Underspending in Retirement

Many people spend decades focused on protecting their “principal” — the amount they never want their portfolio to fall below.

But something interesting often happens in retirement.

For some retirees, their portfolio grows beyond what they actually need to support the life they want. Even so, spending still feels uncomfortable. The habits that helped them build wealth, saving diligently, avoiding excess, delaying gratification, can make it surprisingly difficult to enjoy that wealth later.

One helpful way to think about this is what investor Nick Sleep called the “X-amount.” Nick Sleep was one of the portfolio managers of the Nomad Partnership, a U.K.-based investment fund that operated from 2003 to 2013. After significant success, Sleep and his partner closed the fund to focus on philanthropy, having reached what he described as his X-amount, the level of wealth he felt was sufficient for a comfortable life. Everything above that number, mentally, was no longer for accumulation but for giving.

Everyone’s definition of “enough” is different. The X-amount is not a formula, but a personal benchmark.
One way someone might begin thinking about it is by working backward from spending needs. A commonly discussed guideline suggests that retirees may initially spend around 4% of a portfolio annually, adjusting over time based on circumstances. Using that idea purely as an illustration, a household planning to spend $40,000 per year might associate that level of spending with roughly $1 million in assets.

If markets perform well and the portfolio grows substantially beyond what is needed to support that lifestyle, the investor might begin to view the excess differently — as funds available for greater generosity, experiences, or flexibility rather than additional security.

The goal isn’t precision. It’s perspective.

Many savers struggle to shift from accumulation to enjoyment because there is never a clear signal that they have “enough.” A personal X-amount can serve as that signal, a way to give yourself permission to spend more freely, help others, or pursue goals that once felt impractical. It is important to have a true plan, and not just an illustration in order to know when you can adjust with confidence.

Financial planning is not only about avoiding running out of money. Sometimes it is about recognizing when you already have what you need.

This content is for educational purposes only and does not constitute investment advice. Past performance is not indicative of future results.