How much should you leave behind in retirement?

A note from Dave

Welcome to the first issue of The Century Tested Monthly.

Most retirement planning circles one question: Have I saved enough? It matters. But as retirement gets close, a second question becomes just as important: Now that I’ve saved it, how much can I actually use?

After decades of saving, investing and delaying gratification, spending can be surprisingly hard. Markets fall. Nobody knows how long they’ll live. Many of us want to leave something to children, grandchildren or causes we care about. And once the paycheck stops, every withdrawal feels different, even when you’ve planned for it for years.

That’s why I built Century Tested. Instead of predicting what markets will do next, it looks back and asks a more useful question: how would this plan have held up through the markets retirees actually lived through? The Great Depression. The inflation of the 1970s. The dot-com crash. The 2008 financial crisis. And every ordinary year in between, from 1928 to today.

Nearly a century of history can’t tell us what happens next. It can help us make better decisions.

Each month, I’ll take on a few practical retirement questions, then put one idea to the test against real market history. No daily predictions. No hot-stock lists. Just retirement decisions, tested against history.

— Dave

01 · The retirement number that matters more than your nest egg

We tend to talk about retirement in round numbers. “I want $1 million.” “We’ll feel comfortable at $2 million.” Those numbers are easy to remember, but on their own they say very little. The same $1.5 million can fund a comfortable retirement for one household and fall short for another.

The difference is how much of your lifestyle the portfolio has to pay for. Consider two hypothetical couples:

Couple B has $500,000 more saved, yet their portfolio is being asked to work about twice as hard. That’s why “How much have I saved?” is the wrong place to start. A better equation:

Lifestyle spending − reliable retirement income = what your portfolio must provide

That last figure is one of the most important numbers in your plan.

Start with the life, not the portfolio

Retirement planning often runs backward. People look at the account balance and ask what percentage they can withdraw. I’d start one step earlier: what do you actually want retirement to look like?

Think through housing, food, healthcare and insurance, transportation, travel, hobbies, gifts, helping family, home projects and the occasional new car. Some costs will fall in retirement. Others will rise. Travel and experiences often run highest in the first decade, then taper. That’s fine. Your life won’t be a flat line from 65 to 95, and your spending doesn’t need to be either.

Then subtract the income you already have

Next, subtract the income that doesn’t come from your portfolio: Social Security, a pension, rental income, an annuity or part-time work.

Say the retirement you want costs $8,000 a month, or $96,000 a year. If Social Security eventually provides $48,000, your investments aren’t responsible for $96,000. They’re responsible for $48,000. Now the question becomes concrete: can my portfolio reliably provide $48,000 a year, adjusted for inflation, for as long as I need it? That’s something we can test.

Your spending number can flex

A retirement budget isn’t a binding contract. If markets had a terrible year, could you postpone a $12,000 trip, or keep the car another year? If your portfolio did far better than expected, would you take the family somewhere special or help your kids now rather than later?

Most people have some flexibility, and that flexibility is enormously valuable. You don’t have to choose between spending freely and never running out. There’s a middle ground where spending moves modestly with your circumstances. Section 03 shows how much it can matter.

Try it yourself: build a monthly budget, add Social Security, and see what your savings need to cover with the retirement spending calculator.

02 · How much should you leave behind?

Something odd can happen after 30 or 40 years of building wealth: you become very good at saving. Maybe too good. Watching the balance grow feels like progress, and spending from it feels like moving backward.

Then retirement arrives, and the purpose of that money changes. It’s no longer being saved for “someday.” Someday is here. That raises a surprisingly hard question: how much of it are you actually willing to spend?

Three goals competing for the same dollar

Most retirement plans are quietly trying to do three things at once:

• Enjoy today. Travel, hobbies, dinners out, time with family, the things you’ve been waiting to do.
• Protect tomorrow. Make the money last through bad markets, inflation, healthcare costs and a long life.
• Leave something behind. For children, grandchildren, a church, a university or a cause you care about.

None of these goals is wrong. But the same dollar can’t be spent three times. Every dollar reserved for an inheritance can’t be used today, and every dollar spent today isn’t there in 20 years. Retirement isn’t only a math problem. It’s a priorities problem.

The other way a retirement can go wrong

“I just don’t want to run out” may be the most common retirement fear, and it’s a reasonable one. But there’s a second outcome we rarely talk about.

Imagine reaching 90 with a portfolio larger than the day you retired. That beats running out. But suppose you also skipped trips you could have afforded, worried over every restaurant bill, and held off helping your children when the money would have meant the most. You kept saying “maybe next year,” until there weren’t many next years left. That isn’t a fully successful retirement either.

Give your legacy a number

One fix is to stop treating legacy as a vague wish. “I’d like to leave something to the kids” is hard to plan around. A number is not. It might be $500,000, $1 million, whatever happens to be left, or nothing in particular. Each of those is a very different plan.

Here’s how a hypothetical couple retiring with $2 million might write down their priorities:

Now the plan has objectives. The couple knows what they’re protecting, and they’ve named something most plans leave out: their spending floor.

What’s your spending floor?

Say you’ve planned a $100,000 lifestyle and markets fall hard. Would $95,000 be fine? Probably. $90,000? Maybe. $70,000? Perhaps not. At some point a cut stops being an inconvenience and starts changing the retirement you worked decades for. That point is your floor.

A good plan shouldn’t only ask how much you could cut. It should ask how much you’re unwilling to cut. That’s the idea behind spending guardrails: rules set in advance that let spending rise when things go well and trim it when the portfolio is under pressure, but never below the floor you chose. You stop guessing every year, because the decisions are already made.

Legacy doesn’t have to wait

It’s also worth asking when the money would matter most. Leaving $500,000 to a 60-year-old child is wonderful. But $50,000 toward a first home at 32 might change more. So might a family trip you take together, help with a grandchild’s education, or a gift to a charity while you’re here to see what it does.

An inheritance is one form of legacy. It isn’t the only one.

Decide what “enough” looks like

Personal finance tends to assume more is always better. Mathematically, ending with $4 million beats ending with $3 million. But if that extra million cost decades of needless worry and experiences you could easily afford, was it worth it? Maybe. Maybe not. That’s your call to make. It just shouldn’t happen by accident.

The goal isn’t to spend recklessly or to preserve every dollar. It’s a plan that gives you the confidence to spend appropriately.

Something to discuss: if you’re planning with a spouse or partner, answer these separately, then compare.

• What annual spending would make retirement feel comfortable?
• What’s the lowest annual spending you’d still call a good retirement?
• How much would you ideally like to leave behind?

You may be surprised where your answers differ.

03 · Century Tested Lab: what if you retired in 1966?

It’s 1966. You’ve worked for decades and saved $1 million (in today’s dollars). You retire and plan to withdraw $40,000 in year one, 4% of the portfolio, then raise that amount with inflation every year after. Sounds reasonable.

Then you run into one of the toughest combinations a retiree can face: flat markets and rising inflation. The mid-1960s starts are the classic worst case behind the famous 4% rule. William Bengen’s original study, which used intermediate-term Treasuries, found that 4% still lasted at least 33 years. On the data Century Tested uses, with 10-year Treasuries, a 1966 start supported about 3.7% a year for 30 years, so a 4% plan runs short. Our methodology explains how our numbers compare with Bengen’s.

The danger wasn’t one big crash

When people picture retirement risk, they usually picture 2008: a collapse everyone can see. The 1966 retiree faced something slower. Stock prices went essentially sideways for 16 years while inflation climbed from about 3% to over 12%. Bonds lost ground after inflation through much of the 1970s.

So the pressure came from both directions. The portfolio wasn’t growing in real terms, while the cost of maintaining the same lifestyle kept rising. That’s a brutal combination when you’re withdrawing money instead of adding it.

Let’s replay it

Century Tested takes the actual market returns and inflation that followed 1966 and runs different spending strategies through them. Every plan starts with $1,000,000, spends $40,000 in year one (4.0%) and targets a 30-year retirement.

• Plan A: fixed inflation-adjusted spending. The classic approach. Start at $40,000 and raise it with inflation no matter what markets do. Portfolio: 60% stocks, 40% 10-year Treasuries.
• Plan B: spending guardrails. Same 60/40 portfolio, but spending follows rules set in advance. If the withdrawal rate climbs 20% above where it started, spending is cut 10%. If it falls 20% below, spending rises 10%. And spending never drops below a floor of 80% of the starting amount, or $32,000.
• Plan C: guardrails plus a cash bucket. The same guardrail rules, but four years of withdrawals sit in Treasury bills and 10-year Treasuries, with the rest invested 80% in stocks. In down years, spending comes from the bucket instead of selling investments right after a decline. The bucket is refilled only near market highs.

The results

All amounts in today’s dollars, before taxes and fees. *The fixed plan ran out in its 26th year, so it had fewer years in which to sell. Source: Century Tested, Retired in 1966.

Plans A and B are a clean comparison: same retiree, same portfolio, same markets. Only the spending rules differ. The fixed plan ran dry about 26 years in. With guardrails, three 10% cuts kept spending at or above $32,000, and the money lasted the full 30 years with about $309,000 to spare.

Plan C changes two things at once, the cash bucket and a more stock-heavy invested portfolio, so credit its extra cushion to the combination rather than the bucket alone. Its clearest effect shows in the last column: it sold investments right after a decline 6 times, against 11 for guardrails alone and 10 for the fixed plan before it ran out.

The flexibility wasn’t free. Spending fell as much as 20% below plan. But the lesson isn’t “everyone should use this strategy,” and it certainly isn’t “this will work the same way next time.” It’s this: a modest amount of flexibility can matter enormously when retirement begins at a bad time.

Why the first years matter so much

At 45, a 30% market drop is painful but survivable. You keep working, keep contributing, and may even buy at lower prices. Time is on your side.

The same drop right after you retire is a different event. You’re withdrawing, not contributing. Shares sold after a steep decline aren’t around to participate in the recovery. This is sequence-of-returns risk: the order of your returns matters, not just the average. Two retirees with similar long-run averages can end up in very different places simply because the bad years came at different times. That’s why the first decade of retirement deserves so much attention.

Preparation, not prediction

Century Tested isn’t trying to tell you whether 2027 will look like 1966, 2000 or 2008. I don’t know, and neither does anyone else. The better question is: if something difficult happens, what decisions have historically helped a retirement plan adapt?

Prediction says, “Here’s what I think markets will do.” Preparation says, “I don’t know what markets will do, so let’s build a plan that can respond.” For retirement, I’ll take preparation.

Test your own plan: would your retirement have survived 1966? Replay a 1966 retirement with your own savings and spending, then try dropping the starting withdrawal from 4% to 3.5% or changing the stock mix. Building custom guardrail and cash-bucket rules into your full plan is part of Century Tested Plus.

The point isn’t to find the settings that make the chart look best. It’s to learn where your plan is strong, and where it may need room to flex.

One thought to take with you

There’s a real difference between being able to retire and feeling comfortable spending in retirement. The first is mostly math. The second takes confidence: that you’ve thought about bad markets, that your spending has room to adjust, that the lifestyle you care about is protected, and that tomorrow’s headline doesn’t mean reinventing your plan.

That’s what historical testing is meant to give you. Not certainty. Perspective.

You spent decades building your retirement savings. The goal now isn’t just to protect the pile. It’s to build a plan that lets you actually use it.

Next issue: how much cash should a retiree really keep?

We’ll look at the case for cash reserves, what it costs to keep too much money on the sidelines, and what nearly a century of market history says about 1-, 3- and 5-year cash buckets. And we’ll put another strategy through a difficult stretch of history.