How Much Can You Spend in Retirement?

After decades of working and saving, you'd think spending your money would be the easy part. Instead, it's often the hardest.

Many retirees who know exactly how much they've accumulated, but aren't sure how much they can comfortably spend. Many end up spending far less than they could. Not because they have to, but because they're afraid of making a mistake.

That fear is understandable. Retirement is the first time you're living off the wealth you've built rather than the paycheck you've earned. 

So how much can you safely spend?

For years, the financial industry has leaned on the 4% rule as a starting point. The idea is simple: withdraw about 4% of your portfolio in the first year of retirement, adjust that amount for inflation each year, and your savings have a good chance of lasting at least 30 years.

It's a useful guideline. But it also assumes retirement unfolds exactly as expected.

Real life doesn't.

Markets rise and fall. Spending changes. Health changes. Tax laws change. And none of us knows how long we'll live.

That's why we don't believe retirement income should be based on a single calculation made the day you retire. We believe it should adapt over time.

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A Dynamic Spending Plan

Our goal is simple: help you avoid the two outcomes nobody wants.

Running out of money in retirement is never an option. But neither is leaving behind far more than you ever intended. 

The goal is to find the balance between those two outcomes, even as markets and life change around you.

Instead of trying to predict the future, we build a plan that adjusts to it.

A Plan to 100

The first assumption we make is that you'll live to age 100.

Not because we expect you to.

We do it because longevity is one of the biggest financial risks retirees face. If we planned around average life expectancy and you happened to outlive it, your plan could fail when you needed it most.

Planning to age 100 removes that risk from the equation.

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We Build Conservatively

Next, we intentionally build your retirement plan using conservative return assumptions.

That doesn't mean we expect your portfolio to earn only modest returns, and it certainly isn't how we've invested your money.

It simply gives us a cautious baseline from which to make decisions.

Then, every year, we compare those assumptions to what actually happened.

If your investments performed better than expected, there may be room to increase spending.

If markets had a difficult year, we may recommend dialing spending back temporarily, not because something is wrong, but because that's exactly how the plan is designed to work.

Instead of pretending we can predict the market decades in advance, we let reality guide the plan one year at a time.

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The Importance of a Cash Reserve

Another key part of our strategy is maintaining what we call a war chest.

Typically, we keep two to five years of planned living expenses in cash and cash equivalents.

That serves two important purposes.

First, it means you don't have to sell investments during a market decline just to pay living expenses. A war chest is a defense against sequence-of-returns risk, which is the risk of selingl assets at low prices, permanently reducing the longevity of your portfolio.

Second, it provides peace of mind.

When you know several years of spending are already set aside, it's much easier to stay calm during market volatility. Historically, many market recoveries occur well within that time frame, allowing invested assets the opportunity to recover before they're needed.

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Retirement Isn't Static—Neither Is Your Spending

Your retirement income shouldn't be based on a number calculated once and never revisited.

Life changes.

Markets change.

Your goals change.

That's why we revisit your plan every year, updating your spending based on your portfolio, your expenses, tax laws, and whatever life has brought your way.

Our objective isn't to maximize what you leave behind.

It isn't to encourage you to spend recklessly, either.

It's to give you the confidence to enjoy your retirement knowing your spending is supported by a disciplined, adaptable plan.

Because the best retirement plans aren't built on perfect predictions.

They're built to adjust.

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This blog article is for educational purposes only and does not constitute personalized financial advice. Consult with a financial or tax professional for guidance on your unique circumstance and goals.