Dave, 55, and wife, Kim, age 53, current Know My Plan clients, were feeling a bit reluctant to meet for our annual review—feeling as though they let their financial prudence fall by the wayside.
Over the past year, they drastically reduced the amount that they were saving & investing in their retirement plans.
Their oldest son was recently married and they had generously helped with much of the wedding costs.
In addition to the wedding, Dave and Kim enjoyed a wonderful tropical vacation to Hawaii and within the past few months had bought a new car.
It was clear to us that they felt like they were spending too much at the time and while not necessarily embarrassed, they were hesitant to share these recent spends with financial planners.
Dave and Kim’s reluctance aside, we level-set on current events and pulled up their financial plan to see where things stood.
Their plan revealed that in today’s dollars, they would need $7,500/mo to feel “financially independent.”
They love the idea of being able to simultaneously retire and do things together. Dave’s a successful corporate executive and Kim’s a teacher and will receive a pension.
For planning purposes, they would love to be “financially set-free” in nine years, when Kim turns 62, at which point they’re going to start aggressively attacking their bucket list!
Nine years from now they’re projected to have $3,750 per month from Social Security and $2,300 monthly from Kim’s Pension ($6,050). This was great news that their investment portfolio only needed to generate about $1,450/month in today’s dollars.
After figuring 3% inflation over the next nine years, $1,450/month equates to $1,900/month ($22,700/annually) from their investment portfolio.
At Know My Plan, we believe the 4% rule is a sustainable withdrawal rate along with prudent ongoing supervision. So how big would the pot of gold need to be in nine years to fuel $1,900/mo and taking 4% or less from their portfolio? Approximately $568,000.
The good news is that they already had $579,000.
Talk about great news! They were ahead of the game. You could see the feeling of reluctance and anxiety exit their body.
Currently they have the desire and capacity to save roughly $23,000/year over the next nine years.
If their investments compound at 7.8%, we project they’ll have roughly $1.4 million as they enter retirement. This gives them margin in their life.
This was wonderful news for a close-knit family that enjoys taking vacations with their adult children and the idea of spoiling grandchildren in the future. Annual family trip to Disney? Backpacking the Appalachian Trail?
This gives them the confidence to book the trip to Iceland today instead of waiting for retirement. With proper planning, you don’t have to wait until retirement to start living your best life.
Dave and Kim are a great example of striking a balance between planning for your future while enjoying the present.
