Feel Free Retirement Spending

Spend with confidence using this simple rule of thumb. Divide your age by 20 and feel free to spend that percentage of your savings each year.

If you're wondering, as anyone does, how much you can safely spend during retirement, read on and use the simple tool on this site.

The Feel Free approach to spending in retirement was first introduced in an essay contest on retirement risk. The Feel Free essay won first prize.

The Basic Approach

Just divide your age by 20.

If you're 65 years old, you can feel free to spend 3.25% of your savings - 65 divided by 20 = 3.25. The idea is so simple that is easy to remember any time you are thinking about budgets or planning when to retire,

The Inspiration

I find that most people want to be confident and feel safe about their spending in retirement. People would rather spend a little less than buy more and jeopardize their retirement security. In addition, most of us would like to leave some money behind to children, charity or other people or causes that are important to them. The simple rule of thumb is designed to be conservative so that your spending can remain stable and running out of money could only really happen in extreme circumstances. It is possible to do careful planning and some calculations to enable higher levels of spending, but the Feel Free approach enables anyone to spend and budget with confidence.

Getting a Little Technical

Real rates of return are the foundation for the Feel Free approach.

A real rate of return is an investment return over and above inflation. For example if a stock index fund has a 5% return during a year where inflation is 2%, then the index fund had a 3% real rate of return. The Feel Free approach is designed so that for most ages, the level of spending is only a little bit above a typical real rate of return, which means that over time your savings will grow a little, but not quite as much as inflation. Because your spending percentage increases as you get older, your Feel Free spending level will keep up with inflation.

Keep in mind that your savings will fluctuate with investment returns so there will be ups and downs. With Social Security as a base, your spending won't fluctuate too much. Also the Feel Free approach is just a rule of thumb - if you spend a bit more in some years, that's unlikely to create any problems.

Use this tool to determine your Feel Free safe spending level.