If a couple has $3 million saved for retirement, how much are they going to be able to spend?
Most people assume there should be a straightforward answer. After all, if the portfolio is worth $3 million, there should be some way to calculate the spending number.
But the more time you spend researching this, the more confusing the answers become.
Some people will tell you to follow a rule of thumb. Others will tell you to focus on preserving your capital, while others will tell you to spend it all and leave nothing behind.
So, what happens if we take the exact same couple with the exact same $3 million portfolio and run all of those ideas through a retirement plan?
One version of the plan allows them to spend about $10,000 per month. Another allows them to spend almost $14,000 per month. A third allows them to spend $15,000 per month.
So, who’s right?
The surprising thing is, all of them are.
The difference between those answers isn’t small. We’re talking about thousands of dollars per month, depending on what you’re trying to accomplish.
Do you want to maximize your spending, leave money to your children, preserve the wealth you’ve spent decades building, buy that vacation property you’ve always talked about, or spend more while you’re healthy enough to enjoy it?
Every one of those goals produces a different answer.
And that’s why two retirees with the exact same $3 million portfolio can end up living very different retirements.
Meet Daren and Heather
Daren is 63, Heather is 61, and they’ve accumulated roughly $3 million between their RRSPs, TFSAs, and non-registered accounts.
We’ll ignore the value of their home for this exercise and focus strictly on the investment portfolio.
They’re asking the same question we started with:
How much can we spend?
Before we start running scenarios, I want to keep this as close to an apples-to-apples comparison as possible.
The only thing we’re going to change from one scenario to the next is what Daren and Heather want the money to accomplish.
For every scenario, we’re using a rate of return of 6% and an inflation rate of 2.2%. That means all the spending numbers we’re discussing increase with inflation each year throughout retirement.
From a withdrawal standpoint, we’re using the same strategy in every scenario. We’ll draw from a combination of the RRSPs and non-registered accounts first, while leaving the TFSAs untouched for as long as possible.
I’ve also assumed that both Daren and Heather defer CPP and OAS to age 70.
Scenario 1: Maximizing Retirement Spending
Let’s start with the objective most people are probably curious about.
If Daren and Heather’s only goal was to maximize their lifestyle, how much could they safely spend from this portfolio?
In this scenario, we’re not trying to preserve capital and we’re not trying to leave an inheritance behind.
We’re simply trying to answer one question:
What’s the highest sustainable lifestyle this portfolio can support?
Under our assumptions, the highest sustainable spending amount comes out to approximately $13,900 per month.
That’s after tax, increased annually with inflation, and designed to last until age 90.
When people hear that number, one of two things usually happens.
Some people think, “That’s more than I expected.”
Others look at a $3 million portfolio and think, “Honestly, I thought it would be higher than that.”
Both reactions are pretty common, but whether that number feels high or low doesn’t really matter for today’s discussion.
This becomes our benchmark scenario.
Every scenario we’re going to look at after this will answer the same question using the exact same portfolio. The only thing we’re going to change is what Daren and Heather want the money to accomplish.
And that’s where things start to get interesting.
Scenario 2: Following the 4% Rule
Let’s take a look at the 4% rule.
The basic idea is simple. You take 4% of your portfolio in the first year of retirement and then increase that withdrawal by inflation each year going forward.
With a $3 million portfolio, that works out to $120,000 per year, or about $10,000 per month.
The 4% rule works. Daren and Heather don’t run out of money.
In fact, quite the opposite happens.
By the time both of them reach age 90, they’re still sitting on an estate of roughly $3.7 million.
That’s actually more than the $3 million portfolio they started with.
If the goal was to make sure they didn’t run out of money, it’s hard to argue with the result.
But the 4% rule isn’t really optimizing for spending. It’s optimizing for caution.
And those aren’t necessarily the same thing.
We already know this portfolio can support about $13,900 per month if the objective is to maximize lifestyle. Under the 4% rule, they’re spending closer to $10,000 per month.
That’s nearly $4,000 per month less while still ending retirement with a larger estate than they started with.
For some people, that would be viewed as a tremendous success.
For others, they might look at that result and wonder whether they were being unnecessarily thrifty along the way.
Neither perspective is wrong here.
What’s important is that in the 4% scenario, leaving a large estate value wasn’t the goal. It was simply the outcome of following the rule.
Scenario 3: Preserving a $3 Million Estate
But what if preserving wealth actually was the goal?
What if Daren and Heather looked at their portfolio and said:
“We’ve spent decades building this. We’d like to enjoy retirement, but we’d also like to leave roughly the same amount we started with.”
That’s exactly what our next scenario is designed to do.
In this version of the plan, the objective isn’t to maximize spending and it isn’t to follow a specific withdrawal formula.
The objective is simple:
Start retirement with $3 million and finish retirement with $3 million.
When we run the numbers, Daren and Heather can support spending of approximately $11,300 per month.
What’s interesting here is that this actually produces a higher spending amount than the 4% rule.
That’s because we’re no longer following a generic rule of thumb. We’re directly targeting the outcome Daren and Heather care about.
The portfolio is still preserved. Their wealth is still intact. But they’re able to enjoy a little bit more along the way.
I think that’s an important distinction.
If you’re realizing that your answer probably isn’t “maximize spending” or “follow the 4% rule,” that’s exactly the point.
Most retirement decisions aren’t about finding the right withdrawal rate. They’re about figuring out what you’re actually trying to accomplish.
That’s exactly what our Atlas system is designed to help with. We take the same type of planning exercise we’re walking through here and model different paths so you can see the trade-offs before making a decision.
Scenario 4: Leaving a $2 Million Estate
For some people, the objective isn’t necessarily to die with the largest estate possible.
The objective is to leave behind an amount that’s still meaningful to you while still enjoying the money during your lifetime.
For some people, that’s preserving every dollar they’ve built. For others, that number may be lower.
What if Daren and Heather look at their children and say:
“We’d like to leave them something meaningful, but we don’t necessarily need to leave them every dollar we’ve accumulated.”
For this scenario, let’s assume they want to leave behind an estate of $2 million — $1 million for each child.
With this in mind, Daren and Heather can support spending of $12,300 per month.
What’s interesting about this result is how little lifestyle they’re actually giving up.
They’re still leaving behind $2 million. That’s a substantial legacy by almost any standard.
But compared to the $3 million estate scenario, they’re able to spend $1,000 more every month throughout retirement.
I think this highlights something a lot of retirees wrestle with.
It’s usually not a choice between leaving money to the kids or enjoying retirement.
The real question is:
How much is enough?
Once you’ve decided that number, it becomes much easier to understand what the rest of the portfolio is available to do.
For Daren and Heather, reducing their estate target from $3 million to $2 million increased their spending by about $12,000 per year.
That’s enough to fund a meaningful trip every year, help with grandchildren, pursue hobbies, or simply create more flexibility in retirement.
Scenario 5: Giving $300,000 to Their Children Today
But let’s take that idea one step further.
What if Daren and Heather decide they’d rather help their children during their lifetime instead of leaving everything behind as an inheritance?
Maybe one child is trying to buy a home. Maybe one of them has young children and could use some help. Or maybe Daren and Heather simply want to see their money make a difference while they’re still around to enjoy it.
In this scenario, let’s assume they gift each child $150,000 today, for a total gift of $300,000.
After making that gift, Daren and Heather can still support spending of approximately $12,500 per month.
Even after giving away $300,000 today, they’re still able to spend roughly $12,500 per month.
That’s only about $1,400 per month less than the maximum spending scenario we looked at at the beginning.
I think this challenges a belief that a lot of people have.
They assume that helping their children today will dramatically compromise their own retirement.
Sometimes that’s true. But in situations where people have accumulated significant assets, the impact can be far smaller than they expect.
There’s also another benefit that’s difficult to measure on a spreadsheet.
If the goal is to help your children, they often have a much greater need for the money at age 35 or 40 than they do at age 65 after you’ve passed away.
Again, there’s no right answer here.
Some people would rather leave the money in the estate. Others would rather watch their family benefit from it while they’re still around.
Both are perfectly reasonable objectives.
Scenario 6: Buying a $600,000 Vacation Property
Let’s look at a scenario where the money isn’t going to the kids at all.
What happens if Daren and Heather decide to spend some of it on themselves?
Let’s assume they’ve always dreamed of owning a vacation property. Maybe it’s a lakefront cottage. Maybe it’s a winter property somewhere warm.
Whatever the case, let’s assume they purchase a $600,000 vacation property at the beginning of retirement.
When we rerun the plan, their sustainable spending amount falls to approximately $10,900 per month.
What’s interesting isn’t that the property cost $600,000. Everyone can see that.
What’s hard to see is the trade-off.
Every dollar used to purchase the property is a dollar that’s no longer available to support spending elsewhere in the plan.
That’s why their sustainable spending drops from roughly $13,900 per month to about $10,900 per month.
That doesn’t mean it’s a bad decision. Far from it.
If Daren and Heather spend summers at the lake with their children and grandchildren for the next 20 years, they may decide that it’s one of the best investments they’ve ever made.
But it’s important to understand the trade-off because every major purchase in retirement comes with a lifestyle cost somewhere else in the plan.
And that’s really the point here.
Every time we’ve changed the goal, the spending number has changed with it.
Scenario 7: Spending More Earlier in Retirement
There’s one final scenario I want to show you.
I think it’s the most realistic one because very few retirees actually spend the same amount of money every year throughout retirement.
When people first retire, they’re usually healthy. They’re active, they’re traveling, and they’re checking things off the bucket list they’ve been talking about for years.
But gradually, spending starts to change.
Not because they’re forced to spend less, but because life changes.
Travel slows down. The pace of life slows down. The things they spend money on start to look different.
That’s the idea behind what’s often called the go-go, slow-go, and no-go stages of retirement.
Instead of assuming that Daren and Heather spend the same amount for the rest of their lives, let’s build a plan that reflects how many retirees actually live.
In this scenario, Daren and Heather spend approximately $15,000 per month during the first 20 years of retirement.
Those are the years they’re most likely to travel, pursue hobbies, and enjoy the flexibility they’ve spent decades working toward.
After that, spending falls to approximately $9,600 per month.
They’re not actually spending dramatically more money over their lifetime with this approach.
In fact, this works out to an average of about $13,200 per month, which is actually less than the $13,900 per month from our maximum spending scenario.
The difference is simply when they’re spending it.
I think that’s an important distinction.
One of the biggest risks I see isn’t people running out of money. It’s people spending too cautiously during the years they’re most able to enjoy it.
They spend their 60s worrying about their 80s, then they reach their 80s and realize they could have done more in their 60s.
Again, there’s no right answer here.
Some people genuinely get satisfaction from preserving wealth. Others get satisfaction from helping their children while they’re still alive. Others want that vacation property. Others want to maximize spending.
The point of this exercise isn’t to figure out which answer is correct.
It’s to understand the trade-offs.
So, How Much Can You Spend With $3 Million in Retirement?
When we started, the question was:
How much can a couple with $3 million spend in retirement?
What we’ve discovered is that there isn’t a single answer.
What changes the answer is what Daren and Heather want the money to accomplish.
I think that’s one of the biggest misconceptions in retirement planning.
People spend a lot of time trying to figure out how much they can spend.
But the better question is often:
What do you want the money to do for you?
Once you’re clear on that, the spending number tends to take care of itself.
