News and Commentary

Planning for Spending During Retirement By Todd A. Moll, CFP®, CFA

One of the primary objectives of financial planning is to ensure that individuals have more than ample spendable cash flow during all of their retirement years. Navigating the careful balance between spending too much and possibly running out of funds or spending too little and missing out on all of the potential joys of retirement is no simple task. This is especially true when considering that retirement planning involves a unique set of uncertain future variables, including a retiree’s future tax rate, risk tolerance, rate of investment return, inflation, unexpected outflows and sequence of returns.

How Sequence of Returns Impacts Retirement Spending

A key determinate of retirement success is the impact of sequence-of-return risk, which can be definedas the threat that a retirement portfolio will experience lower or negative investment returns in the early years of one’s retirement, when he or she is also withdrawing funds from that portfolio of investments.

To illustrate this concept, consider a game, in which you are dealt six cards, ace through six. During each of your turns, you must lay down one card without looking at any of those in your hand. If you play an even card, the dealer will give you an additional card. Play an odd card, and the dealer will take a card from you. Depending on the cards you play, you may be out of cards by your third turn, or you may be left with a larger hand to allow you to continue playing for quite some time. As the graph below further demonstrates, when there is a change in the order or sequence of events, investors may receive the same average investment returns, but each retiree will experience drastically different outcomes.


Initial Investment: $500,000

Distribution: $35,000 per year / growing at 3% inflation

Portfolio #1: Annual Compounded Returns of S&P 500 1994-1969 (reverse order)

Portfolio #2: Annual Compounded Returns on S&P 500 1969-1994

This is a hypothetical illustration and is not intended to reflect the actual performance of any particular security. Actual investor results will vary.

Risk Tolerance and Allocation

 As is often the case, an investor’s risk tolerance tends to decline at or during retirement.  However, risk may mean different things, both emotionally and financially, to different people. For some, risk may translate to losing money or experiencing market fluctuations. For others, risk may mean having inflation eat away at their purchasing power or it may mean outliving their money or even spending too little during retirement. The important thing to think about is that when an investor reduces one risk (i.e., market risk), he or she is likely to increase another (i.e. inflation risk). A review of these factors can help investors frame what is important to them and may be used as a guide to help them develop an appropriate investment allocation that meets their risk tolerance.

How Much can I Spend in Retirement without Running out of Money?

 In general, a person planning for a 10-year retirement can potentially spend a lot more as a percent of their portfolio than someone planning for a 30-year retirement. However, how much an individual can spend in retirement will depend on many factors, including their own longevity, tax rates, health care costs, desires to make gifts and bequests, and much more.

Countless studies suggest that a 3 to 4 percent annual withdrawal rate from investment assets can provide the average retiree with a reasonably high chance of successfully maintaining assets throughout a 25-year retirement[1]. However, for the past 15 years, interest rates have been at extremely low levels, making a blended return more dependent on stock market performance and increased risk. The current environment of higher rates may be a window to generate a return from fixed-income investments that have not existed for over a decade. The trade-off to this is the potential for prolonged inflation.

A Better Approach

In the current economic environment, investors should consider the following points in an effort to achieve retirement success. Each will likely add incrementally towards increasing the chance that investors may achieve their ultimate retirement savings and spending goals.

  1. Identify your fixed and variable expenses. Many expenses, including a mortgage, are fixed and do not inflate annually. Therefore, they may have less impact on your future cash needs. In addition, by noting truly discretionary expenses, you can prioritize items that you may want to eliminate in a financial downturn in an effort to potentially reduce the impact of sequence-of-returns risk. Moreover, identifying your fixed expenses can allow you to establish a plan to cover those costs each year, irrespective of market returns.
  2. Prioritize your goals. Will you be willing to forego giving your children an inheritance, if need be, or would you rather spend less? Sell the vacation home or drop the country club membership?  While retirement planning aims to avoid these choices, you may find yourself needing to make these tough decisions.  A forthright discussion with your spouse is important, in order to ensure both of you are on the same page.
  3. Use the 3 to 4 percent withdrawal rule as merely the starting point for a spending plan. Time horizon, risk tolerance and inheritance objectives will influence the actual amount a retiree should withdraw as a percentage of his or her investment portfolio. For example, individuals retiring before age 65, may be better served when they rely on a 2 to 3 percent withdrawal rate  This may help position investors to get a few “raises” in the future, if returns are better than projected.
  4. Review your comfort level with the variables. If you want to aim for a 99 percent chance of success, you may need to become comfortable with a lower withdrawal rate. If you want to spend more money before or during your first years of retirement, you might have to be willing to accept more uncertainty later in retirement.
  5. Review the impact that changes to your spending schedule will have on your net worth. Can you increase withdrawals if your portfolio goes up?  If yes, by how much? How much should you reduce expenses in a downturn? Is the portfolio allocation still applicable?
  6.  Have a plan. A well-crafted and integrated estate, retirement and investment plan can add significantly towards achieving your goals. By example, a thoughtful estate plan can help increase the net result to your heirs, allowing you to spend more on yourselves during retirement.
  7. Review your progress. To improve your retirement experience and potentially reduce the chance of unwelcome surprises, consider working with experienced and nimble financial advisors who have the knowledge and resources required to regularly review your plan, evaluate your changes in circumstances and make correct course, as needed.

Retirement planning is a dynamic process that requires both financial and emotional evaluation and decision making. A successful retirement is never a singular event, but rather a series of decisions made over the course of your lifetime; decisions for which the team at Provenance Wealth Advisors is well-equipped to assist you and your family.

About the author: Todd A. Moll, CFP®, CFA, is a director and chief investment officer with Provenance Wealth Advisor (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with Raymond James Financial Services.  For more information, call (954) 712-8888 or email

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Todd A. Moll is a registered representative of and offers securities through Raymond James Financial Services, Inc., Members FINRA/SIPC.

 Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. You should discuss any legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

 The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results.

Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment or withdrawal decision. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

 The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Please note direct investment in any index is not possible.

[1] Bergen, William P. 1994 “Determining withdrawal rates using historical data”, Journal of Financial Planning

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Posted on March 29, 2023