We always have the outliers where we have to talk to folks every so often about overspending or the spouses aren't on the same page, things like that, where we have to step in. That's all right. That's what they have is for. But 99% of the time, the folks we work with, again, which is why I think they're clients, right?
That's why they're in the position to be able to retire because they've been discerning in their life about their spending and living within their means. They naturally pull in their horns for lack of a better term when those times are tougher, even though they didn't need to. Welcome to Keen on Retirement, a show dedicated to helping you thrive before and during your retirement years. If you are looking to grow and protect your wealth and want to make the second half of your life the best half, then listen in as well as advisor Bill Keen and his host, sort of the key issues that you need to know in a lively and candid way.
Hello everybody and welcome back to Keen on Retirement. I'm your co-host Steve and we've got Bill and Matt. Gentlemen, how are you today? Well, Steve, we're doing good here in Kansas City.
We're coming up onto springtime and Matt and I's neck of the woods here a few weeks ago. We had one hell of a storm come through our neighborhood. Tell me more. Yeah.
Yeah. Let's just say that the day after we had, I saw in our neighborhood, no less than three of the local news stations out broadcasting live from our neighborhood based on damage that occurred. When you make that list of having multiple news crews in your neighborhood, our neighborhood. Now, maybe this has happened before.
I'm 57 and I don't remember ever seen this myself, but I did this time. Tennis ball and baseball size hail through a swath of our city, Kansas City. And it just so happened to be over the neighborhood that we're Matt and I happen to live. You know, Matt came from St.
Charles, just west of St. Louis, many years ago, 24 years ago, I came over. You know, Kansas City's a broad area of broad city. We have over the park.
We have Lee Summit. We have Northland and I convinced Matt to move up north where I grew up. So I don't know if he regrets that or not, but he's built a life time here. So I guess late now.
I'm on carpool duty if they'll need to ride. We live in the same area. The real reason why you wanted to jump there. But anyway, that helped us both get hit by the same hail storm.
Well, hopefully did you have much damage? My gosh, I can do serious damage. The cars that were out, one of them had a back windshield, crashed out like someone hit it with a such hammer, not just cracked, but completely crashed out. And then an SUV, kind of our lake SUV had the front windshield cracked.
And then I'd say no less than 40 dense. Some of the dents look like somebody threw a softball at it. It looks like somebody hit it with a ball bat. Unbelievable.
And then the roofs are just toast. I think a lot of them here in the neighborhood with that kind of activity. People are putting signs on their doors that says we have a roof on the dock. We already have one.
Yeah. Yeah. You think the news crews were out here just think about the roofing companies of all sorts. You know, some are probably very nice companies and other companies.
You're on a business. So have you done with all this matter? You know, I had we didn't have a little bit on the cars that are arked outside, but wasn't too bad. Just one, my big truck had a crack in the windshield and a couple of dents, but nothing terrible.
And roof seems to be okay. So we lucked out. Okay. Well, you know, as it relates to our financial program today, we are going to be talking about spending some money, I think, on our program today.
Hopefully for fun. That's fun. So we have our whole topic that we talk about is actually getting to spend the money to deploy capital. Of course, not on like, do not on hail damage.
Right. You know, or you thought you were good and now you have to come out of pocket. But at some point we probably have a PNC agent on that. We can talk about do you file a claim, right?
Do you file a claim or will they drop an amount of deductible to have? I've heard something. You don't have a high deductible because you don't really want to put a bunch of claims out there. Right.
So it's just absolute. What do they call that catastrophic? You know, it's just there for catastrophic purposes. Yeah.
So, you know, all that. Yeah. It's like we come up with other topics. I think so.
Yeah. So, you know, we're going to put a new roof on. We still have the original roof on the house and it's time to get that done. So that's not going to be inexpensive.
So talk about spending money. There's one of them. That's right. Well, we do have home improvements and so forth.
Worked into our financial plans. We do. We do. Well, great.
Well, let's dig into the first question. We've got several here and this first one comes from Chuck and he is asking how should we account for the uncertainty in inflation and investment returns for long term plan? Yeah. That's something we deal with all day every day as we're putting financial plans together and updating financial plans because, you know, it's a projection of how do we think the next decade, two decades, three decades, however long we expect and really someone to live or how long this money needs to last.
And those are some of the inputs. Okay. What do we have saved? That's an input.
What do we think the investments are going to make? That's an input. How much inflation do we think there's going to be and other sources? You can count.
A ton of inputs, but you know, they're all life expectancy. Right. How much do we have to account for? And to how do we account for?
I mean, basically what Chuck's asking is just, well, none of this stuff's a straight line. I mean, there is no set inflation rate. It just is the same every year as much as we'd like that as planners. It'd make life a lot easier.
It's variable. And so, you know, we got to account for that. And the way to think about inflation, there's kind of like two components to inflation in terms of the impact that it has on someone's financial plan. The first is how much do we project your spending increasing over time to keep up with inflation?
So that's just maintaining the standard of living. That's really what that inflation lever in the plan accounts for. And then you have inflation and the impact that inflation has on certain investments. It does have an impact on the investment return because if we have, I would say, normal inflation or inflation that's kind of in line, that's accounted for in long-term averages of the investment returns.
But within, when we have periods of hyperinflation or, you know, disinflation or deflation, those have different impacts on that period of time when that's happening on the investment returns. And so that gets picked up in different ways on that side of it. But I mean, one thing is always, okay, well, what's the current rate of inflation? And that's going to be really hard to quantify because each person's going to experience inflation differently because it's based on what you spend your money on as an individual.
And, yeah, so, I mean, we've got to now we've got to account for and use just what you're saying. Well, what is long-term averages? What's a basket of goods and services that people typically purchase and let's kind of start there? You know, a good place to start is, well, what does the government say?
The Bureau of Labor Statistics, they're the ones who publish inflation and they publish all these different inflation metrics where they have core inflation, which strips out food and energy. They have headline inflation, which includes food and energy. So it's like, okay, which one do we use? And you know, headline is a good one because it's like, well, even though they strip out food and energy and the rationale for stripping it out is because those, they say are more volatile, meaning they just fluctuate a lot, which we've seen lately with gas prices and, you know, situation in Iran.
So they just want to get a sense if we strip out the things that move the most, what is it? And it's not like we eat food or use energy, right? No. And if we look at it, it's like in times where energy prices are down or gas, you know, that makes the headline inflation number look lower.
So I get it where they look at both of them. So the headline inflation as of February of 2026 is 2.4%. And, you know, they publish it like, here's last month's number and then they annualize it. So that's where they come up.
It wasn't for the month 2.4%. And then they're going to be the annual figure. And that's down from 2.7 is kind of where it was coming in in late 2025. And then at the peak in 2022, it was 9 plus percent.
That wasn't that long ago, four years. But, you know, I remember we were all talking about that because inflation was it was high, you know, that was that hyperinflation kind of scenario that we were seeing, right? We've got to kind of account for that. And there's ways that we plug that into the plan.
We don't just necessarily change it based on here's last month's number. And then now we're going to use that for the next 30 years. We look at long-term averages first. And I've seen kind of different data, depending on how far you go back that long term.
It's 2.9 percent as kind of that inflation rate on the headline side, which includes food and energy. We start at 3 percent. So we're already starting at a higher amount than the long-term average. You know, we plug that in as kind of like a fixed metric, but then we've run what we call a stress test.
And the technical term, even though this doesn't sound very technical, is a Monte Carlo simulation. I call it statistical modeling. I don't know. It sounds more less like Vegas.
Yeah. And whoever, the statisticians call it a Monte Carlo analysis. So it's like that. Yes.
So they can find it. And I would say Vegas is probably pretty good with their statistics. So even though it is a maybe a gambling term or at least has some connotations to that, they seem to always win. So I think they kind of know what they're doing when it comes to that.
But it's a tool that we use. We run, you know, the stress test or the simulation. And basically what we're looking at is different rates of return, different orders of return. And it does account for different inflation rates because that's going to have an impact on the rate of return.
If someone retires and they go through or the market goes through a down market for a period of time, like what's the risk of you retiring and the impact that a starting off of the bad number of years up front in terms of rate of return versus starting off with a great market, retiring to great returns. We call that sequence of return risk. We want to run enough simulations to understand, okay, what's the risk of that happening? Because if we put a plan together and everything has to be perfect for it to work, that's not one that we're going to have a whole lot of confidence in.
And our stress test is going to point that out because for everything to be perfect, that doesn't happen that many, you know, of the thousands of simulations. It doesn't happen that many times. So we have to, you know, have to account for that. And then we come back, we call it a probability of success.
And that's where, I mean, the way the plan looks at it is it's, are we going to run out of money? Does the plan work? How many times in these, you know, of these thousands and areas, does the plan work and we didn't have to make any changes? That's really the way to think about it.
Because if it goes to zero, it's not like, well, someone's plan is just, okay, well, it just didn't work. If we're meeting on a regular basis, which we, you know, we want to meet with clients, at least annually and update the plan because that's like the key to it. I mean, life happens, things change, inflation changes, returns changes. We have all these different things that are always happening.
So we have to always be updating the plan and seeing, okay, well, based on where we're at today, how does that, you know, probability of success change? And if, if we do need to make it change, let's talk about it. And that change may be very minor, you know, if we do it early up front of me, we talk about that when we talk about so scary all the time. Like, well, yeah, it's been talked about for decades that so scary is going to run out of money.
And if they make a change early on to whatever they're trying to change to help fix the trust funds, the sooner you make the change, the smaller that change needs to be. And it's the same with planning too. If we're going through a really bad period in the markets and it's just, well, we're just the plan when we first retired said this, so we're not going to make a change. It's like, well, that's things are different now.
So we need to account for that. And sometimes those changes are extremely minor. Like, all right, well, maybe we don't take an inflation adjustment this year. That's kind of how we think about it.
Like our experience is that clients don't call us up every year and say, okay, it's time for our annual inflation adjustment. I don't know, Bill, if you've ever had anyone say that to you? No. So, you know, you've said a lot of really good stuff there.
I mean, seriously, you're making it easy on me today because you really nailed it. I want to comment on a couple of things that you said because I think they're important to tease out. But when it comes to people, I've been doing this 34 years. So I've gotten to see a lot of reality.
What's really happened? And I've got to see frankly how these financial plans we just talked about, we were kind of teasing about the money, Carlos simulations. I've gotten to see how the software used to work. Well, it used to be legal paths.
Yeah. Seriously. I stopped where. Back in the early 90s, it was legal paths doing some math.
Then it revolved into just software of sorts, but you'd press the button in a straight line interest calculation. I have to go get a coffee and take 15 minutes to get it back. It's just like basically a spreadsheet, just fixed inputs. Yeah.
Yeah. So that's the computing power 15 minutes to run the thing over the course of someone's lifetime. Some of the original software on it. Yeah.
And I know that's amazing for you watching on YouTube. You can't imagine that I'm that aged that I would have been in business back then, but what they call these lenses or they soften wrinkles. Yes, they do. Okay.
So that's what it is. The filters. You know, so then we evolve into this software that actually works immediately. And I've got to see how those things have worked.
And there are some general frameworks too. If we stay within those guardrails, I can tell you through all market environments. I've been doing this through a 102 through when the market the towers came down and when you mention someone retiring at the wrong time that would have returned risk go to my book, go to Kean on retirement, second edition, go to chapter 12. And you will see a chapter that starts with, I believe it says in 2001, a cresty old gentleman walked into my office.
Now, if he's listening, because he's still alive and he's been retired now for 25 years, and he retired at exactly the wrong time. If there was a wrong time to retire, the world didn't end when the clock struck the year 2000. Remember everybody thought the microwaves and everything was going to blow up because they didn't know how to calculate the year 2000. Was it hard to remember that Steve?
Yeah. Yeah. Yeah. Yeah.
So you remember that that did not happen. I had the towers come down and some other fraudulent activities that occurred back in the markets with my gosh, was that in Ron? Yeah. And Ron, WorldCom.
Yeah. WorldCom. All these things happening together. This gentleman retires right then, and he gets to see 50% of his equity portfolio temporarily declined, but we had enough money and fixed income and other dividends and things coming in and other income streams that he didn't have to sell and he didn't panic.
And then he turns around and happens again six years later, oh, 809. So we've got direct experience. So I'm not going to, I'm not going to, maybe I shouldn't give it away. Somebody might need to go back to the book.
And if you don't have it, call email us and we'll send one to you for no charge of our expense. It's chapter 12 talks about him. In fact, I just talked to him yesterday and he's doing incredible. We become really good friends.
He's 86 or so now something like that. It's had an incredibly full retirement, but it didn't blow him off course. Okay. Did not because things were set up correctly.
Have people taken inflation adjustments? Not really. Some because inflation has been higher, but it's yeah, it's just not a thing that happens every year. That's right.
Sometimes they do, but we calculated in, but not one person has called and said, I need my adjustment now. It's been third 12 months. I need my 3% more. Not once.
Not once. I think that we talk about spending patterns over time and what what really happens is, and I talk about in the book, go, go years, slow, go, years, no, go, years, people naturally spend less money. They naturally spend less because they're out not traveling as much by design by choice and they're fine with it. So they're spending less.
So that's offsetting that we're planning for this 3% every year, every year, just like full force on about age 92 or five or whatever. And that's not what's happening. They're spending is leveling off and then declining in that last 10 years of life if they make it out into their 90s. Yeah.
You see, so that's the reality of what's happened. And hey, while I'm going on here, please remember folks when it comes to inflation, just because it was nine, three years ago and it's down to 2.4 now, that doesn't mean that all that whole time that 9% was going up, it doesn't mean that the cost went back to where it was before the 9%. So up nine and then now it's only going up 2.4 at the moment, but it didn't go back down anywhere. Right, of growth is less, but it's still growing.
Exactly. So it never went, prices never deflated. They always keep going forward. And finally, this K-shape economy that we have, and they call it the K-shape economy where the folks that have resources, they're becoming way better off than the folks that don't have resources.
I mean, people who have intended to participate in the stock market and that isn't everyone. So for those that have investments, yeah, things have been going great. Despite the last few weeks here in the market, it's still basically at all time highs. Or Matt COVID or the bear market we had in 22 or the heck we had one last year almost, right?
Oh, yeah. It's market as a normal, ebbs and flows. That's right. If you own assets and you own stocks, you own the real estate, we're in inflationary environment and you own assets like stocks and real estate, you actually benefit from it.
They dissipate. Now, it's a bigger picture thought around that. But interesting to think about. Well, that's probably a good segue to our next question, Steve.
Question number two, do spending habits and goals need to change more or less with the ups and downs of the market? Yeah, Bill. Yeah, he hit on that a little bit in terms of just talking through kind of the market dynamics and how we can structure portfolios to get through that. That's one of the key things is making sure your allocation is correct because if you've got everything in one asset class or one type of investment, you know, so for example, if you've got everything because you're retired, sometimes the thought process says, well, I need to be conservative.
Okay. So what does that mean? Well, that may mean more in money markets, short-term bonds, things like that. Well, here's the problem with that.
If you have too much over there, it doesn't grow. We just talked about inflation and interest rates, they are kind of tied to inflation, too. If inflation's high, you typically see the Fed and interest rates trend higher to account for inflation. You know, you look at what inflation is and you look at what you can earn on money market or earn on short-term bonds and CDs, they're about the same.
So all that's doing is just kind of keeping you even, but there's periods where inflation will go up and not necessarily, you know, fixed income or bond rates or yields will account for that. So then in that, those scenarios are going backwards if you're too conservative. So over time, it might feel more safe or more comfortable because it doesn't fluctuate as much, but you look up five, 10, 15 years down the road, you're like, well, I don't know if I have enough because everything costs more and I'm not, my portfolio hasn't participated in the fact that the market's gone up, however much it's gone up over that period. In some cases, you know, many multiples it's gone up over that period.
So again, you got to account for that. Now, if you're too aggressive, too much in stocks relative to what you're spending to, because that's the other kind of component to it, because it's like, well, if you only need to live on one or two percent of the total, if you're looking at it that way, if you say, okay, I have $2 million saved up and I have so security and pension, I really don't have that much in terms of like fixed expenses, I may not need to take out anything more than just what the dividends and interest kick off on the portfolio and I may not even be taking all that out. Well, in that case, I mean, is there really a too aggressive? I mean, it's more so can you handle the fact that it's going to fluctuate more?
I mean, it's going to go up a lot over time, but you know, we're going to have these pullbacks, temporary pullbacks from time to time. Like they'll mention we had COVID, we had 20, 22, you had 0.809, you had 0.102. I mean, we've had a myriad of pullbacks and corrections in between all that. You got to be able to handle that.
And if you have no problem dealing with that, then you'll be fine. So, you know, aggressive again is all relative. Now, if you have it all concentrated one stock, yes, that can be significant risk because one stock can go to zero. You know, it doesn't matter the company how long it's been around, how strong its balance she does, anything can happen.
We've seen it many times over not zero. Yeah, or just go down and stay down for a long period of time. I think you've hit on a couple of things there too. I think they're really important.
You don't want to be too conservative because you can't keep up with inflation. We just got to talk about that in the first question. How does inflation affect each person? It is different, but you do not want to be held hostage to the stock market.
And I love, I don't even like to call it stock market. See, I semantics matter to me. Remember, I said, I don't want to talk about Monte Carlo because it looks like Vegas or sounds like it. I you say stocks, people typically start thinking, Oh gosh, stocks.
I don't know. Maybe I'm just imagining this, but they think they're like some casino chip here again, Vegas that somebody's just going to come and take all your chips away from you someday. And that's not the case. These are the great American companies, the great companies of the world, I would rather say than just stocks, right?
These are investments you participate. There's human capital. There's creative resources. There's earnings.
There's a lot of different things that make them worth something very, very valuable, but they are volatile. So we don't want to own them if we're going to need to use them. And our rule of keen is within three to five years. So what we want to do is keep enough money in the fixed income investments, accepting a lower return that you're going to be spending in the next three to five years.
That way it gives you an insulation. Not watching the news, watching, seeing what the stock market does every day, wondering if I have to reduce my spending, like this question asked, I'm going to have to reduce my spending because the markets are off 5% this month. No, if we don't want that, we don't want to build a financial plan that has, that is based on someone having to ever reduce their spending based on what the markets are doing. Now, this thing went through in 0102.
Let me speak for experience again. When I went through a 10 to 10, eight, nine, those two situations were the worst, since the Great Depression and the worst we've seen. So we haven't seen anything like it since oh eight, nine. That's where things went down a lot, 40, 50% in the broad markets and then stayed down and took a couple of years to come back.
Here's what I naturally saw, even people that didn't need to reduce their spending, they naturally reduced their spending because they were discerning about their spending is that's why they were able to retire. And they built margin into their spending. It wasn't all just, well, we have to spend this or else we're going to lose our mortgage or not be able to pay our utilities. Exactly.
They had all kinds of different, we call them what we call needs, wants and wishes. I think it's the way our financial plan defines them, but they naturally spent less in almost every case. We always have the outliers where we have to talk to folks every so often about over spending or the spouses aren't on the same page, things like that where we have to step in. And that's all right.
That's what they have is for. But 99% of the time, the folks we work with, again, which is why I think their clients, right? So what's why they're in the position to be able to retire is because they've been discerning in their life about their spending and living within their means. They naturally pulling their horns for lack of a better term when those times are tougher, even though they didn't need to in most cases.
Yeah. We've been focused so much on the negative sides of these things. Like, things go down. Do we have to cut our spending?
Well, it goes both ways. And majority of the time the market goes up, you know, seven out of 10 years, market tire, you know, all that we've shared all that data over all of our episodes. And what we find, though, is we're having more conversations with people about you can spend more. It's not about cutting spending.
I think people are more concerned about that, but it's like, no, I mean, the reality is if you're allocated correctly and you're not over withdrawing the plan, then there's room to spend more over time. And that's again, that's part of why we want to meet at least annually, because those things we point out, like, well, hey, you're not going to live forever so far. I don't think there's ever been, you know, anyone who's cracked that code. So there's a finite amount of time that you're going to be here.
And I mean, you don't have to spend more. It's just if you're afraid of spending, let's talk through that and get comfortable with spending. Because if you're not going to spend it, somebody else will, whoever you leave the money to will spend the money. So probably pretty freely as well.
You know, well, you know, because it's just a different mindset. Like you've worked and saved all these years and you just want to make sure it lasts. You don't want to be a burden to kids or grandkids or anyone else. And, you know, you're just conservative by nature in terms of like the spending and making sure I don't overspend a run of money.
And so people just naturally don't have that comfort. And, you know, they do get comfortable over time, especially as they see these plans and they see their networks and how those have changed, especially as someone's been retired for, you know, five, 10 years. And it's like, if you've got a big anniversary coming up, 50 year wedding anniversary, let's talk about that. You want to do something.
I mean, you have the ability to do that. Let's talk through how to do that. And yeah, I mean, sometimes taxes and all these other scenarios play into it, but it's also like it is what it is. Don't let the, you know, tax tail wave investment dog either.
Let's kind of think through and make sure you're enjoying your retirement, not just, you know, hoarding it or just afraid to spend. I can't believe you went there, Matt. You did it though. You went there publicly.
And I was a little nervous when you did, but even in the last 30 seconds, I've got more comfortable with it now because we always had Steve. We always had, all right. So in our industry, I'm just going to tell you folks behind the curtain in our business. And we care a lot about the people we work for.
And I say work for as in the clients because we do, we're, we're hired help. We're consultants. We bring brought in, we can be fired at any time, one signature, like we have to earn the right and the privilege to continue walking alongside our, our families. But one of the things that we so most want to make sure happens is that someone is listening to our advice and not overspending their plan such that they are going to run out of money someday.
And we can see it coming. We can see the things in an attribute of a family that is not getting conscious and not listening to us or is coming in and saying, well, just make more, put me in a higher growth portfolio. The return will fix it, make it more risky that they're not wanting to hear it. And this can come from a lot of different backgrounds and folks, but it's, it's rare.
It's, you know, I don't know, one in 400 or something. There's some very low ratio and we'd have a deep respect for every single person on the journey. We understand there's a lot of different issues. I mean, sometimes people are supporting their kids or parents of both.
And we have to come in. It's not just frivolous spending, right? It's not just like frivolous stuff. It's, it's necessity, but we see that coming.
And so everybody's real sensitive, probably in keen wealth and other firms like ours where we don't want to encourage people to overspend in any classroom. Early on in retirement. Yeah, the longer you have to make the money last, the more serious this variable is. If you're 85 years old and we're telling you still can only spend 4% of your total, you should tell us to pound Sam, right?
Spend as much as you want at that point. You know, you could spend 10%, spend 20% of your total. Maybe that's a lot, but I'm just saying you got to be nimble with this. But you mentioned most of our clients could be spending more money.
And that is the case. You did say it here on the program for the folks that shouldn't. Well, those plans, I guess it comes up when we do the plans when we talk about their probability of success because those don't work. They don't work.
And that's why we do the planning. That's why we do the planning and then we learn to with compassion and care and love to share things in a way that's respectful. Yeah. And it doesn't say your plans coming to an end Tuesday.
You're going off the cliff. It's over. There are adjustments to their ways to face this over time. That's the key.
The response is, you know what? If I'm out of money in 10 years, I'm out of money in 10 years. They're comfortable with it. That's fine.
And I've had that. I've had people say that one couple. I actually went in the meeting because I knew the planners were nervous about it. So I went in personally to hear it and document it, right?
Because they're worried. Like, you know, planners are worried like, oh man, if these people run out, worried reliable or something, right? We have a promise of lifetime pension. I mean, you can't just speak whatever you want and think it's going to work and blame us.
Like, that's not how it works, especially if you've been talking about it every year for you dozens of years. But I went in that meeting and they said, no, we have social security and pension that are going to be 90,000 a year when this money is gone. And that covers our basis. And it covers everything.
And then so we are specifically going to gift this to our son who's in the military. And he didn't have the life that we, you know, they had a reason, like a really, actually awesome reason. And he was very, you know, he respected them and was grateful. He was a good steward.
He's a really good son, was really great guy. And that was her goal is to give it to him over 10 years. Period. That's their plan.
Yeah. So the planners brought to me, hey, these folks are going to run a money in 10 years. Like we're worried. Well, okay, they explained it to me.
Just have a conversation about it. That's right. Yeah. Well, we keep going.
Gosh darn it. I think we have one more question, Steve. And you haven't been able to do. Well, I know.
I know. I'm just soaking it in here. I'm learning just like the audience is after. You want to update episode.
You're still learning, Steve. I mean, you're a piece of. Well, I hope I will learn to the last day of my life. Me too.
Me too. Well, you speak this next question, Steve. We promise we won't go on as long. Okay.
On this last one. Well, it's another good one here. This one comes from Jeff. And he's asking about what percentage of someone's original income do people typically spend in retirement?
And all these are good questions. And this one in particular I think is interesting because there's typically a rule of thumb that's thrown out there in terms of like, oh, you're going to spend X% of your income in retirement. But as you guys are going to explain, I'm sure it's much more nuanced than that. It is.
It is. And the rule of thumb, I mean, if someone's googling these types of questions, you know, you're going to see things that say 70, 80% of whatever your pre-retirement income is, that's how much you need to replace to maintain your standard of living. And where that comes from is you look at, I'm working, you know, I have a W two or I'm self-employed, whatever, and I'm paying FICA tax. Yeah, that's the payroll tax that's Social Security that's Medicare.
That's only applies to people that have earned income. Yeah, that W two or that self-employment income. Well, that goes away because when you convert to being retired and you're taking money out of retirement accounts or savings and after tax accounts, pension income, if you have income from real estate properties that you own or, you know, so security even, you don't pay FICA tax on any of that. And right now, if you're W two, that's seven and a half percent right off the top.
So that goes away. And then the other big factor is, well, most people are saving. So while you're working, you're putting money into your retirement plan or you're saving an after tax accounts. And that can be as high as 10 to 15%.
Well, you have those two together right there. There's over 20% that you don't need to replace because you don't need to save 15% of your retirement income for retirement. You don't save anymore. You spend less.
Saving is. Yeah, you have to take it out and make taxes and sit it. Exactly. And then there's studies and data on, okay, well, there's also work-related expenses that go away.
But you know, those don't necessarily account for the expenses that increase because now you have more time, too. So maybe that's a wash in that case. But anyway, that's what you'll see in terms of just basic Google searches is how much you need to replace. Now, when we're sitting down with somebody for the first time, most people haven't, you know, they've been earning a good living and they're not on a strict budget.
I mean, some are, but most aren't. What comes in is more than enough, they're not going backwards. They're not taking on a bunch of consumer debt. So it's working.
And that's, okay, well, let's start right now. Like if you have no idea what you need to live on, the very first question we'll ask is like, okay, well, how much gets deposited in your bank account each pay cycle? So if you get paid twice a month and you had 24 of these, you know, that we have to account for, maybe it's 5,000 every two weeks gets deposited, you know, it fluctuates based on bike attacks and things like that. Cause some taxes go away as you earn more money.
But let's just say that's the average, you know, $10,000 a month, 120,000 net attacks. It's like that's what you're living on. And maybe you're even saving a little bit of that, but let's just start with that. That's the easiest thing is just let's just start with your pay-home pay.
I remember matter way back, way back, you know, 25 years ago, I started doing this. I started realizing that in the brokerage world, they were just pushing products and buying stocks and stuff from people. And I thought, to do this right, we need to have a financial plan. We need to have a purpose for the money.
It can't just be done in a vacuum. So I started doing financial planning and retirement planning way back. I mean, way back, 30 years ago, even in the old brokerage houses, like the even where I started, even I was, I was realized this, even back then, but up to and including now, over the years and decades, they have these complicated sheets you send people to figure out what they're spending. They're going to need to spend it.
Oh, yeah. Okay. Okay. No, that's great.
Yeah. Yeah. And we have some clients who are plugged into these software packages. Yeah.
We have those that you want. We'll provide that to you. It's just, it's a lot of work. Yeah.
You look at every penny you spend and for people that come in, frankly, for the listeners and viewers out there today, if you have somebody you know that's struggling with finances, they don't know where to start. The first thing to tell them to see and you're going to find out if they're serious or not, they're going to find out if they're serious or not, is you tell them for the next two months, write down everything they spend every penny they spend, just write it down, document it. Not even asking them to change it. I'm not asking you to change it.
I just asked you to know where it is. So you have reality. All progress starts with the truth. And if you don't know the truth, then there's no starting point.
So all right. That's people that are having trouble trying to figure it out. That's the first step that we can go from there. But for folks that are just trying to say, hey, let's come in and do a financial plan.
You said it's a long, arduous thing to try to figure out what exactly you're going to spend. You don't know. But like you said, at easy ways, look at what are you currently clearing. Do you have a bunch of credit card debt?
No. Oh, so that's working. Well, hey, sounds like a good number to start with then for our planning for your retirement. If it's working now, we're going to assume it's going to work in the future.
Now we'll fine-tune it. Yeah. It's a great place to start when you don't know. Okay, that's working.
And then we can say, okay, well, how much do you have saved up and then run the analysis based on that? And it's like, okay, based on what you've saved, here's the probability of successes of this working indefinitely or over your lifetime based on all these inputs. And in some cases, if this is important to you to maintain this or if you feel like there's a lot of extras that you're spending money on that you don't necessarily need and you don't necessarily have enough saved up currently, let's change the spending amount in retirement. You know, we don't want to necessarily just like Bill mentioned earlier, well, let's just increase the rate of return or let's just reduce the inflation rate to make it work.
Or reduce your life expectancy. Yeah. I mean, there are levers that can be in there, but let's be conservative. Because again, I want to tell someone that they can retire when they're probably making the most they've ever made.
And when the plans, especially, you know, if people have listened to our podcast and maybe even tuned into the webinars, when we talk about when you're on that these last few years before retirement, there's so much that can be in your favor to continue to work and save and not spend in these last few years that it can make a meaningful difference in terms of what you can spend over your lifetime. So just to retire early and then now really be on a tight budget for the rest of your life, it's definitely possible that you just want to be mindful of that. Like you said, Matt, it's one more year that you save and one less year that you don't take money out. It's a double positive, you know, every year.
And then you get to the point where like I always say, when's the best time to retire from a financial standpoint? It's never, could you go, it's make more work longer, but you have to do the planning. And Steve, one thing you've always said you've taught us early on was not just look at what you're retiring from, but look at what you're retiring to. Right.
Imagine the person that said, I'm retiring at 53 because I'm going to do it. And they do it. They had nothing to retire to. They realized they shouldn't retire.
They're bored, but to have a hard time getting a job back at the level they were before. Now they made a mistake. So that's why the thinking about this, all of us beforehand is so important, getting thoughtful about these things is so important going into these big decisions. Totally is.
Yeah. One of the other things I think is kind of interesting. You talked about the rule of thumb, like maybe 70 to 80% of your pre retirement income is what you're going to spend in retirement and how that will change based on how much your pre retirement income was. And so, Matt, I think you've got some data that talks about how that changes based on your income level.
I find that pretty fascinating. Yeah. So JP Morgan and Chase Bank, they're all under the same parent company. They do studies every year.
And they actually put out a lot of great data on what their clients, especially clients of the bank spend their money on over time and to these replacement rates. So the lower your income is, so if your income is $50,000 per retirement, the more of it, you're probably going to need to replace in retirement because, okay, yeah, you don't have the bike attacks and maybe you aren't saving inside your retirement plans, but your fixed costs are probably a good portion of your budget versus a lot of discretionary expenses. And you might need to replace 90% of your pre retirement income if that's what you're looking to do. Now, again, you might want to spend more in retirement.
You might be able to because you've saved enough to be able to do so, and that's completely fine. But the higher your income is, the less you need to replace, at least depending on how much your fixed costs are relative to your discretionary. I mean, it's just more common to see if someone's making $300,000 pre retirement that they probably have a lot of discretionary spending in that, if they're spending it, not necessarily saving a big chunk of it. So you may not need to replace that.
You may be making $300,000, but you only need $150,000 in retirement. That's a 50% replacement rate. Now, of course, there's taxes too. Maybe $150 is the gross number.
Maybe it's not. Again, this is so individual, so it's so hard to talk about generalities. But these are concepts for Jeff to think about. And I know Jeff and he's a client, so of course we're going through this.
But he's getting close and just trying to think through all the different scenarios and how to account for all this. Yeah. And I think the chart that as you were putting some material together here from JP Morgan, the chart clearly shows that the lower your income, the higher the percent of that income that you're likely going to be spending in retirement. And it pretty much goes almost like a straight line down into the right, the higher your income, the lower the percentage of that that you need to replace in retirement.
And so I think that's sort of the point I wanted to get across here is that the more money you make, the less of that you're likely you're going to have to replace as retirement income. Now, of course, every situation is different. As you've said here at numerous times, which is very important, every situation is individualized. And that's why it's important to talk to folks like you guys just to make sure we're understanding what is it that you're trying to accomplish and make sure that you can design a retirement income plan that's going to meet what you specifically are trying to accomplish.
That's right. And I think to tie a bow on that, Steve, I think that for all three of our questions today, the message is you've got to get truthful about where you stand. And I say truthful, not like you're trying not to be truthful. You just need to be aware of exactly what resources you have and what you want them to do for you and your family and maybe some of the charities and other things that you are passionate about.
You need to put a plan together that is stress tested, that is looked at at least once a year, maybe sooner if there's a big life change within those timeframes. And you need to keep doing that for the rest of your life. And I am biased, but I think you should do it with a fiduciary planning, financial planning team that has expertise in investments, taxes, regulatory issues, Medicare, all these things, estate planning. So they can have their process that they run.
We have a very disciplined proactive process. So things don't slip through the cracks when laws change, when regulations change, we're right on top of who it affects, who it doesn't. We're able to apply that thought leadership and intentionality to each person's plan and deal with things as they come. Because yes, questions being asked today are these variables.
Well, we'll know the variable when we get there six months from now and we'll know that next variable the next six months and we'll know that next variable five years from now, we do the very best we can with the information resources we have today. And we just constantly bring it back to center. That's the key to it. And I've been, like I said, doing it almost 35 years.
And I've seen it work across the board if someone's committed to it. And we're certainly grateful to partner with folks on that journey. We love it. We love it.
We love it. Excellent. All right, guys. Well, we will wrap it there.
Thank you. As always, and for each of you listening, please make sure that you subscribe to the podcast and check us out on the YouTube channel as well. Bill, you know, we saw each other here just the other day in person. It was great to see you guys in person.
And you mentioned that the YouTube channel has like 10,000 subscribers. Is that close? Yeah, yeah, that's something I think we get a plaque from YouTube, maybe we'll have to show that off. Oh, yeah, we're on the back.
Yeah. Yeah. Yeah. So that's awesome.
So let's get another 10,000 here by the end of the year here in 2026. That would be fun to see. So please tell all your friends and colleagues about that. Make sure you subscribe to it and also hit the notification button.
That way you'll get notified whenever there's a new episode that comes down and we appreciate that. So thank you all for coming. And we'll catch you on the next episode of Keen on Retirement. All right.
Thanks, Matt. Thanks, Steve. Thanks, everybody. The Steve Sandesky advisor network and belay advisor are not affiliated with Keen Wealth Advisors.
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