How Much Can You Actually Spend in Retirement?

Replacing abstract probabilities with a framework that offers concrete, manageable paths forward.

Retirement, as a concept, is a fairly new phenomenon. The earth is roughly 4.5 billion years old, yet only in the last three generations or so have humans had the option to stop working and “just keep living” (cue Matthew McConaughey).

Because for most of history, when you stopped working…you died. Survival hinged on completing some type of work to keep food on the table.  

So when I sit down with a client approaching retirement, I try to remember that some part of their brain, way down at a biological level, could be screaming “the end is near”. It’s no surprise that even the wealthiest clients I’ve worked with, have the same age-old question on the top of their minds: “Do I have enough?”

The problem with the “de facto religion”

The wealth management industry tries to resolve financial anxiety with data. The de facto religion, in this case, is the Monte Carlo simulation. It’s a statistical model that runs a portfolio through thousands of randomized market scenarios. It then calculates a “probability of success”, the odds you won’t outlive your money.

The higher the probability of success, the more likely you have sufficient assets to support your needs.

I’m a little at odds with the industry here. While a Monte Carlo simulation provides a helpful metric, it rarely helps clients buy into a plan with confidence.

Picture handing a nervous fifty or sixty-year-old (or even someone eyeing early retirement) a chart full of squiggly lines and an “84% probability of success.” What are they supposed to do with that? It doesn’t tell them what happens if the market drops next year, how much they can spend, or which accounts to pull from. Most importantly, it misses the real question keeping them up at night: Am I going to be okay?

As a financial advisor, my job isn’t to lecture on standard deviations or alpha metrics. It’s to do the heavy lifting (the complex thinking) and return with a clear, actionable plan. My personal goal is to communicate in a way that’s easy enough to discuss at the dinner table, but comprehensive enough to cover all aspects of someone’s financial life.

That means replacing abstract percentages with a framework that offers concrete, manageable paths forward, which leads me to our solution.

The Solution: Guardrails

Let’s say a family comes in with a decent nest egg saved for retirement.

I’ll typically share something like this: when it comes to retirement, running out of money is never an option. Neither is leaving behind a mattress stuffed with money. We need a strategy that keeps us somewhere between those two outcomes.

However, two unknowns make this rather difficult.

We don’t know how long you’ll be retired (a nicer way of saying we don’t know how long you’ll live). We also don’t know what markets will do. Markets will go up. Markets go down. No one can control the future with a crystal ball.

Since we can’t control either of those, we use a strategy called Guardrails. Guardrails are simply a retirement income strategy focused on three factors:

A spending target. The amount you can sustainably spend from your portfolio, accounting for income sources, expenses, taxes, and your time horizon. Think of it as your “retirement paycheck”, a number we recalculate as your life changes.

An upper guardrail. A high portfolio value indicating you’re not spending enough. When your portfolio hits this level, it’s a green light to give yourself a “raise” and increase your spending.

A lower guardrail. A low portfolio value indicating your current spending is higher than your resources can support. When your portfolio hits this level, whether it’s due to market movements or your own spending, we make a gradual, planned adjustment to your spending until the portfolio recovers.

The result: Clear expectations. Specific dollar amounts. A plan you can stick to regardless of what the market does next.

What this looks like in practice

Say a couple has a nest egg of $3,000,000. We start retirement by taking $15,000 a month in income, a retirement “paycheck.” This income is steady as long as the nest egg stays between $2,250,000 and $3,210,000. Cross above $3,210,000, and monthly income steps up to $16,050. Drop below $2,250,000, either because of bad markets or because you decide to take a big distribution (say, to buy a $100,000 RV), and we’ll temporarily trim monthly income to $14,250 until the nest egg recovers.