How to Know When You’ve Saved Enough

Speaker 1 – 00:00
It’s easy to kind of keep your head down, grow your business, keep saving, but how do you get it right so you have
no regrets?
Speaker 2 – 00:07
How much regret will you have if you don’t buy this and have those experiences with your family?
Speaker 1 – 00:11
If you get in the habit of like not enjoying life and you’re constantly worried about just saving enough? Oh, you need
10 million to be set.
Speaker 2 – 00:16
Those guidelines are garbage. 10 million isn’t always 10 million. Right. There are a lot of numbers and
assumptions that we factor in. A big one is the another big one is. And then another big one is.
Speaker 1 – 00:29
It’S been drilled into you from family, from friends. You gotta save, save, save. I’ve sworn you’ve saved enough. And
how do you know when you can give yourself permission to actually start enjoying some of this hard earned
income or hard earned wealth?
Speaker 2 – 00:42
Yeah, yeah, that’s the name of the game.
Speaker 1 – 00:43
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Yeah. This is the topic we’re covering today. So our clients that are in that high income, we’ll say half a million, a
couple million dollars a year of income. Generally speaking, there are big savers. But we define at EWA a good
financial plan. You’re living present today. You’re enjoying those, you know, 18 years you have with your kids. You’re
securing the future for the right reason, not because you want to retire someday, because you have financial
independence. You can, you know, do work or life the way you want it, the way you see fit, when you see fit, with
who you see fit. More importantly is also not having to regret along the way. So in general, we see the kind of
clientele that we work with are over accumulating.
Speaker 1 – 01:24
When we look at their goals of when they want to become financially independent, how much they want to give to
their kids, it’s easy to kind of keep your head down, grow your business, keep saving. But how do you get it right so
you have no regrets in your 30s, 40s and 50s, while also not taking away from the back end and keeping that
financial independence front of mind. This is a conversation I think we’re having more and more, especially the
prevalence of ideas that are getting thrown out at, you know, people are scrolling on their phones for social media.
How would you frame the conversation of what’s enough? Why is it not just a specific number like you used to
hear, like you need a million bucks? That’s so specific.
Speaker 1 – 02:04
Now in today’s day and age, how do we go about figuring this out?
Speaker 2 – 02:07
Yeah, first of all, I think that those guidelines, those heuristics are pretty much complete Garbage most of the time.
Right. It’s so idiosyncratic. It’s so specific to your own personal situation. Right. $5 million might be a lifetime of
spending for one person. That might be just a couple of years of spending for the other person. So it really just
completely depends. So just to get that out there, like that kind of, that framework, maybe the biggest factor is
what is your lifestyle today? How much are you spending on a monthly and on a yearly basis, where is your
number? Where that portfolio can then fund that lifestyle without dipping into the principal over the course of your
retirement?
Speaker 1 – 02:36
Absolutely no, that. Couldn’t agree more. So I want to go through a specific example. The household income is one
and a half million dollars. They’re spending their fixed cost, and now the house is paid off. We like to break things
down in two buckets. What are your fixed costs? Let’s keep that in one bank account. So these are your taxes, your
utilities, your payments, things that are generally, you know, either budgeted out. It’s gonna, it has to go and it has
to go out. Right. So that was 10amonth. Pretty low for a family making one and a half million. But again, their
house is paid off, their cars are paid off. Right. So fixed cost about 10amonth. Their variable cost are 20amonth.
So how do we figure this out?
Speaker 1 – 03:10
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We average the last couple years of, you know, credit cards January 1st to December 31st. What’s flowing out the
door? There’s some months, it’s 50. If they had taken vacations or some lines, it’s 10, but it’s average 240,
20amonth. This family is spending 30,000amonth, and they’re very disciplined. Their net take home is about
68,000. I’m just going to round it up to 70 for the sake of simplicity, for this podcast. So 70amonth coming in the
door. Part of that’s base salaries, part of that’s bonuses. But on average throughout the year, 70amonth coming in
the door. 30amonth’s going out. Now for them. They’re not spending a typical person if the 40 doesn’t have a goal
attached to it. We’d automated about 20amonth of savings, which got them on track for their goal of age 60,
financial independence. They want to pay for undergrad at least.
Speaker 1 – 03:56
They also want to have a basic level of legacy. They don’t want to ruin their kids by having too much money, but
they do want their, their two kids to have, you know, a decent amount of wealth to start out. These goals are so far
on track, they’re trending now every time we go meet with them, about every six months, they have the other
20amonth. So again, 70 months coming in, 30 months going out to expenses. We’re grabbing 20amonth in
automatic savings. They’re maxing out mega backdoor Roths, 529 plans. They’re saving a health. You know, HSA
broker, direct indexing, brokerage strategy. 20amonth is just accumulating in cash. So every time we, you know, on
a yearly basis, you know, they keep about a half million dollars of cash, there’s an extra like 250 there every year
because they’re not spending it.
Speaker 1 – 04:37
So we’ve started to start saving that. And we’ve always asked them, you know, lifestyle wise, do you guys want to
increase your lifestyle at all? Because when we look at what they need at 60, the amount of money they’re going to
save and what their needs are, they’re going to have about triple what they would actually need to be financially
independent. This conversation is not a static number of like, oh, you need 10 million to be set. It’s more of a
constant calibration of, hey, are we going to regret having triple what you need at 60? Is there anything you want to
do now that you’re not doing know this information? And after five years of having this conversation, they’re
starting to do things now that most people avoid out of fear. So for example, they redid their backyard.
Speaker 1 – 05:19
Their kids are in the pool. Literally, you know, now they live in Pennsylvania. So they probably have like five months
of good. But those five months, they’re in the pool every day, like every night, living their best life. They’re redoing
the kitchen. Those kind of things that a lot of people put off of fear because we have this like, you know, they came
from a culture where it’s like you save everything you live under your means, which they’re doing. But, you know,
you get to 60 and how much regret do we have? You know, how much work did you overwork, thinking you had to
just keep this plan up and you missed the time with your kids under 18. Totally agree, How.
Speaker 1 – 05:52
It’s not a static universal number because what’s happened with this specific couple, they were spending
30amonth, and now that’s up to 40amonth. They’ve loosened up, they’re taking more travel. And the travel, they’re,
you know, they just took a vacation and they purposely, like, the wife is like, we’re not flying first class. I want, I
didn’t fly first class until like last year. And I don’t want my kids like getting this experience. So I would say now
they’re spending, instead of 30 months, they’re spending month. So they’re saving that other 30. So what’s
interesting, what’s happened is that’s taking care of two sides of it. Right. The initial financial independence
number that we set for them is now higher.
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Speaker 1 – 06:29
It’s actually much higher because when they go to 60 and they, you know, retire or stop their earning their
paycheck, the amount they’re going to need now needs to support 40amonth, adjusted for inflation, not 30amonth.
We’ve achieved two things. They have less regret here. And now what they’re actually saving is intentional because
now they actually need a higher number because they’re adjusting into the higher number. So there’s just these
little calibrations that you can make into a financial plan. Can, can literally sometimes double or it can be half of
what you need. By those conversations as ongoing conversations. If you say, if I meet you at 30, How, and you’re
like, I need, here’s what I need. You need 2 million bucks.
Speaker 1 – 07:04
And suddenly you know, you go from being, let’s just say you’re in the corporate world, going from being like a staff
finance and now suddenly you’re like the CFO of the company. Of course you’re, you know, you’re going to need
probably 10 times what we originally planned. So important, I think the ongoing conversation. The financial plan is
so important to figure this out. If you’ve saved enough or if you’re over saving or if you’re under saving, that can
change like that depending on your lifestyle as it progresses. Let’s go into the actual like nerdy part of this. What
are some like assumptions that we would use in helping someone figure this out? Like what kind of factors will we
throw into the end of the plan?
Speaker 2 – 07:38
Yeah, again, not to get too wonky here, but there are a lot of numbers and assumptions that we factor in. So the
primary one, maybe not the primary one, but a big one is the returns on the portfol. I’d say another big one is
inflation. Another big one is taxes. And then another big one is spending. Estimated spending in retirement, which
we talked about.
Speaker 1 – 07:55
Yeah, Social Security. We’re, we’re pretty conservative. You know, we use a 2% inflation. We generally, you know,
use 3 to 3 and a half percent inflation, 5 to 6% inflation on healthcare. We try to look at all these factors and as we
Change. I mean as far as life expectancy, yeah. People are typically arguing we’re running this out and showing
them like all the way till a hundred. And some plans are like, well, I’m not going to live till 100. Well, medical
advancements, you could. And it’s not, we’re not recommending you have a plan that lasts 100. We’re
recommending you have a financial plan that’s not just yours. It continues on for your spouse if you die, it
continues on for your kids.
Speaker 1 – 08:24
And there’s certain metrics like we don’t know if you’re going to need a huge long term healthcare event is going to
occur. We don’t know how long you’re going to live or what expenses are going to occur. So you do need that rock
solid. And it comes with, you know, with conservative assumptions. These conservative assumptions also can lead
to you over saving or under saving. So those are really important to agree. And, and really I think that’s where the
Monte Carlo analysis, the standard deviations, all the risk adjusted stress testing that we do really comes into play
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as well.
Speaker 2 – 08:53
Yep, absolutely. And again to your point earlier, I mean it’s really about constant recalibration. You know, it’s at least
twice a year we take a look at the situation, our projections, our estimations, the variables that we factor in. And if
they need to be changed, then we change them. It’s as simple as that.
Speaker 1 – 09:08
No question. So I want to tell another story. This story happened from a close friend of mine. Now he’s a client. We
helped out during residency, a highly specialized surgeon. You know, I think it was like year two of like a, what was
like an eight year track for him. And you know, during residency he’s got four kids and he’s married, so his wife is
working. So the household income is probably about 120. Their kids are all in private school, so they take on debt
to get the kids through private school. They probably have the north of like a half million dollars of school debt as
well. And they’re very charitable. So they’re like, I don’t know how they did it, but we set a budget. Their kids are in
private school. They’re like, they’re giving the charity. We’re doing all of these things.
Speaker 1 – 09:51
You know, income goes from like 150 as a household now to like 1.5. And these are two separate examples I’m
giving. It just happens. It’s actually this one’s like 1.4 recently, this client now they’ve been super diligent, right? So
like a couple years out of fellowship, they want the residency to fellowship, they paid, they got all loans for like paid
off other than their house. And they’ve started saving. So now they have like a liquid net worth of about a million
bucks. So getting this first four or five years are crucial because you either go through one path, you go buy that
huge house and you’re stuck with debt for the next 20 years, or you crush your debt, you know, make a good house
decision, and now you’re setting yourself up for success.
Speaker 1 – 10:34
I think this is a really good example because the amount that we’re saving was going to put them on track to have
about, you know, they want a financial independence by 60, they’re like 39. So we basically got a 20 year window.
And so, you know, they’re, were like, okay, you need about 10 million bucks because this family’s taken them to
about 65amonth again, spending about 30amonth, saving 20amonth. The other 15 is TBD. Like, there’s some other
things they want to do with it. But if they’re saving 30amonth, I mean, they’re going to be well on track, you know, to
hit those financial independence goals. One of the conversations we have with them is they wanted to purchase
this like, second home. Could they afford it? Yes. Would it put them at risk to reach that financial independence
goal?
Speaker 1 – 11:17
Yes, because with a second home, there’s more cost, there’s more time that gets sucked away. So this is again a
classic conversation that we love. You don’t do this. What’s the cost? Are you going to, you know, over? Because
he’s looking at what his net worth projection that we’re showing him, he’s like, I don’t know what I’m going to do
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with all this money. That we’re also talking about how he doesn’t like the, you know, the medical landscape and
how if he had the autonomy, he would do things differently. Right. And he’s in the process of trying to make
changes and very passionate about his field of medicine. This is where good financial planning conversations
happen. They’re always behind closed doors. Let’s reframe that. That kind of like, oh, I don’t think I’m need that
much money.
Speaker 1 – 11:53
Any like high performing physician that, you know, thinks like this gentleman does, is he going to need 10 million
bucks at 60? Maybe, maybe not. Does he need that to reach his goals as a physician? I would argue absolutely,
yes, if you want to. And you’re in your 60s. Typically as a physician, you’re still going to want to operate, you’re still
going to want to practice. A large part of your identity, your purpose is tied into that. But having the optionality to
do things because you want to, not because you need to. At the highest intellectual stage of his career, he’s in and
out of complete freedom. And so I think that’s extremely important. I think it’s also extremely important that we
don’t mess up. Well, his kids are, you know, before 18, they’re still out of the house.
Speaker 1 – 12:29
Then they get the second vacation house. So this was kind of the discussion and the framework for the discussion
because I think I see physicians kind of say they’ll justify, oh we don’t need that much and they’ll go all, stop saving,
go all into this current lifestyle when they had this like awesome plan on track or they’ll pause everything, they’ll
way over accumulate. So having the right number is about having the sweet spot where again you secure and we
avoid regret. That’s where I think the sweet spot occurs. So that number is going to be different for everyone. But I
would say in general, for a household income making 2 to 2 50, you’re netting, you’re probably netting 10 to
12amonth. You’re going to need, you know, 3 million adjusted for inflation.
Speaker 1 – 13:10
So in reality, depending on your age, you need 4 to 6 million. That’s the kind of the new 1 million number. If you’re in
that, you know, top quartile income. If you’re a high income earning physician, seven figures. I mean I, I just, I’d use
six to 12. I mean you’re going to need between six to 12 depending on your lifestyle. Those are the numbers I
would use.
Speaker 2 – 13:26
You know, sometimes let’s call it 10 million. 10 million isn’t always 10 million, right? So we know this, but 10 million
in a Roth IRA is much different than 10 million in a pre tax 401k. Right? So that comes back to asset allocation and
asset location and structuring that. So just go back to our point from earlier. There is no number, right? There’s a
lot of structuring, there’s a lot of recalibration. There is a lot of kind of like soft things that are going on. So back to
the client from earlier. How important was them to get that vacation home? Right. That’s a question that we would
ask, right? How important is this to you? How much regret will you have if you don’t buy this and have those
experiences with your family.
Speaker 2 – 14:02
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And sometimes the, sometimes it’s a 10 out of 10, sometimes it’s 1 out of 10. And then we can calibrate based on
that information. So it’s not always about the spreadsheets and the numbers. It’s really about kind of their feelings
and like you said, minimizing that regret.
Speaker 1 – 14:12
In this case, I think they are going to do it, but they’re going to do both. We’re going to figure out a way for other
things because I basically, you know, like, if you’re going to do this is taking up a lot of free cash flow. So we’re
going to have to really focus on this is it. You’re still gonna be able to do other stuff in vacations. But how
important is this? Is this in your top five priority list? So a lot of those big decisions, you just have to. It’s not as
simple. Can you do it? It could be yes or no, it’s as simple. How important is it and what calibrations can we do to
achieve and respect, like, what’s most important.
Speaker 1 – 14:42
I’m reading or hearing a lot about like these, you know, the financial independence, retire early, which I think more
and more studies have shown, like people just aren’t happy if you just like, if you get in the habit of like eating
ramen noodles for 10 years and not enjoying life. Like, you’re not going to know how to. Even if you, that financial
independence retire early, you’re not going to know how to enjoy life after that. And you’re constantly going to be
worried about just saving enough. I’ve also heard now it’s like fire where you save enough and then just you can
stop saving. I think the dangerous part of that is like, let’s say you’re making the example household income of half
a million. You’re netting like 23,000amonth. You’re living off of 10, you’re saving 13.
Speaker 1 – 15:18
And so by 50 you’ve saved enough and now you don’t need to save anymore. Then from 50 to 65, start spending
the 23amonth that you earn. And the initial assumption was you’re planning off of spending 10amonth, you’re
going to have about half of what you need. So again, this isn’t a simple, here’s what I need number I can give you
with a 90% accuracy. You tell me your income, you’re. And generally where you’re headed. Yeah, we can get like,
here’s a number. It’s going to be a Bigger number than you probably expect.
Speaker 1 – 15:45
Some of these other like general strategies I think like getting to a point where you can stop saving but you’re still
working, I personally think can be really dangerous because then you can get really, you know, sloppy with
spending patterns where that money going and the initial assumptions are now throw the whole thing way off
track. So sometimes over saving can be a catastrophic thing. If you’re missing on life, sometimes not saving can
lead to a lot of inflexibility later. So even if like let’s say someone is saving five a month and they’re already on
track, three years later, they want to buy a vacation house, well if they weren’t saving that 5,000amonth, they would
have been leaking somewhere else. But now that they saving that 5,000amonth, we know they can afford that
secondary mortgage.
Speaker 1 – 16:28
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We shut that savings off, we start that secondary mortgage and we have it paid off before they’re retired. So
sometimes saving doesn’t need to be just for a specific goal. Sometimes saving can just be to control your money
temperature. And life’s always going to throw new stuff at you. And I can tell you, even as a financial advisor, I’m
always short on cash like you’re always short on liquidity, like you’re always myself personally clients we work with,
life always throws curve balls at you. So saving for no reason sometimes is going to save you honestly because it’s
going to allow you to take care of life’s unexpected events without going into debt. I think we’ve covered the
majority of this. How, any closing thoughts?
Speaker 2 – 17:10
Just this idea of balance, balancing your goals today with your security in the future, spending today versus
spending in the future, savings, et cetera. And just having those conversations with your advisor and figuring out
your goals, what you want, and optimizing the path to getting there as efficiently as possible.
Speaker 1 – 17:27
So couldn’t agree more. Well, thanks for joining us and catch everyone next week.
Speaker 2 – 17:31
Thanks.