A Simple Formula for Calculating “Safe” Retirement Spending


For nearly two decades, the 4% rule has served as a benchmark of how much retirees can safely afford to withdraw from their nest eggs initially, with annual increases for inflation, and be reasonably certain they would not outlive their savings over a 30-year retirement.

In 2016, the Society of Actuaries’ (SOA) Committee on Post-Retirement Needs and Risks awarded first prize to Evan Inglis, a senior vice president for Nuveen Asset Management, in a call for essays for his discussion about a simple strategy to determine how much can be safely spent in retirement.

Inglis calls his method the “feel free” spending level. The formula is simply a person’s age divided by 20. The resulting number is the percentage of savings a person can spend over and above any Social Security, pension or annuity-type income.

For example, a person who is age 70 can safely spend 3.5% of his or her savings (70 ÷ 20 = 3.5). A 60-year-old would be limited to 3% (60 ÷ 20 = 3.0), while an 80-year-old can spend 4% (80 ÷ 20 = 4.0).

The term “feel free” refers to the fact that a person spending at this level should have little worry about depleting their savings. Inglis believes this rule will not only provide enough money but will also allow a retiree’s portfolio to grow should historical returns be repeated. If returns are lower in the future, then the level of spending should still be enough to last a lifetime.

A modified version of the formula calculates the upper limit of what can be spent. Dividing one’s age by 10 gives the “no more” level of spending. Spending close to this level (e.g., 7% for someone who is age 70, or 70 ÷ 10) will cause savings to “almost certainly drop significantly over the years, especially after inflation is considered.” Inglis adds that “one should not plan to spend at that level,” with the exception of a special circumstance such as a large medical expense.

He added that common sense needs to be applied based on individual circumstances. Having a long-term care insurance policy can allow for a slightly higher spending rate. The potential loss of annuity income, such as a spouse’s pension or Social Security, will alter spending. If interest rates rise significantly, sticking with the divide-by-20 rule would make sense. An expected increase in future income (payments from a deferred annuity) or reduction in spending (e.g., paying off a mortgage) will require adjustments to future spending rates.

Source: “The ‘Feel Free’ Retirement Spending Strategy,” R. Evan Inglis, Society of Actuaries Diverse Risk: 2016 Call for Essays, April 2016.


10 Replies to “A Simple Formula for Calculating “Safe” Retirement Spending”

  1. Just seems silly.
    An 80 year old probably goes nowhere spends next to nothing and is advised to
    Take only 4% to avoid drawing down his portfolio. On his deathbed at (statistically way before )90 he gets to take out 4.5%
    He should have spent a lot more in his early years of retirement.

    1. What about medical expenses, which usually increase as you get older? And don’t forget giving money to children and grandchildren.

      People are living longer. If you have a couple that makes it to 80, it is very likely one of them will make it to 90. Spending more when they are younger means a higher risk of running out of money if they make it to 90. Also, they might want to leave some money for family and charities.

  2. Withdrawals are not like stretch socks where one size fits all. It depends upon how much you want to withdraw and how you are invested. Withdrawals of 4%-7% are sustainable if invested in the right things in the right way. Investing in mutual funds or other pooled investment vehicles limits control and exposes the investor to the fluctuations of the markets. Selling at the wrong times to fund withdrawals has been proven to make a 5% withdrawal unsustainable. Owning individual securities allows the picking and choosing of what to sell. If the portfolio has some turnover, cash may be available as part of the normal investing process so sales do not have to be made at the wrong times. Also, if dividends are taken in cash and not automatically reinvested, there is an accumulation of dividends that may fund a substantial portion of the withdrawal. Effectively managed separate managed accounts with lower turnover have facilitated withdrawals and the continued growth of the portfolio values. So the answer is, “it depends”.

    1. Herbert, there is more chance of upside in buying individual securities compared to buying mutual funds, but there is also more chance of downside – making less than a mutual fund, esp. index funds. Individual stocks are riskier than most mutual funds. Why propose higher risk when the person is retired and can’t earn money from a job to make up for losses? Shouldn’t preservation be more of a focus?

  3. Question? How much thought has been given to having a sufficient retirement cache such that income from that will contribute a major part of ones needs with less withdrawal than some of these model?

  4. Pingback: AAII Blog
  5. As was already pointed out there is no one size fits all retirement savings withdrawal strategy. One tool every retiree can use as a guide is the AAII Retirement Withdrawal Calculator. Using just the Annual Inflation Rate and your Annual Retirement Savings gain you can create a table that will provide you a guideline for you retirement annual withdrawals for the number of years you want your savings to last. I am a 71 year old retiree that has been using this tool as my guide for 9 years. I know it is not foolproof, as my savings principle can vary year to year, and my assumption of the inflation rate and savings gain are not guaranteed. Its just one of the tools I use. It should be used as a guide by all retirees. The only variation I made to the calculator was to reduce my spending in the later years of retirement as supported by the US Bureau of Labor Statics. That change provides a greater percentage of savings withdrawal earlier in retirement.


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