Stanford’s Spend Safely in Retirement Strategy is the gold standard to help middle-income retirees spend in comfort and assurance. Seniors Guide writer Eric J. Wallace explains.
Knowing when and how much to spend later in life is a top-of-mind problem for the vast majority of Americans as they approach and enter retirement. Surveys from global asset management firm BlackRock, for instance, have found most post-work seniors prefer not to touch their assets during retirement, and just one in four think they’ll ever have to draw down the principal of their savings.
“[Retirees] may leave assets untouched well into retirement due to deep-seated fears that they may outlive their money,” wrote the BlackRock team. “For most, retirement is not a time to live it up, it is more important to feel financially secure.”
But is letting uncertainty dictate how you live your golden years really the best strategy? A collaboration between the Stanford Center on Longevity and Society of Actuaries sought to answer that exact question. The results are codified in Stanford’s Spend Safely in Retirement Strategy (SSiRS).
“While I don’t intend to chastise pre-retirees and retirees for being frugal,” writes Stanford Financial Security Division researcher Steve Vernon, who worked on the project and authored related papers, “I do want them to know there’s a straightforward strategy they can use to safely spend their retirement savings.”
Here, we explain what the SSiRS method is and how to leverage it to your advantage.
What is Stanford’s Spend Safely in Retirement Strategy?
The Stanford team analyzed nearly 300 prominent retirement withdrawal strategies to see how they performed across a variety of income goals. Anchor metrics like total lifetime retirement income, the amount of easily accessible savings, and performance during severe economic downturns (like the COVID pandemic) were used to create a master plan for middle-income households.
The resulting Spend Safely in Retirement Strategy was startlingly simple. And when modeled against the fleet of other plans? It was more reliable than – and outperformed – them all. That’s significant, considering the competition included hallmark strategies like the 4% Rule.
How does it work?
SSiRS centers on setting up lifetime sources of retirement income in advance, claiming Social Security at the ideal time, and taking required minimum distributions (RMDs) from retirement accounts. The goal, said Vernon, is to effectively create a reliable monthly salary or “pension” for your household.
The strategy “offers a realistic balance between frugality on the one hand and spending too much money and outliving your savings on the other,” Vernon writes. “It may take some time and effort on your part to build your lifetime retirement income portfolio, but it’s a very good use of your time, considering that you should be planning to enjoy a retirement that lasts for 25 years or more.”
Vernon advises a simple four-pronged strategy for success.
- Maximize Social Security benefits. Waiting to claim benefits can pay dividends for married primary wage earners or those who are single. “Each year one delays claiming Social Security past their Full Retirement Age (66-67, depending on your year of birth) results in an 8% increase,” writes Rob Berger, founding editor of Forbes Money Advisor. If you have to retire early, a part-time job can buy you the extra time. You could also create a transitional savings bubble based on the monthly income you’d expect to get from claiming Social Security at an earlier date. Free software programs like Open Social Security, says Berger, can help you calculate what that amount should be.
- Retirement income. If you have a high tolerance for volatility, the SSiRS says shifting your retirement accounts to a 100% stock portfolio yields the best long-term results. Target date or balanced fund options with 50-70% stock allocations are viable alternatives for those who stress about the rise and fall of markets, but they produce less income over time.
- RMDs. Supplement your Social Security benefits by using the IRS’s required minimum distribution withdrawal rates. Utilize this table and your retirement account balances to figure out what those amounts would be – or plug your information into AARP’s free calculator to get a ballpark figure. Add the amount to your projected Social Security payout and you have your “pension.” People looking ahead to retirement can use the latter to dial in savings strategies based on more concrete needs and numbers.
- Create an easily accessible emergency fund. Storing a chunk of cash in something like a high-interest savings account will protect your investments – and thus retirement income – from unforeseen expenses like house or car repairs. AARP says setting aside a year or two of living expenses is a good target.
Closing notes
Both Vernon and Berger note that SSiRS isn’t for everyone – and tweaks based on personal circumstances can help refine the method.
“The Spend Safely Strategy is really a decision-making framework,” writes Vernon. “You can customize it to meet your own goals and circumstances.”
While the approach can be implemented by virtually anyone, he and Berger agree that optimal results usually involve a financial advisor. If SSiRS has piqued your interest, they recommend reading the original report and its supplemental analysis to get a deeper understanding of the plan. That knowledge can then serve as a springboard for more rewarding conversations with your financial advisor.
