How Much Can I Expect To Spend In Retirement with a $2 Million Portfolio? - Root Financial

John and Jane’s dreams of financial independence have finally taken shape – a $2.7 million net worth, with $2 million in liquid assets, at the age of 60. The question is not just when they can retire but also how much they can comfortably spend in their retirement.

In this blog post, I delve into the intricate details of their financial landscape, dissecting their goals, income sources, and expenditures. I’ll walk through the key steps that John and Jane, or anyone in a similar situation, should consider when planning for a secure and fulfilling retirement.

Defining Retirement Goals

Retirement is not a one-size-fits-all scenario. For John and Jane, it involves understanding when they want to retire and how much they envision spending during their retirement years. The first revelation is that retirement at 65, a conventional age, is not the only option. By exploring different scenarios, I unearth the flexibility to retire earlier or later, aligning with their preferences.

Estimating Living Expenses

To determine their financial needs, we constructed a detailed budget, categorizing core living expenses, housing costs, healthcare, and additional goals. John and Jane express a desire for a meticulous approach, opting for an itemized spreadsheet to dissect their monthly expenses. This method reveals an average monthly spending projection of $5,500 throughout retirement.

Planning for Healthcare Costs

Healthcare is a significant concern in retirement. We must consider both the pre-65 and post-65 periods, factoring in estimated costs for Medicare premiums, supplemental coverages, and potential out-of-pocket expenses. By addressing these elements, we create a comprehensive plan that ensures their health needs are adequately covered.

Incorporating Specific Goals

Beyond basic living expenses, John and Jane share specific goals – funding new car purchases every five years, allocating additional funds for travel in the initial decade of retirement, and contributing to their grandchildren’s college funds. Each goal is considered in the financial plan, providing a holistic view of their aspirations.

Analyzing Income Streams

Understanding income sources is crucial. John and Jane have salary income, Social Security benefits, and contributions to retirement accounts. By analyzing these income streams, we paint a picture of their financial landscape, including salary continuation for a few years into retirement and the commencement of Social Security benefits.

Projecting Portfolio Growth

A critical component is the growth of their investment portfolio. Assumptions are made, with a 6.5% annualized growth rate, though the acknowledgment that real-life returns fluctuate is ever-present. The projection shows an expected portfolio value of approximately $3.2 million by the time they retire.

Assessing Withdrawal Rates

Withdrawal rates are a key metric in gauging the sustainability of their retirement plan. By carefully calculating the percentage of their portfolio they plan to withdraw annually, we ensure that their spending aligns with a sustainable approach. For John and Jane, the projection demonstrates a modest withdrawal rate, well within reasonable limits.

Exploring Alternative Scenarios

The beauty of financial planning lies in the adaptability. We explore alternative scenarios, contemplating earlier retirements, increased spending, and additional contributions to their grandchildren’s college funds. This exercise offers a comprehensive view of their financial journey, empowering them to make informed decisions aligned with their values.

Ultimately, the financial plan serves as a compass, guiding John and Jane toward a retirement that aligns with their unique vision. The conversation shifts towards intentional living, prompting discussions on work preferences, generosity towards family, and the freedom to explore new adventures.

Financial planning is a dynamic, personalized journey. It’s about embracing the possibilities, aligning financial decisions with personal values, and navigating toward a retirement that reflects the life you’ve envisioned.

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