5 Ways to Invest (And Spend) $2 Million

Tyler Gardner (0:00)

The goal isn't to die with the most money. The goal is to have enough to do awesome stuff for as long as you want and are able. Some people optimize for maximum wealth. Some people optimize for maximum spending. The right answer is somewhere in the middle, and it's different for everyone.

Hello, friends. This is Tyler Gardner, welcoming you to another episode of Your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing. So let's get started and get you one step closer to where you need to be. Welcome back, my friends, to the show, where we talk about money like actual humans, not like finance textbooks written by robots who've never experienced joy. I'm your host, and today we're tackling a question I've gotten approximately 47 times in the last three days. Okay, I saved all this money for retirement, or I have all this money at 40, now how the heck do I spend it or draw it down in as optimal of a way as possible? So I A. Don't run out of money, and B. Can find some way to stick it to Uncle Sam after years of being taxed on my dang paycheck, aka find a way to pay less in taxes and be slightly more tax-efficient. Great question, I get it all the time. Because, here's what very few folks talk about between yelling at you to max out your 401k in your 30s and then skimping on coffee and joy in your 40s. Accumulating wealth is actually the easy part. I'm not saying we can all do it, I'm not saying we can all be millionaires overnight. What I mean is the system and the math behind it is pretty darn straightforward and agreed upon, and once you hone in on your own plan, then it's really pretty basic. Save money, invest it, watch it grow, control costs, don't tinker with it, repeat for 30 years, done. But, decumulation, that's where it gets a little weird. And that's what far fewer financial voices tackle, mostly because it is fairly, way more complex, and definitely more nuanced. Because to start, you spend decades training yourself not to touch this money, building it up like some kind of financial Jenga tower. And then one day, you're supposed to just start pulling pieces out, without the whole thing collapsing, while also minimizing taxes, and making sure it lasts until you're 95 Oh, and also making sure you're actually enjoying retirement, instead of clinging to your lifelong commitment to making sure that number is going one way, and one way only. Up. Yeah, that's a lot to take in. So today, we're diving deep into dynamic drawdown strategies, which is just a fancy way of saying how to spend your retirement money intelligently, without feeling obligated to follow one rule year in, year out, regardless of how much you have, how the markets are doing, or how you're feeling on any given day. We're going to talk about three main approaches to generating income in retirement, how to do this in the most tax-efficient way possible, and why the strategy your parents used probably doesn't work anymore. But first, and I promise this is the only time I will ask today, if you've been listening to this podcast and finding it helpful, would you consider leaving a review on Apple or Spotify? It genuinely helps other people find the show, and if you've been rage-listening because you disagree with everything I say, honestly, I'd love to hear that too. Your thoughts help inform future content, and I truly appreciate knowing that I'm not just speaking into the great financial abyss. Okay, let's get into it and talk about not dying broke.

The old way of retirement income and why it's perhaps dead.

Let's start with how this used to work. Because understanding why the old system is broken helps explain why we need something a little different moving forward. For your grandparents, maybe even your parents, retirement income was pretty straightforward. You worked for one company for 40 years. They gave you a pension that paid you a fixed amount every month until you died. You got social security on top of that. And if you were lucky, you had a little savings on the side. Done. You didn't really need a drawdown strategy because your income was basically guaranteed. You just lived. But pensions are basically extinct now, unless you're a teacher in some places or a government worker in some places. So for most of us, retirement income isn't something someone else provides. It's something we have to create ourselves from the pile of money we've saved. And it's something that nobody ever has taught us to do. So we're just left moving from one resource to the next in an attempt to gain a little more insight as to what might work best for us individually. And here's where it gets even more tricky. That pile of money actually needs to do three things simultaneously. One, it needs to generate enough income for you to live on. Two, it needs to keep growing so inflation doesn't destroy your purchasing power over 30 years. Three, it needs to last long enough that you don't run out of money at 87 and have to move in with your kids. Oh, and ideally, you'd like to do all of this while paying as little in taxes as possible, because why give the IRS more than you have to? This is the retirement income puzzle, and unlike accumulation, where the answer is basically save more, invest in index funds and wait, decumulation has countless viable strategies. Which one is right for you depends on your risk tolerance, your tax situation, your spending needs, and frankly, your personality. So just note, every time one of you decides to yell at me in the comments on social media that I'm talking about a different strategy than I did last week, well, yeah, and I always will. Because for however many people are out there looking to spend money the way they want to in retirement or retire the way they want, there's a different strategy that will work best for them. Some people want to set it and forget it. Others love tinkering and optimizing daily. Some people are terrified of running out of money. Others are terrified of dying with 2 million in the bank they never got to spend. And most of us are a combination of all these things. So let's start by breaking down the 3 main approaches.