Same $5 Million, Two Totally Different Retirements

Let's take 2 50-year-old households. Both have $5 million invested. Household A spends $150,000 a year, has a paid-for house, and their kids' college is behind them. Household B spends $300,000 a year, still has an $800,000 mortgage— yikes— and has 2 kids approaching college. Double yikes. Same $5 million, Nolan. How are those 2 different retirement conversations?

Yeah, very different. Couple number 1, they're only spending 3%. If they earn 3% on their portfolio some way, shape, or form, then their income needs are met. But couple number 2, with the $800,000 mortgage, the 2 kids approaching college, their distribution number is 6%. Much heavier lift.

So we know the spending rate is obviously different in these cases. Is that the only way you look at it? Is that the simplest way to look at it? 3% versus 6% spending rate, or are there other considerations as well?

I think there There are other considerations in addition to that. So one of them is we didn't mention if either of these couples were retired. So for couple number 2, where they have a more demanding income need, I want to know, is there an income gap? If they are working, are they spending above their income, at their income, or below their income? Right. And it also matters, Brian, their lifestyle and where they live. If you live in a high-cost city— New York, LA, San Francisco, and increasingly my hometown, Miami, Florida, $5 million may not sound as attractive as if you live in Sioux Falls or Des Moines, Iowa, or my own hometown of Detroit. So definitely it matters. What matters more is your spending rate. And 3%, I'll take over a 6% spender every time.

And that's why a retirement number by itself doesn't tell you very much. What matters is what you're asking that number To support in retirement.