Dynamic Withdrawals: A Retirement Spending Strategy That Offers Security and Flexibility

Many people assume, once they retire, the hard part is over. Money has been saved, investments have grown, and now it’s time to enjoy the rewards. But the reality is, choosing how much to withdraw and when can be challenging, especially when your portfolio value has decreased due to a market downturn.

Relying on rigid withdrawal rules can actually shorten the lifespan of your savings. A dynamic spending and withdrawal plan can help you strike a balance between enjoying retirement and help shield your nest egg from market volatility.

Average Retiree Spending

As the chart below shows, expenses tend to peak during midlife and reach their lowest point in early retirement. After age 80, spending may increase due to medical costs.

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SOURCE: JP Morgan Guide to Retirement 2025

Retirement Spending: How much money do you need?

Everyone’s situation is different, but high-income earners generally need less money in retirement to maintain the same lifestyle. About one-third less.

But there’s something many retirees don’t account for…

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SOURCE: JP Morgan Guide to Retirement 2025

Spending Fluctuations: Reliably Irregular

A significant number of retirees (60%) experience spending volatility during their first three years following retirement. After that, spending levels out until it becomes irregular again between the ages of 75-80 for more than half (52%) of retirees (source: JP Morgan Guide to Retirement 2025, slide 28).

A financial planner can help you create a dynamic spending plan that will allow you to prepare for unexpected expenses and minimize the impact of market volatility on your savings.  

How to Create a Dynamic Spending and Withdrawal Strategy

Our clients receive a unique plan tailored to their needs and goals. But here’s an example to illustrate the idea:

Retiree Reese has $3 million in retirement savings and needs $80,000 per year to cover basic expenses. Reese loves travel and wants to do some remodeling, but doesn’t want to dollar-cost ravage their retirement savings.

Reese’s financial advisor suggests the following:

• $90,000 as the withdrawal “floor”
• $150,000 as the withdrawal "ceiling" 

If the market takes a dip, Reese will withdraw no more than $90,000 ($80,000 for expenses plus a buffer for inflation). When Reese’s investments perform well, Reese’s travel and home improvement funds get a boost. This dynamic spending and withdrawal strategy ensures Reese’s basic needs are met and Reese has “breathing room” for spending fluctuations.

Enjoy Your Wealth of Life

One of our clients is extremely frugal despite having a very high net worth. His advisor had to nudge him to spend some of his money and enjoy life. The client is currently on a long vacation, enjoying his wealth of life!

His experience is not unusual. After many years of saving, many people don’t want to see their account balances decrease. They may even seek permission from their advisor to withdraw additional funds beyond what is needed for basic necessities.

After working hard all your life, you should be able to enjoy retirement! A wealth manager can help calculate how much (or how little) you can withdraw each year based upon anticipated needs, market fluctuations and your retirement goals.

Other Ways a Wealth Manager Can Make Retirement Spending Less Stressful

Account Consolidation: Many clients come to us with multiple 401(k)s and brokerage accounts. We help them consolidate everything into one account, which makes planning and budgeting much easier.

Annuities: We’ve also helped several clients move annuity investments to lower-cost annuity options. This helps ensure the annuities meet the client's cash flow needs in retirement.

Fulfill Your Dreams, Maintain Peace of Mind

Still working? A wealth manager can help you find ways to increase guaranteed income so you feel more secure about making withdrawals.

As the chart below shows, retirees who get 60–80% of their income from guaranteed sources have the confidence to spend up to 40% more. A few examples of guaranteed income include: social security, annuities and defined benefit plans.

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SOURCE: JP Morgan Guide to Retirement 2025

Create Your Wealth of Life Plan

Our friendly and experienced wealth management team can create a dynamic spending and withdrawal strategy that allows you to fund your retirement goals. Contact us online or by phone (415) 541-7774.

Related Reading:

• Avoid Outliving Your Savings | Dynamic Spending vs. The 4% Rule
• Retirement Planning: Different Strategies for Different Goals
  
• What is Goal-Based Investment Planning and Is It Right for You?

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