Designing Retirement Strategies for Confident Spending
One of the biggest surprises I see in retirement is that the math is rarely the hardest part.
The harder part is the transition. You spend decades training yourself to save, delay gratification, and treat big purchases like threats. Then retirement arrives and you are supposed to flip the switch and spend, while also worrying about taxes, inflation, and markets.
This episode is built around a simple idea: retirement spending becomes more sustainable when your plan reflects how retirees actually live — not how spreadsheets assume they should.
Below is a written version of the framework, with added research and planning context.
1) Rethink retirement spending — it doesn’t have to be one flat number
Most retirement plans start with an annual spending target and then try to defend it forever.
That can work on paper, but real life is not flat.
A more realistic approach is to think in phases. A common shorthand is:
- Go-Go years: more activity, more travel, more experiences
- Slow-Go years: still active, but the pace and spending often start to level off
- No-Go years: less mobility and travel, potentially more support needs
This is not about assigning an exact age to each phase. It is about giving yourself permission to acknowledge that spending usually changes over time.
What the data suggests
Consumer spending patterns for older households show a clear trend: certain categories tend to decline with age (like clothing and transportation), while healthcare tends to increase as people get older. Housing remains a major line item for many households. (1)
The takeaway is not that everyone spends less later. The takeaway is that spending often shifts.
So rather than forcing retirement into one straight line, consider building a spending path. That path might intentionally allow higher discretionary spending earlier, while also planning for higher healthcare related costs later.
Practical planning move
Instead of one spending goal, define two:
- Baseline spending: the amount needed to keep life stable and predictable
- Lifestyle spending: the amount that makes retirement feel like retirement
Then plan those amounts across phases. This single change can help to reduce fear, because you are no longer asking the portfolio to support peak lifestyle spending for every single year of retirement.
2) Spend more confidently by coordinating withdrawals across the right accounts — because taxes affect what you actually keep.
Spending more is not just about the dollar amount leaving your accounts. It is about what you keep after taxes.
A simple way to view retirement money is in three tax categories:
- Pre-tax accounts (traditional IRA, pre-tax 401(k), etc.): withdrawals are generally taxed as ordinary income.
- After-tax brokerage accounts: taxes are usually driven by interest, dividends, and capital gains when you sell.
- Roth accounts: qualified withdrawals can be tax free, but the rules matter.
The goal is not to obsess over perfection. The goal is to avoid accidental tax problems that can make spending feel risky.
Two planning realities people miss
Reality 1: Required Minimum Distributions can force withdrawals later.
Traditional IRAs are subject to required minimum distributions (RMDs) beginning at a specified age, which can increase taxable income whether you need the money or not.
Reality 2: Roth IRAs can be a valuable flexibility tool.
Roth IRAs do not have RMDs during the original owner’s lifetime, which can create flexibility in years where additional taxable income would be expensive.
A practical withdrawal mindset
Instead of an all-or-nothing approach, consider a yearly withdrawal plan that answers:
- What spending needs to happen no matter what?
- What spending is optional or timing-flexible?
- What is the most tax efficient mix of accounts to support those needs this year?
You can often combine withdrawals across account types to manage tax brackets and avoid turning a lifestyle expense into a tax surprise.
Important note: taxes are personal and tax laws change. This is a planning concept, not tax advice.
3) Replace strict budgets with guardrails
A strict budget sounds good, until you try to live on it for 20 to 30 years.
What tends to work better for retirees is a guardrails approach. Guardrails give structure without turning retirement into a constant series of no’s.
Here is a clean way to do it:
Step 1: Separate mandatory from discretionary
- Mandatory: property taxes, utilities, insurance, healthcare premiums, food, basic transportation
- Discretionary: travel, hobbies, gifts, big experiences, major home upgrades, nicer vehicles
Mandatory spending is the floor. Discretionary spending is where your plan can flex.
Step 2: Create a spending range
Guardrails look like a range, not a single number.
A simple example (hypothetical, for illustration only):
- Baseline monthly need: $3,500
- Comfortable monthly range with lifestyle spending: $3,500 to $4,500
That range then becomes something you can model and monitor. If markets perform well or taxes are favorable, you spend toward the top of the range. If markets struggle early in retirement, you spend closer to the baseline for a period of time.
Why guardrails matter
Guardrails connect directly to what academic and practitioner research has explored for years: retirement success often improves when retirees are willing to make small adjustments rather than insisting on a rigid inflation-adjusted withdrawal every year no matter what.
In plain English: flexibility can be an asset.
Two questions I want every retiree to ask
If you work with an advisor, here are the two questions that cut through noise quickly:
1) What is my withdrawal rate?
Not what you withdrew last month. Not what you might withdraw someday. Your modeled, ongoing withdrawal rate based on your plan.
This gives you a simple, understandable reference point.
2) What rate of return are you assuming, and why?
Returns are not a promise. They are an assumption.
The expected rate of return should be connected to how the portfolio is allocated. A portfolio heavy in equities has historically had higher return potential with higher volatility. A portfolio heavy in cash and bonds tends to be more stable, with different long-term return expectations. (2)
This is why I prefer conservative assumptions and stress-testing. If the plan works only when markets cooperate, it is not really a plan.
Do not ignore sequence-of-returns risk
One of the most underappreciated retirement risks is not average return. It is the order of returns.
If retirement starts with a major market decline and you are withdrawing at the same time, you may be forced to sell more shares at lower values. That can permanently reduce the portfolio’s ability to recover, even if long-term average returns end up fine.
This risk is especially relevant because many retirements last 25+ years. Early mistakes can compound.
The mitigation is not prediction. It is preparation.
Common risk controls include:
- Holding a cash or short-term reserve so you are not forced to sell risk assets during downturns
- Using guardrails so discretionary spending can temporarily tighten when needed
- Maintaining diversification and aligning withdrawal assumptions to the portfolio’s actual risk level
The real point: give yourself permission, backed by a plan
If you have saved for decades, retirement is not the time to live like you are still in accumulation mode.
Yes, we need prudence. Yes, we need risk management.
But you also need a plan that supports what you worked for: living well, giving generously, traveling, investing in family, and enjoying your time.
Spending confidently is not reckless. It is disciplined spending that is aligned with:
- the phase you are in,
- the accounts you are using,
- the tax impact of your decisions, and
- the guardrails that keep your plan resilient.
Quick action checklist
If you want to apply this framework, here is a starting point:
- Map your retirement into phases and estimate how discretionary spending may change.
- Define baseline mandatory spending and lifestyle discretionary spending.
- Build guardrails: a reasonable spending range, not one fixed number.
- Review where each dollar should come from: pre-tax, after-tax, or Roth.
- Confirm if and when RMDs apply and how they may affect taxes later.
- Ask for your withdrawal rate and the return assumption behind your projections.
- Stress-test the plan for down markets early in retirement.
Sources -
- https://www.bls.gov/opub/btn/volume-5/spending-patterns-of-older-americans.htm
- https://www.sec.gov/about/reports-publications/investorpubsassetallocationhtm
Disclosure
Fortress Financial Group, LLC is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Fortress and its representatives are properly licensed or exempt for licensure.
This material is for general informational and educational purposes only and is not intended to provide specific investment, tax, or legal advice. The information presented does not take into account any individual’s objectives, financial situation, or needs. You should consult with qualified professionals before implementing any strategy.
Investing involves risk, including the possible loss of principal. No strategy can assure a profit or protect against loss in all market environments. Any references to withdrawal strategies, guardrails, or historical research are general in nature and may not be suitable for all investors. Hypothetical examples are for illustration only and do not reflect actual client results. Past performance is not indicative of future results.
Tax laws and Social Security rules are subject to change. All third-party information is believed to be reliable but cannot be guaranteed.
