131: How Do I Know When I Can Retire?

Welcome to The Invested Dads Podcast. Simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:
All right, hey, hey, hey, welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. I am Austin Wilson, research analyst at Hixon Zuercher Capital Management.

Josh Robb:
And I’m Josh Robb, Director of Financial Planning at Hixon Zuercher Capital Management. So Austin, how can people help us with our podcast?

Austin Wilson:
Yeah, so we would love it if you would subscribe on whatever podcast platform you listen to us on, which is probably Apple Podcast.

Josh Robb:
Pretty much.

Austin Wilson:
That’s pretty much most of them.

Josh Robb:
80, 90%.

Austin Wilson:
So Apple Podcast, we’d love it if you’d subscribe. If Google has their own podcast platform, I don’t know.

Josh Robb:
They have a great one.

Austin Wilson:
Check it out.

Josh Robb:
Amazing.

Austin Wilson:
Subscribe on there. We’re on Spotify, we’re on every single one. We’d love it if you would subscribe and it’d really help us if you’d leave us a review on whatever platform you listen to us on as well, as that will help us to be able to reach more people.

Josh Robb:
Yep.

Austin Wilson:
So today, I’m pretty excited about this. Because Josh came to me and said, “Hey Austin…”

Josh Robb:
I did. That’s how I usually start the conversation. When I talk to myself, I say that.

Austin Wilson:
“Let’s record a podcast today,” and I was like, “This is great.” I love recording podcasts with Josh every single week. But what can we talk about? Let’s just chat about it and Josh said, “Why don’t we ask the question that someone is going to get asked at some point in their life?” And that question is…

Josh Robb:
‘Does this outfit make me fat?’

Austin Wilson:
Do you want me to answer that? Or do you just…

Josh Robb:
I’m not asking for myself. It’s rhetorical.

Austin Wilson:
Okay. That’s good. Because there’s a right answer when it comes to your wife.

Josh Robb:
There’s a quick answer, which is no. Right away.

Austin Wilson:
Yeah, you don’t, you cannot think…

Josh Robb:
You could be three rooms over and the answer is no.

Austin Wilson:
You cannot think or to pause or anything. But the question I was thinking of…

Josh Robb:
Okay. Different question.

Austin Wilson:
Which you look great, Josh, by the way.

Josh Robb:
Oh, thank you.

 

[1:48] – How Do I Know When I Can Retire?

Austin Wilson:
The question I was thinking of is, ‘How do I know if I can retire?’

Josh Robb:
That’s right. That honestly is a question that I get asked a lot.

Austin Wilson:
Probably about every client.

Josh Robb:
And that’s something I think everybody’s going to ask themselves is ‘How do I know when I can?’ Because I think everybody at some point has an idea of changing their work life. Retire is the word we use, but some people say, ‘Well, I may want to still do something.’ But it’s that transition out of that full-time obligation to be working to something different. So, people want to know like, ‘Can I actually do that?’ And ‘When is it? How does that look like?’

 

[2:20] – Question #1: Do I Want to Retire?

Austin Wilson:
We have put together three questions, big questions, to ask yourself as you’re thinking about this transition, because it’s definitely a transition. A lot of change coming. So let’s talk about our three questions. Starting with question number one. Question number one is, Josh, do I want to retire?

Josh Robb:
Right. And these are three key questions. They don’t encompass everything, but these are kind of the high level. So ‘Do I want to retire?’ That sounds kind of like a silly question to ask, but…

Austin Wilson:
Obviously.

Josh Robb:
Not everybody actually gets to make this decision. I say to somebody who asks this question, but ‘Do I want to retire?’ Because some people are forced to retire, whether it’s to take care of loved ones or for their own wellbeing. Sometimes they’re forced out of their working career maybe before they were ready to make that decision. But if you are in that position where you’re working and continue to work, this is that first question you want to ask is, “Well, why am I even considering it? What is causing me to ask that question?’

Austin Wilson:
Don’t do it if you don’t want to or have to.

Josh Robb:
First part of that is, ‘Do I want to retire?’ Well, ‘Do I still enjoy what I’m doing?’ If you like what you’re doing, no one’s making you stop. And again, minus those things we were talking about is, if you are allowed to continue to work, then go for it. There is no mandatory retirement age in the United States for everybody.

Austin Wilson:
Right. I mean, we’re putting out this podcast every week. We’re not retiring anytime soon.

Josh Robb:
I’m not done. I’m still going.

Austin Wilson:
Let’s keep kicking here.

Josh Robb:
And then along with that, ‘Do I want to retire?’ becomes ‘Okay, is working impacting all the other things I want to do? Is my work, my career, whatever my job is, is that taking too much of my time that I could be using for other things?’ And then you know, ‘Why am I even asking this question? Is it because I’m just watching other people around me that are my age making that decision?’

Austin Wilson:
The saying it’s just a number. Yeah.

Josh Robb:
‘Is it just because I hit a certain age that now I feel like I have to retire or this is when my parents did or this is when, so and so? What’s causing this?’ Because what you’re going to find with this, and the next question, is it’s really a matter of ‘Who am I?’ and ‘How do I perceive my value?’

Austin Wilson:
And that is different for everyone.

Josh Robb:
It is. There’s not a straightforward answer for that.

 

[4:25] – Question #2: What Am I Going to Do When I Retire?

Austin Wilson:
Absolutely. So that leads us right in to question number two, which is ‘What the heck am I going to do when I retire?’

Josh Robb:
Right. And that falls along with it, yeah.

Austin Wilson:
Sit around and play chess in the park, walk your dog, go fishing, smoke some meat.

Josh Robb:
Yep. Mow your lawn.

Austin Wilson:
Mow your lawn, really over mow it.

Josh Robb:
Go golfing.

Austin Wilson:
You can tell. When you’re driving down the street and you see someone with perfect hedges and landscaping and great grass. They’re for sure retired.

Josh Robb:
Oh they got to be.

Austin Wilson:
They have no kids.

Josh Robb:
That’s where it is. Definitely no kids.

Austin Wilson:
Definitely. No kids.

Josh Robb:
Probably retired. I saw this shirt; it was a polo shirt and it was a green shirt with stripes. But if you look closely there was a little guy push mowing the stripes.

Austin Wilson:
Oh really?

Josh Robb:
I thought that was hilarious. That was an epic dad shirt right there.

Austin Wilson:
Josh, tell us what we need to know. What people are going to do when they retire. Ask them that question.

Josh Robb:
Yeah. If you’re asking that first question, ‘Do I want to retire?’ the follow up to that is, “Well if I do, what would I do with my time?’

Austin Wilson:
Cause that’s a lot of time.

Josh Robb:
That’s a lot of time. People don’t realize, but if you work eight hours a day, 40 days a week, 40 hours a week, that’s a lot of days a week…

Austin Wilson:
40 days a week!

Josh Robb:
That’s a lot of days in the week, 40 hours a week. That’s a lot of time you have to fill, because it’s being filled for you automatically. ‘What am I going to do when I retire?’ Sometimes the answer is nothing, and that’s fine. There’s a period of decompressing from all those years of working that happens and it’s normal and it’s fine to just relax for a little bit, but that’s not a long-term solution.

Austin Wilson:
You’ll go bored.

Josh Robb:
Yeah. And most people retiring in their sixties have 30 years of retirement. 30 years of doing nothing is not ideal for anybody. And then the second thing is, ‘If I have all this time, what hobbies do I have to fill them? What plans do I have in place?’ Maybe it’s travel, those type of things. ‘What do I have to fill that time so that I’m not getting bored?’ Because we know from research that if you don’t keep yourself physically, mentally active, there is a decline for people in retirement. And that’s huge.

And then the sense of purpose. A lot of people’s identity is driven from who they are from a career standpoint, right? When you meet somebody new, one of your questions you ask them is ‘What do you do?’ Right? And that’s because we drive who we are from what we do. And so ‘How am I going to have a sense of purpose for my life now that my career may be over or changing?’ And all this may sound familiar because we did an interview with Scott Miller at our office.

Austin Wilson:
Our life coach.

Josh Robb:
Yes, who does life coaching. He talked about this piece as well. This conversation we’re talking about days that, way early, I’m thinking about it, I’m asking these questions, right? He’s the variable when you’re like actually needing to go through this process.

Austin Wilson:
Let’s figure out the details, yeah.

Josh Robb:
But this, these are high level, anybody can ask. I mean you could be 20 years old asking these questions. ‘Do I want to retire? But probably not. Maybe I want to, but.’

Austin Wilson:
Is it feasible?

Josh Robb:
Probably not? And then ‘What I’m going do with all my time if I’m 20 and I’m going to live until I’m 90?’ It’s 70 years, that’s a lot of time to figure out. This question can be asked anytime. But it’s ‘What am I going to do when I retire?’ That’s huge because I’m dead serious about this. I spend my time helping people with money. Money is not your biggest problem in retirement. No. It is your time.

Austin Wilson:
That’s why we haven’t even talked about it yet.

Josh Robb:
Yes. We haven’t got there yet because we’re going to get there after the dad joke. But before we do, support group. ‘What am I going to do with my time when I retire?’ People, we are made to be social people. We need some sort of interaction. We can’t be a hermit. Even introverts need at least one person looking at the floor with them.

Austin Wilson:
And your spouse does not count.

Josh Robb:
Yes. And so, support group, having people around that are going to encourage me, challenge me, keep me going. That’s huge, because a lot of people try to do this on their own and they get stuck. Because maybe your support group was coworkers. Well, if you retire and they’re not retiring, they’re still busy during the day and you’re going to need to find some other people to help you along with that.

 

[8:05] – Dad Joke of the Week

Austin Wilson:
Absolutely. Well, we promised we would talk about finances, but before we do, Josh, I have got a dad joke of the week that might put a smile on your face.

Josh Robb:
I am ready.

Austin Wilson:
So, from r/dadjokes. On Reddit, What… I read it.

Josh Robb:
You read it on Reddit?

Austin Wilson:
Yeah. That’s not even the dad joke. It’s just a bonus. “What do you call someone who pretends to be Swedish?”

Josh Robb:
Oh man. I don’t know.

Austin Wilson:
“An artificial ‘Swedener’.”

Josh Robb:
“Artificial ‘Swedener’.” I like it.

Austin Wilson:
And then someone said, “That’s it I’m ‘Finnished’ with this sub.”

Josh Robb:
‘Finnished.’

Austin Wilson:
Like Finnish.

Josh Robb:
‘Finnished’ like Finnish population.

Austin Wilson:
And then someone else said “There’s ‘Nor-way’ I will continue with this sub.” And then someone said, “Haven’t decided where ‘Ice-land’ yet.”

Josh Robb:
‘Ice-land’ yet.

Austin Wilson:
Okay. I’m done.

Josh Robb:
Wow.

Austin Wilson:
That was bad joke of the week.

Josh Robb:
That was a lot of European puns in there.

 

[8:59] – Question #3: Do I Have the Finances To Retire?

Austin Wilson:
A lot of European puns there. But that leads us to our third and final question that we are going to address today, and that is, the one everyone’s really waiting for, because it’s the one that people probably go to first, even though we just shared bigger picture pieces. This is what we’re hitting third. So, ‘Do I have the finances to retire?’

Josh Robb:
Right. And that’s the question I get asked usually as a follow up of, ‘Can I retire?’ Is, “Do I have enough saved to retire?’ That’s really what they’re asking me, but we need to deal with the other pieces as well. We do get to this question eventually, and that’s usually everybody’s first question is when they say, ‘Can I retire?’ it’s ‘Do I have the money to retire?’

And finances are important because like we mentioned, there’s usually a long period of time that your finances, your investments need to cover your living, because you go from getting a paycheck to providing your own paycheck. So, now we’re here. Let’s talk about it. We’re going to hit a couple things first and then I want you to weigh in on your investment side of things when you see retirees in that piece.

Austin Wilson:
Absolutely.

Josh Robb:
First question I always ask him then is, ‘Well, how much do you plan on spending?’

Austin Wilson:
That’s a great question.

Josh Robb:
A great question, because then I can back into, because there’s not one number that’s the answer for everybody. You can’t say ‘Once I hit X dollars, I can retire.’ because it depends on what your plans are.

Austin Wilson:
Yeah because people used to say, ‘Oh, I have a million dollars. I’m good.’

Josh Robb:
I’m good to go.

Austin Wilson:
It really depends on what you’re spending.

Josh Robb:
It could be yes or no answers. And so ‘How much do you plan on spending when you retire?’ and that’s a guess, an educated guess because there’re unforeseen expenses that could pop up, health, all those fun things, but just high level, ‘What do you expect?’ And then we can back into it from there.

And then, once you have that spending number, then your advisor can start testing that to say, ‘Okay, if that’s how much you plan on spending, will it last based on what you have?’ And so, they’ll test it. We use all different types of testing in our industry. But the Monte Carlo is one of those. It’s where you take the probability and the sequence of returns and say, ‘Where are we at?’

Austin Wilson:
Like a thousand different variables.

Josh Robb:
Oh man, it’s all different, we use a thousand trials. It’s intense and its ultra-conservative from that standpoint because you’re testing from all these crazy scenarios that may or may not happen. But it’s a good way of testing. You can test for downturns, you can test for disruptions of income, all these different things that you need to, depending on what your situation is.

But that’s the second thing you do is once you know how much you’re going to spend, you test it to say, ‘Okay, does it work?’ And one of the things that you have to plug into that test is ‘How long?’ So, you got to figure a timeframe which again, you don’t know the answer to that.

Austin Wilson:
And we know that, statistically speaking, people are living longer than used to. There is a high, high likelihood that if you’re a married couple, at least one of you, if not both, are going to be living well in your nineties, and that is a long time to plan for.

Josh Robb:
Yep. And then I always say that’s a good problem to have, is, living a long time. And along with that, when you’re testing these things is ‘What sources are coming from income sources?’ Whether it’s a pension or social security, those type of things, and ‘What sources are coming from assets that you need to either sell or grow?’ Those type of return approaches.

You kind of look at those differently. Social security that has an income adjustment, inflation adjustment to it, that happens over time. Pensions may or may not. Some are guaranteed, some are less guaranteed. You got to look at that structure to say, ‘Okay, how much can I count on this as providing for long term?’ Some have survivorship benefits to it, so you have to factor all that in. And then when it comes to your assets, ‘How much am I predicting that I will grow these?’ And we’ll talk about that in a minute. So, all that factors into the testing. And then ‘What about healthcare?’ That’s a big expense.

Austin Wilson:
That is a wild card.

Josh Robb:
If I’m retiring at 60, Medicare starts at 65, I got to figure out healthcare in that five-year gap. Right? And so, healthcare is very important. And then there’s like long term care, which covers in case you go into the nursing home or facility, ‘Do I need that? How much is that going to cost me?’ All that.

 

[12:34] – Debt in Retirement

Josh Robb:
Another factor, and this is one of those, everybody can have their own opinion on it, but debt. ‘Do I want debt? How much debt?’

Austin Wilson:
‘Do I have debt?’

Josh Robb:
‘Is debt in retirement a good thing, bad thing?’ I don’t have a hard answer for that, but you need to understand your debt obligation going into retirement because if something happens, those debts are still due. You still owe. And so ‘Do I have what I need to cover that?’

Austin Wilson:
And I think as a general rule, if I’m just keeping good debt as one thought and bad debt as another, knowing that situation. That would be examples of things like a home. That’s one kind of debt,

Josh Robb:
Something that’s appreciating in value.

Austin Wilson:
But something like credit card debt. Or whatever that’s…

Josh Robb:
Cars.

Austin Wilson:
Those may be things that you may want to think about differently as you approach retirement.

Josh Robb:
Yes. Yep. Yep. Great. And so, I look at my income, I look at my spending, look at my debt and my healthcare and all those pieces into, factor into that. And then the question becomes, ‘Well, okay, how am I going to invest my money?’ and ‘How much am I allowed to take out of it along the way?’  And so, in our industry, somewhere around 4-5% is kind of sustainable withdrawal over the long term. There’s all these different ways of looking at it. That number can vary all across the board. I’ve seen some as low as 2%. It all depends on what you’re factoring into that.

Austin Wilson:
Right.

Josh Robb:

How much are you factoring in growth? How much is in stocks versus bonds versus cash? All that factors in, but industry wise, somewhere around 4-5% is like a sustainable withdrawal over a 40-year retirement.

Austin Wilson:
Right.

Josh Robb:
So all those things factored into it is ‘Do I have the finances to retire?’ And again, I can’t give you a number because it really just depends. But from a high-level standpoint of this piece is flexibility is important. Because when you’re in retirement, you’ll find that you don’t have set expenses. There’s variable, all these different things. An opportunity may come up to knock something off your bucket list that may cost a little more.

Austin Wilson:
Right.

Josh Robb:

You may downsize or move or relocate for family, all these different things. There may be elderly parents that you start taking care of that cost some time and some money. You may have to add onto your house so they can live with you. You know, all these things.

Austin Wilson:
Your grandkids may want a pool.

Josh Robb:
Yes. The key is not to get so caught up, but to be flexible and make adjustments along the way. And that’s really what changes a successful retirement plan or not is your ability to adapt.

Austin Wilson:
Right. And that’s why typically they’re built more conservative because then you have buffer.

Josh Robb:
They build in a cushion.

Austin Wilson:
For when things need to happen. If you need to have a one-time $50,000 expense it’s not going to throw you off, or whatever. That’s why building in buffer for unforeseen expenses is key there. But also, as you were talking about with withdraws, is it depends on the person, but if you are a person who’s willing to make changes in your plan, on how much you’re taking out, you can often have a lot, even more money during some periods of your life. If you’re willing to, if the market goes down, take out less or whatever, and adjust your plan. There’s a lot of reasons where it really pays off to work with someone who can run all those different scenarios that we talked about earlier because there’s a lot of flexibility there if you need it which is pretty cool.

 

[15:32] – Investing in Retirement

Josh Robb:
Yeah. Running some ‘What if?’ scenarios is great just to say, ‘Hey, what if I do this?’ and then you can see what that impact is. When it comes to investing, you talk about that just a second ago, but what does that look like for someone? Because they may say ‘While I was working, I was really aggressive, but I read that I should be really conservative when I retire.’

What do you think from your side of the table when I’m talking, planning, I’m working through all the numbers, but when it comes to investing, what is kind of your thoughts on that?

Austin Wilson:
Well, at a high level, I guess I should probably say that it’s different for everyone, because every single person’s risk tolerance and goals are different. So, as you’re working with your advisor to build out that plan, hopefully they’re asking some sort of questions about what you are able to tolerate in terms of market movements, because obviously different areas of the market are going to be more volatile or less volatile.

But yes, it is often thought that a lot of retirees need to have significant portions, if not a majority of their assets, in something like fixed income or whatever, because yes, it’s quote unquote “safe”. And I would point out that, first of all, it hasn’t been safe in 2022. So, there’s a good example for you. So even something like that is down double digits in bonds. But second of all, when you look about the long term, it’s really about your money’s purchasing power that we need to talk about.

Josh Robb:
Yes.

Austin Wilson:
Purchasing power is how far your dollar goes, and when, if you think about inflation, which is on top of everyone’s mind right now. In periods there’s always some level of inflation and sometimes it’s marginally negative, but there’s always some level of inflation going on and that’s just the sign of a healthy growing economy so it’s not necessarily a bad thing. But what that means is that if you have a million dollars in your account and next year inflation’s 10%, your purchasing power was reduced by 10% and your dollars didn’t really grow.

Josh Robb:
Yes.

Austin Wilson:
So what you need to do is have your money allocated in such a way to outpace inflation for one and grow on top of that.

Josh Robb:
Yes.

Austin Wilson:
And if you think of long-term average, so take these last couple years of weirdness out of the way, long-term averages of inflation are 2.5-3% somewhere in that range. So, you need your money to A) Grow that much, but B) Also have a growth component on top of that. And the way that we have determined that is best handled is through stocks.

Josh Robb:
Yes.

Austin Wilson:
Stocks are the most proven inflation protection out there, and they’re the ones that have been through every single cycle for a hundred years and actually done well over time. What we would say is, while you may want some sort of fixed income allocation to get your volatility level down due to risk, you can bring that risk level down, you must have, generally speaking, a healthy portion of your assets in stocks. And those can be dividend paying stocks, which are great, they pay dividends. But stocks in general are going to be the thing to keep your portfolio from being eaten away at inflation over time.

Josh Robb:
That sounds good. I think for a lot of people knowing that you have those goals while you’re working, that doesn’t change in retirement. Your goals may adjust because now you’re achieving one of your goals in retirement, but your investments still need to track those goals. So, if one of those goals is legacy giving, maybe being a little more aggressive with that piece of your portfolio is maintaining that goal’s objectives to say, ‘Hey, my goal is to grow this money, not for me, but for someone else.’ And so, you’re looking for a longer-term timeframe, so it gives you a little more ability to weather those ups and downs.
But you’re right, having an allocation to the stocks is very important because historically speaking, they’re the only asset class that is consistently kept up with and beaten inflation.

Austin Wilson:
Yeah.

Josh Robb:
And along with that, diversification is important because no one’s great at guessing what’s going to do well at any given timeframe. And then also with that withdrawal, if I’m going to be taking a higher withdrawal rate, I need to be able to sustain that. And again, that comes from the growth piece of that.

Austin Wilson:
Mhmm.

Josh Robb:
So, there’s no hard number there again, it’s at 60%, 70%, 80% in stocks. It really depends on your goals, what your starting amount is, what your withdrawal rate is. But in general, a portion needs to be in stocks with that.

 

[19:29] – A Helpful Retirement Resource

Austin Wilson:
So as we’ve talked about today, money’s really just a small piece of the overall picture about retirement. There’s more to it, as we talked about today, so keep that in mind. There is really a lot of focus around maintaining that sense of purpose in your life. And that’s something, again we talked about with Scott Miller, our life coach here. If you haven’t listened to that episode, listen to that episode, we’ll link it in show notes. It’s really a lot more in depth in certain areas that we talk about today. But Josh, how can people help us to continue to grow this podcast?

Josh Robb:
Yeah. Yeah. Thanks for listening. Make sure you share this episode. If you know somebody who’s just starting to have that conversation about retirement, share this with them and help them look through some of those first couple questions, especially of, kind of ‘What is my next phase going to look like?’ Because that’ll help determine, ‘Well, am I ready yet?’ They may find that the things they want to do, they’re not quite ready for or the people they want to do them with aren’t quite there yet either. And so those are always good things to do. And if you have any questions, thoughts, just shoot us an email at hello@theinvesteddads.com.

Austin Wilson:
All right. Well until next Thursday, have a great week.

Josh Robb:
All right. Talk to you later.

Austin Wilson:
Bye.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode.
Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.