We’ve talked a bit about retirement with other authors before, but this time, we’re focusing on something a bit new. We’re not talking about if you’re decades away from retirement years or trying to save for college or pay for your kid’s wedding.

We’re talking about if you were great at whatever you did to support yourself and built up substantial savings and you’re now starting to wonder, do I have enough built up to retire from work if I want to? How much can we spend and help our family without worrying that we’re out? Can we afford to buy that second home to escape the harsh winters? Who knows.

Our next author, Jack Phelps, will help us get some answers both in his new book, The Relaxing Retirement Formula.

Jack Phelps: Well, the year that I graduated college, I was having a conversation with a gentleman who also happened to be a public school teacher like my father. Not realizing the impact that it had on me, he mentioned in passing that he would have jumped at the opportunity to take advantage of the discount that was currently being offered at the time, not right now, but back then, to prepay all four years of his son’s tuition.

I remember at the time, thinking that the guy was completely nuts. All I could think about was what made him believe that he could afford to do that? I mean, my parents never took a vacation for 26 years, and I can guarantee you that prepaying four years of a college tuition in one lump sum was not a conversation that they had. But that one passing comment by that retired school teacher back 30 years ago is ultimately what led me to write The Relaxing Retirement Formula.

What happened is my curiosity got the best of me and I began studying literally everything that I can get my hands on that had to do with money and finances. In doing so, my research revealed that after a 40-year career, only a teeny tiny percentage of Americans successfully retire to a same or a better lifestyle. While the overwhelming majority do not.

That really struck me as sad. From that moment on, I immersed myself in studying this tiny percentage of Americans to find out what is it that they were doing differently than everyone else? Like most people, my first thought was the obvious one, and that is that they simply had more money.

As I later discovered, I was dead wrong.

Over the last 30 years in my role, as the retirement coach which is what I am, the biggest difference that I’ve witnessed between that tiny percentage of Americans who continue that same or an even better lifestyle into what we refer to as phase two of their financial lives. First is the overwhelming majority who don’t is not just the amount of money that they’ve accumulated.

I say that because I’ve met with countless numbers of men and women who had a lot of money by most people’s standards, yet they had enormous anxiety and they lived their lives as if they were going to run out of money that night.

What I discovered is that after years of research and hands-on work with this tiny percentage of Americans and studying their mindsets and their systems and their strategies. What I found out was that the key difference between those who retire successfully to exciting lives and those who don’t is their level of financial confidence.

If you stop and think about it, one of the biggest challenges in anyone’s life is to go from working and receiving a paycheck for the work that you do and saving money, to no longer receiving that paycheck anymore. To make matters even more difficult, you then have to begin spending the money you’ve taken your entire life to save.

Now, if you’re like our relaxed retirement members who have developed that disciplined habit over the years of saving money, all of a sudden, flipping the switch and now spending the money that you’ve saved over your entire lifetime just doesn’t feel normal. It feels really strange, and I wish I had a better word to explain it.

What has transpired over time is that, now that guaranteed pensions are gone, even if you’ve done a really great job building up a sizeable, what we refer to as a retirement bucket every time a bucket of investment. Even if you’ve done a great job of that, deep down, most are just not 100% convinced that they have enough.

They fear that they could run out of money at some point during the life, especially in these volatile times that we live through today.

What happens for far too many is that they end up working longer than they need to because they think they have to. Or worse, it at least in our opinion, they stop working and they retire but they don’t have a reliable system to make their money last. Because of that, they end up pulling their punches and they restrict their spending.

They start living like the majority of people who are out there who say, I can’t do that. I’m on a fixed income now. Even though they’ve done a great job managing their finances during their working years, when they’re earning a paycheck. If you’re like most of the people that we know who are faced with the prospect of relying on that retirement bucket that they’ve accumulated over all the years, they lack the confidence to spend what they’ve saved.

Unfortunately, all those years of all that great discipline and saving and building up money and investing it are of no value to you now if you don’t have the financial confidence to spend it. What I discovered is that nobody’s born with that confidence. They develop it.

My goal in writing The Relaxing Retirement Formulais to help those to who have done a really great job of saving and building to develop and maintain the supreme financial confidence that they need to liberate what they’ve taken their entire life to save so that they can enjoy themselves and do everything that they’ve always wanted to do without anxiety about money. Like any great sports coach, in the book we install a system. This relaxing retirement formula.

We do that by helping everybody implement a bunch of retirement coaching strategies and tools, and we have checklist and mindsets that we’ve developed over the last 30 years so that more and more of these conscientious savers that we’re just talked about can start living the life that they’ve earned.

First Steps in Retirement

Rae Williams: If I am one of these conscientious savers and I’ve been diligent and gotten my finances together preparing for this moment, what would you say is that first step of action that I can or should take?

Jack Phelps: What happens in today’s day and age is that they approach this period of time in their lives which we refer to as the employment dependency threshold. It’s that period of time when you’ve been working and saving and accumulating money for years and years.

You sort of reach a point in your life where you stop and reflect and you wonder, gee, I wonder if I have enough saved up to be able to just stop working if I choose to. Then of course, how do I do that?

The first thing that everybody tends to do is they look around and they start asking everybody else what they think. The problem is, they don’t come up with answers that give them any confidence, so what they then do is they go to online sites and magazines and things of that nature and they start reading a lot of rules of thumb. The problem with that is those don’t provide them with any confidence.

The number one thing that they have to do is commit to knowing their numbers cold. What I mean by that is they have to get very clear on what exactly does it cost them to live the ideal lifestyle that they want. Put a price tag on that so that they can determine just how dependent they are on their retirement bucket.

Once they determine that, then they can develop a blueprint around that to determine if they have enough, how much they can afford to spend, without any fear whatsoever of running out. Then the third part of that is, they can then accurately select investments that can provide the rate of return that they must earn in order to have their retirement bucket remain intact. Again, they can have no fear that they’re ever going to run out.

How Much Is Enough?

Rae Williams: You actually have a section in your book that says “How much is enough?” How much is enough?

Jack Phelps: That’s a great question. A common question that most people ask, the first question typically that everybody ask when they come to visit us the first time is—there are three: Do we have enough to stop working if we so choose to do so? How much can we afford to spend? And then, how do we position our retirement bucket of investments, our savings, to make it last for the rest of our lives?

Say we have two couples, for example, and both of them are the same age. They both receive the same amount of social security income each month, and they both have the same amount of money in their retirement bucket.

Let us just say that there is $2 million in each of them. Just looking at that, you would say, “Well gee both of them are in the same boat.” But now let us change the set of circumstances for just a minute.

Let us say that the first couple paid off their mortgage many years ago. They don’t have a second home, they don’t travel. They travel a little bit, they buy a new car every 10 years. Couple two, let’s call them Bob and Linda, they have a $300,000 mortgage still to pay for their kids’ tuitions that they took out over the years and their weddings. They own a second home down in Florida. They buy a new BMW every year. That couple number two is going to have to withdraw much more money from their retirement bucket each year than couple number one.

And because of that, they’re going to have to earn a much better rate of return on that retirement bucket in order for that money to last for the rest of their lives. So my call to action for everybody is to get very, very clear.

Get crystal clear on exactly how dependent you are, on the amount of money you must pull out of your retirement bucket each year, because that is what will give you the confidence that you need to spend it without any fear.

Allocating Retirement Money

Rae Williams: What is your number one piece of advice when it comes to actually allocating spending that money?

Jack Phelps: Well when it comes to spending, one of the biggest mistakes that everybody makes is they don’t get crystal clear on the amount, and they don’t get clear on when they’re going to need it. So you may want to take a lot of time to determine how much and then when. The reason why you want to do that is because when it comes time to withdraw money, the question is where are you going to withdraw that money from?

So over the years, you have built up money in a 401(k) or a 403(b) and an IRA, and then you have other moneys that are not in those environments, and the tax consequences of drawing money from one versus the other are drastically different.

Obviously the more money that you pay out in taxes, the harder it is going to be for your money to last for the rest of your life. So you have to give a lot of thought to not only knowing how much but when, and depending on how old you are, the strategies are going to change.

So for example, prior to reaching age seventy and a half, you don’t have to take any money out of your 401(k) and IRAs and pay the high tax rates that you have to pay. Once you turn seventy and a half, there is a minimum that you have to pay.

So you have to give a lot of thought to exactly how much and when you are going to need it, and then you can go about coming up with a withdrawal strategy that is going to be able to maximize your after tax rate of return on the retirement bucket that you have taken so long to build up.

Success with The Retirement Formula

Rae Williams: So if you had to choose a story to tell or give us an example of someone who had gotten the most out of just your expertise, your ideas, your stories, what story would you tell? Who would you tell us about?

Jack Phelps: I am going to give you a little bit of a background story, which is kind of humorous but it is something that has happened to us over and over again over the years and it is very important for everybody to think about.

We had a couple who had come to see us, and they had those same three questions that everybody has, which is of course, “Do we have enough built up to be able to stop working if we choose to? How much can we afford to spend? And then how do we manage our retirement bucket so it doesn’t run out?”

And like all of our members, we designed a retirement blueprint for them, taking into account everything. All of their priorities, all of their resources, trying to give them the most confidence to be able to do what is in their best interest and when they returned to our office after a couple of weeks. The good news we had for the is that they had plenty to be able to do exactly what it is that they wanted to do, and they could afford to stop working at that point.

And what was interesting was I thought that the balloons would start falling from the ceiling and a party would start and the gentleman would quickly call up his managing director and tell him, “Hey, I am finished. I am going to be retiring tomorrow,” but that is not what happened.

What actually happened was there were crickets, and the couple just sat there confused staring at each other. What we’ve discovered with a lot of folks is that not everybody comes to the table thinking that they are coming to be able to determine if they could stop working right then.

What they want to know is if they can afford to do it. What happens for many of them is they see that they have friends who have retired and stopped working and they watch TV and they see the TV ads of those the gray hairs who are in hammocks and many of them reach the conclusion that that’s not what they want. What they wanted was to be able to determine if they have enough so that they can choose to do what they want. So a very important point is that this process is not about getting you to stop working.

This process is about putting you in a position to never have to work, really never to do anything if you don’t want to anymore, and going through the process of designing a retirement blueprint gives you the answer to those questions so that you can choose to do what you want. By going through and following the formula, it puts you in what we refer to as the catbird seat. The catbird seat is choosing to work if you want to or choosing not to.

So what many of our folks do is come up with what we refer as a non-negotiable list, and what that means is all the things take some time to think about what you’re no longer willing to put up with. So for example, if your goal is to attend all of your grandchildren’s games, all of their sporting events or if you are over the years if you have some friends who have retired and they’re going away on vacation and you haven’t been able to participate because of your work schedule, that is no longer acceptable to you.

Go to your employer if you so choose to continue to work and present that opportunity to them and say, “I’d like to be able to continue to help and still participate and help bring value to the company, but I am going to need this time off.” Armed with the information that you no longer need to work, it puts you in the catbird seat to go to them to be able to create and design the exact life style around what it is that is most important to you.

Without that information of knowing that you have enough, you can’t go about that process. That is why the blueprinting process is so important.

Rae Williams: What have you seen happen with people who don’t have this blueprint, who are not actively kind of seeking this kind of expertise and going about their retirement in this way?

Jack Phelps: When you are not crystal clear on exactly where you stand or what your numbers are, one of two things happens. Folks either continue to work because they believe they have to or they feel that they have to, or worse what happens is they stop working but they restrict their spending and they no longer live the way that they want to live.

They start acting and behaving like everyone else who says, “Gee I can’t do that anymore. I am on a fixed income.” The reason why they do that is because they do not have the confidence to go out and spend what it is that they’ve saved.

A Challenge from Jack Phelps

Rae Williams: If you had to issue a challenge, so this is to people listening to us, to your readers, even to your clients—what would that challenge be that can help them to get to their next level with their retirement planning?

Jack Phelps: Well this is not going to be very sexy. You’ve got to take the time to what I refer to as know your numbers. What knowing your numbers means is you’ve got to take the time to determine just how dependent you are on your retirement bucket. So for example, going back to the two couples we described before, let’s say that the first couple, they determine that they needed to withdraw $6,000 every single month from their retirement bucket.

And couple number two because they still had that $300,000 mortgage and they like to buy a new car every three years and they have a condo down in Florida to pay for, they need to withdraw $11,000 per month.

Well as you can see, each of those couples who has the exact same amount of money is going to have to go about their planning very, very differently and couple number two is going to have a very different situation because they have to withdraw a significantly larger amount from their bucket each month.

And because of that, the chances that it is going to run out faster are much greater. Now the time to find out that it is going to run out is not when you are 80 years old. The time to find out is when you are at this employment dependency threshold. So that you can confidently stop working if you so choose to do so and spend confidently without the fear that you are going to run out.

So my challenge to them is take the time to determine just how dependent you are on your retirement bucket.

Rae Williams: How can people contact you if we want to learn more?

Jack Phelps: Two things they can do. One they can go to our website, we have a very simple URL. It is theretirementcoach.com, and the second is that we’ve made a sweet retirement coaching tools and checklists and resources to be able to answer the questions that I was just speaking. They’re right there available for free on our book’s website, which is theretirementcoach.com/formula