What the Average American Retiree Can Afford to Spend

Previous articles in this series discussed the financial profile of William--the head of the typical American household that is approaching retirement.
We concluded that it is very unlikely that William will be able to sustain a retirement spending rate that is based on 85 percent of his pre-retirement income.

Given this conclusion, we can now examine the level of retirement spending William is able to sustain with a reasonable degree of confidence over the course of his retirement years.

What If?

What if William and his wife simply spend less?  

Decreasing William’s desired spending level in retirement has a direct impact on his retirement sustainability.  In other words, spending less means that Williams retirement savings are more likely to last throughout the expected lifetimes of he and his wife.

What If...

When William’s Annual Retirement Spending Changes to... William’s Retirement Sustainability Is...


10.2 percent


13.3 percent


19.1 percent


31.7 percent


56.7 percent


87.7 percent


Reaching the Comfort Zone

A couple things are clear in the table above:

  1. Lower spending equates to higher retirement sustainability.
  2. Any spending level that exceeds $10,000 per year should have a warning sign attached to it.
  3. Dramatic spending reductions are required to get anywhere near a reasonable level of retirement sustainability.

$10,000 per year is the spending level at which William should start feeling more confident.  90 or 95 percent is the level that should be considered a prudent “comfort zone.”

Even $15,000 leaves a 43.3 percent chance that William’s money will run-out during his expected lifetime, in which Social Security would likely be the sole income source.

Difficult News

A retirement spending level of $10,000 per year represents a 75 percent reduction in the $40,038 starting point that is based on the goal of replacing 85 percent of William’s pre-retirement income--an ambitious but common yardstick for many financial planners.

A spending reduction of this magnitude is challenging to say the least.  Fortunately, there are some other “levers” that William is able to pull in order to reach the “retirement comfort zone.”

Stay tuned--we’ll take a look at William’s other options in future articles.