#47 Step 1 Dream Up Your IDEAL Retirement

Are you ready to dream up your IDEAL retirement? This is week one of the "Can Carl Retire?" virtual retirement planning event.  If you signed up for the free resources, you should have gotten an e-mail with all the items you need to complete this first important step. Haven't signed up yet??? No worries, there's still time. Click here and learn how you can plan along with us.

Dream Up Your Ideal Retirement

In this episode, you'll listen is as I help Carl clearly defines his IDEAL retirement.

This is the week you get to think BIG about your future, too. Don't worry about getting it all right. Your goals will change countless times. Focus on identifying what you care about right now. We'll discuss a process later on how to adjust them as your life unfolds.

Your Action Items for This Week:

  1. Make sure to listen to the episode. There are a number of subtle points made that will help you as you plan. For example, Carl made an important statement early in our talk. He said "Retirement planning should be about running to something, rather than running away from something."

  2. Review Carl's Ideal Retirement Summary. This will give you a snapshot of what the end result can look like.

  3. Think BIG. Not thinking big enough could rob you of your dreams. Suspend your reasonable attitude and focus on what "having it all" might look like. There will be time later to see what is actually possible. For now, focus on creating your IDEAL.

  4. Watch the short video. In it I give quick tips on how to think BIG about your retirement.

  5. If you're married, include your spouse. Each of us have our own dreams of the future. Your spouse's may be similar but different. Now is the time to hear each others' dreams and to create dreams together. This way the two of you will be in harmony about the future. This is crucial to a great marriage and a great retirement.

  6. Complete the worksheet. Start off using scratch paper and go crazy with your dreaming. No filters here. Then, identify the goals that truly mean something to you. Don't forget to rate them as described in the worksheet. This will be important later on.

  7. Finally, ask questions. If you're stuck or unclear about something, shoot me an e-mail. I'll do my best to answer your question. Simply hit reply to the e-mail I sent you with the resources.

It's Not too Late to Plan Along Side Carl


The Retirement Answer Man Episode #47

I like this music. Do you like this music? Does this music motivate you to create an amazing life? Maybe I’ll keep it.

My name is Roger Whitney. This is the Retirement Answer Man Show and we are dedicated, this show is dedicated to helping you find that balance between creating a great life today and having an amazing life tomorrow as you make financial decisions.

We’re going to take a huge step in that direction today because, if you’ve been listening to the show, you know that today is step one of “Can Carl Retire?”

What is this? Why do we even care about Carl? Well, Carl is a listener. He’s one of you and that’s not his real name. He’s a listener that, over the next four weeks, we’re going to create a retirement plan and answer his most important retirement planning questions – or we’re going to attempt to anyway! Questions like, “When can I realistically retire?” and then, “When I retire, what’s my lifestyle going to look like? Will I run out of money? How do I make sure I don’t run out of money once I retire?” We’re going to try to help Carl answer that question. Answer for him what things he might be missing as he plans this next phase of his life.

Now, this is awesome for Carl and I think it’s going to be great for you to hear. You’re actually going to hear Carl in a second as we define, in step one, his ideal retirement. But, even more important, if you’ve signed up for this event – and it’s a free event – you’re going to be able to plan your retirement along with Carl. Hopefully this will jumpstart you to creating an amazing financial life.

What you’ll get if you’ve signed up is you’re going to get a summary of today’s conversation of Carl’s ideal retirement as he defines it, you’re going to get a link to a worksheet that you can download and create so you can define your own ideal retirement, and then you’re going to get a video – a short video – of me giving you some tips as you work through this so you can plan your ideal retirement and then you can always reply if you have any questions and I’ll try my best to help you along the way each week.

If you haven’t signed up, it’s very simple to do. Just go to rogerwhitney.com/rpl. You’ll get signed up for these weekly updates. They’re totally free. Then, we’ll have the webinar on January 30th where we’ll unveil Carl’s plan live. You’ll be able to watch as he gets his results. He doesn’t even know them yet. You’ll be able to see as we stress test his retirement plan against some of the most common fears we have like high inflation or low market returns or a big long-term care or health care expense. This will be a great way for you to jumpstart your retirement plan in 2015.

Okay. Well, let’s go to the all-important disclosure and that is you need to think of this as helpful hints and education. Whether it’s my blog or this podcast or anything on the internet, that’s how you should think of it because we don’t know anything about you. I can’t give you advice because I don’t know you. Anybody that tries to give you advice without knowing you is probably something you should run away from. Before you make any decisions, make sure you consult the people that do know you – that could be your tax adviser, your legal advisor, or your financial advisor. That’s just not a great disclosure; that’s a fundamental principle of planning well in your life.

Okay. So, we’re about to start step one with Carl of identifying his ideal retirement and you’re going to be able to hear as I walk him through identifying what exactly that is. But, before we do that, I want to give you a couple of tips. If you’re planning along with Carl and you have that worksheet in front or you – or whenever you do – tip one is, if you’re married or you have a significant other, I highly encourage you to include them in this process. Go out for a cup of coffee. Sit down with a bottle of wine or whatever it is that the two of you do to have serious long-term discussions. You can make it fun because it’s important that the two of you own whatever this ideal retirement looks like. I’ve always found that spouses have different versions and a lot of times are in alignment, but it’s important that the two of you own this goal or these goals together.

Now, my second tip is you want to focus on the dream stage right now. Let’s be a little greedy here. Let’s say, if I could have everything in this ideal retirement, what would that be? Maybe it’s giving tons of money away to charity. Maybe it’s traveling the world or helping out a lot with your children and your grandchildren. Whatever those are, let’s not put governors on our imagination right now.

A lot of times, what I see is couples always want to be prudent and reasonable and they always focus on what they think is reasonable rather than what they really want. I understand the reason for that. But, at this beginning stage, let’s go for everything because I’d rather not negotiate away things before we even know whether they’re possible. I’d rather have you start with what that ideal retirement is and, even if it’s not possible, then you can slowly go through the process of adjusting based on what is actually feasible. Suspend some of that reasonable mentality that we all have driven into us with financial matters right now.

This is step one. This is creating an ideal retirement. You’ll hear me talk about that a little bit with Carl along the way so sit back, here’s my conversation with Carl on creating his ideal retirement.

ROGER: All right. Well, I’m here with Carl. How are you doing, Carl?

CARL: I’m doing great!

ROGER: Now, we’re going to work over the next four weeks or so in putting together a retirement road map for you. Are you excited about that?

CARL: Roger, I’ll you what, I love your podcast, I love the approach you bring, and to get this opportunity to work with you through these next couple of weeks, I’m really looking forward to it.

ROGER: Now, for full disclosure, Carl and I don’t know each other from Adam. He was a listener that reached out to me. It’s not like this is a setup. I’m actually looking at him right now because we’re using video as we record this so this is the first time I’ve gotten to see his gorgeous face, I guess.

CARL: And the same with me. I think we’ve talked for about two minutes here before we hit the record button. So, brand new relationship.

ROGER: So, this is a good experiment and our goal here is to help give you, the listener, an insight into some of the planning process and hopefully some of the things that Carl talks about will resonate and hopefully this will help give you better perspective to plan well in your life.

So, let’s get started here, Carl, and I wanted to just start with hearing your story a little bit. What types of things should I understand about you as a person?

CARL: Very good, Roger. I guess just a quick thumbnail sketch. I’m 51 years old – 29 years in corporate America, had a relatively successful career, nine different moves around North America as various progressions through my career. (That’s my phone. Let me hang that up. Sorry.) As you can see, I’m at work. So, I’ve done quite well and my real question I’m looking at right now is, “How early can I get out?” I’m a bit burned out. I’ve been doing this a long time and trying to work through kind of what’s the earliest I can get out and hopefully no later than age 54 is kind of my target at this point so that’s kind of high level.

ROGER: Okay. Now, you’re 51. Are you married?

CARL: I am married, 27 years, wonderful wife and I’ve got a daughter that’s going to university.

ROGER: Okay, and how old is your daughter?

CARL: My daughter is 19 so she’s a sophomore.

ROGER: She’s a sophomore. Okay. So, you travel a little bit because we’ve had some difficulty getting connected.

CARL: Correct.

ROGER: Do you want to live where you’re living now when you’re retired?

CARL: Actually, what we’ve done, Roger, about three years ago, we bought a cabin. It’s a home. It’s three bedrooms, three bath, but it’s a downsizing move. It’s in the mountains nearby. It’s about two hours away so our plan is to probably sell our primary residence in about 18 months and, you know, if I need to get a short-term apartment to stay in the city and finish up my career, I’ll do that. But we do plan on downsizing and moving up to the mountains.

ROGER: Okay. Perfect. Tell me a little bit about your investment experience.

CARL: Pretty much self-taught but avid interest in it than doing it, you know, I started the 401k from the day I was hired and, you know, I’ve been plowing 15 to 20 percent in from day one and have got to personally study finance for probably 20-plus years. Relatively advanced but I’m humble enough to realize there’s a lot I don’t know about it. You know, I’ve kind of got a play money account that I’ve kind of slid part of my bonus in every year so I do a bit of option trading and some stupid stuff with that money and then I’ve got the vast majority of it in kind of mutual funds, 401k, diversification, kind of buy-and-hold strategy, rode out the ’08 downturn without selling anything and saw the nice rebound from that. Kind of buy-and-hold for 80 percent of the portfolio and a little bit that I play with on the side.

ROGER: Okay. Perfect, percent. What would be important for me to understand about you in terms of your life and where you and your wife are at?

CARL: Hmm. I guess, you know, we work to live, we don’t live to work. My wife is a stay-at-home mom and we have actually got her mother living with us now. She’s got Alzheimer’s, unfortunately – 82 years old. So, my wife is a very loving and caring person and has dedicated much of her life to raising her daughter and now to taking care of her mom. So, good compassionate woman. Christian family. You know, regular attenders in our church and active there. Would like to get more into some of the volunteer type of work –you know, post-retirement – and do some things that matter more in life than just making a paycheck.

ROGER: What kind of things do you want to volunteer for?

CARL: You know, one thing, I like Habitat for Humanity. One of the things we’ve talked about is, you know, I think we may have a mutual desire to probably buy a fifth wheel and travel extensively, maybe six months out of the year. We’d still like to have the base in our cabin but, you know, travel extensively. Maybe work some part-time seasonal jobs. But then, maybe do some habitat builds in different parts of the country. Some things like that. We love animals so, you know, maybe work on some kind of animal shelter, time doing some stuff like that. You know, I think we’ve all got to be cognizant of the needs of others and anything I could do, you know, homeless shelters, feeding the needy, things like that, I’m wide open. I’m just going to kind of wait and see and see where things lead, but those types of things kind of appeal to me.

ROGER: Okay. And you’re a hands-on kind of guy? I’m getting a feel.

CARL: Yeah, I guess so, yeah.

ROGER: Habitat for Humanity, let’s put a hammer in your hand.

CARL: That’s right. I don’t know what I’m doing but I enjoy it, you know.

ROGER: So, tell me a little bit about your mother-in-law. How long has she lived with you?

CARL: She’s been with us about three years and we’ve got good support. My in-laws – my brother-in-law in particular – they help and they take her, like, six weeks every six months to give us a break. You know, we’ve talked with them about our plans and I think we all recognize, at some point, she’s probably going to have to go into a nursing home and I think, you know, we’ve told them what our plans are and we said, look, depending on where she’s at, at a minimum, for these six months that we’re traveling and volunteering and doing things like that, we’d ask them to help out and take her for longer periods of time so we could travel. So, I think, you know, if she is still able to live with us and doesn’t have to go into a home, I think we’ve got a mechanism there to develop support so we’re starting to think through it. But, you know, it’s still to be determined.

ROGER: Okay. So, ultimately, you may have some financial obligation there, would you say?

CARL: Yeah. For the most part, she takes care of, you know, she gets social security and things like that. She pays us rent, you know, nominal amount, just on principle. So, I don’t expect that it’ll be a financial draw from our liquidity but, you know, never say never. From a planning standpoint, I’m not planning on it, but it is one of those things that we could be surprised.

ROGER: If she ends up going, having to be in a memory care center, at least here in the Dallas–Fort Worth area, they’re running about $4,600 a month.

CARL: Yeah. I guess one of the positives we have is my sister-in-law is actually in the medical field and she actually works with nursing homes and things like that. We just saw them last week, as a matter of fact, and they’re going to now start looking at what the options are. So, we kind of said, “Look, we’re taking her ten months out of twelve. Could you guys take on the responsibility of investigating the next alternatives and what those situations would be?” The hope is to find something that would work with her on her, you know, social security and Medicare and things like that. We’ll see.

ROGER: Yeah. So, I’m guessing you know already but there are some pretty good resources in the Retirement Answer Library on checklists for these kinds of facilities.

CARL: Yeah, I love your library. It’s fantastic, yeah.

ROGER: All right. Well, let’s pivot and talk about what you want to accomplish here. What do we need to have at the end of this for this to be a success for you?

CARL: Okay. I guess, you know, as I’ve said, I’ve been pretty independent up to this point. So, I’ve put together some retirement cash flow projections and things like that. I just don’t know if they’re valid and, you know, I think about the sequence risk on withdraws and – not to get too advanced but, you know – all the details that you get into as you start looking at the cash flow for the next thirty or forty years. I would just love to have somebody with your expertise really looking at it and saying, “Hey, you know, this is too aggressive. Have you thought about this? Have you thought about that?” to kind of validate and ultimately give your opinions on what is a realistic target date to kind of manage my expectations and make sure I don’t do anything stupid that, you know, once you pull that trigger, it’s pretty hard to undo it, right? So, before I do that, get somebody with your expertise to really take a look at it and give me your thoughts.

ROGER: So, as you think about this – because you’re 51 and you threw out a number of 54, and we’ll get into those goals in a second – what’s your biggest fear about this whole process of retiring?

CARL: I guess a couple. One is everybody says it’s a bigger adjustment than you think it’ll be. For me, I’m excited about it but, you know, people say, “Hey, mentally, it’s a big shift.” So, you know, I’m kind of excited about that. I’m trying to develop hobbies. I like to fly fish, by the way. There’s a nice fly fishing river up there so I’m really starting to think about hobbies and, you know, I’d like to learn to play guitar and, you know, just various things that I can start getting my head around in terms of filling the time with things that give you enrichment. That’s number one – filling the time in a way that motivates you.

Number two is obviously the financial side. Probably the biggest there is kind of the financial – the inflation risk, you know, kind of the black swan events that you really can’t see coming and how do you project what those scenarios could be. And then, I guess, you know, the medical side. Our company recently discontinued the medical retiree insurance. So, now I have to go into the ObamaCare, Affordable Care Act market at some point and, you know, get into all that which, you know, I’m not familiar with that law yet.

ROGER: I don’t think anybody is yet.

CARL: Yeah.

ROGER: It’s not quite figured out but that’s a work in progress. Oh, you were smart to not just think about running away from something but making sure that your body and your mind are engaged because that’s a long period of time in “retirement.”

CARL: Yeah. I guess one of the things I read once that kind of stuck with me is you shouldn’t be running from work, you should be running to something, and just because you’re burned out and tired of working is not the right reason to retire – to escape from the work environment. You really should view it as you’re running towards something. So, I’m trying to get my head around what is it that you’re running toward?

I’ve got a good friend of mine that retired early and, you know, on paper, they’re living the life of Riley – they’re traveling all over the place, having a great time – but he’s confided in me a little saying, “Hey, Carl, you know, there’s times where I’m actually…” you know, he’s kind of bored. He’s kind of lost that motivation that you get from work. So, you know, it’s something I’m aware of and just starting to think about it.

ROGER: Yeah, and I think women struggle with that a little bit earlier if they have a career and then they leave their career to stay home with the children for a while. You know, “Who am I? Where is my affirmation coming from?”

CARL: Yeah, that’s a good point, and I think it happens again, especially when the children leave home, the empty nest syndrome, because their life has been dedicated to raising the children and, fortunately, my wife’s got a lot of charitable activities she’s involved with and she hasn’t really gone through that. But you hear about a lot of women that do.

ROGER: I have a 17-year-old and an 18-year-old. My son’s a freshman in college and my daughter’s a junior in college and my wife and I say, “We’re going to have no trouble being empty nesters.” We love our children, but we’ll have no trouble. We’ll be busy.

Well, let’s go to the goals. Now, I’m going to ask you some specific goals. Now, goal setting is always really hard because we’re talking about things that can change all the time and the hard part with even calling them goals is that, if you’re an A-type personality – “I set a goal, I must achieve it,” – that’s not how these types of goals should be because, as your priorities change, it’s okay for these to change as well. But I want to make sure when I ask you these questions that you focus on the absolute ideal scenario. I don’t want you to hedge because, when you’re thinking about financial goals, we’re always taught about being prudent and conservative and reasonable. That’s great. We’ll get to that. You always want to start with, “If I could have everything,” it’s like a negotiation, like, if you’re going to buy a car, start off with, “If I can walk out of there and say, ‘I just killed these guys. I got everything.’” That’s the mindset I want you to have. We’ll get to what you settle for possibly later on, okay?

CARL: Okay.

ROGER: So, let’s focus on you’re 51. Your ideal retirement date, if you could do it?

CARL: Ideal would be 53. Ideal would be 52 but I know it’s not practical at all, but the earlier, the better. So, a realistic ideal would be…

ROGER: I didn’t ask you that. I didn’t ask you that.

CARL: Okay. 52.

ROGER: 52. Okay. I’ll get to the “realistic.” Let’s say with the ideal.

CARL: Okay.

ROGER: Now, lifestyle, and when I say lifestyle, I’m talking about how much it costs to live month to month. So, if you were retired at 52, what would be the lifestyle number that you would need? That income you’d have to generate to live the way you want to be. Again, I’m talking ideal here.

CARL: Yeah. I guess, if you think ideal, and I’m going to leave taxes out of it because that just makes it complicated, but if I just look at spending without the tax.

ROGER: Yes, please do.

CARL: We can add that later. I would say, if I really went ideal, we would love to do international travel, we’d love to spend a month at a time in Europe, things like that.

ROGER: Okay. Well, we’ll get to that in a second. Let’s just stick to what it takes for Carl and his wife to live month to month in an ideal situation. We’ll get to the extras here in a bit.

CARL: Okay. Well, I guess my question is, “Does ideal encompass the extras or is it ideal plus extras?”

ROGER: Ideal plus extras.

CARL: Okay. So, ideal before you get into the extravagant stuff would probably be – I’m just going to guess here and we’ll work through the cash flow numbers and budgets and all that, but my instinct right now is probably – say, $12,000 a month.

ROGER: Okay. $12,000.

CARL: That’s ideal, yeah.

ROGER: That’s good. That’s good. That’s exactly what I wanted and we’ll get to the extras. Now, here’s an important question. How much money do you want to leave at the end? Whether it’s to your daughter or to a charity or to the government?

CARL: Yeah, I mean, I would like to, I guess, if we’re talking ideal state, you would definitely build that in. I joke with my daughter, “You’re not getting a dime. You better be self-sufficient. Don’t plan on it.” You know, more to motivate her than what maybe my real desire is. So, I guess my desire would be, you know, we’ve got an only daughter, I would love to have, let’s say, at least $1M leftover at the end. Give her $500,000 and give $500,000 to charity – something like that would be, I think, you know, I’d be happy with that.

ROGER: Okay. So, we’ll call that a million inflation adjusted. So, that will be a million in today’s dollars. Okay. Now, ideally – and we’re so close to your ideal retirement, this is a little bit of a moot point but – ideally, how much would you want to save, you know, while you work? It could be zero. You know, ideally, if I didn’t have to save another dime.

CARL: Yeah. I mean, right now, I’m saving about 20 percent. So, I guess, if you think about ideal – you’re right that’s kind of a hard question because, you know, we save as much as we can save – obviously, if I can save something like 30 or 40 percent, it would make the timeframe more attractive so I’m not sure how to answer that.

ROGER: Well, if we could reach all the other goals without you having to save another dime, would that be ideal?

CARL: Sure, yeah.

ROGER: So, we’ll call it zero.

CARL: Okay. Yeah, that’s fair. Ideal.

ROGER: The reason I ask that is, if you think about it, every dime you save for tomorrow costs you something today in terms of lifestyle, and it could be travel, it could be charity, it could be your daughter, it could be your hobby. So, every dollar that you save today is sacrificing your lifestyle today.

CARL: Yeah, yeah.

ROGER: Now, ideally, from an investment perspective, and this is going to be a little hard to answer and I’m going to send you a questionnaire to help gauge this for you as to where your risk profile is from an investment standpoint, it’s a little bit more intuitive than the normal ones that you’ve filled out, probably. Ideally, where are you on the risk scale? How much risk, ideally, would you want to take in terms of investment risk?

CARL: Yeah, and I’ve done some of the online assessment-type things and, as I said, I rode out the ’08-’09 downturn and didn’t sell anything, so I do think I tend to be, you know, more to the right on the risk scale. I think, as you get into the reality that no more paychecks are coming in and you’re dependent on this portfolio now for income, it’s going to moderate a bit. But, even with that, I would say I’m probably kind of in the mid-range post-retirement or nearing retirement whereas, you know, maybe I’ve been on the 70 percent risk and maybe now I’m 50 percent, but I’m still probably relatively risk, you know, I’m okay with risk although I do have a fair amount of cash right now as a cushion. So, there’s some tendency. So, I think 50 percent is reasonable.

ROGER: We’ll call it moderate because, you know, 50 percent risk, we don’t even know what that means, and we’ll get into that in another conversation.

CARL: Right.

ROGER: Okay. Now, we can get to the extras that you wanted to talk about. So, talk to me about some of these extras.

CARL: I’ll tell you one thing that we’ve talked about, Roger. There’s a really great website on trading homes around the world. I can’t remember what it was called – Home Exchange. You know, we’ve talked about, “Wouldn’t it be great if we could kind of swap our cabin out and go spend two or three months in Norway and maybe go to Australia,” you know? I’ve got a fair amount of frequent flyer miles from work so the cost of getting there wouldn’t be too bad. But I think, you know, being able to do pretty extensive international travel, we love cruises so being able to go on frequent cruises. I guess, in an ideal with extras, you know, we’d be looking at maybe two to three times a year doing some kind of a relatively extravagant trip. We love to travel. We’ve kind of taken a big vacation every year. That’s kind of been our model. You know, I guess we’d have another $20,000 a year to throw in on travel. That would be the ideal state.

ROGER: So, about $20,000 a year travel. During retirement, now, you’re talking about retiring fairly early. How many years do you think you would do that?

CARL: Yeah, I’ve laid this out as I kind of do my cash flow. You know, you’d love to say you’ll do it forever. Realistically, I think, by the time you hit – you tell me, you’re better at this – I’m thinking, really, by the time you get to 70-ish, you’ve got to expect at some point that’s going to decline dramatically. Let’s say, for ten to fifteen years, assuming all the health and everything else stays good, you know, I’d think extensive travel for ten to fifteen years would be ideal.

ROGER: Okay. You’re a spreadsheet guy, aren’t you?

CARL: I am.

ROGER: Oh, I bet. Now, what else with the extras?

CARL: I guess, if you really went ideal state, it would be really nice to have kind of a second home somewhere. You know, we’re selling our primary residence, we’re moving to the cabin. It’s in the south. So, I think having a northern place, I grew up in the north so having a northern place for the summers and a southern place for the winters would be great. We’re not planning on it right now, but if you talk ideal state, you know, let’s say a $200,000 cabin up in the north somewhere would be great.

ROGER: Okay. Okay. All right. Now, it’s uncomfortable being ideal, isn’t it?

CARL: It’s fun!

ROGER: Okay. Now, let’s get back to reality here.

CARL: Okay.

ROGER: So, just like in negotiation, go back to that car analogy, you want to go in, if you’re looking at a particular model, say, “Man, if I get everything, this is what I get.” Now, we have to do the opposite which is, “If I can walk out with a reasonable deal that I’m comfortable with.”

CARL: Right.

ROGER: All right? Now, put that hat on. Take off the happy hat and you can take the smile off your face and let’s go the other direction. So, back to retirement age, what’s acceptable if you had to work to make sure that it happens?

CARL: Is this worst case? We did ideal. Is this kind of worst case or is this kind of target range?

ROGER: Well, what’s acceptable to you where you wouldn’t be feeling like your soul is about to die?

CARL: Okay. I guess I could go to 55.

ROGER: Okay.

CARL: I’d like to not be here longer than 55, if possible.

ROGER: Now, you’re at work so don’t talk loudly.

CARL: Yeah, my door is closed.

ROGER: Now, what about lifestyle? So, we started out at $12,000 a month. What’s acceptable to you? “You know what, I’m not living high and mighty, but we’re happy.”

CARL: Yeah, and these are kind of hard to answer because I haven’t done a lot of analysis on this. The only thing I have done is, you know, because we’re starting to answer this question, my wife and I just said, “Look, just for this year, let’s just track everything we spend,” because we’ve never really done a budget. We’ve always just kind of saved and not worried about it. So, what we did for the last nine months now is we’ve actually tracked everything we’ve spent and I’ve tried to break it into, “Okay, this is college expense so that’s not going to be there post-retirement.” We’re going to sell the primary residence so anything related to primary residence, strip it out. So, if I just look at kind of what that has averaged in what I would see as post-retirement, it’s running about $7,500 a month – excluding taxes.

ROGER: Okay.

CARL: So, that’s probably – at this point, without doing any more analysis of it – that’s probably what I’d say is a realistic number.

ROGER: That’s a good starting point. That’s a good starting point and you’re right in doing your spreadsheet in that you have that hierarchy of just living and eating and being healthy and then it slowly adds on to those dream things as you go up that pyramid. You want to make sure you’re always taken care of.

CARL: Yeah, the one thing I haven’t done yet which I think is in one of your worksheets where you kind of have, “Okay, here’s the basic stuff you need and then here’s the variable expense.” I’ve broken it into categories – you know, groceries and mortgage and stuff like that – but I haven’t really broken it into, “Here’s stuff that you absolutely have to spend and then there’s a more discretionary.” I need to do some work in that area, but I absolutely hear what you’re saying.

ROGER: I guess, you know, you’re moving into a cabin up into the mountains. So, you know, worst case scenario, and you’re a hands-on guy, you just go out and hunt and kill and that’s your food.

CARL: I do like guns!

ROGER: You can be a hunter gatherer.

CARL: Yeah, there we go.

ROGER: Now, on the estate at the end of it, I’m going to guess that acceptable is really, “You know what, I spent it all.”

CARL: Yeah, I would say that’s the acceptable. I mean, I’d love to leave something, obviously, but from a planning standpoint, let’s run it to zero and see what that looks like and, heaven forbid, if it comes to that, you know, like I said, I’ve already told my daughter that.

ROGER: I find that more and more. I rarely find where that’s a huge, huge priority – leaving money to the next generation. They want to but…

CARL: Yeah.

ROGER: And I think that ends up making them better children anyway.

CARL: Yeah.

ROGER: Now, let’s talk about savings. So, ideally, if you didn’t have to save another dime, if to achieve these other priorities, how much more could you squeeze out that’s acceptable from a savings standpoint?

CARL: Yeah, I guess, from an acceptable standpoint, I would probably say kind of the level that I’m currently saving at which is about 20 percent, and I can get you the numbers on exactly how much I’m saving by a month into the different areas, but I would say 15 to 20 percent. You know, my current savings rate is probably what I would say is acceptable.

ROGER: Come on, Carl. You can’t squeeze out another dime?

CARL: Oh, you said acceptable! Yeah, maybe another dime.

ROGER: Okay, and a dime. Now, let’s talk about investment risk. It sounds like you’re fairly comfortable with taking risk. Let me define risk real quick – I think Carl has a good understanding of this if he definitely rode out ’08 without freaking out – and I probably need to do a segment on this. Risk is basically volatility or how far things move up and down and how much you can stomach the uncertainty involved in investment assets. So, that’s a basic definition – very basic definition – of risk and it sounds like you’re pretty comfortable with that.

CARL: Yeah, I think the one thing I have thought about is obviously how that changes post-retirement and I like the bucket strategy. Sorry, I can’t remember if that’s something you’ve talked about or if I’ve heard it elsewhere but, you know, where you have, say, three years of living expense in cash and then you have the next couple of years in, say, bonds or something a little safer, and then you have the longer term stuff in equities or alternatives, and you try to keep a certain number of years’ worth of liquidity already cashed in so you don’t have to buy into a dip. That’s the approach I think I’m going to take which somewhat moderates the risk, and then it’s just a question of how long is that for a bucket. You know, do you do it for a year? Do you do it for five years? That kind of defines how much risk tolerance you have. That’s the way I’ve been looking at it.

ROGER: Okay. And, yeah, we have a worksheet on that, but that’s not unique to me. That’s a fairly common strategy. So, I’m going to put risk-wise, for those long-term assets which is really what that bucket strategy gets you is allows a long-term to be long-term.

CARL: Right.

ROGER: You’re fairly comfortable with some volatility there.

CARL: Yeah, yeah.

ROGER: Okay. Now, let’s get down to your dreams in terms of travel and this second home up north. I’m going to guess from us talking is that one of the first things that would go into that acceptable scenario is that second home.

CARL: Yeah.

ROGER: Okay. You just lost that, Carl.

CARL: Darn! Nice while it lasted.

ROGER: So, what about travel?

CARL: Yeah, I guess what I would see on that one is we’ve traveled internationally quite a bit over the last 25, 30 years so I think, if we had to give up the international side of it, we’ve been most places we want to go. I think we’d want to retain the ability to do these kind of six-month mobile, six-month at home type of approach – at least for the first five years. You know, have some period of time where we really are able to go out. You know, I guess from an acceptable standpoint, we’ve talked about this just to that point about how do you fill your time, both my wife and I have been open to, you know, maybe we’ll go out and work in national parks for the summers, you know? So, I think, from an acceptable standpoint, there would be the ability to work some low-income type seasonal jobs but something to kind of pay for the gas to get out there and pay for the camp ground sites. But I think we’d want at least the ability to do these six-month travels and – if we had to work a little bit along the way – that would be acceptable.

ROGER: Okay. Now, I want to circle back to something that you mentioned briefly but we didn’t have in the goal end of it, and that was buying a fifth wheel or an RV.

CARL: That’s correct. We didn’t talk about that. That’s definitely in the plans.

ROGER: Okay. So, describe that to me, how much that would be.

CARL: Yeah, what we would look at doing right now is selling our primary residence. We’ve got some equity there. So, our plans would probably be something about $50,000 for a fifth wheel. I’ve currently got an F-250 Diesel that I actually bought in anticipation of this. It’s a second-hand truck and it’s fine. I just use it for odd jobs and driving up to the cabin and things like that so I think we’d be okay sticking with the F-250 for the first couple of years. So, let’s say $50,000 kind of soon on the fifth wheel and then maybe another $30,000 or $40,000 a couple of years on to replace the truck. So, you know, let’s call it $100,000 all in to kind of cover the camping equipment.

ROGER: Okay. And then, we’ll get into the sale of the house in our next segment when we talk about cash flows and things like that. So, now we have ideal retirement at 52, acceptable at 55. Lifestyle of $12,000 ideal and $7,500 a month acceptable. I always talk exactly like that you – that’s after tax dollars and I already assume inflation adjusted.

CARL: Right.

ROGER: And then, estate, if you could leave a million inflation adjusted and then, you know, nothing at the end as an acceptable. And then, current savings, zero to what you’re currently doing, plus a dime of 15 to 20 percent and risk level from moderate to, you know, fairly long-term growth oriented, and we’ll get into that in another segment. And then, dreams, you want to travel – a budget of about $20,000 a year until you’re age 70. And then, a second home up north. And then, an RV of about $100,000. In acceptable, I would assume would be traveling at about $5,000 to $10,000 a year for about seven years.

CARL: Yeah, that’s fair.

ROGER: Okay. And then, the RV, I’m going to guess is malleable in terms of if you had to not have it.

CARL: Yeah, or you go to a lower cost RV and you keep the truck longer so maybe not the $100,000 down to $20,000 or $25,000, you know, something like that.

ROGER: Yeah, I’m going to work out a deal where I’ll sell you my small trailer that I bought that has not been used in two years.

CARL: You shouldn’t have told me that! The price just went down.

ROGER: That’s okay. I don’t care. I just want to get rid of it. If anybody wants an RV, give me a call. That was not a great experience but, my wife, we have very similar dreams to you and, if my wife and I were talking, it’s very similar to some of the things that you talked about, especially the traveling and living two to three months in different spots.

CARL: Yeah.

ROGER: That’s something that is a big dream of mine. So, very cool.

CARL: Ah, interesting.

ROGER: So, now that we have that frame between ideal and acceptable, and I’ll put a summary of this on the show notes for this segment, what’s your deal-killer?

CARL: What’s my what?

ROGER: Which one of these are your deal-killer? Prioritize them.

CARL: Yeah, that’s the hard part, I guess, isn’t it? You know, it’s a question of are you willing to put in a couple more years in a job that you’re tired of in order to have a little bit more of the other? That’s really the tradeoff that I’m struggling with a little bit right now. I think, until we run the numbers, you know, I’m willing to give up the international travel. I don’t want to give up the ability to do the three to six months a year somewhere. I guess, if I had to work another year or two, let’s say my idea is 52, I’m realistically evaluating kind of 53 to 55. So, if I had to go to 54 or 55 in order to increase the odds that this is going to work, then that would probably be the way I’d see it.

ROGER: From listening to you, it sounds like the two things that are the major issue is it’s not risk because you seem to be comfortable with risk.

CARL: Yes.

ROGER: It’s not estate; you seem you be comfortable with leaving your daughter nothing.

CARL: I hope she’s doesn’t listen to this.

ROGER: And you’re willing to negotiate away a lot of the travel, if you had to. So, it sounds like the two pressure points are the age and roughly what that monthly lifestyle budget is.

CARL: Yeah, I agree. You know, I think if you think about how many years you have where you’re really healthy and able to do things, let’s say you get out at 60 and you’re no longer able to do stuff at 70, that’s ten years of really active life. You give up one year of that, that’s ten percent of your remaining active life. What’s that worth, right? That’s worth a lot to me – to maximize that amount of your life that you’re really able to do things and enjoy them and feel good and be able to get out and do stuff. I want to get as much of that as I can. You know, that to me is kind of what we’ve worked for all these years so that is important to me. But, at the same time, you don’t want to be a pauper, right?

ROGER: Exactly, and that’s the hard part when you’re doing this kind of planning. It’s such a long timeline.

CARL: Yeah.

ROGER: Well, you’ve given a great description of where you’re at currently and some of your dreams and aspirations. Ideally, I would have your wife sitting here as well because I’m hearing Carl’s version.

CARL: Yeah. Easy for me to say this but I can say we’ve talked about it quite a bit and I think we’re pretty aligned. You know, maybe we can do one of the future ones with her on the call here with us. I’d be totally open to that. We talk about this openly and she knows where we’re at financially. She doesn’t necessarily look through all the spreadsheets. That’s more my thing than hers. But I think, in terms of the objectives, we’re aligned.

ROGER: And I get that sense that you guys walk hand-in-hand pretty closely.

CARL: Yeah.

ROGER: It’s always nice to hear the different versions though. It really gives you a lot more color to the whole picture, right?

CARL: I’m sure.

ROGER: Well, awesome. We’ve created Carl’s ideal retirement – what his perception of “What if I could have everything?” and that’s what we’re going to plan to initially in order to see whether it’s feasible or not.

So, as you plan along with Carl at home, make sure you suspend your reasonableness right now. Let’s go for the gusto and really define what would be an ideal retirement if you could have everything.

If you haven’t signed up for updates, go to rogerwhitney.com/rpl.

Now, next week, we’re going to start to get into what resources Carl has available to meet this ideal retirement, to provide for it, and that’s going to be his current income and his future income with pensions and social securities. We’re going to build a net worth statement for Carl which is a listing of all his assets and all his liabilities. That’s going to start to frame what resources we have available to reach this retirement.

You’ll receive a checklist and a worksheet to create your own net worth statement so you can take this next step in the process.

Now, as you go through these step-by-step, make sure, if you have a question, shoot me an email at roger@wwkllc.com or you can always send me a tweet at @Roger_whitney and I will respond to help you with some general questions that you might have as you plan alongside Carl.

I’m so excited that you’re on this journey with us. I think this is going to be a great educational experience and really jumpstart your retirement plan in 2015.

Until next week, this is Roger Whitney, hoping that you plan well and invest wisely.



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