Spend smart in retirement; don’t leave it all to your kids

March 19, 2023

Many people want the ability to spend more earlier in their retirement years, and rightfully so, since they’re younger and more active.

A large disappointment in my line of work is the passing of individuals who leave inordinately large sums of money in their accounts in addition to large estates.

While the children enjoy this, there may have been more life to live for the parents who kept close watch on their spending and grew their investments right until the end of their lives. Why is so much left behind?

Common advice in the investment industry and even academia is to spend no more than 4% of your investment dollars annually, to prevent running out of money. This 4% rate of withdrawal, while debatable, is generally considered sustainable for 25 years, from age 65 to 90. The challenge is that spending more, perhaps 5 or even 7 percent of your investments for 25 years of retirement is largely considered unsustainable and therefore not advisable. We would agree – typically.

The question then follows, “Is 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 an 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 anywhere close to running out of money, and accounts have grown considerably regardless of spending 4 and 5 percent annually? What then? Or at least, what have we learned?

The lesson is that you might, in fact, be able to spend more earlier in retirement and still prevent running out of money. Many people ask, “How can I do this?” and the answer might be a dynamic spending strategy.

Such a strategy is one where you change your spending throughout your retirement years, spending more now and less later. A strategy like this requires two budgets: first, a list of annual expenses you’d like to meet early in retirement, and second, a list of expenses you will switch to when the higher rate is no longer sustainable.

These two budgets are absolutely required before starting a dynamic spending strategy, and they must cover all your needs. The first is the higher budget, which can allow for more travel, hobbies and leisure activities.

The second budget would be your basic expenses for later in life, with significantly reduced travel, hobby and leisure activities. By switching to the lower budget at an appropriate time, you can still maintain a sustainable and maybe more enjoyable retirement.

Eric W. Johnston, CFP, president of InFocus Financial Advisors Inc., is an investment advisor representative offering securities and advisory services 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. For more information, call 410-677-4848 or email

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