Making Sense Out of Variable Spending Strategies for Retirees

18 Pages Posted: 17 Mar 2015

See all articles by Wade D. Pfau

Wade D. Pfau

The American College for Financial Services; Retirement Researcher

Date Written: March 16, 2015


Variable spending strategies can be situated on a continuum between two extremes: spending a constant amount from the portfolio each year without regard for the remaining portfolio balance, and spending a fixed percentage of the remaining portfolio balance. Variable spending strategies seek compromise between these extremes by avoiding too many spending cuts while also protecting against the risk that spending must subsequently fall to uncomfortably low levels. Two basic categories for variable spending rules explored include decision rule methods and actuarial methods. Ten strategies will be compared using a consistent set of portfolio return and fee assumptions, and using an XYZ formula to calibrate initial spending: the client willingly accepts an X% probability that spending falls below a threshold of $Y (in inflation-adjusted terms) by year Z of retirement. Presenting the distribution of spending and wealth outcomes for different strategies in which the initial spending rate is calibrated with the XYZ formula will allow for a more meaningful comparison of strategies. The article provides a framework for identifying appropriate spending strategies based on client preferences.

Keywords: retirement planning, retirement income modeling, systematic withdrawals, variable spending in retirement

JEL Classification: C15, D14, G11, G17

Suggested Citation

Pfau, Wade D., Making Sense Out of Variable Spending Strategies for Retirees (March 16, 2015). Available at SSRN: or

Wade D. Pfau (Contact Author)

The American College for Financial Services ( email )

630 Allendale Rd
King of Prussia, PA 19406
United States


Retirement Researcher ( email )

1900 Gallows Rd, Suite 350
Vienna, VA 22182
United States


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