When it comes to planning for retirement, we’re willing to bet that there are some familiar “rules of thumb” that come to mind.
Some common ones, such as needing to replace 80% of your employment income or having a savings balance of 25 times your income at retirement, assume that your retirement spending goals are based only on your household’s income while you were working or immediately before retirement. Sounds simple enough, right?
At Consolidated Planning, our approach goes beyond these simple rules of thumb and instead accounts for your unique situation and what makes sense for your desired post-retirement lifestyle.
In this article, we’ll cover some of the traditional retirement planning tactics and what you can do instead to help you fully maximize your efforts, so you’re not leaving money on the table.
What Is Conventional Retirement Planning?
Conventional retirement planning tries to answer a hard question with an easy guess.
“How much can I spend?” gets replaced with, “Just take 70% of your income and call it a day.”
That’s not planning. That’s hoping the rule fits.
Books like, Life-Cycle Economics by Puelz and Stevens, make the same case – broad income replacement rules don’t reflect reality. They ignore how real people actually live and spend.
They also skip the hard part — figuring out what you can safely spend over a lifetime without running out, guessing, or hoarding out of fear. Figuring this out helps you ensure financial stability throughout retirement.
Determining how much you can spend to maintain your desired living standard helps ensure the financial stability that we’re all seeking throughout retirement. Because the problem with guessing or preparing traditional budgets doesn’t account for the unforeseeable.
This is where consumption smoothing comes in.
The Role of Consumption Smoothing In Your Retirement Plan
Consumption smoothing is an economic concept that explains how individuals adjust (or smooth) their spending habits over time to maintain a stable standard of living, even as their income fluctuates.
We’re willing to bet that you’ve been in a room with a financial advisor who asked you, how much do you anticipate spending in retirement?
But, more often than not, most of us want to maintain the same living standards throughout our lifetime. Not live frugally now just to overspend later – or splurge in your 40s if it means cutting back or working longer than a typical retirement age. Rather, consumers want a stable, confident rhythm.
Consumption smoothing is the economic principle behind that.
You can start by tallying up your resources — everything you own or expect to earn and then compare those to your anticipated spending in the future. And the goal? Find the sustainable spending level that lets you enjoy today without putting tomorrow in jeopardy.
That’s it.
No more wild guesses.
No more 4% rules.
No more spreadsheets full of random assumptions about your grocery bill in 2048.
Just relatively simple math that aligns how you want to live with the lifetime resources you can expect to have available to spend.
Where Traditional Planning Falls Short For Retirement
Traditional planning tools fixate on pre-retirement income or at-retirement portfolio withdrawal rates without asking the only question that matters:
What can your household actually afford to spend each year?
What improvements can be made to raise that number safely?
If we rely on guesswork, your spending target may be too low, and you’ll underspend. If it’s too high, you’ll burn through your savings too quickly and run out of money before you run out of life.
Either way, you’re flying blind.
Rather than guessing, there are more reliable methods to help ensure you never run out of money in retirement while also maintaining the ability to meet your desired living standard. Only when you know where you stand can you reasonably evaluate whether you need to save more, work longer, or are already sitting on more than you’ll ever spend.
Retirement is not about maximizing portfolio returns. It’s about maximizing the level of spending that your money can support while managing the big risks along the way.
Build A Plan Based On Resources And Spending Objectives
If you’re nearing retirement and want to know what’s actually safe to spend — not what’s “typical” or “possible” based on guesswork — it’s time to understand your current reality.
This economic-based approach is built around your current resources and spending objectives, not industry rules of thumb or complex forecasting methods.
Get started in the right retirement plan for you by talking to an experienced retirement planning professional at Consolidated Planning.
Exp. 7/2027
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Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. The information provided is based on our general understanding of the subject matter discussed and is for informational purposes only.
This material contains the current opinions of James M. Matthews and Consolidated Planning only. These are not the opinions of Park Avenue Securities, Guardian, or its subsidiaries.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. CP Planning Group, Inc. is not an affiliate or subsidiary of PAS or Guardian.
