Ready For Retirement: Episode Summary

Episode Title: We have a $3M Retirement Portfolio. How Much Can We Spend Without Running Out of Money?
Host: James Knoll, CFP®
Release Date: May 13, 2025

1. Introduction to the Case Study

In this episode of Ready For Retirement, James Knoll delves into the financial planning of Jeffrey and Cindy Sample, a couple approaching retirement with a $3 million portfolio. Knoll emphasizes that the principles discussed are universally applicable, regardless of one's net worth.

“It doesn't actually matter if you’re watching this have 3 million, 30 million or 300,000 in your portfolio. The principles we're going to look at are going to be very relevant regardless of where you are in your net worth.”
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2. Understanding Jeffrey and Cindy’s Financial Situation

Knoll introduces Jeffrey, aged 66, and Cindy, aged 64, who are contemplating their retirement strategy. Their portfolio comprises various investment accounts, an IRA, and a 401(k), alongside an immovable property asset.

• Savings and Assets:
  • Total Portfolio: $3 million
  • Assets include investment accounts, IRA, 401(k), and property (not to be spent down).

“They have about $3 million in their portfolio between some investment accounts, an IRA and a 401k. They also have a property, but they're not going to spend down their property.”
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• Retirement Goals and Expenses:
  • Core Living Expenses: $7,000/month after taxes.
  • Travel: $30,000/year for the first 12 years.
  • Healthcare Costs:
    • Jeffrey: Medicare Part B & D premiums plus $4,600/year out-of-pocket.
    • Cindy: $8,000/year pre-Medicare, then similar to Jeffrey post-Medicare.

“As you can see, Jeffrey and Cindy are 66 and 64. Their goals are to retire right now... they want to spend $7,000 per month after taxes throughout retirement on core basic living expenses.”
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3. Income Streams: Social Security Benefits

Both Jeffrey and Cindy will receive Social Security benefits, which form a significant part of their retirement income.

• Jeffrey:

  • Begins collecting at full retirement age of 67.
  • Monthly Benefit: $3,800, adjusted for inflation.

• Cindy:

  • Begins collecting at 64, earlier than her full retirement age.
  • Monthly Benefit: $3,850 with a reduction due to early collection.

“Jeffrey will have his Social Security benefit... $3,800 per month. Cindy is going to begin collecting right now... $3,850.”
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4. Projecting Income and Expenses

Knoll outlines the importance of balancing income and expenses to ensure the sustainability of their retirement portfolio.

• Expense Breakdown:
  • Basic Living: $7,000/month
  • Travel: $30,000/year (first 12 years)
  • Healthcare: $8,000/year pre-Medicare for Cindy, $4,600/year post-Medicare for both.
  • Taxes: Based on sources of income (Social Security, IRA, brokerage accounts).

“What we need to understand is where is income going to come from and how will that compare to the expenses you're going to have...”
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• Income Streams:
  • Social Security for both Jeffrey and Cindy.
  • Portfolio Withdrawals to cover the gap between expenses and Social Security.

“The combination of those two things, portfolio income plus Social Security income, gives you this number here, which then allows you to fill these expenses.”
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5. Portfolio Projections and Sustainable Withdrawals

Knoll assumes a 6.5% annual return on the $3 million portfolio to project its growth and sustainability.

• Growth Assumptions:
  • Portfolio growth rate: 6.5% per annum.
  • Initial projection shows growth from $3 million to nearly $4 million in today’s dollars.

“Assuming investment returns of about 6.5% per year throughout retirement... their portfolio has grown from a real number of $3 million to a real number of just under $4 million.”
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• Withdrawal Rate Analysis:
  • Initial withdrawal rate starts at 3.6%.
  • Drops to between 2.2% and 2.4% as Social Security kicks in.
  • Temporarily increases to nearly 3% at age 73 due to required distributions.

“First year, it’s a 3.6% withdrawal rate... then it does pop back up here at 73... still under 3% almost the entirety of the way throughout retirement.”
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• Probability of Success:
  • Projected at 100%, though Knoll cautions that this is based on assumed investment returns and sequence of returns risk.

“Their probability of Success is at 100%. Now, this needs to be interpreted the right way.”
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6. Maximizing Retirement Income

Knoll explores ways Jeffrey and Cindy can optimize their retirement spending without jeopardizing their financial security.

• Evaluating Withdrawal Rates:
  • Highlighting that their effective withdrawal rate from the portfolio is below the sustainable threshold, allowing room for increased spending.

“Look at the actual withdrawal rate from your portfolio. Depending on how you're running things... your portfolio might be able to generate somewhere between 4 and 5.5% of withdrawals.”
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• Options for Increasing Spending:
  • Increase monthly expenses from $7,000 to $10,000.
  • Enhance travel experiences by increasing trip costs.
  • Maintain current spending while preserving portfolio.

“Jeffrey and Cindy could start to increase some of their spending and still be under sustainable withdrawal rates... what would this look like if we didn't spend 7,000 per month? What if we spent $10,000 per month?”
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7. Key Takeaways and Recommendations

Knoll emphasizes the importance of intentional financial planning to align spending with personal values and priorities.

• Intentional Financial Planning:
  • Ensuring that spending aligns with life’s joys and purposes rather than being overly conservative.

“A good financial plan is ensuring you're being prudent in planning for the future, but also doing all the things that bring you purpose, bring you joy, bring you happiness today.”
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• Optionality in Retirement Decisions:
  • Options to retire earlier, increase spending, enrich travel experiences, or be intentional about leaving legacies.

“When you look at your plan, what this gives you the ability to do is to create some optionality. Would I rather retire sooner? Would I rather spend more? Would I rather give away more?”
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8. Conclusion

James Knoll wraps up by encouraging listeners to engage in proactive financial planning and utilize available tools, such as the Retirement Planning Academy software, to tailor their retirement strategies.

“But when you do financial planning right, it leads to better life decisions.”
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“You work with clients all over the country and we love the opportunity to speak with you about your goals and how we might be able to help.”
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Key Quotes

• “It doesn't actually matter if you’re watching this have 3 million, 30 million or 300,000 in your portfolio. The principles we're going to look at are going to be very relevant regardless of where you are in your net worth.”
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• “Jeffrey and Cindy could start to increase some of their spending and still be under sustainable withdrawal rates... what would this look like if we didn't spend 7,000 per month? What if we spent $10,000 per month?”
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• “A good financial plan is ensuring you're being prudent in planning for the future, but also doing all the things that bring you purpose, bring you joy, bring you happiness today.”
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• “When you look at your plan, what this gives you the ability to do is to create some optionality. Would I rather retire sooner? Would I rather spend more? Would I rather give away more?”
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Final Thoughts

This episode of Ready For Retirement provides a comprehensive analysis of how a $3 million portfolio can sustain retirement spending without depleting assets prematurely. By focusing on withdrawal rates and aligning financial decisions with personal values, Jeffrey and Cindy's case exemplifies prudent retirement planning. James Knoll's insights empower listeners to evaluate their own retirement strategies, ensuring both financial security and fulfillment in their golden years.