday after midnight.

[Sam Taub]

Great. Lovely. And when we can't get it together to fund the government like this, international investors lose confidence in our economy and they tend to sell dollar denominated assets, which depresses the dollar. And they also tend to buy alternative investments like gold. So that's another evolving story where gold might gain from our misfortune.

[Ana Hohoski]

All right, well, we'll be keeping track of all that stuff. Thanks so much for joining us today, Sam.

[Sam Taub]

Thanks for having me on.

[Ana Hohoski]

And for listeners, we are going to be keeping an eye on the government shutdown situation. And yeah, Nerval will be on top of it.

[Elizabeth Ayola]

All right, thank you, Ana. And I love that you guys touched on gold being a heirloom because I remember as a kid my mom having stashes of gold and indeed selling them when money was short. So now I know why she was doing that. Up next, we answer a listener's question about how to estimate how much of your current income you might need in retirement. But before we get into that, a reminder to send us your money questions. Do you want to know if you should be buying gold or the smartest way to budget for your summer vacation? Or are you in the market for a new credit card but not quite sure how to find the one that best fits your situation? Whatever your money question is, we want you to send it to us by leaving us a voicemail or texting us on the Nerd hotline at 901-730-6373. That's 901730, nerd. You can also email [e-mail] or leave.

[Sean Pyles]

Us a comment on Spotify or YouTube in a moment. This episode's money question. Stay with us.

[Elizabeth Ayola]

This episode is sponsored by Roola.

[Sean Pyles]

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[Elizabeth Ayola]

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[Sean Pyles]

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[Sean Pyles]

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[Elizabeth Ayola]

To help us answer Amanda's question on this episode of the podcast, we are joined again by James Bashel, COO and advisor for Nerd Wallet Wealth Partners. And our lawyers want us to say that Nerd Wallet Wealth Partners LLC is an affiliate of Nerd Wallet, Inc. Welcome back to Smart Money, James.

[James Bashel]

Yeah, thanks for having me, guys.

[Sean Pyles]

Hey, James. So I want to just dive right in and talk about the percentages around retirement savings because a lot are thrown around when it comes to saving and spending for retirement. Like, you should save between 10 to 15% of your income. You can live off 80% of your pre retirement income in retirement. And we'll break down whether that 80% rule is still useful. But just to lay things out really clearly, to start, can you explain why planners have used 80% as a benchmark historically?

[James Bashel]

So I think the 80% originally came about because there was this assumption that about 20% of your pre retirement costs were actually associated with work. So commuting to work and your cost of your day to day, buying clothing for work, et cetera, et cetera. So as a result, when you retired, you no longer had to spend that 20%. Therefore 80% of your expenditure was going to be enough.

[Elizabeth Ayola]

In your work as a financial planner, do you actually use the 80% rule?

[James Bashel]

Okay, that's a really good question. No, absolutely not. The reason for it is it's not as simple as that. If you look at your expenses today and say, what am I going to spend in retirement? You're going to have a very different list of expenses. So I often have clients say, Well, I spend $10,000 a month. If we're in retirement, I'm going to spend 8,000. I say, great, but what's going to change? Do you want to travel? Yeah, but I travel now. Cool, but now you get 20 days of PTO. Now you've got 365. What is your comparable travel cost going to be? And they go, oh yeah, that's something.

[Elizabeth Ayola]

I haven't thought about.

[James Bashel]

Yeah, maybe I should bump my travel budget up a bit. And then there are other costs that come down. As we said, commuting to work suddenly is not a factor. You know, if someone was commuting in from the suburbs in a train every day, spending $30 a day on transport. That cost is gone. So there's a give and a take. And I think it's not equal. And so it's really important to have a more granular view of what the difference is going.

[Sean Pyles]

There are critiques on both sides of the 80% rule that it might be too much or too little to live on. What do you think about that?

[James Bashel]

I would own the side of too little because I really want to encourage my clients to live life, and you don't want to feel like, hey, cool, I'm retired. Now I've got to go into my shell and not do anything. You've worked really hard to get there. You want to be able to enjoy your retirement. So when you get that 80% cap, in many ways, you're. You're immediately starting from a more restrained base, and that's less aspirational. And often when we have these conversations with people, we're looking forward, and we want retirement to be something aspirational. So expanding that budget a bit means there's more work to be done today, but it means there's also more to look forward to in the future, which makes that work today worth doing.

[Sean Pyles]

That seems like a smart way to plan. I always like to be a little bit more conservative and save more than you might think you would even need. That way you have a cushion. Right? And our listener pointed out some key reasons why 80% might not be enough, notably healthcare cost and inflation. A report from Fidelity found that retirees may need more than $170,000 just to cover healthcare costs in retirement, assuming they retire starting at age 65. And I'll add that a lot of retirees may have a big surge in spending right when they retire because they might be traveling a lot and taking advantage of this newfound freedom while they're still healthy. I also imagine, kind of like you said, James, that spending isn't level from one year to the next, which can compound the questions of how much to spend and how much to save. So how do you think people should try to get an accurate plan for their retirement spending, given all of these.

[James Bashel]

Uncertainties, I think the inverse is often more useful. And I'm sure we're going to go into one or two of those rules of thumb where it's kind of, what, about 4% rule in reverse? So when you look at your retirement spending, a lot of our planning actually plans through multiple iterations of what you're spending could be. And there are different Ways of planning. So if you plug it into planning software, they give you options of inflation adjusted spending, which is in year one, you're going to spend X and we're going to increase that with inflation every single year. An alternative is what they call a spending smile, where you spend more today, it then dips the older you get. Your health starts to deteriorate, you're taking fewer trips, you start doing more stuff at home, and then it goes up again at the end because to the point of that Fidelity study, your healthcare costs go up. Healthcare costs are going to be more towards the tail end. So through running multiple iterations through planning software, we're able to see do you have enough to cover the uncertainty of what that shape is actually going to look like. And that often is a better solution than trying to be too granular, which is a little bit of a guessing game. That isn't going to make you feel confident in your retirement.

[Elizabeth Ayola]

I don't know why this conversation is making me feel a little sad. It's reminding me of my mortality. And I love what you said, James, about, yeah, I'm going to die. Oh my God. But I love what you said, James, about you've worked so hard and you want to actually use the money that you've saved, right, versus penny pinching your whole retirement. We've talked a lot about the 80% rule, and I feel like that's the one that circulates around a lot. But there's also the rule of 1000. Can you explain that to us, James?

[James Bashel]

So the rule of 1000 is now converting the thought process from what, as a percentage of your current expenditure can you spend in retirement to now, what assets do you need to support your expenditure? And the Rule 1000 is basically saying, well, for every thousand dollars in monthly income you want, you should have about $240,000 saved today. The way they calculated that is they said, well, there's probably a 5% withdrawal rate with a 5% growth rate, which means your assets are remaining net flat year on year. But you're funding that thousand dollars of expenditure. And what's important there is the conversion from spending to an asset base. And I mentioned it previously when we were Talking about that 80% rule, which is sometimes it's easier to actually look at, well, what can you afford rather than what do you want? Because spending is a bit of how much can I spend? Rather than if I gave an item, it's a budget, you'd spend the items of budget. So let's actually constrain it and we often say within our practice, the beauty of life happens within constraints. So if I give you that constraint of great. The rule of 1000 says you can spend $10,000 per month, go live your best life. That's sometimes a better way of framing it for someone than saying, well, let's bottom up, calculate how much you want to spend, and, well, do I want the pair of shoes or not? And does that add on to the 10,000 or not? So there's a bit of confusion that can come from that inverse thinking.

[Elizabeth Ayola]

And then, James, which one would you say is better for who? So if I had to choose between the 80% or the $1,000 rule, because we know money has a lot to do with psychology and values and personality types. So which is better for whom?

[James Bashel]

I'd like to add another one in there. So we spoke about the 80% rule. We spoke about the rule of 1000. There's another one which actually I think is probably the easiest one to conceptualize, and that's the 4% rule. And that's probably the one I lean on the most, which is you can withdraw 4% of your retirement savings annually to fund your retirement. Now, that 4% is a pretty simple number to understand. Multiply your asset base by 4%. That's how much you can withdraw. But on top of that, it's a little bit of financial math that's going on in there. So if you withdrew 4% every year, effectively you could draw that 25 times, 25 times 4 is 100%. So you've got 25 years locked in at that exact 4%. But there's obviously inflation and there's market growth and all those things. The nice thing about 4% is it basically assumes that you are withdrawing the growth from your portfolio, which means your portfolio is still retaining value over time, which means you're not limited to just 25 years of retirement or 30 years of retirement. That 4% rule for me feels to your point, Sean, you were saying you prefer to be on the more conservative side when you're planning or the risk averse side. 4% feels very conservative and risk averse and something that's very manageable. It's also very understandable. And so I actually prefer that to the 80%, the rule of 1,000, just because it's a much quicker number to calculate in your head. Now you ask a good question, Elizabeth. Which one should each person be doing? Well, very few people are good at tracking their expenses. I don't know about YouTube, but most people are pretty bad at knowing what they spend. I think there are studies out there that say, like, 95% of people underestimate how much they spend. So when you say, Today I spend $1,000 a month, and in retirement I only need 800, there's a huge risk there that you have got the thousand dollars completely wrong. So when you do the inverse rules, when you look at your asset base and you're giving yourself a budget to work within, that's actually a much safer way to work when looking at your retirement, because it gives you the constraint that says, hey, once you've spent that budget, you're out. No more spending. Which is a much safer way of going than, like, yeah, I've only spent 300 bucks this month. Meanwhile, your credit card bill says you spent 2,000.

[Sean Pyles]

So, James, when you're working with clients, do you tend to steer people toward one or the other? I imagine that actually giving people the option of which to choose might not.

[James Bashel]

Be the best idea, as I said. I mean, I think I mentioned it just now, but I actually don't use these a lot. So the 4% is like a nice back pocket thing to have. I rely much more heavily on the actual statistical processing of where people are at. And that is using Monte Carlo analysis that's running thousands of simulations of the future could look like. Because we want to have the variability of each of these factors considered in the plan to make you feel good. When we oversimplify things, we often kill the complexity from the equation, and that's sometimes to our detriment because it's a complex thing and we need to work within these boundaries.

[Sean Pyles]

I think people find these rules of thumb so appealing because they give people something to latch onto when these variables might be really hard to follow or confusing if they're doing it on their own.

[James Bashel]

100%. Yeah. And that's where the simpler the rule of thumb the better. But also with a big caveat of oversimplifying, it could be to your detriment.

[Sean Pyles]

And when it comes to something like planning and actually executing your retirement, I just think these rules of thumb are too simplistic. That's why I'm a little annoyed by them when it comes to kind of boots on the ground financial planning. But just to get people started and thinking about how much they might need to save, I think it's a decent jumping off point.

[James Bashel]

100%.

[Elizabeth Ayola]

I might have been steered also because I do not at the moment use a portfolio manager. I just use these benchmarks and a calculator to determine how much I need to save for retirement. And what you're saying, James, really resonates in terms of I love the idea of having different simulations and being able to see different outcomes based on all these different factors. So I might need to book an appointment with a financial planner.

[James Bashel]

Yes, we're here for you. That's our job.

[Elizabeth Ayola]

Something else to think about is how the experience and expectations of retirement are changing. Now. According to a recent report from t. Rowe Price, 37% of US respondents expect to work part time during retirement. That is definitely not me. I assume this is because the amount people save for their retirement and what they're getting from Social Security simply won't be enough to cover their expenses. So James, how does the expectation of working in retirement change the amount people should plan to save in their working years and then live on in retirement?

[James Bashel]

I think this comes back to the principle of financial independence. So retirement is such an old, almost antiquated principle that I think the origin of it was something like at the age of 60, you became less useful on the factory floor, so they retired you to head off and die by 62. That's not the reality anymore. If you're 60 and you're finishing work, a wealthier person in America is expected to live in their 80s, if not 90s. So you've got quite a long period there that you need to plan for with a lot of variability and uncertainty. And that's where working helps. And that is if you're at, let's say you're 60 and you've got a really robust asset base and you feel pretty good and you're healthy, you could live to 100. Okay, now you're planning for as long as you worked for to not work. Assuming you enter the workforce at the age of 20, let that sink in. That's pretty mind boggling that now you're going to be retired for as long as you work. Now two things come into the case. There's the first is that's a long time to live off passive income, to be truly financial independent. But secondly, it's a long time to not have the purpose or meaning of work. And I think it's important to factor in that psychological component of we get a lot of positive elements to our life that come from working, from being productive, from contributing to society. And that's where I think a lot of particularly younger generations are looking at retirement saying, well, I'd like to do something. I don't necessarily want to have to do what I was doing before I retired, but it doesn't mean I'm not going to get paid for the thing that I am doing in retirement. And that's what financial independence is. Financial independence is about giving you the choice to do with your time what you want to do. And if that means taking a lower paying job that you really love, maybe you're recording podcasts, which is a pretty cool job, then you're able to do that and do it on your own time and your own schedule. Maybe not as same intensity as it was pre retirement.

[Elizabeth Ayola]

It reminds me of a listener who came on at some point last year and they said that they weren't saving for retirement yet because they don't plan on retiring if they can have it their way. So how should people then approach saving if they go, well, I think I want to be working till I'm 90.

[James Bashel]

So there's some risk management there, which is really important. And that is we have this as well with a lot of clients, specifically higher earning clients. Let's take the AI situation that we're currently seeing with the risk of employment as a really good example of this. You've got a lot of tech employees who have earned a lot of money for the last 15 years. We've been through this crazy mega tap tick boom, okay? Think of the Googles, Amazons, Facebooks, like these massive companies that have created so much wealth for people, they might be assuming that they're going to keep earning at that rate in perpetuity. So great. I'm now 40 years old, I've been nailing it for 15 years in this job. I'm going to continue to nail this until I'm 85. I'm just going to earn the same and spend what I'm spending now, not save anything until I'm 85, at which point Social Security will look after the difference. There's a massive issue there. And that is what happens if you get made redundant. And the risk of AI is showing that all to us in real time, and that is in the tech sector, we're seeing this massive redundancy being created by AI taking people's jobs. So you're assuming if you're not saving anything today because you're going to work in perpetuity, that the opportunity to work in perpetuity is going to exist. And that's a risk that you're now taking. And that's where saving is actually a risk management tool as well as a life enabler down the line. So it's both sides, which is really.

[Sean Pyles]

Important to look at what I'm trying to manage in my personal friend group is a lot of people who see or imagine this incoming AI job apocalypse and think, why bother saving it all? Because we're not going to be working anyway. It'll be like the science fiction story the Time Machine, where we're all just living in caves.

[Elizabeth Ayola]

Really?

[Sean Pyles]

Yes.

[Elizabeth Ayola]

Wow.

[Sean Pyles]

You don't have that with your friends?

[James Bashel]

I think it's a really good question. Question to ask. But it's also important to remember, if you go back to the early 2000s, people said the same thing about the Internet. It's like, oh, like, where. What are bookstores going to do? Because Amazon's selling all the books. It's like, yeah, they sell a lot of books, but yeah, there probably are fewer bookstores, but we have a lower unemployment rate now than we had then. Why did that happen? I think there's. If you think of a day, if you think of your 24 hours you have to spend in a day, there's always something that doesn't get done. When we introduce AI, it makes us way more efficient. It allows us to do more things. I feel like people will get reallocated to those other jobs, which means there's still going to be jobs to be done. They're just going to look different.

[Sean Pyles]

And in the meantime, you can't still really rely on these chatbots to give you accurate information. So I think we're okay for the time being, at least in the short term. Yeah. So say what you can. And it's better to hedge in that direction versus not be prepared at all. Yeah. So, James, what we're really getting at in this conversation around the rules is that planning for retirement, saving for retirement, is really an individual project and a rule that might be right for one person might not be right for another. And then, you know, maybe some of these rules actually aren't great at all. So for those of us hoping to get a somewhat sensible grip on how much they might be spending in retirement and then therefore, how much to save, can you just talk us through kind of simply what you think is a good place to start and how you do it.

[James Bashel]

Personally, a good place to start is getting a good grip on what you spent today. That's a really simple thing to do. And using tools like Monarch Money or Rocket Money or the like, where you've got these amazing spending aggregators that can look at your past data and tell you what you spent your money on, that'll give you a really robust base to understand, well, where is your money going and how is that going to Change in the future. I think importantly, you can then as the next step use something like 4% rule and say, great, if I live the same life, what do I need my asset base to be to get there? Now I just saying that out loud, I hear my brain goes into overdrive of like, well what about inflation, market returns, like time to retirement, how long you live for? You've got all these variables which are going to kind of undermine the simplicity of that, just knowing your expenses and applying 4%. The next step therefore is actually to get a robust financial plan in place. And that's where using a professional who can help you run your data through a statistical tool as some kind of planning tool is going to really give you the peace of mind that the future sucks after and allow you to really build a plan that's going to help you execute on that for the future.

[Elizabeth Ayola]

One thing that I'm thinking about right now is the people on the other side of the 80% rule who are not thinking about an AI apocalypse and not wanting to save, who are saving too much or maybe overthinking and stressed and worried and always thinking they don't have enough for retirement. What advice do you have for them?

[James Bashel]

It's such a good point and I think I mentioned it previously on the podcast. We are often telling our clients to spend more rather than to save more because by virtue of setting up a time with Financial Advisor, you're probably on the more risk averse side from the outset. I think the way to think about it is we want to live life throughout our life, not just for the future. And this is quite philosophical and take it from whence it comes, but think through that scenario where we've often seen this with clients, where one spouse dies sooner than expected and they're ultimately unable to live the future they had planned to live and they wish they had lived more along the way. So what we like to propose to people is really even it out. So you're living as good a life today as you will in the future. What you don't want to do is create an imbalance where you're living too much today at the expense of the future. That's going to leave you, Sean, in your friend's case, with absolutely nothing in the future to live off of, which is going to mean they have to go work in a grocery store until they die because they've got to fill in the gap equally. You don't want to be on the other side, which is imbalanced to the not living at all today. In the hope of living someday in the future that might never actually happen. There's a lot of uncertainty and mortality. What we like to do is really balance the two and find the equilibrium as to how much you can spend today and spend in the future, such that you're gonna be fine along the way. And that is the point that I just. I've watched this so many times. People just exhale and go, I'm okay.

[Elizabeth Ayola]

I feel like you're telling me that I should clear out all the things in my shopping cart right now. That's what I feel like you should.

[James Bashel]

Yeah, put that 24 hour, get it out of there.

[Sean Pyles]

But hey, at the same time, you know that you're saving plenty for retirement. Elizabeth and James, you said the word balance. And I think that that's so key when it comes to so many aspects of financial planning and even just managing your budget or getting the right insurance for you. You want to make sure that you have that right balance of spending in the right places for the right value product, but not overstraining yourself, not restricting yourself too much or indulging too much. It's all about finding that steady, sustainable way of managing your money.

[James Bashel]

Yeah.

[Sean Pyles]

Okay. Well, James, do you have any other advice or recommendations for those who are trying to figure out just how much of their income they might be able to live on in retirement? Even if it's not 80%, I think.

[James Bashel]

It'S really important at the base level to have a plan. It can be your own plan that you've come up with yourself. It can be a plan that you've built with someone else. But the most important thing is not to bury your head in the sand and hope it's all going to work out in the future. Having a plan is what allows you to have a baseline against which to make decisions. And that's going to make you feel psychologically confident that you're going to be okay. And that's the very first step. Now, how good that plan is is the next step. I truly believe that working with a professional is hugely value creative. So find someone who can work with you and who can help you at a robust statistical, analytical finance level, who has got years of finance qualifications and experience to help you make a really robust plan, because the peace of mind you'll get from that is going to be invaluable.

[Sean Pyles]

Well, James, thank you so much for coming on and sharing your insights today.

[James Bashel]

Yeah, thanks for having me.

[Sean Pyles]

That's all we have for this episode. Remember, listener, that we are here to answer your money questions. So turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-N E R D. Or email us at podcastnerdwallet.com we want you to.

[Elizabeth Ayola]

Join us next time to hear about how to balance paying off student loans with other life goals. Follow Smart Money on your favorite podcast app, whether that's Spotify, Apple Podcasts, or iHeartRadio to automatically download new episodes.

[Sean Pyles]

And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

[Elizabeth Ayola]

This episode is produced by Tess Viglin and Anna Helhosky. Hilary Georgie helped with editing. Nick Karisimi mixed our art audio and we want to say humongous thank you to NerdWallet's editors for their help.

[Sean Pyles]

And with that said, until next time, turn to the Nerds.

[James Bashel]

Hablas spritz du dzoich.

[Ana Hohoski]

Com Dul Nosk if you used Babbel, you would Babbel's Conversation Based techniques teaches you useful words and phrases to get you speaking quickly about the things you actually talk about in the real world. With with lessons handcrafted by over 200 language experts and voiced by real native speakers, Babbel is like having a private tutor in your pocket. Start speaking with Babbel today. Get up to 55% off your Babbel subscription right now at Babbel. Com Spotify spelled B A B B E L.com Spotify rules and restrictions may apply.