What a $10 Million Portfolio Means for Retirement

Speaker 1 – 00:00
Welcome to EWA’s FinLit podcast. EWA is a fee only RIA based out of Pittsburgh, Pennsylvania. We hope all listeners
of this podcast will beneft as we deep dive into complex fnancial topics that we will make simplifed for you. And
we hope that this really serves as a catalyst so that you can make the best fnancial planning decisions for your
family and also save time.
Speaker 2 – 00:29
Before we dive in. We are less than 24 hours after big Ohio State, Oregon, Ohio State playoff win. Why I bring that up.
Ben’s a huge Ohio State fan. So, Ben, how are you feeling right now?
Speaker 3 – 00:42
Yeah, this has potential to look really dumb because I don’t know when this is coming out, but as it stands right now
on Thursday, January 2, in a great mood. Ohio State kind of fring on all cylinders, offensively and defensively. Last
night against Oregon in the Rose bowl, they got Texas coming up in the Cotton Bowl. You know, this is kind of the
team we thought were seeing all year. And it felt like certain points, the offense was clicking, the defense wasn’t, and
the defense was clicking, the offense wasn’t. It feels like at least over the last two weeks in the playoffs here, we’ve
kind of seen both units fring on all cylinders and it’s been exciting. So. Yeah, so far, you know, I’m super happy. But
again, this has potential totally blow up in my face if they.
Speaker 2 – 01:26
Lose and this comes.
Speaker 3 – 01:27
Yeah, yeah, we could talk about. Yeah, we talk about NFL all day. But let’s get into why we’re actually here.
Speaker 2 – 01:35
Okay, so we’re going to hit on, you know, I’ve accumulated $10 million. Whether it’s just from saving, whether you’ve
had a liquidity event in a business, however you got there doesn’t really matter. We’re looking at, I have $10 million at
the time of retirement. What does life look like? How much can I spend? What type of planning should I be doing?
So, Ben, any background, any context you want to give here?
Speaker 3 – 02:00
Yeah, I really think of this. If you go on like your 401k provider or a custodian that might be holding an investment
account or an ira, there’s always a retirement calculator and it always asks you to type in your net worth or your
income or what you’re saving, and it’ll tell you when you want to retire and it’ll spit out just like a big number. And a
lot of people use that maybe don’t have a fnancial plan or aren’t working with a team to kind of get A ballpark
number for what they need to save. A lot of people think they need to get to a certain number before they can
actually retire. But there’s so much context that goes into a number.
Speaker 3 – 02:38
Whether it’s, you know, we’ll get into all this, but, you know, $10 million in retirement, that could be 100 times more
enough than what you actually need. Or it could be not enough, depending on what your goals are, what you want to
do with your legacy and what you’re spending. So I just want to frame that in mind because I think it’s, there’s so
much more to that conversation than just getting to a certain number. And I think we’ll dive into why that’s so
important.
Speaker 2 – 03:05
Yeah, for sure. We’ll get into the numbers and the fnance in a second. But let’s set the stage with like you said, this is
very, there’s no one size fts all solution here. You can’t just go plug this into a fnancial calculator. I mean, you can,
but it’s very specifc. And I think one of the big, were sitting down with somebody in this situation. You know, one of
the big focal points of the conversation would be what are your goals? So really here the, I would say most likely, if
they’ve saved this, if they’ve just like, you know, they’re high income earners, they’ve done a good job saving, made
some good investments, they probably, this is probably more than they’ll need to spend because they like, again,
they’ve probably done a really good job accumulating the best savers, the worst spenders.
Speaker 2 – 03:54
So it’s really a conversation around, you know, what do you want? I like to ask people, put these goals up against
each other. So we’d say, you know, number one, how important is it to maximize your lifestyle, your spending? Do we
want to maximize as much as you possibly can and max out spending? Or fip side, how important is legacy?
Because those two things are going to kind of counteract. So a lot of times what we’ll hear is spending is important
and you know, legacy maybe is too. And when we look at it, maybe they’re what they’re actually spending is way
under what they could and they’re on track. Actually, let’s fip that. Let’s say spending is important, legacy isn’t.
They’re spending way less than they think they could be. Which means legacy is like on steroids.
Speaker 3 – 04:38
Yeah, we’re almost grading them, right? We’re saying, hey, like your spending Right now is probably a 2 out of 10,
even though you just ranked it as the most important thing. And legacy planning, which you have indicated is not
that important right now is a 10 out of 10. Based on your spending, you’re on track to be leaving a huge legacy. Even
though you’ve dictated. That’s not a goal of yours.
Speaker 2 – 04:55
And this could be, it could be the opposite. People could be overspending. But I would say in general, when we see
the situation, this is what’s common. So we want to get really granular around what are your goals here? What do we
need to spend to maintain lifestyle? What are our biggest, bigger goals coming up? Do we want to buy a second
house? Do we want to spend more on vacation? Do we want to fund grandkids, education? What does all that look
like? And then kind of reverse engineer that back into what kind of legacy we want to leave and how do we do some
estate planning to minimize a lot of the taxes. So what would you say? I mean, what do you think common goals
are? What are less, more on the goal side?
Speaker 2 – 05:33
If we’re getting the numbers, like anything that you hear regularly.
Speaker 3 – 05:36
Yeah. For people that are like retired with this kind of net worth, a lot of it is making sure kids and grandkids are set
up and okay. And that’s a whole. We can do two hours on that itself. I mean, there’s a lot of them want to help
without enabling them. And I think there’s a delicate line for how they want to do that. Grandkids, maybe it’s helping
fund education or undergrad, post grad, if, you know, legacy is maybe not that important. Shifting to spending,
maybe it’s getting a second home, maybe it’s retiring in a city or maybe even a country that you’ve kind of always
dreamed about. So again, those are really some of the main things that we’re talking with a lot of retired clients in
these scenarios about.
Speaker 2 – 06:18
Yeah, and that’s a good point. I would say I hear a lot of like, you know, people that have accumulated the net worth
in this range or higher. They say, you know, it really depends. But a lot of times the kids, maybe the kids aren’t going
to be as successful as they are. Maybe, you know, the kids aren’t, you know, business owners aren’t physicians. And
so they’ll always say, you know, we know our kids aren’t going to probably get to this wealth range, so we want to
make sure they’re set up and help them. And that’s a really hard thing to do because like you said, you can help them
to a point where making sure they’re living comfortably, they’re not struggling, but at the same time you don’t want to
enable them.
Speaker 2 – 06:58
And the more you give and help, the less you can be incentivizing them to work hard and build their own wealth. So
that’s a really hard thing to get right. And there’s a lot of stuff that like I’d say fnancial, a fnancial advisor is going to
talk to you about, you know, what’s your portfolio doing, hopefully how much you can spend. But this, these are the
conversations that aren’t had a lot of times is how do we make sure that this wealth gets to the next generation
without it just being.
Speaker 3 – 07:24
Yeah, unfortunately a lot of wealth doesn’t get to the next second generation or the third generation.
Speaker 2 – 07:28
Statistics. 70%’s gone by the second generation, 90% is gone by the third generation.
Speaker 3 – 07:33
Yeah. And like you said, that happens because these conversations aren’t had whether it’s the retiree with the net
worth isn’t prioritizing what they want in retirement. So maybe they leave a huge nest egg with no planning to kids
and maybe the right estate, the wrong estate planning is done and it’s a mess sorting that out. And then the kids
have no real sense of how that money got to the parents or they don’t have any sense of how hard they work to get it
and can get spent. It can get lost. It can get, it can, you know. So yeah, like you said, the math doesn’t show that
wealth stays through the.
Speaker 2 – 08:14
We won’t, we won’t, we will. Again, we could talk about this section for two hours like you said, but we’ll hit really
briefy. It’s just important to, number one, have the conversations with the kids. You don’t need to tell them how much
money you have, but having conversations about money so they start to build the same habits and values and then
having the best thing you can pass to, in my opinion, to kids is your values, work ethic, how you got there versus the
actual fnances of it so that they can do the same thing and not blow all the money. Like one client I work with, I’m
thinking of that is north of this net worth range.
Speaker 2 – 08:49
Kids are in college and I’ve been very, we’ve been very proactive to go build a relationship with the kids, meet the
kids, talk to the kids about money and just be friends with them so that they have a relationship they can go to. And
you know, when the time comes where they are getting this money, they’re not just blindly inheriting millions and
millions of dollars with no plan or anything.
Speaker 3 – 09:09
Right.
Speaker 2 – 09:09
So all of those conversations are important, but let’s break down some of the fnances and numbers behind this. So
let’s assume you have 10 million, maybe you have 2 million in, could be more, let’s say 2 million in pre tax IRAs from
401ks, whatever, a million bucks in Roth. And then in these situations, majority of your money is going to be in a
taxable investment account, a brokerage account. So let’s say in this scenario 7 million in a taxable account. So Ben,
how much could this person spend? What’s lifestyle look like, et cetera?
Speaker 3 – 09:40
Yeah, I think comfortably you could probably spend between 300 and 500,000 a year just based on those numbers
you just laid out. If that Roth number is higher, again, everything that comes out of the Roth is tax free. So if that
traditional, you know, that number in the pre tax account is higher, you got to worry about RMD is if you’re over 73
and then ordinary income tax and any distributions. So again, super high level, probably right around 300 to 500,000
a year.
Speaker 2 – 10:08
You could, you could say, yeah, let’s. Before we dive into more of the numbers, what would you say the biggest, what
are the biggest risks for somebody in this situation? They’re getting ready to retire, they have 10 million bucks. What
could go wrong?
Speaker 3 – 10:22
I would say health. Health’s a big one. You know, do you, if you have 10 million, you’re probably self insured. But is
that the most efcient way to plan for long term care or medical costs? I would say not prioritizing your goals, kind
of things that we talked about. Are you spending enough? Have you defned your legacy planning goals? If that’s not
defned, I would say that’s a big risk and I would say taxes could be a big risk as well. If you have a lot of money in
pre tax or if you’re not tax efcient inside of that brokerage account, you could be subject to additional tax that
maybe you could have avoided.
Speaker 2 – 11:01
Yeah, I’m going to dive a layer deeper in health. I think exactly what you said, you know, making sure your insurances
are in place and everything, or how you’re going to cover that, but enjoying your money while you’re healthy too.
We’ve seen too many times where people save a lot, they underspend and then health goes and you know, they are
never able to enjoy their money. So maybe Setting up in the early years. You know, if you’re in your 60s and you still
have your health, how can we spend this money or maybe spend more money early on to enjoy it and then taper
back spending as you go through retirement. You get older and you’re not moving as much, maybe more money
spent on healthcare and you’re not traveling, et cetera. So I’d say yeah, health’s a big one.
Speaker 2 – 11:39
And then sequence of returns, risk. So you know, making sure you’re not taking this money when the market’s down,
you’re well positioned that no matter what the market’s doing, you have buckets of money you can pull from. And
then yeah, taxes and Medicare. So this situation, this example, we said there’s not too much in a pre tax IRA, but if
that IRA is fve plus million dollars, RMDs are gonna be a big issue. You’re gonna be forced to take money out, get hit
with higher tax rates.
Speaker 3 – 12:07
And that’s not super uncommon. If you’ve been maxing out a pre tax 401k for 40 years, that IRA balance could be
pretty large. And like you said, sequence of returns, risk. So taking out money when the market’s down, when you
turn 73 in those types of accounts, you have to start taking money out whether or not you want to, whether or not
you need to. And so that’s where we see a lot of plans not go awry, but just kind of hit a speed bump is when the
market is down, you are forced to take a distribution that can cause some stress in the plan.
Speaker 2 – 12:43
And your Medicare surcharge is based on taxable income. So when those RMDs kick in, let’s say you have $5 million
in a pre tax IRA, what’s 5% of that? 250,000 you’re forced to take out. And maybe you’ve been spending your
brokerage account, you’re spending a couple hundred thousand a year. So let’s say your income until the rmd’ kick in,
if you haven’t done any planning, is you’re showing on your tax return 200,000 of income with Social Security and
then dividends and capital gains from the investment account. Now you hit 73, you’re used to spending that and
you’re forced to take out another 250,000 that you don’t need. That’s a huge tax hit. Your Medicare costs jump up, et
cetera. So all of these things, how do we avoid that? Roth conversions would be one way.
Speaker 2 – 13:29
Intentionally spending the IRA Money early on in retirement when you can fll up those lower tax brackets. Other
things like charitable contributions with the RMDs, give the money straight to charity, don’t pay taxes. So all these
things to consider in planning, but let’s look at the numbers. So let’s use those numbers that you said. Let’s say
you’re 65, you have $10 million. Let’s say Social Security is paying you 100. So we’re going to take 400 out of the Iraq
or 400 out of any of these accounts. After taxes, maybe it’s 300, 350. So you’re used to spending, let’s say 350,000,
400,000 a year, which would be 20. What, what is that monthly? You know, you’re used to about 30,000,
33,000amonth. So if you just continued doing that, you took 400 out, that grew at 6% per year for the next 30 years.
Speaker 2 – 14:29
You’re left when you’re 95 with $25 million left. So the money’s still, you’re taking less than the return on the portfolio.
So this is just like simple, back the napkin. We don’t even need a fancy software to do this. Back the napkin left with
almost $26 million. And some people will look at that and be like, well that’s way too big of a number. My kids don’t
need that much. So now we’ve got to look at, okay, how do we maximize spending? So let’s just increase this. If we, if
they were to take 500 a year out and that number’s down to 17 million at 95, we take 600 a year out. 600 year out,
you’re left with your $10 million at 95. So that’s basically how do we maximize living on the interest and not touch
the principal. That’s really a number.
Speaker 2 – 15:18
So all of these conversations and I would say people probably don’t spend that much money. Like again, they’ve
saved a lot, they’ve under lived, they’ve lived below their means. So it’s having these conversations and maybe we’re
doing some, I would say training on how to spend the money that they’re not used to spending. Sure, legacy is not
that important, but let’s say that we are going to stick to that 400 number real quick.
Speaker 3 – 15:41
Real quick. Before you move on, it’s important to stress that we’re still factoring in a 6% return. Meaning again,
there’s a misconception that once you’re retired you’re moving all your money to bonds or you’re putting so much
money on the sidelines again, as long as you have enough safe money to withstand a certain amount of time that
you’re comfortable with again, that doesn’t necessarily mean that all of your money needs to immediately shift to
bonds or to cash or to save money. You still should have some equity exposure through your retirement. Again, 65,
you could live another 40 years. You’re going to need your money to support you much longer than it would if it was
just sitting in cash.
Speaker 2 – 16:16
Yeah, exactly. A lot of the money. We’d want your next seven years of spending in something safe. But beyond that,
the money should be invested because we’re not using it in the short term. Let’s say we’re on track to have that $25
million, 26 million left. Right now the estate exemption is a little under $14 million a person. The way the tax law is
written, that’s going to sense it after next year could be extended with new administration. What we’re thinking tax
laws will look like. But let’s say it drops down to what’s proposed to $7 million a person. So of that 26, 14 million
goes tax free when you die to kids. The remaining 12 million gets hit at a 40% federal level plus state taxes. So in
that scenario, 12 million times 40%, 4.8 million is going to the government.
Speaker 2 – 17:13
It’s a big number. So Ben, what are some things, what are common planning strategies we’re doing to mitigate that
or avoid the estate taxes?
Speaker 3 – 17:22
Yeah, like you said, if legacy planning is important, a lot of times we’ll utilize our clients annual exclusions. So you
can gift 18,000 a year person. So if 19, now 19, now 20, 25, we’re again January 2nd here, 19,000 person. So that is,
you know, 38,000 if you’re combining your gift with your spouse that you can gift to an individual. So if you have, you
know, two kids, you know, four grandkids, that’s six people that you can gift, 38,000 to each. So you can really kind of
maximize your gifting while you’re living. And that’s important for a couple reasons. Number one, anything that you
gift in that, as long as you’re at that limit or below it, you don’t have to fle what’s called a Form 709 or fle any sort of
gift tax return.
Speaker 3 – 18:11
So anything that you are gifting you don’t have to report. So it’s kind of a Freebie. Then you can also see how your
kids, grandkids kind of react to the money. That’s a good way to kind of teach them the values of money and kind of
what they do with it. A lot of times we’re funding kids or grandkids, IRAs or 401ks with that sort of money. Other
estate planning tactics is just trust planning. So there’s something called a spousal life access trust that kind of has,
you know, the best of both worlds. We’ve done podcasts and we have numerous resources on this as well, but kind
of a almost a hybrid between a revocable and irrevocable trust.
Speaker 3 – 18:47
It is an irrevocable trust in nature, but it has some of the advantages of revocable trust, meaning that a spouse is the
trustee of the, you know, the other spouse’s trust, and so they can access it kind of through that method. So whether
it’s putting like something like a life insurance policy or if you have like a private equity investment, kind of changing
the ownership into a trust and utilizing gifting, those are things that we’re doing to help, you know, people, because
like you said, those a lot of people feel like they don’t have an estate tax problem because the limits are so high, but
in 2026, those limits are scheduled to down. So some people might not have an estate tax problem, but could in the
next fve, 10 years.
Speaker 3 – 19:25
So a lot of this planning is being done in the next few years, kind of before those exemptions come down to make
sure that they’re utilizing them.
Speaker 2 – 19:32
And I would bet, and again, it could stay in place for the next four years. I would bet that beyond that it’s going to be
lower in the future. This is very high exemption limit and for a number of reasons probably will go down. So, yeah, I
think you hit it spot on. Lifetime gifting is a good way to get family members see how they handle the money now
and you can teach them, you know, how to manage it properly. And then, yeah, trust planning is another thing.
Putting it into your vocal trust, whether it’s a slat or a standard irrevocable trust. Bottom line is just you’re getting
money out of the estate that’s going to avoid those taxes and that kind of comes into the spending.
Speaker 2 – 20:04
You know, if you’re, well underspending what you could, we know there’s going to be more left, so there’s more
opportunity to gift. On the fip side, if you’re spending more, you don’t care about legacy. You know, this may not be
as big of a conversation if you’re just going to spend a lot of it. So yeah, a lot of estate planning that could be done in
this situation as well. And then let’s talk about asset allocations. I think like if you common misconception you
Google I’m getting ready to retire, I’m 65 years old, which my asset allocation you’ll read be in a 6040 portfolio. 6%
equities, 40% bonds. Super Blanket advice. Good for some people, not good for everybody. You need something a
little bit more specifc.
Speaker 2 – 20:44
So in this scenario, if somebody was spending taking 400,000 a year out of the portfolio, we would want seven years
of that in something safe. Bonds, cash fnance had life insurance, something that’s not tied to equities.
Speaker 3 – 20:59
And really think if you’re spending 400 a year, maybe Social Security and maybe if you have a pension, maybe that’s
making up 100,000 of it. So really that gap is really could be 300,000 that you need. So it’s even less, you know, safe
money that you need than maybe even think.
Speaker 2 – 21:14
Yep. But in this scenario, if you’re taking 407 years, that would be a little under $3 million. So you could be ideally in a
7030 portfolio. So more aggressive than you probably think. And if you’re spending less, could be even have even
more bonds. But where we would want to position a lot of that. So number one, the Roth account never want any
bonds. We want that to be aggressive passes tax free. Ideally that’s the last money we touch. The IRA would be the
frst place we’d hold majority of the bonds. That’s where we’re taking money out. We know when you’re 73, you have
to take the money out and we can intentionally fll up the low tax bracket. So frst distribution account plus any of the
bonds that pay interest or dividends, it’s in a tax deferred account.
Speaker 2 – 21:55
You don’t get hit with taxes versus if it’s in a taxable account. You know, that’s showing up on your tax return each
year and you’re paying your marginal tax rate on that. So important to know where to hold these assets and what you
should actually be invested in to make sure that we really put these guardrails up and bulletproof the distribution
plan. Anything to add there?
Speaker 3 – 22:15
No, it makes complete sense. And even the brokerage account that again, maybe it’s, you know, direct indexed or but
that for tax efciencies. But that Ideal, in an ideal world should be most all equities as well.
Speaker 2 – 22:28
Yeah. Then we could carve off some cash or bond or municipal bonds. Outside of that, if we want some extra
liquidity outside of the ira. Okay, what are we, Anything we missed here? I think that’s a pretty good overview of what
life would look like.
Speaker 3 – 22:42
Yeah, I mean we can again, making the most of the 10 million. So again, how to make that sustain. We talked about
estate planning, we talked about Roth planning. I think the only other thing would be if you’re charitably inclined,
there’s a lot of tax benefts to something called a donor advised fund. So maybe you’ve held stock for a long time
that you wanted to, you’re charitably inclined and you want to plan for it as efciently as possible. You can donate it
to what’s called a donor advised fund. Think of it like an investment account that has to go to charity. And the beneft
of moving low basis stock or stock that you’ve held for a long time is that you avoid that capital gain.
Speaker 3 – 23:22
Maybe you have, you know, $100 worth of stock, it grew to 100,000, you put all 100,000 in the donor advised fund,
you avoid that, you know, 90,000 worth of gain because the charity receives it tax free. If you had sold the stock and
then donated the cash proceeds instead, you’d be subject to capital gains tax. Plus you don’t get the immediate
income tax deduction when you put it in. So if you are charitably inclined, there’s a lot of strategies out there. We’ve
done various podcasts about that. But I think the donor advised fund for low basis stock, someone in this net worth
range probably has. Makes a ton of sense.
Speaker 2 – 23:59
Yeah. Donor advised fund could be a very easy, simple way to do that. QCDs. So taking your RMDs, give them to
charity and then more advanced strategy, Very specifc, case by case specifc would be a charitable. Like a
charitable, it’s called a crat, Charitable Remainder annuity Trust. So you put money into the trust, you have to take 5%
out each year of income for yourself. But then whatever’s left over when you die goes to a charity with kids on the
trust. They’re then taking that income stream and they’re able to help manage it. So that could be another way, again,
more complicated. Defnitely consult a estate planning attorney before you do that. But other advanced strategies
that could be used for charity. Anything we’re missing that’s a good overview?
Speaker 3 – 24:51
No, I think key points, it kind of Goes back to how we intro it was. Don’t just think, once I get to a number, I’m good.
Before having these conversations of prioritizing what’s most important and making sure that you have all those
goals laid out and prioritized. I think if you have that, then you can work towards a number or an age where you feel
like you can be fnancially independent and start kind of implementing a lot of this planning.
Speaker 2 – 25:18
Yeah. And I think to be intentional before you even get here, because, like, I’ve heard a lot of people, like, frst time I
meet a new client, prospective new client, they just say, I want to get to $10 million. So, okay, why? What are you
going to do with that? Well, I don’t know. It just seems like a good number. Well, maybe you’re only spending
$200,000 a year to maintain your lifestyle.
Speaker 3 – 25:37
Maybe you don’t need 10 million.
Speaker 2 – 25:38
What’s that? 10 million? Unless you tell me there’s a huge legacy you want to live, you want to increase spending, I’ll
challenge clients and say, you got to give me a reason. Or it’s like, if you’re used to spending 200, stop working way
sooner, and you don’t need $10 million. So really just have some intention behind it and have these conversations
before you even get there. Yeah, I think that’s a good overview of what $10 million retirement looks like. If you have
any questions, feel free to reach out and catch us next week on latest episode.
Speaker 1 – 26:07
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