Episode #40- Should You Starve Now to Feed Your Retirement Goals?

Wealth Decisions Podcast Transcript for Episode #40: Should You Starve Now to Feed Your Retirement Goals?

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Welcome to The Wealth Decisions Podcast, where each week I take 15 minutes or less to discuss crucial wealth decisions and mindset hacks to help you live a richer life.

I'm your host, Brian Muller, and I've been in the financial services industry for over 25 years, and I'm also a certified life and health coach.

And I have a passion for helping people make better decisions around their money and their life.

So for the sake of time, let's dive right into it.

In today's episode, we're going to be talking about whether you should starve now to feed your retirement goals.

This is something that's been on my mind for a long time because I've seen people save and save and save to amass this big pile of money.

And then maybe when they retire, they don't have the health to enjoy that wealth they built up or that they hoard money so much that they're going to leave a big pile of money at the end of it all.

And obviously we can't take our wealth with us when we're gone, but you do want to set some principles like living within your means and paying yourself first so that you can have that feeling that you're working towards building financial security or financial independence or financial freedom.

We're going to explore just this delicate balance between kind of living fully today and saving for tomorrow.

We're going to talk about some of the topics that make people feel wealthy, some smart withdrawal strategies and finding kind of the right savings rate for you.

So let's just get started and let's talk a little bit about what makes people feel wealthy.

Before we kind of dive into any retirement strategies, let's talk about this fundamental question.

It's not really as straightforward as you might think.

Everyone defines wealth differently.

But in 2021, Charles Schwab surveyed about different Americans about what they believe it takes on average to be considered wealthy.

And the survey found that most people think that right around $2 million is what is considered wealthy.

But this number varied widely amongst different factors like age or where they lived and some of their personal values.

For some of us, wealth is more about financial freedom than a specific dollar amount.

Obviously, it takes money to have financial freedom.

But it's crucial to find kind of what wealth means to you personally.

Is it having enough to retire comfortably?

Is it having all your debts paid off or owning your home outright?

Is it the ability to travel to new places?

Is it the ability to give back or build a lasting legacy?

So you have to really understand what your definition of wealth is.

And this is going to help guide your savings and retirement strategies.

It's not necessarily about reaching some arbitrary number, but about achieving the lifestyle and security, you know, that you want and deserve.

I've talked a lot about withdrawal strategies for retirement, and I've always said that the safest withdrawal that you can take from a portfolio is around 4%.

But you can take up to 5% and have your money still last over a long period of time.

But when you think about a dollar amount and you think about a 4% withdrawal from that dollar amount, some may look at that dollar amount as being too small.

There are different ways to have higher withdrawal rates with some type of guardrails in place.

So you may not need to save as much as you initially thought.

But one of the key aspects of retirement planning is your withdrawal rate.

But this more flexible approach has been gaining a lot of traction, and that's a higher withdrawal rate with some type of guardrail.

The guardrail's approach is you start with a higher withdrawal rate, like five and a half or even six percent.

But you have some rules to adjust that withdrawal rate based upon your market performance.

And this is how it works.

You set an upper and lower limit for your withdrawal rate.

So you might have four percent as the lower limit and six percent as the upper limit.

If your portfolio performs well in a certain year, you can increase your withdrawal rates up to that upper limit.

But if it performs poorly, you reduce your withdrawal rate down to that lower limit.

What this allows you to do is potentially have a higher income in retirement.

And have less assets needed to fund your retirement lifestyle.

It gives you some flexibility to adapt to market conditions.

And it will allow you for lower initial savings to be able to retire.

The problem with this type of withdrawal strategy, though, is it's based upon market conditions.

If we have a period of time where the markets are flat or trend down, then you're going to have a lower income during those periods of time.

This approach really requires a little bit more active management, but can provide potentially higher income for you in retirement.

It's a way to balance the desire for current income with the need for, you know, a long-term plan that works.

So you need to find your balance when it comes to what's most important to you.

And when we talk about savings rates, I've thrown out different numbers for financial security, or financial independence, or financial freedom.

But you need to ask yourself how much should you be saving to reach your particular goals?

You know, general rule of thumb is to save at least 10 to 15 percent of your income for retirement.

But this can be very, very widely, you know, based upon your particular goals.

And it comes down to the age you start saving, your desired retirement age, your expected lifestyle in retirement, and maybe some other financial goals, like paying off your home, or paying for your kids' college expenses, or leaving a legacy.

There's a lot of experts out there that recommend more aggressive savings.

If you want financial freedom, you're most likely going to have to save 20 to 35% of your income.

And some will talk about the 50-30-20 rule, that you want to meet 50% of your needs, 30% for your wants, and 20% should be saved for retirement or maybe debt repayment.

There's the FIRE movement out there, which is Financial Independence Retire Early Movement.

And a lot of the numbers thrown out there is saving 50% or more.

Now not very many people can save 50% of their income, but the FIRE movement is really focused on people that want to retire very early and have all their debts paid off.

Just remember that the right savings rate is personal.

It should align with your goals and values while still allowing you to live fully today.

So how do you live fully today while saving for tomorrow?

That is the big question that I posed in the beginning of this episode.

Should you starve now to feed your retirement goals?

The big question is how do we balance enjoying life now with preparing for the future?

So here are some strategies to help in doing that.

You might want to prioritize experiences over things.

So instead of buying more things and accumulating items that you want rather than focusing on experiences, you're going to have more to potentially save for the future.

Number two, practice mindful spending.

Focus on purchases that truly bring value to your life and bring you joy.

Number three, you can find low cost ways to enjoy life.

Getting out into nature, going to community events, learning new skills, trying things with your family.

Number four, use some type of values based budgeting to align your spending with your core values.

Number five, automate your savings to remove that temptation to spend.

That comes back to the pay yourself first philosophy.

Have a percentage go into investment accounts for the future, your 401k, Roth IRA and an individual taxable investment account.

And then, whatever is left over, use for your wants, needs and some of your wishes.

But always, and number six is just always allow for some fun money in your budget.

Some fun money to create experiences today so that you can enjoy life without starving just to be able to have a big pile of money down the road.

The key is finding a balance that works for you.

It's not about depriving yourself of everything today, but making conscious choices that align with both your current and future goals.

So you don't have to starve now to feed your retirement goals, but you do have to have a plan that works for your personal goals.

It's about finding this balance that allows you to live well today while preparing for the future, so that you have some type of security, knowing that you're on the right path.

There's obviously no one size fits all answer.

Your financial journey should align with your personal values, your goals and your individual circumstances.

But understanding what truly makes you feel wealthy, using some type of flexible withdrawal strategy or finding the right savings rate for you is really what retirement planning should be about.

You can create a financial plan that works for both your present and future self.

So that's it for today's episode.

Should you starve now to feed your retirement goals?

And if you like this episode, please rate the episode, make some comments and hit the notification bell to get updated on future Wealth Decision Podcasts.

And please, if you could share it with a family member or a friend.

My goal with the Wealth Decisions Podcast is to reach over 100,000 people by the end of the year in the Twin Cities and beyond, so that people can make better wealth decisions to live a richer life.

If you like to schedule a discovery call with me, you can go to my website at momentouswealthadvisors.com and I'll spend some time to get to know you a little bit and find out if I might be able to steer you in the right direction or help you with your financial future.

Once again, thanks for listening and have a great weekend.

Listen to this episode on Apple Podcasts or Spotify


-Brian D. Muller, AAMS® Founder, Wealth Advisor

Momentous Wealth Advisors in a fee-only fiduciary advisory firm

Disclaimer: This material is for informational purposes only and should not be construed as investment advice. Past performance is not indicative of future results. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.

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