June 10, 2020 | Expert Perspective

Spending guidelines to help ease retirees' market worries

Michael A. DiJoseph, Investment Advisory Research Center

Michael DiJoseph, CFA
Senior Advice Strategist Investment Advisory Research Center

When markets are volatile—as during the COVID-19 pandemic—they can prompt clients to worry about how their retirement investments will hold up.

Clients in or close to retirement may look to you for reassurance and answers:

  • Will they have enough money to cover ongoing expenses?
  • Will they need to alter their lifestyle because of reduced cash flows?
  • Will the next downward spike in their portfolios mean they could run out of money in retirement?

Staying the course does not have to mean standing still. In fact, Vanguard research explains how you can help clients build adaptable, resilient, and sustainable retirement spending plans.

Our research paper From assets to income: A goals-based approach to retirement spending shows you how to help clients implement a personalized spending strategy. The resulting plan is a customized, responsive formula that can help reduce clients' anxiety and stress about their ability to meet retirement income goals, regardless of the market environment.

Craft a spending plan to fits each client's needs

Two popular retirement spending rules are "dollar plus inflation" (a well-known example of which is the 4% rule1) and "percentage of portfolio." While simple to grasp and implement, these rules may lack the flexibility to meet every retiree's unique circumstances. Vanguard recommends a hybrid of the two approaches, which we call "dynamic spending." It allows spending to fluctuate based on market performance while remaining sensitive to significant changes. Here's how it works:

  • Set a ceiling and a floor for a retired client's spending amount each year.
  • Keep withdrawals within a manageable window of variability relative to the previous year, based on parameters you and the client agree on.
  • Help the client benefit from good markets by spending a portion of their gains and weather bad markets without a significant spending reduction.

The chart below illustrates the trade-offs of the various spending rules and how dynamic spending allows for a customizable approach that can be adjusted to meet clients' personal needs. Please see the From assets to income research paper for a detailed discussion on implementation.

Spectrum of spending rules

Graphic showing the characteristics and trade-offs of three retirement spending strategies: the dollar plus inflation rule, the dynamic spending rule, and the percentage of portfolio rule.
The dynamic spending rule takes a middle-of-the-road approach, allowing retirees to benefit from good markets by spending a portion of their gains and weather bad markets without a significant spending reduction.
Of the three strategies, dynamic spending strikes a balance between several extremes:
Ignoring market performance versus being highly responsive to market performance.
Having highly stable short-term spending versus having short-term spending that’s highly variable.
Having more rigid spending versus having greater latitude in spending.
Having less certainty about the portfolio’s long-term viability versus having a portfolio that potentially cannot be depleted.

Source: Colleen M. Jaconetti, Michael A. DiJoseph, Francis M. Kinniry Jr., David Pakula, and Hank Lobel, 2020. From assets to income: A goals-based approach to retirement spending. Valley Forge, Pa.: The Vanguard Group.

Additional resources

Clients may have supplemental, temporary income options available to them under the CARES Act.

It's important to note that clients are feeling concerns that resonate with all of us right now: They worry about the health and safety of themselves and their loved ones and the financial implications that can come with any major crisis. Showing them that you understand and reminding them of the variables they can control go a long way toward strengthening their trust.

Doing this is one of the biggest ways you can add value as an advisor. Greater trust opens the door to referrals. It can also enhance opportunities to further differentiate your practice by serving more complex client needs. View our behavioral coaching resources to learn more about how Vanguard Advisor's Alpha® and the power of behavioral coaching can augment your practice.

1 William P. Bengen, 1994. Determining withdrawal rates using historical data. Journal of Financial Planning 7(4):171–80.


  • Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • We recommend that you consult a tax or financial advisor about your individual situation.