Can You Really Retire in California with $2 Million? Financial Advisor Explains

June 8, 2023

Can I Retire With $2 Million in California? Today, Anthony walks you through a couple’s financial situation to see if they can retire.

Can You Really Retire in California with $2 Million? Financial Advisor Explains

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SPEAKERS

Anthony Saffer 0:00

Can you retire with $2 million in California? I’m going to walk you through a couple’s financial situation to see if they can retire.

Hey it’s Anthony Saffer with One Degree Advisors and we help you gain confidence in your retirement. Today I’m going to show you a financial plan of a couple, Joe and Heather. They’re not their real names. They’re currently living in California with $2 million in investments. The question is, can they retire?

I know your situation will look different than them one way or the other. But I’ll show you what you need to look at to help you gain competence in your decision to retire.

Okay, Joe and Heather are both age 62. They have a relatively straightforward situation, which includes owning a home and a mortgage with 10 years remaining on it. While there are many inputs included in the financial plan, some of the main inputs are an average investment rate of return of 6% and an inflation rate average of 3.7%. We’re also estimating income taxes into the future, they would like to keep at least $60,000 in cash reserves for emergencies. They hope to do a bathroom remodel next year, and they would like to separately budget $10,000 travel for the next 15 years. In addition to those expenses and other income taxes, they would also like $10,000 per month for normal living expenses.

Now this living expense figure is perhaps the most important number in the financial plan. How much you actually need to have saved for retirement will really depend on how much you’re going to spend. It’s important to get that living expense as accurate as possible. To help we’ll link you to a previous video that we recorded where we talk about an alternative to budgeting. This is actually an easier and more accurate way to get that living expense targeted as you prepare for retirement.

And if you’re not subscribed to our channel, we really hope you will so you can continue to gain confidence in your retirement.

In addition to their investments, Joe and Heather will each have Social Security income. With this projection. Each blue bar represents one year of their lives starting this year and projecting out to age 95. The size of the bar represents their nest egg, the value of their investments in cash. This nest egg projects many years into the future, but begins to run out around age 92. So what we want to look at is how can we improve their situation.

They said they can save an extra $20,000 per year to their brokerage account. And this projects to add about an extra year of longevity as they save over the next few years. They also asked about Social Security timing. In this scenario, we looked at Joe maximizing his benefit until age 70. And Heather continuing to take hers at full retirement age at 67. This is not going to make a big difference on the projection. Although if either were to pass away early, the survivor having the higher of the two benefits would make a pretty big difference in that scenario.

What does make a bigger difference is if they retire just one year later, you can see this sustains their nest egg past age 95 with some cushion.

One of Joe and Heather’s additional goals is to see if they can increase their giving to their church by $8,000 per year. So we’ll toggle that on and you can see that this extra giving reduces their projection, but it still shows success to age 95. Because the cushion is getting thin at that point, we would want to work through that with them to see if it’s realistic.

Your situation will undoubtedly differ from Joe and Heather. A few of the things that you would want to look at are your current ages, your target retirement ages, your living expenses, and like I said, really trying to be realistic about what you need. The composition of your accounts. Now Joe and Heather had a mix of pre-tax retirement money but also had some Roth IRAs and a taxable brokerage account, the tax character of each of those will make a difference. You would also want to look at what-if scenarios. Well, what if returns are negative when you first transition into retirement? We call this sequence of return risk. Another if scenarios if you or your spouse passed away early. For Joe and Heather, they would lose one of their social security benefits the lower of the two and then the survivor would keep the higher benefit.

Joe and Heather are in those final important years before they transition into retirement. Like them. You would also want to ensure that you’re trying to minimize taxes by doing good planning and that your investment portfolio is aligned with your risk tolerance, but also that investment part folio is tailored to the returns that are needed to fund the plan.

This is where dynamic financial planning can be helpful for those most important decisions in your life. Once again, this is Anthony from One Degree Advisors. If you enjoyed today’s video, please drop a like and consider subscribing to the channel. It helps us reach more folks like you to retire with confidence. We’ve produced a free guide on five retirement mistakes to avoid. Over the years we found these are the most critical mistakes you need to avoid to increase your chances of a successful retirement. You can download that for free in the link in the description.

Transcribed by https://otter.ai

The One Degree Blog

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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures