Planning to Retire on $10,000 a Month

March 4, 2024

Planning to Retire on $10,000 a Month

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Planning to Retire on $10,000 a Month Show Notes

How much do you think you need each month to spend in retirement? There are many factors that will go into determining that number. On this episode of The Guided Retirement Show, Logan DeGraeve, CFP®, AIF® and Chris Rett, CFP®, AIF® are going to walk you through a case study that looks into how much money you would need to spend $10,000 net a month in retirement.

Before they get started, they want to make something very clear. Everyone isn’t going to want to spend $10,000 net a month in retirement. For some people, that will be way more than they need each month. For others, it might not be enough. And there might be some people that spending $10,000 net a month in retirement is just right. This is strictly an example that Chris and Logan will be going through to highlight the planning that’s needed to retire if you’re wanting to spend $10,000 net a month.

In this podcast interview, you’ll learn:

  • Key considerations for building a spending plan for retirement
  • Things to think about when claiming Social Security
  • Important tax considerations
  • How to interpret a Monte Carlo simulation

Do You Plan on Retiring on $10,000 a Month?

Whether you’re planning to retire on $5,000 a month, $10,000 a month, or $15,000 a month, Chris and Logan are going to share how the same principles are applicable for building a retirement plan. So, let’s dive into the details of this case study, which features the sample couple of John and Jane Client, to determine the planning that goes into successfully retiring on $10,000 a month.

Case Study Details

  • John and Jane Client
  • Retirement Budget: $10,000 a month
  • Planned Retirement Age: 65 (for John and Jane)
    • Keep in mind that 65 is the age you become eligible for Medicare.
  • Social Security: $2,465 a month for the higher earner; $1,232 a month for the lower earner
  • Portfolio Allocation: 60% equities and 40% fixed income
  • Inflation Rate: 4% for general expenses; 6.5% for health care costs
  • Life Expectancy: 78 for John; 84 for Jane
  • Understanding that tax rates are scheduled to sunset after 2025
  • All retirement savings in tax-deferred accounts

The Client’s Plan to Retire on $10,000 a Month

Now that we have some background info on the Client’s, let’s see if planning to retire on $10,000 a month will be feasible for them. For any couple that plans to retire on $10,000 a month, there’s a good chance that at least one of them is a high earner.

Claiming Social Security

That’s important to keep in mind when it comes to their strategy to claim Social Security. According to The Motley Fool, the average age that men began claiming Social Security in 2022 was 65.1 It was nearly identical for women, as the average age was 64.9. In 2022, the average monthly check for new Social Security recipients that were 65 was $1,874,56. Meanwhile, the average monthly check for all new recipients was $1,938.75. That tells us that the longer you delay claiming your benefit, the higher it will be.

For this case study, Chris and Logan took the maximum benefit that the Client’s could receive and the average benefit and split the difference. The higher earner between the Client’s will start claiming Social Security at 65 and receive $2,465 a month. In this instance, Chris and Logan had the lower earner take half that amount—$1,232 a month.

Again, this is simply a case study for how the Client’s could claim Social Security. If you and your partner plan to retire on less than $10,000 a month, delaying when you claim your benefit to receiver a larger monthly check is something to strongly consider.

Portfolio Allocation

Next, let’s review the Client’s portfolio allocation. We have the Client’s going with a 60-40 allocation, meaning that they have 60% allocated toward equities and 40% toward fixed income. Having a 60-40 asset allocation is a popular retirement rule of thumb, and it might work well for you. Just know that what works for the Client’s might not work for you and understand the importance of regularly rebalancing back to whatever your ideal asset allocation is.

Factoring in Inflation

One thing that is frequently missed when configuring a spending plan for retirement is inflation. Whenever we’re helping people determine their budget for retirement, we inflate their general expenses around 4% and health care expenses around 6.5%. That’s what Chris and Logan did here with the Client’s as well.

You might be thinking, “The annual U.S. inflation rate was down to 3.1% in January 2024.2 Why would you inflate general expenses higher than that at 4%? And the Fed has a goal of getting inflation down to 2%,3 and it’s been around that target rate for most of this century.” Well, that is all true.

However, many people are still feeling the pain of high prices at places like the grocery store even though inflation has slowed. What’s more is that we don’t want people to be caught off guard when inflation does soar like in did in 2022, when it reached 9.1%. That’s why we stress test people’s financial plans to make sure they can survive high inflationary environments, prolonged down markets, etc.

If we apply a 4% inflation factor to the Client’s plan and it does drop to 2%, they’ll have a 2% delta buffer. That creates a lot of stability and peace of mind. It’s always better prepare for the worst and then get the best rather than preparing for the best and getting the worst.

Separating Out Health Care Costs When Factoring in Inflation

That’s just the start of the conversation about inflation, though. Notice that in the case study details that Chris and Logan used a 6.5% inflation factor for health care costs for the John and Jane. Why would they do that? Well, health care expenses have inflated at a much higher level than the cost of consumer goods for the past several years.4

Health care costs might not be a major expense for you during your working years, especially if you’re still relatively healthy. And while waiting until 65 to retire so that you’re eligible for Medicare can help with mitigating high health care costs, it’s not like Medicare is free. Things like long-term care costs can become a huge burden, especially if you don’t plan for them.

Many of our advisors refer to inflation as “the silent killer.” Inflation might not make you go broke, but it can sure make you feel like you’re broke if you’re not properly planning for it. Also, as you’re factoring in inflation to your plan, remember that you shouldn’t just be thinking about your current expenses. Your financial plan needs to be forward-looking.

What are those insanely high health care costs going to be in the future? At the rate they’ve been inflating, it’s highly unlikely that they’ll cost less in 10, 20, 30 years than they do now. We don’t say that to scare you. We say that because we want you to have a plan in place that gives you more confidence that you’re doing the right things with your money, freedom from financial stress, and time to spend doing the things you love. If you have a detailed budget, it will factor in how your various expenses could inflate over your lifetime.

Life Expectancy

It sort of goes without saying that your health is your wealth. So, let’s naturally shift gears and review the life expectancies that Chris and Logan set for John and Jane. Obviously, they don’t have a crystal ball to know exactly when the Client’s will pass away. If that were the case, Logan and Chris could offer them exact portfolio and spending recommendations and everyone’s lives would be easier. But alas, that’s not the case.

The Centers for Disease Control and Prevention estimates the average life expectancy for males to be 73.5 and females to be 79.3.5 But what happens if you live well beyond those life expectancies? Running out of money in retirement is one of the biggest fears people have when planning for retirement. That’s why we tend to take a more conservative approach and build in longer life expectancies for people as we’re putting together their plan.

So, Chris and Logan built in a life expectancy of 78 for John and 84 for Jane. Keep in mind with life expectancy that medical advancements will likely lead to people living longer in the future as well. It’s yet another example of why a forward-looking approach to retirement planning is critical.

Looking at Current and Future Tax Rates

That forward-looking approach certainly applies to tax rates as well. The current tax rate system is only scheduled to be in place through 2025. On December 31, 2025, the tax rates under the Tax Cuts and Jobs Act will sunset. That means unless Congress steps in and says otherwise, tax rates we’ll revert to the higher rates that we had in 2017.

For example, the current 12% bracket will become 15%, the 22% bracket will become 25%, and the 24% bracket will become 28%. Also, the standard deduction will be cut in half if the Tax Cuts and Jobs Act sunsets as scheduled.

Understanding Roth vs. Traditional

This is where forward-looking tax planning becomes critical. A couple like the Client’s who are planning to retire on $10,000 will need a lot more retirement income besides Social Security to get to and through retirement. Oftentimes, much of that income will come from an employer-sponsored 401(k) and IRAs.

It’s vital to understand, though, that if you have $X-amount saved in a traditional IRA, you don’t actually have that full amount. That’s because those dollars are tax-deferred, meaning that they won’t be taxed until you withdrawal the money from the account. That’s something to keep top of mind with the Tax Cuts and Jobs Act sunsetting after 2025. If you have tax-deferred assets and don’t plan on accessing the money until 2026 or later, you’ll be getting taxed on those withdrawals at higher rates than what are in place today.

However, if you have assets in a Roth 401(k) or Roth IRA, that’s tax-free income. Money that you have in a Roth 401(k) is taxed when you make the contribution and then grows tax-free. If you have a lot of money in traditional IRAs, you might consider doing Roth conversions (especially while the tax rates remain lower) by converting funds from a traditional IRA to a Roth IRA. When doing a Roth conversion, you’re required to pay tax on the conversion, but the funds grow tax-free from that point on.

What Do the Client’s Have in Retirement Savings?

As we mentioned in the case study details, the Client’s have all their retirement savings in tax-deferred accounts. And that’s OK. It’s not uncommon at all, although it’s not something we recommend. It’s just crucial to keep forward-looking tax planning strategies in mind, such as Roth conversions, as 2026 draws near. The purpose of tax planning is to make sure that you’re paying as little tax as possible over your lifetime, not just in one year.

So, How Much Would the Client’s Need If They’re Planning to Retire on $10,000 a Month?

Now that we’ve reviewed some of the key assumptions in the case study, let’s look at Monte Carlo simulation that Chris and Logan ran for the Client’s. They found that John and Jane would need $2.1 million in tax-deferred IRAs if they planned to retire on $10,000 a month.

What Is a Monte Carlo Simulation?

If you aren’t familiar with a Monte Carlo simulation, it runs 1,000 different lifetimes where you look at the best of the best returns and worst of the worst returns. What Chris and Logan tried to determine is how many times the Client’s could retire successfully without adjusting their lifestyle.

The Monte Carlo simulation showed that the Client’s had an 80% probability of success. Again, that doesn’t mean that they’ll run out of money the other 20% of the time. It just means that 20% of the time, they would need to make some kind of adjustment to their spending.

The Client’s might be fairly comfortable with an 80% probability of success, but what would it take to get them to a 90% probability of success? Chris and Logan did another Monte Carlo simulation and found that they would need $2.4 million in tax-deferred IRAs to plan on retiring on $10,000 a month with a 90% probability of success.

For reference, we try to make sure that our clients are within a 75%-90% range for their plan’s probability of success. You might be thinking, “Why wouldn’t you want to have a 100% probability of success?” Well, that would mean that you’re overfunded. You would be saving more than necessary in this case if you’re planning to retire on $10,000 a month.

Changing Some Variables of the Case Study

The case study details we shared for the Client’s was crucial information to know so that Chris and Logan could effectively run the Monte Carlo Simulation. However, Logan, Chris, and all our CFP® professionals always try to poke holes in someone’s plan as our team is building it so that they don’t miss something that could negatively impact an individual as they’re approaching and going through retirement.

What If They Changed When They Claim Social Security?

In this case study, John and Jane plan to start claiming Social Security when they turn 65. But let’s change up that hypothetical scenario and look into what might happen if one or neither of the clients started claiming Social Security when they retire at 65.

Remember that the longer you delay claiming your benefit, the larger it will be. So, on the flipside, the earlier you claim it, the smaller it will be. People can get caught up in wanting to claim as early as possible so that they’ll feel more secure for the first few years of retirement, but it subjects them to more risk on the back end of their retirement by not delaying when they claim.

Why When You Retire Matters

If John and Jane plan to retire on $10,000 a month, that probably means that they’ll need to take out closer to $12,500 gross from their IRAs because they’ll need to pay federal taxes and state taxes depending on where they live. That can be a big pain point on the front end of their retirement, especially if you’re dependent on your portfolio during that timeframe. To throw in another curveball, think about doing that in a year like 2022 when stocks and bonds both suffered double-digit losses.

Other Things to Consider That Weren’t in the Case Study

In the simple case study that Logan and Chris developed, there was still a lot that they didn’t cover. And that was by design so they can illustrate things that can oftentimes be overlooked when building a spending plan. What about bucket strategies? What accounts should they be taking from and when? And since they had all their assets in tax-deferred accounts, tax diversification isn’t something they considered.

These financial planning pillars—taxes, investments, insurance, insurance, estate planning, and Social Security—frequently overlap with each other. For example, do you know what IRMAA is? It applies to Medicare and it stands for Income-Related Monthly Adjustment Amount.6 Many people don’t understand that their Medicare premiums are means tested and there’s a two-year look back. That might not impact you in your first few years of retirement, but it very well could later on as you’re taking more money out of IRAs and Social Security increases. That’s a situation where having good tax diversification is crucial.

When Should You Start Planning for Retirement?

If you hadn’t realized it already, hopefully this illustrates how important it is to begin planning for retirement well before you actually retire. If John and Jane want to retire at 65, they really need to start planning for retirement in their mid-to late-50s, if not earlier. But just know that if you’re wanting to retire sooner rather than later and you haven’t addressed a lot of the planning we’ve covered, it’s not too late to start.

But Don’t Start with a Retirement Planning Calculator

When Chris and Logan went through this case study to see how the Client’s could plan to retire on $10,000 a month, they didn’t just use an ordinary retirement calculator. They used industry-leading software that is intended for professional use. There are so many things that retirement calculators miss that our financial planning tool doesn’t. You can start building your financial plan below by clicking the “Start Planning” button to get an idea of what we’re talking about.

Planning to Retire on $10,000 a Month


The bottom line here, though, is that it’s critical to work with a team of professionals as you’re building a plan that takes you to and through retirement. It’s critical to have a plan that’s centered around your personal goals. Your goals aren’t going to be the same as John and Jane’s, your friends, or your neighbors. The same will likely be true about your earnings history, tax situation, estate plan, risk tolerance, and so much more.

Our team of professionals will build a plan based on your unique situation. To get started on building your plan or for questions on how Chris and Logan covered the case study on planning to retire on $10,000 a month, start a conversation with our team below.

Schedule a Meeting

At Modern Wealth, our team consists of CFP® professionals, CPAs, CFAs, estate planning specialists, and insurance specialists. All our subject matter experts work together on behalf of our clients and prospective clients. We’re committed to assisting you with your wealth management needs so that you have the Modern Wealth Management advantage.

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Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management, LLC, an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management, LLC, does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.