After 15 years of helping people plan for retirement, there’s one question I get more than any other.
How much can I actually spend without running out of money?
Today I want to answer that with a real-world example, so you can see exactly how the number gets calculated. Then you can apply the same thinking to your own situation.
Note: The following is a hypothetical case study for illustrative purposes only. It does not represent an actual client and is not a projection or guarantee of any individual outcome.
1. Meet John and Tina
John and Tina are 60 years old.
They have $2.5 million saved across a 401(k), a Roth IRA, a joint investment account, and an IRA.
They also have a paid-off home worth just under a million dollars.
They’re ready to retire.
And they want to finally do the things they’ve been putting off — travel, a home renovation, more time together.
The question is simple to ask and hard to answer: can they actually afford it?
2. Start With the Baseline, Not the Wish List
Before we talk about travel or renovations, we start with the basics.
John and Tina need about $11,000 a month, after taxes, to cover their core living expenses.
That’s the floor.
Everything else — the trips, the renovation — gets layered on top once we know the floor is solid.
Their income sources are straightforward. Both have Social Security coming at full retirement age, 67. Tina’s benefit is about $3,800 a month. John’s is about $3,700.
But that income doesn’t start until they’re 67.
Which means there’s a gap — several years where the portfolio has to do all the work, before Social Security shows up to help.
3. Model the Cash Flow, Year by Year
This is where most people go wrong.
They look at a lump sum — $2.5 million — and try to judge whether that number “feels” big enough.
It’s the wrong way to think about it.
What actually matters is the withdrawal rate: how much of the portfolio needs to come out each year to cover the gap between expenses and other income.
For John and Tina, that rate starts around 5% a year for the first six or seven years.
Then something interesting happens.
Once Social Security kicks in, their withdrawal rate drops to roughly 2%, because the portfolio no longer has to carry the full load.
Later, it climbs back up into the 3.5%+ range — not because they’re spending more, but because required distributions start kicking in.
Looking at any single year in isolation would give you the wrong picture entirely.
You have to look at the whole arc.
4. What the Withdrawal Rate Actually Tells You
Some people would look at that early 5% number and get nervous.
I understand why.
But a withdrawal rate only tells you part of the story. What matters more is why it’s high, and whether it’s temporary.
In John and Tina’s case, it’s temporary — driven by the gap years before Social Security starts, not by overspending.
Taken as a whole, this plan is sustainable, assuming the portfolio is invested and drawn from the right way.
That’s an important assumption, and it’s not automatic.
5. Can They Spend More?
Here’s the part that made this exercise fun for John and Tina.
Once we confirmed the baseline worked, we could test what happens if they add spending — say, an extra $40,000 a year for travel and home renovation.
Their probability of success does decline as we add that spending.
But a declining probability of success doesn’t mean failure. In this case, it meant something closer to a 17% chance that, at some point, they might need to adjust — pause a trip, delay a renovation, tighten up temporarily if the market has a rough stretch.
That’s not a red flag. That’s a plan with flexibility built in.
If your advisor is only showing you a single probability-of-success number, that’s a sign to ask more questions.
6. What Could Actually Derail This Plan
Every plan should be stress-tested against the things that could go wrong.
For John and Tina, we looked at a market drop of 30% right as retirement begins, higher inflation, lower returns, and rising taxes.
The biggest risk, by far, was a market decline in the early years — combined with the fact that Social Security isn’t there yet to take pressure off the portfolio.
This is a version of sequence-of-returns risk, and it’s one of the most important — and most overlooked — risks in retirement planning.
7. Structure the Portfolio to Match the Timeline
Once we know the risk, we can build around it.
For John and Tina, that meant identifying which parts of their portfolio should stay stable and liquid — enough to cover several years of living expenses — so a market downturn doesn’t force them to sell long-term growth investments at a discount.
The goal isn’t to avoid stocks.
The goal is to be intentional about which assets you draw from, and when.
8. Don’t Forget the Tax Strategy
There’s one more piece worth mentioning: taxes.
In the early years of retirement, John and Tina may find themselves in an unusually low tax bracket — sometimes close to 0% — before Social Security and required distributions change the picture.
That creates a window for Roth conversions: shifting money from traditional IRAs to Roth IRAs while the tax cost is lower than it’s likely to be later.
Suitability for Roth conversions depends heavily on your individual tax situation, and this shouldn’t be treated as a one-size-fits-all recommendation. It’s worth discussing with your financial and tax advisor.
9. The Real Goal Isn’t the Number on the Screen
At the end of the day, this wasn’t about seeing how big a number we could get to.
It was about taking the resources John and Tina spent a lifetime building, and turning them into something more valuable: peace of mind.
The confidence to travel.
The confidence to renovate the home they’ll spend the next chapter in.
The confidence to know the plan can flex if life doesn’t go exactly as modeled.
If you have a portfolio in a similar range, you’re probably capable of running this analysis yourself.
But do you want to spend your retirement years doing it?
If that question gives you pause, that’s worth paying attention to.