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If you had a million dollars, how long would it last you in retirement? How drastically does that longevity change if you move to a bigger/smaller city? We’ll take a look at some stats from various areas across the country to show how difficult it is to make your money last in some areas, and how easy it might be in others. Important Links Website: http://www.yourplanningpros.com Call: 844-707-7381 ----more---- Transcript Of Today's Show: Speaker 1: Hey, everybody. Welcome into this edition of Plan With The Tax Man. Thanks for hanging out with us here on the podcast, with [Tony 00:00:05] and myself, as we talk, investing, finance, and retirement. This week we're going to run the numbers. A million bucks, how long will it last in some different areas around the country? People are always wanting to know. They think this million dollars is the magical number. Maybe it is, maybe it isn't. So we're going to talk about what it might look like if you're living in different parts of the country. Tony, what's going on, my friend, you're going to hang out with me today? Tony: I'm ready to go. It's a spring, I'm off, I forgot to mention that off my second shot for the vaccine. Speaker 1: Did it put you down, like a lot of people, the second one?' Tony: I'll tell you, my wife and I went to get them at the same time, same place, from our doctor. And yeah, I had some symptoms and she had none. Speaker 1: Hmm. Everybody's different. [crosstalk 00:00:49] Tony: And the next day, I... Yeah, I had about seven hours of what everybody's kind of talking about. You know, body aches, fever, and then boom, it just went away. I don't know. Speaker 1: Hmm. Very interesting. Tony: Yeah. Speaker 1: Yeah. It's affecting everybody a little bit differently, how it goes around it. But it does seem to be that the second one, for the most part, definitely smacks some people around a little bit. Although it sounds like your wife got lucky, so... Tony: Yeah. Speaker 1: And you were probably like, "You...". Tony: I know, yeah. She was giving me a hard time [crosstalk 00:01:17]. Speaker 1: Well, she really, yeah. I was laughing. I was like, my wife and I were competitive. She's probably been like, "Ha ha", but then she would have taken care of me. So yeah. All good. All good. So, anyway, I'm glad to hear that you're back on the mend and doing well. Speaker 1: So let's talk about this. We'll have some fun this episode. How long will the million bucks last? That seems to be that arbitrary number, Tony, that everybody loves to throw around. "I need a million bucks." Right? "I need a million bucks." And I get it, it's sexy. It's a good round number, right? Sounds good. Who wouldn't want to say they're a millionaire, right? So all those kinds of things. Speaker 1: So there's a study by Yahoo, Yahoo Finance, and they wanted to see how long a million dollars would last you in retirement based on the city that you're in or the state. And so they took into account Tony, some various things. Of course, you've got this information as well. We'll both go over this together with the audience, but taking it into account cost of living, factoring in some basic averages for social security, how that would play into it. And they use 65 as an average age for retirement. And they have basically the annual expenditure. So they're calculating what they thought it would look like for groceries, housing, utilities, transportation, healthcare, all totaled up to what that would look like for an annual... Let's say, taking it from your retirement account, right? So whatever that dollar amount would look like. And then if that was the case, and it was fairly even across the board with some control numbers here, how long would that million bucks last you? Speaker 1: So let's jump in and we'll get to Iowa in a minute, but we're going to do a few other places around the area. So California, we're going to start with the heavy hitter cause we can all pretty much assume it's going to be expensive there. Surprisingly, Los Angeles wasn't nearly as bad, or San Diego, as San Francisco. Tony: San Francisco. Yeah. Speaker 1: Rough. Tony: San Francisco, yeah, is so high cost of living. I love to visit there by the way. But yeah, to live there these days, is so, so expensive. And it looks like, according to this study, basically it went with $136,000 of annual expenses and it seems low in San Fran... Some of these numbers do seem low on the annual expenses- Speaker 1: They do seem a little low on the annual, but of course then a lot of folks might say, "$136,000 a year? That's, oh man, that's high." Right? No, but not for San Fran, but definitely high- Tony: Not for San Fran. It is in Des Moines. Speaker 1: Sure, yeah. Tony: But for Sam Fran, I think you're middle income at best. And according to this study, that's only going to last about eight, nine years. Speaker 1: Isn't that crazy? Nine years, a million bucks will last you. Tony: Yeah. I mean, if you've been out there at all lately, just even traveling. I mean, people talking, I go out to the wine country, people come up from the Bay and talk about the just crazy costs, just to live in a little two-bedroom place. Speaker 1: Oh yeah. Tony: Compared to the Midwest, it's out of this world. Now, the salaries I I know are different out there and the amounts of money, but we're talking retirement here. Carrying a million bucks [crosstalk 00:03:59]. Speaker 1: Right. We're using this as a...Yep. This is kind of the set number of a million dollars because so many people kind of gravitate towards that. And the reason that kind of behind this, and I think is interesting for us to discuss Tony, is that we've said it a million times... No pun intended. We've said it a bunch of times that everybody's number and lifestyle is going to change that. So a million for you, Tony, might be necessary but a million for me might not, or vice versa. Tony: I know. Speaker 1: Right. So... Tony: Exactly. And a lot of... I can't remember if you mentioned, if this study was taking into account, I'm assuming they're spending the principal. A lot of people don't want to spend the principal. They just want to live of course the earnings and then other forms of income, they can't outlive [crosstalk 00:04:38]. Speaker 1: This did not take into account interest, which was interesting, which, because that's going to play a big factor. And it also did not take into account long-term care or anything like that for retirees. That's another huge component. So yeah, these numbers might be a little low, but I think the idea was, if you were just thinking about your annual expenses, like the basic things we all think about to live... Tony: Right? Yeah. Speaker 1: How long would that million bucks last you? Again, they factored in that those annual things were healthcare, not long-term care, but just regular healthcare, transportation, utilities, housing and groceries, right? So fairly basic. Maybe that's why the numbers are a little... To your point, you felt like $136,000 was low for San Fran, because it's not taking in entertainment, doing things, so on and so forth, right? Property tax. All that housing costs maybe property tax is in there. But anyway, let's continue on a little bit. So $136,000 a year is what they're estimating, 10 years is about the max you're going to get off a million bucks if you live in San Fran. Now, Los Angeles, San Diego, also DC, and Boston, Seattle, all kind of fell into the next group. And you were going to go out $75,000 to $85,000 a year, cost of living there for the annual cost. And how long did that last you? Tony: According to the study, 13 to 17 years, which in my mind, just again, just from visiting these places, it would seem more. That those cities would be more in line with San Fran. So I think that would be the maximum it would last you is the 13 to 17 years. Speaker 1: Right. Right. Tony: And like you said, I think people listening need to take these numbers and this is just your basic necessities, this isn't accounting any fun stuff. This is just to get by, I would say. Speaker 1: Right. There you go. Yeah. Tony: You pay your bills. Speaker 1: And so if that's the case, now from a longevity or retirement planning setup, Tony, which whenever you're working with retirees and you're trying to help them plan for retirement, are you going to feel comfortable with 17 years? You know? Tony: Exactly. Yeah. Yeah. I mean, that's what you got to be thinking about. Speaker 1: Exactly. Okay. So let's keep moving along here. So Portland, Denver, Miami come in next at around 60 to 65 grand annually for expenses. Again, basic cost of living. Now, we're a little bit more respectable length of retirement. Tony: Yeah. Speaker 1: What do we got here? Tony: Yeah. I mean, you've got 20 to 22 years. I mean, now you're starting to get a little closer to what financial planners start thinking about when they're projecting out. My son lives in Denver, been there for about a year and a half [crosstalk 00:07:07] city, but when we go to visit, it's higher prices for everything there. And I think obviously, that's why the 20, 22 years versus some of these other ones you're going to mention, which stretch out a lot longer. Speaker 1: Right. Right. And so if you're thinking, okay, you take that million dollars, let's go to the 4% rule for a minute, Tony. So it's a general rule of thumb. You say, I'm going to pull out 4%. I got a million bucks. I'm taking out 40 grand a year. Okay. And that's just off of your nest egg. So let's just say that's... So now you add social security into it. Let's say, well, whatever that might be. And so folks might say, "Well, okay, maybe I could get by with 60 grand a year." But again, every area is going to be a little different. 60 grand a year in Des Moines might be great, might be exactly what you're looking for. But maybe not necessarily so much in Miami, which that one seems a little odd to me too. Let's jump over to the Midwest, Chicago, Minneapolis, $54,000 a year in annual expenses and a pretty good number here from a retirement planning standpoint as far as years, for a million bucks. Tony: No, it is at 26 to 27 years, that's getting pretty good. And again, for 65, you're talking about 85, 91 years old, roughly. Chicago in there seems a little weird, but it is still Midwest even though I think it's higher than Minneapolis but still a bigger cities, but we're kind of... Ever notice how this kind of creeps inward and then you get to the colder climates- Speaker 1: Yeah. Yeah. Tony: It has all the... Although Phoenix is in the next one, so that's not too bad, but you get down here to where we're at and well, it's cold. Speaker 1: It's colder. So I'll tell you what, let's go ahead and jump to the next two here. I'm going to hit Omaha, Kansas city, Louisville. Now we're in definitely more of the heartland, a little bit closer to it. And we do have some numbers on Iowa, we're going to do those just a second. But Omaha, Louisville and, or Louisville depending on how you say it, Kansas city, $43,000 to $47,000 a year. And if you want, Tony, we'll go ahead and just throw Iowa in here because Iowa's at $46,000 for annual expenses. And so these, which is again, this is interesting because in their same survey, they're saying 30 years in those cities at that price, but they're saying 21 years plus or so in Iowa. So kind of interesting. Tony: That is interesting. I don't know why that would be. Speaker 1: Unless it's a typo. Tony: I would just have a little higher taxes. I don't know if they're factoring that in, but it... Speaker 1: Could be. Tony: In the Midwest here, I mean, in those other cities are obviously bigger than the Des Moines, in any city in Iowa. But now you're talking, though again, pretty much planning for someone to live past 95 and that's pretty much all you can ask out of your [crosstalk 00:09:57]. Speaker 1: As I say, is that a good number? Is that what you try to do as an advisor when you're helping people? Do you say, "Okay, look, we're going to plan for this longevity factor. We're going to shoot for, I don't know, a hundred." Even if that might not be the case. Tony: Yeah. I mean, we generally will start out at 95 to a hundred, let the client tell us, "Hey, look, I don't want to... show me some different numbers. I don't want to go out that long or just at least show me some options." But we do have those conversations, but it starts at 30 to 35 years, just in case. And then show them some shorter time horizons, but never did we go down to 10 to 15 years generally? Speaker 1: Yeah. Yeah. I mean, unless you're retiring at 78. Tony: Yes. Speaker 1: 75. Tony: Unless you're doing that. But any of these Midwestern cities, if you can get by, let's call it $50,000 to $60,000 annual expenses, it's going to last you a long time in these Midwestern cities and the last one on the list here, which kind of surprises me, this Memphis. Speaker 1: Yeah. Tony: $38,000 in annual expenses [crosstalk 00:11:00]. Speaker 1: Ma, that's low. Tony: I always thought Memphis... Yeah. Yeah. That's low. You're talking a 45 plus years, it would last you. Speaker 1: Right. Tony: And so I think just by looking at these, you take someone like my son, who's only 25. If you put this list up in front of him and ask him where he'd want to retire, it would be one of those California cities. But once you get a little closer, depending on where you're at, you might want to think about things a little bit before you just rush off and possibly move to one of those cities, obviously. Speaker 1: Sure. Tony: I mean, all great cities, but I think people living in those cities though, they have to have a different outlook with their planners than somebody living in Omaha or Des Moines or case a year. Speaker 1: Right. And that's exactly the point, right? And so even in your backyard, Tony, here in the Des Moines area, you're going to see people who... Okay, so this study says $46,000 annual for Iowans, but let's say that might be fine for, I don't know, Cedar Rapids or something like that, but maybe it's more like 55 or 60 in Des Moines, right? Tony: Yeah. Speaker 1: So a little bit of ebb and flow there. And so talking to this million dollar, this arbitrary number that we assign...And that's why if you're doing rules of thumb, and in a way this is kind of rules of thumb... If you're doing general guidelines, this gives you a ballpark but then you really got to sit down and get into the minutia because this, again, we don't know for sure, but this is not taking into account taxes, it's not taking into account... It may or may not be taking into account property taxes, things of that nature. I mean, there's just a lot of other little unknowns. And of course there's no fun money involved in this. This is all just basic needs. So you're going to have to tick that number up a little bit. But I started off by saying, you might not need a million. We have people who are totally comfortable in retirement for $500,000. But what is it that they have, right? It's their lifestyle, maybe a pension, there's other things that factor in. Tony: A lot of the things that factor in, and I could say from doing a lot of tax returns on the individual level over the years, that I would venture to guess that just off the top of my head, at least 50% of our clients will never have anything more, this is just their own savings, that the rates are going that I see, more than $250,000. If you take a number that low, even in Des Moines, you got a little bit of social security, maybe a little bit of pension, that's not going to last you very long. So I think people got to look at that too and say, "I need to at least shoot for a million or shoot for some higher number." Speaker 1: Right, right. Tony: Because these lower numbers aren't going to work when you really start putting the pencil to it and they could see it in front of them. Speaker 1: And I don't imagine too many people come in and... You're a CFP, you're an EA, you've been doing this 20, almost 25 years, right? So how much people come in and say, "Hey, I want to go backwards in retirement." Tony: No, they all, they don't talk about it until we bring it up and we'll ask them. Especially if they're in their forties and fifties is when you're thinking about retiring, and they say, "Well, I don't know. I don't think I'll have the money. I'll just work until I can't work anymore." That's a plan, but not a very good one. Speaker 1: Yeah. Tony: I feel for them because to me, it gets a little personal in the fact that we toil away for 40, 50 years and then many of us don't have a whole lot left to show for it. Speaker 1: Very true. Tony: We're lucky enough to be healthy. I would think most people want something better. It's just sometimes that life gets in the way and they don't plan. Speaker 1: Right, yeah. Tony: That's what happens. Speaker 1: Indeed. And nobody wants to hopefully reduce their lifestyle in retirement, as I was saying, because you want to keep the one you've got, ideally, at least at that. And a lot of times we actually want to raise that up a bit, at least in the early parts of retirement. And that's the other thing that's not really talked about or factored in here is that we're going to have those earlier years of wanting to do more and so on and so forth. And so when people come in to see you for the first time, perspective clients, Tony, do they ask sometimes for hard numbers, do they say, "Okay, you've got all my data. You know what I have? How long is it going to last me?" Is that what they're looking for often? Tony: A lot of times they are. Yeah. I mean, they want to know that based on where they're at now, and if they continue on their path, where will they be at? And we can generally kind of at least start putting some ballpark figures together. Of course, the software is very good at this these days and then try to meet with them and discuss from there. Does this look okay to you? And if not, then, how can you get to [crosstalk 00:15:22] want to be. Speaker 1: How do we adjust? Tony: Yeah. Speaker 1: Yeah. And that's when we start looking at how you're utilizing the various investments that you have. Are you being as tax efficient as possible? And so again, when you're talking to rules of thumb, Tony, it's great to give you an outline, but until you really sit down with an advisor, you can't start dialing in the minutia of what's going to make your plan tick and happen for you. And that's why an advisor is such a great resource to tap into. Tony: And I think too, for the young people listening, especially in their twenties, it's really, if you can just get yourself in the discipline of putting money away, in other words, saving for retirement. It's a long way away for you. But if you can do that, time is on your side. Speaker 1: Oh yeah. Tony: You'll be amazed when you get to my age, then what you've got versus somebody coming in their fifties and saying, "Well, I'm really behind the game." Their amount to get to where they want to be is so high, they'd really have to change their lifestyle in a lot of times. Speaker 1: Yeah. And the key is you got to take action at some point because continuing... Even if you are 50, I'm turning 50 this year and I often, I mean, I talk about this stuff every day. And sometimes I'm like, "Hmm, have I done enough?" And it's natural to have that feeling, but if you've got a good plan in place, you're working with somebody that's going to alleviate that, and then you're going to know where you need to add, where you need to take away, some shortfalls, or some whatever the case is. And often many people come in, even 50 plus, even just turning 50, and they're not as in bad shape as they realize, Tony. So that's something to kind of keep in mind. It doesn't mean it's the end of the world because you didn't start as sooner. It's certainly helpful if you can it start sooner, but if you don't do it, then come in and find out how you're going to know. Tony: Yeah. You won't know, and it's better to start late than not start all. Shouldn't never want to give up just because you're a little further a long. Speaker 1: Yep. Tony: It just, you know, it's going to be a different for you than if you were sitting, talking to me when you were 28, [crosstalk 00:17:18]. Speaker 1: Right. Tony: We'll have different conversations. Speaker 1: Exactly. Tony: You can get to close to where you want to be, and then who knows, maybe, like I say, once you have some of these numbers and you're again in the Midwest, in Des Moines, you may not need a million dollars, depending on what else you have. Speaker 1: And what kind of lifestyle do you want? I mean, if you want to just hang out on the front porch and around the homestead, and you're not a busy body and liking to do a lot of things, well, then that's going to be a little different than someone who's constantly wanting to travel or constantly adding on to the house or doing... There's just a myriad of things that goes into changing those little aspects of the retirement. So that was our podcast this week. A million bucks, how long will it last you in some of these areas? Is it that fantasy number that we should all be shooting for? Is it not? It's probably not the worst idea to shoot for it. And like I said, to kick this off, it certainly sounds sexy and to be able to say, "Hey, we're a millionaire." It has a nice ring to it, but there is some data to kind of let you know if that's not going to be enough or maybe it will be. Speaker 1: And again, anything we talk about on the show, we're usually talking in generality. So you always want to make sure that you check that for your situation with a financial professional, like Tony, as I mentioned earlier, he's an EA and a CFP with almost 25 years of experience. So reach out to him if you've got questions at 844-707-7381. 844-707-7381. And don't forget to subscribe to the podcast at yourplanningpros.com. That's your planning pros.com. There's also a lot of good tools, tips, and resources. You can book some time with Tony. And you can subscribe to us on Apple, Google, Spotify, iHeart, Stitcher, just type in Plan With The Tax Man in those apps or just go to the website, yourplanningpros.com, and find it that way. Speaker 1: All right, my friend, I will let you go this week. Thanks so much for hanging out with me. And this is kind of cool. It was interesting to see how this played out. Tony: That's right. All right. Well, we'll talk to you next time. Speaker 1: And continue to feel better. I'm glad you got your shot and over it. So we'll see how you're doing in a couple of weeks. Tony: That's right. All right. Thanks. Speaker 1: Sounds like a plan. We'll talk to you next time here on Plan With the Tax Man with Tony Mauro. Disclaimer: Securities offered through Avantax Investment Services. Member FINRA, SIPC, Investment advisory services offered through Avantax Advisory Services. Insurance services offered through Avantax Insurance Agency.