We Have $2.1million For Retirement, How Much Can We Spend? [Case Study]

Retirement Planning Case Study: How David and Allen Are Preparing for a Secure Future
‍

When approaching retirement, it's crucial to have a well-thought-out plan that addresses your income, taxes, and investment strategy. In this case study, we'll walk through a real-life example (with names changed for privacy) of how I helped David and Allen, a couple preparing to retire in 2025, build a retirement plan that secures their financial future.

‍

Watch on YouTube:

‍
‍

Understanding David and Allen's Retirement Goals
‍

David and Allen are a Florida-based couple who own a successful medical practice. As they prepare to sell their business and retire, they have several key objectives:
‍

• Maintain a $10,000 monthly spending goal in retirement.
• Split their time between their Florida home and their North Carolina mountain property.
• Transition away from managing Airbnb properties to reduce stress and simplify their lives.
• Minimize taxes during retirement, particularly with the sale of their business and investment properties.
• Implement a sound investment strategy to balance growth with stability.
  ‍

Key Considerations in Their Financial Plan
‍

• Selling half of their business in 2025 and the remaining half in 2026 to manage capital gains taxes.
• A notable age gap — David is 72, and Allen is 59 — requiring different strategies for Social Security, required minimum distributions (RMDs), and investment risk.
• Over $1 million in 401(k) savings, with plans for Roth conversions to improve tax efficiency.
  ‍

Step 1: Creating Their Retirement Income Plan
‍

To determine how David and Allen can confidently spend $10,000 per month, I used a retirement guardrails strategy. This approach offers more flexibility than the traditional 4% rule by adjusting spending based on market performance.
‍

How the Guardrails Plan Works
‍

• Starting in 2026, after their second business sale, they'll have about $2.1 million in total investments.
• This allows them to spend approximately $177,000 per year before taxes.
• The guardrails framework adjusts spending up or down depending on how their investments perform:
  • Upper guardrail: If their portfolio grows significantly, they'll have the option to increase spending.
  • Lower guardrail: If their portfolio drops by about 30%, they’ll reduce spending slightly to protect their long-term security.
    ‍

Why This Strategy Works: By planning adjustments in advance, David and Allen can avoid panic during market downturns and reduce the risk of running out of money.
‍

Step 2: Managing Taxes with Roth Conversions
‍

Tax planning is a critical part of maximizing retirement income, especially with significant 401(k) balances and large asset sales.
‍

Roth Conversion Strategy
‍

To minimize taxes long-term, I recommended filling up the 24% tax bracket through Roth conversions. By strategically converting funds from their 401(k) to Roth IRAs, they will:
‍

✅ Reduce future RMDs for both David and Allen.
✅ Lower their lifetime tax burden by an estimated $650,000.
✅ Maximize tax-free growth in their Roth accounts.
‍

Key Timing: With Allen delaying Social Security until age 67, they have several years where they can strategically convert funds at lower tax rates.
‍

Funding the Roth Conversions
‍

Since David and Allen will generate substantial cash from their property and business sales, they’ll use these proceeds to pay taxes on their Roth conversions — allowing more money to end up in the Roth for tax-free growth.
‍

Step 3: Designing Their Investment Allocation
‍

A well-balanced portfolio is essential to support both their lifestyle and long-term financial security.
‍

Investment Strategy Breakdown
‍

• About 35% of their portfolio will be allocated to low-risk assets like cash and bonds — enough to cover five years of expenses.
• The remaining 65% will be invested in stocks for growth potential.
  ‍

Account-Specific Strategies
‍

• Allen’s investments will have a slightly higher stock allocation (around 70/30) since he has a longer investment horizon.
• David’s accounts will be closer to 50/50 to account for his RMDs and earlier withdrawals.
• Roth IRA funds will be invested 100% in equities since those funds will be used last, maximizing their long-term growth potential.
  ‍

Why This Allocation Works: By combining safer assets with growth-oriented investments, David and Allen can confidently meet their spending goals while reducing the risk of needing to sell stocks in a market downturn.
‍

Step 4: Planning for Future Market Volatility
‍

No retirement plan is complete without stress testing. Using financial planning software, I modeled how their plan would have held up during past market downturns, such as the 2008 financial crisis.
‍

Stress Test Results
‍

• If David and Allen had retired just before the 2008 crash, their plan would have required a modest temporary reduction in spending.
• However, their guardrails strategy ensured they would still meet their essential expenses without depleting their portfolio.
  ‍

This proactive approach gives them peace of mind, knowing they can adjust if market conditions take a downturn.
‍

Key Takeaways for Your Retirement Planning
‍

David and Allen’s case highlights several essential strategies for retirees:
‍

✅ Plan for Taxes Early: Selling assets over multiple years and using Roth conversions can reduce lifetime taxes significantly.
✅ Adopt Flexible Spending Strategies: A guardrails approach helps retirees confidently spend more in good markets while protecting their future during downturns.
✅ Diversify Investments Wisely: Balancing growth with stability ensures you can meet cash flow needs without selling investments at a loss.
✅ Use Stress Testing: Modeling your retirement plan under past market conditions can reveal weaknesses before they become real problems.
‍

Ready to Build Your Retirement Plan?
‍

If you're preparing for retirement and want to create a plan that optimizes your income, taxes, and investment strategy, consider working with a trusted financial advisor. At Spark Wealth Advisors, we specialize in helping diligent savers like you transition confidently into retirement.
‍

For personalized guidance, contact us today — and start turning your retirement dreams into reality.

‍