Ways for New Retirees to Increase Spending Without Endangering Their Savings

If you’ve recently retired or are about to do so, it’s definitely time to consider how best to use your savings.

Why it matters: Researchers at Morningstar are providing insights for new retirees on where to begin. According to their latest State of Retirement Income report, the safe withdrawal rate for those retiring in 2026 sits at 3.9%. While that may appear low, the research team explored various strategies that could potentially raise this figure to nearly 6%.

Amy Arnott, a Portfolio Strategist at Morningstar, looked into the data and joined a podcast to discuss flexible withdrawal strategies.

10 questions on how new retirees can increase their retirement income

1. You and your colleagues found that the safe initial withdrawal rate for new retirees is 3.9%. Can you summarize how this figure was established and what it indicates?
2. In a December 5th episode, Investment Insights featured Margaret Giles discussing this baseline estimate with Christine Benz. Today, we’ll look at how to boost it to 5.7%. Why does a flexible withdrawal strategy facilitate higher withdrawal rates?
3. Amy plans to write about several flexible withdrawal strategies in a series on Morningstar.com, giving us a sneak peek today. The base case of 3.9% might not meet everyone’s needs, especially for those wanting steady income. Which flexible strategy would suit them, and how does it function?
4. There are approaches that strike a balance between conservative and aggressive. The first withdrawal rate starts at 5% or more. How does the Vanguard Dynamic Spending Method operate?
5. Are there any drawbacks to this balanced approach?
6. Many individuals desire to travel or spoil their grandchildren. If enjoying life now is more important than leaving an inheritance, what strategies are effective here?
7. The fixed percentage and contribution method allows for a higher initial safe withdrawal rate of 5.7%. Retirees should be ready for some variances in their annual expenses, correct?
8. If a person wishes to leave money for family or charity after passing, what method can help achieve that?
9. How crucial is portfolio diversification when employing a flexible withdrawal strategy?
10. What key lessons should the 2026 retiree population keep in mind as they approach this transition?

Important quotes on the role of portfolio diversification in increasing retirement income

Balancing equity and fixed income investments is vital. Bonds can effectively buffer against market volatility. By minimizing portfolio fluctuations, retirees reduce the risk of running out of funds, which allows for more secure and higher withdrawal rates. However, it’s worth noting that these estimates are grounded in a 90% success probability—fairly high. If you’re open to making adjustments over time and are comfortable with the lower likelihood of success, you could still do quite well with increased equity exposure.

Takeaway: Navigating how to utilize and grow your retirement savings might feel daunting. Yet, Arnott emphasizes that pinpointing your priorities can simplify the process. Ask yourself what holds the most value for you: spending during your lifetime or leaving a legacy? Additionally, consider collaborating with a certified financial planner to evaluate your retirement spending strategy to determine the most important aspects of this next life phase.

Learn more about Morningstar New Retiree Retirement Income

Flexible withdrawal strategies range from conservative to bold. One balanced method is Vanguard’s dynamic spending approach, which sets minimums and maximums on how much withdrawals can vary year to year. If your initial withdrawal surpasses the upper limit, you need to adjust it downward; if it falls below the lower threshold, raise it to that floor level. This method requires ongoing calculations based on shifts in portfolio value.

In an Investment Insight episode, there’s discussion about how Morningstar’s 3.9% initial withdrawal rate compares to the widely used 4% rule. The new State of Retirement Income report elaborates on Social Security, inflation-indexed Treasury securities, and pensions. Moreover, there’s a tutorial on effectively using the Morningstar Retirement Income Survey.

Very soon: A new personal finance series from Investment Insights will launch, aimed at helping you plan your financial life throughout the year. Monthly, Senior Editor Margaret Giles and Director of Personal Finance Kristin Benz will break down complicated tasks into more digestible content. For now, catch their discussion on four financial resolutions to kick off the year. Margaret leads Investment Insights on February 6th to discuss how to optimize your portfolio using an IRA in light of market performance in 2025.