COMING BACK APRIL 23 - Don’t Leave it All to Your Kids - Dynamic Spending Workshop February 6th

April 12, 2024

Don’t Leave it All to Your Kids

Most people want to be able to spend more in their early years of retirement, while they’re healthy, and rightfully so.  In my line of work, potentially my largest disappointment is that people die with inordinately large sums of money left in their accounts and a large estate goes to their children. While the children enjoy this, there may have been some more “life to live” for the parents who kept careful watch of their spending and grew their investment right to their deaths.  Why is so much left behind? What can be done about this dynamic?

Well, common advice in the investment industry and even academia is to only spend 4% or less of your investment dollars annually to not run out of money. Opinions on the percentage will differ.  This 4% rate of withdrawal, while debated, is generally considered sustainable for 25 years from 65 years old to 90. The challenge is that spending more or spending five, six, or even seven percent of your investments for twenty-five years of retirement is largely considered unsustainable and therefore not advisable.  We would agree - typically.  The question that follows is “Isn’t there a way to spend more earlier in retirement and adjust later to steer clear of running out of money?”  With a standard 4% withdrawal rate, some people are living on what can be a bit of austerity plan relatively speaking – maybe at the behest of their adviser, and in hopes of not running out of money. But what happens when things are going so well that these retirees are not even close to running out of money, and accounts have grown considerably regardless of their spending four and five percent annually?  What then? Or at least, what have we learned? I think the lesson is you might be able to spend more earlier on in your retirement, and still not run out of money.  Many people ask how to do this, and the answer may be a dynamic spending strategy.

A dynamic spending strategy we define quite simply as one where your spending is changing. In our example spending more now and less later. A strategy like this requires two budgets of sorts: one, a list of annual expenses you’d like to make early in retirement, and two, a second list of expenses that you will switch to when the higher rate is no longer sustainable.  These two budgets are absolutely required before you should start a dynamic spending strategy and must cover all your needs.  The first is the higher budget, which can allow more travel, hobby, and leisure activities. The second budget would be your basic expenses for later in life with significantly reduced travel, hobbies, and leisure activities.

For example, if you had around $1,000,000 to start, you might spend 6% withdrawal each year, or $60,000 per year, until you get down to, say, $700,000.   This is $20,000 more annual spending than the 4% withdrawal and common wisdom.  $20,000 is a lot more to spend.  When eventually you draw out enough to reach $700,000 you would switch to a more sustainable withdrawal rate based on your age. If this happens at age 75 you might switch to a 5% withdrawal rate.  The need here is for you to calculate if 5% of $700,000 would be enough from your investments to pay your bills and still live comfortably, on top of your social security and any pensions you might have.

 The difference here versus other strategies is that you absolutely must reduce to the lower level of spending when you reach the lower balance level, in our example the lower balance is $700,000.  And there is certainly no guarantee your planning and budget would work at that time and be accurate in the future. So there is a clear risk in implementing a strategy like this one.  But it is a great solution to spend more of your investment dollars with a managed amount of risk, and not leave it all to the kids.

This article is written by Eric W. Johnston, CFP®, Financial Advisor and President of InFocus Financial Advisors Inc. whose firm focuses on the needs of people in retirement.  He can be reached at 410-677-4848 or for questions or comments. His website is

Eric will be teaching a class about Dynamic Spending on Tuesday, April 23, 2024 at 5 pm. Registration for the class can be done at 

Investment Advisor Representative offering securities and advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker-dealer, and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity.

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