Spend to Zero or Leave an Estate?

The 4% rule usually leaves a fortune

A safe withdrawal rate is built to survive the worst start in history, so in most starts it leaves a great deal behind. Take $1M at 60% stocks, spending 4% of the start each year and raising it with prices, in every 30-year span of US market history since 1872.

Rebalanced to 60% stocks every year, real returns, no fees or taxes; the same retirements as the rebalancing article. Amounts are in today's dollars.

That is the price of safety when nobody decides otherwise: a plan sized for the worst case leaves an estate in the typical one. If that estate is what you want, good. If not, it is spending you gave up.

Most retirees spend slowly

Real retirees tend to under-spend too. Following households through their first two decades of retirement, the Employee Benefit Research Institute found the median retiree had spent only 11.8% to 27.2% of their savings outside the home, and those who retired with the most had spent the smallest share.

Some of that is caution with good reason. Nobody knows how long they will live, and the largest costs of old age, care and medical bills, arrive late and unevenly. Economists Mariacristina De Nardi, Eric French and John Bailey Jones found that those late-life medical costs explain much of why older people keep their savings. Some of it is wanting to leave something. And some of it is habit: after decades of saving, spending feels wrong.

The price of leaving something

Every dollar you mean to leave is a dollar you don't spend, plus the growth it would have paid you along the way. Take $1M spent in equal real amounts over 30 years, earning a steady 3% after inflation, and choose what should be left at the end.

A steady return is a simplification: real markets vary, which is why the plan's own tests run thousands of paths. The trade-off between spending and leaving holds on every one of them.

Spending to zero is a plan for one date

The case for spending everything is that money left unspent at the end bought nothing for you. Bill Perkins made it the title of a book, Die with Zero, and added a second point: money given to children or causes does more while you are alive to see it, and when they are young enough to use it.

The catch is the date. A plan that spends to zero at 95 is broke at 96. The ways around it are the same as for any long life: plan to a late age, cover a floor of spending with income that lasts for life (Social Security, a pension or an annuity), and keep the rest flexible. Many people also keep their home as a reserve they don't plan to spend, which can pay for late-life care or pass to heirs.

How your plan handles it

The last row of the Goals page, What you leave behind, holds the choice. Its share kept is the part of your retirement portfolio the plan's tests must leave untouched: 0% unless you change it, which asks only that the money last. Raise it and a run that ends with less counts against your success rate, and the plan's answers for safe spending and retirement age leave room for it.

Beside it, a legacy goal in dollars tracks the plan's projected net worth at the end, everything you own less any debt. That goal is a scorecard and does not change the plan: it counts everything you own, your home included, while the share kept counts only the retirement portfolio.

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