The Number You MUST Know First

We’re getting there!

Over the last few weeks, I’ve exposed you to the first steps in The Relaxing Retirement Formula™ which were all developed to help you determine your level of Retirement Bucket™ Dependence (the amount you need to withdraw from your investments each year, over and above social security and pensions, in order to live exactly the way you want).

You’ve done this by getting crystal clear on all of your fixed income sources, such as pensions and social security, and what it costs you to support the exact lifestyle you want.

This is THE biggest distinction between investing during your working years and your retirement years, and it’s the point that I will continue to help you focus on.

Every “retirement calculator” I’ve ever come across begins with you assuming an investment rate of return you either want to earn or think you can earn.

This completely puts the cart before the horse.

It’s what gets so many people into trouble, and what causes so much confusion and anxiety.

Once you’re past the first steps in The Relaxing Retirement Formula™, and you know just how dependent you are on your Retirement Bucket™, the next question is, “what rate of return do I need to earn on my investments?”

That rate is NOT chosen arbitrarily. It’s the rate of return that allows your money to keep pace with inflation and remain intact year after year while allowing you to continue to spend what you want.

And, it’s different for everybody so there’s no ‘rule of thumb’.

Why This Rate Is Different For Everybody

To illustrate why it’s different for everybody, let’s revisit what we know about our two couples who we’ve been discussing over the last few weeks:

To keep our example simple using round numbers, let’s assume each couple has:

  • $2 million dollars in investments,
  • the same social security retirement income, and
  • the same pensions.

Beyond that, here’s what else we know about them:

Jim and Sandy Independent have no mortgage or home equity line of credit, and they’ve recently completed many of the major upgrades to their home, i.e. a new roof, vinyl siding, a new furnace, and new bathrooms. They have always lived a very modest lifestyle with little or no debt.

Ron and Rose Reactionary, on the other hand, still have a $300,000 balance on their home equity line of credit that they took out to pay for their kids’ college tuitions and weddings, and a condo down in Florida they bought a few years back. They each drive high end cars. And, while their home is very nice, after 31 years, it’s starting to look “tired” and could use some upgrades.

Ron and Rose are clearly more dependent on their Retirement Bucket than Jim and Sandy, meaning they need to withdraw a lot more money each year to support their more expensive lifestyle.

If they need to withdraw a lot more money each year, then their Retirement Bucket needs to grow faster just to remain full so they don’t run out of money.

If their Retirement Bucket needs to grow faster, then Ron and Rose need to earn a greater investment rate of return than Jim and Sandy!


When you’ve reached the stage where the money you’ve saved must now support you for the rest of your life, when you’re dependent on your money to “live” as opposed to receiving a paycheck from the work you do, you have to think very differently about how you’re investing your money.

This is no longer a game. It’s no longer a race. You can’t afford to lose this time because, if you do, you’ll be forced to do one of two things:

  1. make drastic cutbacks in your lifestyle (who wants to do that after working all these years in preparation for this stage in your life where you get to reap all the rewards of being a diligent saver), or
  2. you will have to go back to work to make up for the losses, something your health could prevent you from doing in the future.

Neither of those sound like very good outcomes, so that’s why you have to think very differently about investing at your stage in life.

And, it’s why you have to know the investment rate of return you must earn, as opposed to randomly investing your money in whatever appears to be the ‘hot’ thing at the moment.

The Medical Analogy

To draw an analogy, it would be like you taking a new medication without a doctor first analyzing your symptoms and doing a thorough examination to determine if you even need any medication at all.

When asked why you’re about to take this new potent drug, the doctor tells you that it’s a really popular drug right now. It’s all over the news and everyone’s taking it.

Now, if that sounds ridiculous to you, you’re right. However, this is how millions of Americans select their investments in retirement.

They don’t have a carefully calculated rate of return they’re aiming for. And, because they don’t, they’re at the mercy of the next salesperson who sells them whatever makes that salesperson the most money, or whatever appears to be “hot”.

For all the reasons I mentioned above, this is extremely dangerous. Don’t be lazy and fall into this trap. Take the time to figure out the rate of return you need to earn first.

Then you can go about crafting an investment matrix with specific investments that have the highest likelihood of producing that rate of return over the long run.

However, before we move on to that crucial step, we have to determine the investment rate of return that YOU need to earn.

We’ll do that in the next Retirement Coach Strategy of the Week!

Committed To Your Relaxing Retirement,

Jack Phelps

The Retirement Coach

P.S.: WHO do you know who could benefit from receiving my Retirement Coach “Strategy of the Week”? Please simply provide their name and email address to us at Or they can subscribe at

I appreciate the trust you place in me. Thank you!

(The content of this letter does not constitute a tax opinion. Always consult with a competent tax professional service provider for advice on tax matters specific to your situation.)