This New Retirement Withdrawal Study Changes Everything | The Limitless Retirement Podcast

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In this conversation, Danny Gudorf discusses a new retirement withdrawal study that suggests retirees can withdraw significantly more from their portfolios than previously thought. He explains the evolution of retirement spending patterns, emphasizing that retirees often spend less as they age, contrary to traditional assumptions. The conversation highlights the importance of flexible withdrawal strategies and planning for healthcare costs, ultimately encouraging retirees to spend more confidently while ensuring they have a safety net in place.

You May Be Able to Spend More in Retirement Than Your Plan Says

What if your retirement plan is telling you to spend less—not because your portfolio cannot support more, but because the plan is built on an assumption that may not match how retirees actually live?

A recent update to retirement spending research suggests that some retirees may be able to withdraw roughly 20% more from their portfolios than traditional planning assumptions indicate.

On a $2 million portfolio, the difference could look like this:

  • 5.2% withdrawal: $104,000 in the first year
  • 6.4% withdrawal: $128,000 in the first year
  • Difference: $24,000

Same portfolio. Same general risk level.

The major difference is the assumption about how your spending changes throughout retirement.

And that raises an important question:

Could being too conservative with your retirement withdrawals create a different kind of risk?

The Assumption Built Into Many Retirement Plans

For decades, retirement projections have commonly started with a straightforward assumption.

You determine how much income you need in your first year of retirement, increase that amount with inflation, and continue spending at approximately that inflation-adjusted level throughout retirement.

In other words, the model may assume you need roughly the same purchasing power later in retirement that you needed at the beginning.

It's simple.

It's also not necessarily how retirees behave.

Research by retirement researcher David Blanchett has examined actual household spending patterns rather than relying exclusively on a constant inflation-adjusted spending assumption.

His earlier research helped popularize what became known as the "retirement spending smile."

The basic idea was that retirement spending tends to follow three broad phases.

Early retirement often comes with higher discretionary spending. Travel, hobbies, experiences, home projects, and family activities may all compete for your dollars.

Then spending tends to decline as retirement progresses.

Later, expenses may rise again for some households because of healthcare and long-term care needs.

This pattern helped support the familiar concept of the "go-go, slow-go, and no-go years."

But updated research adds an interesting wrinkle.

The Retirement "Smile" May Actually Be a "Smirk"

Using a larger dataset from the Health and Retirement Study, Blanchett revisited how household spending changes during retirement.

The updated findings suggest that the typical household's spending pattern may not form the pronounced smile many retirement plans anticipate.

Instead, median spending tends to decline earlier in retirement and then remain relatively lower.

Rather than a smile, Blanchett describes the pattern as more of a "smirk."

That's important because healthcare expenses haven't disappeared.

Some retirees can still experience substantial medical or long-term care costs later in life. But those large increases appear concentrated among a smaller percentage of households rather than representing the experience of the typical retiree.

That distinction matters enormously when you're building a retirement income plan.

Planning for an average spending pattern is one thing.

Preparing your household for a potentially expensive healthcare event is another.

A strong retirement strategy needs to consider both.

Even Well-Funded Retirees May Struggle to Spend

One of the most interesting findings has less to do with portfolio mathematics and more to do with behavior.

Even retirees who appeared significantly overfunded did not dramatically increase their spending.

Their spending increased by only about 1% annually, according to the research discussed in the study.

When inflation is higher than that, their real spending power is actually declining.

We've seen a similar pattern with retirees.

Someone can spend decades saving diligently, investing consistently, and avoiding unnecessary expenses. Then retirement arrives—and suddenly they're expected to reverse those habits.

That can be surprisingly difficult.

You may have a financial plan showing that you're on track.

You may have more than enough resources to support your goals.

Yet booking the bigger vacation, helping family, upgrading the house, or simply spending more can still feel irresponsible.

That hesitation isn't necessarily irrational.

But it can create a retirement planning problem that doesn't receive enough attention.

Running out of money isn't the only undesirable outcome.

Reaching the end of retirement with significantly more money than you intended—while repeatedly postponing experiences that mattered to you—may also mean your plan wasn't aligned with your goals.

What Happens When the Spending Assumption Changes?

This is where the research becomes particularly interesting.

If your retirement plan assumes that your spending remains constant after adjusting for inflation, the portfolio must support that higher real spending level throughout retirement.

That can make the amount you need to retire appear larger.

It can also make your initial withdrawal rate appear lower.

Blanchett's research compared several withdrawal approaches using flexible spending assumptions.

According to the figures highlighted in the study:

Constant spending: approximately 5.2%

Retirement spending smile: approximately 6.2%

Retirement spending smirk: approximately 6.4%

The biggest difference isn't necessarily between the smile and the smirk.

It's between both of those approaches and the assumption that your inflation-adjusted spending stays flat throughout retirement.

That difference could materially change what retirement looks like.

Consider a household with a $2 million portfolio.

At a 5.2% initial withdrawal rate, the first-year withdrawal would be approximately $104,000.

At 6.4%, it would be approximately $128,000.

That's an additional $24,000 in the first year.

For some households, that additional spending capacity could mean traveling while they're healthy enough to enjoy it.

For others, it could mean retiring sooner, helping children or grandchildren, pursuing hobbies, or simply feeling less restricted.

But there is an important catch.

Flexibility Is Doing a Lot of the Work

A higher withdrawal rate should not be interpreted as permission to automatically withdraw 6.4% every year regardless of what happens.

The research involves flexible withdrawals.

That's a critical distinction.

Markets do not move in straight lines. A retirement lasting several decades will likely include recessions, bear markets, inflation shocks, and periods of strong returns.

Your willingness to adjust spending when conditions change can therefore become one of the most valuable tools in your retirement strategy.

Imagine markets experience a significant decline early in your retirement.

Instead of automatically increasing your spending for inflation, you might temporarily reduce discretionary expenses.

You postpone a major purchase.

You take a less expensive vacation.

You delay replacing a vehicle.

Those relatively small adjustments can reduce pressure on your investment portfolio when selling assets may be particularly damaging.

When markets recover and your portfolio moves back into a healthier range, spending can increase again.

This is why we use retirement income guardrails when appropriate.

Rather than choosing one withdrawal number and hoping it works for the next 30 years, guardrails establish predetermined rules for when spending should increase or decrease.

Your retirement income strategy becomes responsive rather than static.

The Healthcare Risk Shouldn't Be Ignored

There is one area where we would be cautious about applying the new findings too aggressively.

The median retiree may not experience a dramatic healthcare spending spike.

But you're not planning for the median retiree.

You're planning for your household.

The research discussed here estimates typical out-of-pocket medical expenses over retirement at around $50,000, while households experiencing significantly higher costs may face expenses closer to $250,000.

That difference is too large to ignore.

It illustrates an important principle of retirement planning:

Averages can help build a plan, but they shouldn't replace contingency planning.

You may reasonably expect spending to decline as retirement progresses while still preparing for the possibility of a substantial healthcare or long-term care expense.

Those two ideas are not contradictory.

A retirement plan can provide more freedom early while maintaining protection later.

That protection may include:

  • An appropriately sized cash and bond reserve
  • Long-term care coverage when suitable
  • Home equity as a potential financial backstop

The appropriate combination depends on your assets, income, insurance, health considerations, family situation, and retirement goals.

The 4% Rule Isn't the Problem

The traditional 4% rule remains a useful reference point.

Its strength is simplicity.

It gives retirees an understandable starting framework for turning a portfolio into income while attempting to manage longevity and market risk.

But retirement planning has evolved.

The question is no longer simply:

"How much can I withdraw without running out of money?"

A better question may be:

"How much can I reasonably enjoy while maintaining enough flexibility and protection for the future?"

Those are very different questions.

And the answer cannot come from one withdrawal percentage alone.

Taxes matter.

Social Security matters.

Required minimum distributions matter.

Investment allocation matters.

Healthcare matters.

Your willingness to reduce discretionary spending during difficult markets matters.

And most importantly, what you actually want retirement to look like matters.

Three Questions to Ask About Your Retirement Plan

You don't necessarily need to change your retirement strategy because of one study.

But the research gives you a reason to examine the assumptions underneath your existing plan.

Start with three questions.

1. What withdrawal rate does your retirement plan assume?

If your entire strategy is anchored to a fixed percentage, understand why that number was chosen and what assumptions support it.

2. Does your plan assume your spending stays constant after inflation?

Your actual spending may decline naturally over time. If your projection ignores that possibility, your plan may be more conservative than necessary.

3. What happens if you spend more during your first decade of retirement?

Run the scenario.

What happens if discretionary spending is 10%, 15%, or 20% higher during your early retirement years and then gradually declines?

The answer may surprise you.

Permission to Spend Still Requires a Plan

Research can tell you what retirees tend to do.

It can estimate sustainable withdrawal ranges.

It can show how different spending assumptions affect retirement projections.

But research cannot tell you exactly what you should spend.

That's where personalized planning matters.

A sustainable retirement income strategy needs more than a withdrawal percentage.

It needs a number you understand and trust.

It needs rules for difficult markets.

It needs reserves for unexpected expenses.

And it needs enough flexibility to allow you to enjoy the money you've spent decades accumulating.

Watch the full video to see what this retirement withdrawal research could mean for your plan and how a flexible withdrawal strategy can help balance spending today with protection for tomorrow.

Conclusion

The most important lesson from this new retirement spending research isn't that every retiree should immediately increase withdrawals.

It's that the assumptions underneath your retirement plan matter.

If your plan assumes you'll spend the same inflation-adjusted amount throughout retirement, it may not reflect how retirees actually spend.

A more realistic spending pattern could potentially support greater spending earlier in retirement—when you may value those dollars most.

But greater spending capacity should come with guardrails, reserves, and preparation for risks such as healthcare costs and market downturns.

Retirement isn't about spending as little as possible.

It's about creating a strategy that helps you use your resources intentionally while maintaining confidence in the years ahead.

Transcript: Prefer to Read — Click to Open

Danny (00:00.074)

A new retirement withdrawal study says you can pull about 20% more from your portfolio than most plans allow. On $2 million, that’s $128,000 in year one instead of $104,000. Same portfolio, same risk, nothing about the market changed. What changed is one assumption almost every plan still runs on.

That you’ll spend the same amount at eighty-five that you spend at sixty-five. Real retirees don’t. And once the math matches how retirees live, the safe number goes up. My name is Danny Gudorf, owner of Gudorf Financial Group, a total wealth management company where we have tax preparers, estate planning attorneys, and financial planners all under one roof, serving retirees just like you every day.

I read the whole paper. In this video, I’ll show you what it found, what it does to the numbers on a real portfolio, and the one place I don’t follow it. So let me start with where this came from. Back in 2014, David Blanchett published a paper in the Journal of Financial Planning that looked at what retirees spend year over year instead of what a spreadsheet assumes they spend.

At that time, almost every retirement plan in the country ran on the same assumption. You spend the same amount every year adjusted for inflation for 30 years straight. Same number at 65 as at 85, just with inflation added on. That sounds reasonable, but it wasn’t what real people were doing. What he found is that retirees adjusted for inflation.

Spend less as they get older. Spending is highest in the early years when you’re traveling and doing things. It drifts down through the middle years. And then for some people, it ticks back up at the very end because of health care. He called it the retirement spending smile. High on the left, dip in the middle, back up on the right. That paper changed how a lot of advisors.

Danny (02:27.906)

Build plans. Ours included, if you’ve heard me talk about the go go years, the slow go years, and the no go years, that’s the smile. Here’s the thing he went back this year and ran it again in the financial planning review with far more data, the health and retirement study out of Rand. And for the typical retiree, the curve most of us have been planning around does not hold. That changes.

The withdrawal number, and I’ll show you by how much. But first, the two findings. The first one is about the shape of the curve. With the sharper data, the smile isn’t really a smile anymore. For the typical retiree, the median household spending comes down early and then just keeps drifting lower. There’s no meaningful jump at the end. He’s calling it a smirk.

Down on the left, flat on the right, no big upturn. So what happened to the healthcare spike? It’s still there. It’s just not everybody. It’s a smaller group of retirees who hit a significant health event. And when you average them in with everyone else, you get the smile. When you look at the middle of the pack, you get the smirk. Hold on to that because it’s the part I’m gonna push back on at the end. The second finding is the one.

That got me. Even the retirees who were overfunded, people sitting on roughly double the resources they were using, barely increased their spending. About 1% a year. Inflation has been running 2 to 3%. So, in real dollars, even the people who had every reason in the world to spend more were still spending less each year.

I see this in our office all the time. Engineers, teachers, business owners here in the Dayton area who saved for 35 years, did everything right, and now they have a plan that says they’re fine and they still can’t bring themselves to book the trip. The study is telling you that’s not a personality quirk. That’s the default. Most people don’t give themselves permission to spend, even when the numbers

Danny (04:54.87)

Say they can. All right. So that’s what the data says about how people spend. Now let me show you what it does to the math because this is where it turns into real dollars. If your plan assumes flat inflation-adjusted spending for 30 years, that assumption forces two conclusions. One, you need a bigger pile of money to make it work. Two,

You have to pull from that pile slowly. That’s where the 4% rule came from. And that’s why so many people end up working two or three extra years they didn’t need to. He ran the withdrawal math three ways, all at the same moderate risk level, and put numbers on it. These are all flexible withdrawal rates, meaning you agree to spend a little less in a bad market year.

Hold that word flexible because I’m coming back to it. First, constant spending, the assumption most plans still use. That supports about a 5.2% withdrawal rate. Second, build in the smile from his original research. That moves it to about 6.2%. And third, the smirk, the pattern that fits the typical retiree. That comes in

At 6.4%. So the smile and the smirk land in about the same place. The big move is going from flat spending to any pattern that matches how people really live. Spend more early and let it come down naturally over time. He calls that about a 20% bump in what you can pull from the portfolio. Let me put that on a real number. Say you and your spouse have two million dollars.

At 5.2%, you pull $104,000 in year one. At 6.4%, you pull $128,000. That’s $24,000 more in the year you’re 65 and healthy and want to go somewhere. Same portfolio, same risk level. The only thing that changed is the assumption about how you’ll spend at 82.

Danny (07:19.914)

And $24,000 a year is the difference between retiring at 65 and retiring a year or two earlier. Or between the trip you take and the trip you talk about taking. If that number is useful to you, hit the like button. It helps this reach the next person who’s been waiting for permission. All right, that’s the math. Now the question is whether you should change anything because of it.

Think about it this way: the 4% rule was a fantastic starting point. But it’s built around one fear: running out of money. For the people watching this video, people who saved a million, two million, that’s a low probability event. The bigger risk is the one the overfunded retirees in this study just showed you. Never spending it. Dying with a mattress stuffed full of money.

Is not winning the retirement game. And the second thing it confirms is that you’re a human, not a spreadsheet. The market will be down 25% or more four to six times over a 30-year retirement. If you can spend a little less in those years, that flexibility is worth more to your plan than almost anything else. That’s the whole reason we use retirement income guardrails with our clients.

An upper guardrail, a lower guardrail, and a rule for what happens when you hit either one. It turns a study finding into a system you can live on. Now, here’s where I don’t follow the paper all the way. The smirk says the typical retiree won’t see a big healthcare spike at the end. That’s probably true for the median household, but I’m not planning.

For the median household. I’m planning for you and your spouse specifically, and I’ve watched what happens to the one in 20 who does get the spike. I’ve seen it with clients and I’ve seen it with their parents. The study puts the typical retirees’ out-of-pocket medical cost over a full retirement around $50,000. The unlucky one in 20

Danny (09:45.55)

Closer to two hundred fifty thousand dollars. That’s the tail. So in practice, I keep the gap between the smile rate and the smirk rate. That zero point two percent is a small insurance policy. We build a real buffer for the tail, and there are three ways to do that. First, a war chest, your cash and bond reserve size so a health event doesn’t force you to sell stock at the wrong time. Second,

Long term care coverage where it fits, and it doesn’t fit everyone. And third, home equity as the backstop. Not the first thing you touch, but it’s there. The goal is you never become a burden on your kids, and you still spend like the data says you can. So here’s what you can do with this in the next twenty four hours. Now that you’ve got both halves, the permission and the buffer.

Pull up your plan or your last statement and look at three numbers. First, what withdrawal rate is your plan assuming? If it’s 4% flat, you’re using the old math. Second, does your plan let spending come down over time? Or does it inflate the same number for 30 years? And third, what happens to the plan if you spend 20% more in the first 10 years?

If nobody’s ever run that for you, that’s the conversation to have. Here’s the thing: knowing the research is the easy half. I’ve had plenty of clients nod along to everything I just said, and then go home and pull 3.5% because that’s what feels safe. The gap between what the study says you can do and what you’ll actually do is the plan. A withdrawal strategy with guardrails, a war chest.

and a number you trust enough to spend. In the next video, I show you exactly how we build that for real retirees step by step. So click right here and I’ll walk you through it.

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