Transcription
One of the most important questions I get is when people ask me, "Hey Asul, how much do I need in order to retire on a certain amount of money every month?" And a real common question is $5,000 a month. How much do I need in order to be able to spend $5,000 a month in retirement? And why is that a common number? Well, the Bureau of Labor Statistics tells us that the average family 65 and older, the average couple spends $5,000 a month. So, it's a really important number and that's what I want to focus on today's video.
I'm going to use a free online tool and I'm doing this so you can follow along and you can change the numbers for your situation. So, let's see if we can answer this question. The free online tool that I'm using is called Honest Math. You can find it at honestmath.com. It's just going to take us a couple minutes to do it. There's four main sections. The first one is the personal information. And instead of a name, I'm just putting in somebody's 65 years old and they want to spend $5,000 per month. Uh, and they're currently collecting social security and they're collecting, I'm assuming, a married couple. So, they're collecting $3,000 a month between the two uh spouses. Okay.
Portfolio balance. A common question people ask me is, can I retire with 500,000? So, let's start there with 500,000 and see if it's enough. The next section is we go into expenses and we put $5,000 a month in here. Now, it's important for you to see below this is a monthly living expense in retirement, ignoring taxes because they're going to add taxes in. So, this is a number that you might want to tweak. I wish honest math let us do our own guesstimate on taxes. Um, but it is what it is. So, we've got 5,000 a month under settings. I'm leaving everything as as the default that Honest Math puts in. And then we hit the the the show me the simulation button. And and here's what we've got. And let me tell you what we're looking at.
The top of that light shaded blue line. These are the people that got lucky. So the for honestmath.com uses what's called a Monte Carlos simulation. You can see they say we ran 10,000 simulations based on your information. They're trying to simulate 10,000 lifetimes, right? You and I get one lifetime, but what if we got good returns early on or bad returns or a mix of that. So they run 10,000 uh simulations, a statist statistical tool, and this is the way that they share the information with us. So the top of that light blue line, light blue shaded area, these are the people that got lucky. The bottom are the people that got unlucky. They got bad returns early on when their portfolio balance was highest. And the dark blue line, importantly, that's the median. Half the people did better, half did worse. You look at this, there's not a lot of people that are going to look at this and say, "Hey, that's good by me. I'm I'm good to go." Uh because what this is showing is the median person runs out of money a little over 82. The unlucky people run out of money just before they turn uh 79. And even the lucky people don't make it the full 30 years. They run out of money at 89.
So let's go back to the drawing board. And all we're going to do, we're going to answer the question about 5,000 a month, but let's see how much you can retire with on this 500,000. So, we're going to move the expenses to 4,500. We're going to leave everything else the same. Looks a lot better. Fortunate people, the lucky people retired with $500,000. They still have $500,000 30 years later. The median person uh makes it all the way to 88 before they run out of money. And the unlucky people make it to 82. Now, I do know some people that say this is good good enough for me, but most people are going to want that median line to be positive, probably at least 100,000 positive.
So, let's go back to the drawing board. The only thing I'm changing again, they still have 500,000, but now we're only spending $4,000. Let's see what happens there. Uh so at $4,000 a month, you can see the median person uh makes it 30 years and still has almost $400,000. The fortunate people, their their net worth is increased. It's doubled to over a million. And the unlucky people almost make it the full 30 years. So this is probably what a 90% likelihood of success looks like.
But remember the original question that we asked is uh how much money do I need to have in order to spend $5,000 a year? So, let's go back. Let's look at that. Before I do, I I have a request. I have a favor to ask. And that is if you like this video, please give it a thumbs up. Uh a like uh thumbs for thumbs for what what do the kids say? Thumbs for likes and uh subs for love. So, think about subscribing. Uh, and if you like these videos, you're going to love my free weekly newsletter. My clients used to pay me thousands of dollars each year for for insights like I share. And I save my very best insights for my newsletter. So, think about subscribing. You can do so for free at this link here.
Okay. Now, we're going to answer that question. How much money do I need to have to spend $5,000 a month? And remember, it's $5,000 a month after tax because of the way honest math works. So, we're going to go back to the portfolio. I'm changing it uh to $5,000 a month in expenses. We go back to the portfolio. I'm going to put in $800,000. My sniff test is pretty good on this. Let's see how good it is. So, if you retire at 65 years old, you have 800,000. You're getting what did we say in social security? 3,000 a month. I think if you do that, this is what things look like 30 years later. You can see the fortunate people have, you know, their money's almost doubled, almost $1.8 million. The median person has 600,000 and almost everybody makes it the full 30-year period. It goes 89 until the unlucky people uh run out of money. So, this is probably what a 95% likelihood or higher of of success looks like.
But it's really important to to think about going from $500,000 to $800,000 could take you a decade. And where I'm going with this is the next video of mine to watch talks about this, which is the reasons why waiting a 65 degree terror might be a big mistake. And before you go there, don't use a free online tool to uh do your financial plan to make the retirement decision. Use a tool that's designed for you. The tool that I like, it's called Bolden. It's powerful. It's easy to use. It's affordable. There's no reason not to use it. I am an affiliate. You can sign up for it here. And here's the next video. Why waiting to 65 to retire might be a big mistake. Thanks for watching this one. Bye-bye.