A $5 million portfolio withdrawing $300,000 yearly faces very different risks than one withdrawing $150,000. Your retirement number depends entirely on what you actually spend, not the other way around.
People tend to ask, what's the magic number I need to retire early? And we think that's backwards here. Nolan, why do you start with spending instead in answering that question?
Because that's the most important number. You know, if somebody has $5 million, but they're not taking withdrawals, let's say they have income from other sources, that's a materially different conversation than somebody who's going to retire today, And tomorrow start withdrawing $300,000, as an example, which is 6%. Very different outcomes. Now we're introducing different type of risk, longevity risk, sequence of return risks. Yep. And it's a different calculation.
And if one household needs $150,000 a year while the other household needs $300,000 a year, does the same $5 million mean anywhere near the same thing?
No, it doesn't. You know, if I only need to take out 3%, to live every year. That means I have a lot of capacity within that $5 million to dedicate to growth. So it's likely if I'm only spending 3%, I'm going to see my account grow over the next 5, 10 years. I'm going to see that my account grow more substantially than an investor who's taken out 6%.
And that's the point. You don't know your retirement number until you know exactly what you're asking it to fund in retirement.
