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How much can you sustainably spend in retirement?

September 01, 2019

Couple in their retirement reading newspaper

Smart investors will seek an investment plan to confidently guide them towards their retirement finance goals.


Here’s a warning all wise investors should heed: Overspend in retirement and you risk prematurely depleting your investment portfolio; underspend and you risk not fully benefitting from your hard-earned investments. It sounds simple, but figuring out a sustainable level of retirement spending from an investment portfolio can be tricky. Smart investors will seek an investment plan, something not provided by all investment counsellors, to confidently guide them towards their retirement finance goals.

One thing we’d like to get out of the way first; we believe you should ignore the popular rule of thumb that says a new retiree’s investment portfolio can safely sustain an initial withdrawal of 4%, followed by inflation-adjusted withdrawals of the same amount each year. Accordingly, that means a $1 million portfolio would provide a retiree with about $40,000 a year to spend.

We think the 4% rule is outdated. After all, it is based on historical investment data that no longer holds true in the here and now of ultra-low interest rates and modest equity return expectations. If that’s not enough, people are also experiencing longer retirements, meaning portfolios have to provide more financial support for retirees than ever before.

This is where a thoughtful investment plan can help investors understand what they need to do today to reasonably provide for their retirement spending expectations. The proprietary, customized plans we prepare for clients combine our financial market forecasts with aspects of their unique life circumstances, their personal mix of investment assets, tax brackets and cash flows. So, let’s look at what a fictional retiree with a $1 million portfolio might expect to be able to withdraw to support his or her retirement.

In this example we’ve used our own investment planning research, which makes a number of assumptions that may not be right for everyone. For example, we have assumed our retiree is paying the top marginal tax rate and has a certain mix of tax-free and taxable assets in his or her portfolio. The asset allocation within the portfolio is very important—we’ve shown results for a client that has a medium level of risk tolerance, but the results will vary for clients with different risk appetites. The analysis is based on the client’s portfolio sustaining these annual withdrawals nine out of 10 times even if financial markets perform poorly. Finally, because we don’t know how long our retiree’s retirement will last, we provide a range of time horizons. 

Estimated sustainable annual spending, net of tax, from a fictional client’s $1 million portfolio

Retirement Years Portfolio with asset allocation for an investor with a medium level of risk tolerance
10 $89,000
20 $44,000
30 $31,000
40 $25,000
50 $22,000 

You can see that the amount available to spend each year changes significantly for different anticipated retirement durations. So our advice is to seek a customized investment plan and retire that old 4% rule of thumb.

This post is for information only and is not intended as investment advice. The views expressed are those of the author at the time of publication and are subject to change at any time. Talk to an investment professional about your level of risk tolerance. As an investment’s risk increases so does the chance of the investment losing value.


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Catherine Dorazio
Managing Director
Business Development

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