How to Never Run Out of Money in Retirement

This article has been adapted from my new book: You’ve Got Money, Now What?

One of the most common fears is running out of money in retirement.

Whether you’re leaving work at 65 or 35, it’s often the single biggest concern people have.  And for good reason.  Nobody wants to find themselves struggling in old age due to lack of planning.

But the risk of running out of money is far smaller than people think, provided you meet a few specific criteria that we’ll explore in this article.

In fact, the risk becomes as close to zero as you can possibly get.  And once you truly absorb how all this works, you’ll realise the outcome is completely within your control.

Then, the next time you see a story titled “Why the 4% rule is too risky” or some other nonsense, you can happily ignore it because you know the academic types are missing the bigger picture.

The two fears that underpin everything

Most concerns about running out of money come down to two things:

How do you know your investments will be enough?

The 4% rule is a perfectly fine starting point with a diversified share portfolio. When combined with what we’re about to discuss, it’s rock solid.

So, for $60k of annual spending, you need $1.5m to be fully self sufficient.  If you’re aiming for semi-retirement, things are easier, since you can simply adjust your work income to suit the situation.  If you’re living off rental income, you’ll need to do a proper audit to figure out the net figure (it’s always less than people think).

Sit down and, as best you can, figure out how your expenses might change when you pivot away from full-time work.  Knowing your numbers gives you peace of mind.  Then you’ll be crystal clear what you need from investments or part-time work to keep everything running smoothly.

How can you be confident shares and property will keep providing good returns?

The concern here is whether we can expect long-term trends to continue.

This is inherently unknowable and is debated by people smarter than myself.  I think as humans we have a bias towards safety and pessimism.  We often believe the future won’t be as good as the past.  And you can always find reasons to support that view.

Where do I land?  I believe both shares and property will continue providing healthy long-term returns, based on one overarching factor: the tendency for humans to constantly strive for a better future.

This leads to technological breakthroughs, innovation, and higher productivity, making us wealthier over time.  And it will continue to be reflected in higher profits, incomes and asset prices.

Will growth be slower than in the past?  It very well could be.  So it makes sense to factor this possibility into your planning.  But as long as you have reasonable expectations, and you own quality investments like diversified index funds and/or well-located property, I think you’ll do just fine.

Now let me show you the part most people ignore in this conversation around living off portfolios.  And I know this because people used to argue about my seemingly optimistic assumptions.

The biggest factor everyone ignores

The single greatest source of financial strength in retirement after your portfolio size is your own personal flexibility.

I call this your flex rate – and I’ve written about it before.  Basically, how much wiggle room you have in your finances.

When you’re building wealth, your savings rate is the most important number.  When you’re living off wealth, your flex rate is the key factor.

Here’s a little explainer if you’re new to the concept:

Imagine retiring with $1.5 million in shares and spending $60,000 a year.  If you’ve got $15,000 of flexibility in your situation – expenses you could cut, income you could earn, or cash you could tap into – that’s a 25% flex rate.

According to this post-FIRE calculator, that 25% flex rate gives you a 100% long-term success rate across any historical period from the last 150 years, for any length of retirement.  Even 100 years!

It gets better.  With a 40% flex rate, you can actually live off 5% of the portfolio instead of 4%.  Meaning you can create freedom sooner, with less wealth, the more flexible you are.

Read this article for a bunch of examples highlighting just how powerful this point is.

And it’s not hard to do.  Most people have way more flexibility than they think – or at least, the potential is there if they want to use it.  By the way, this flexibility happens automatically with rental and dividend income.  When markets have crappy periods, income goes down and the investor is forced to make up the difference another way.

7 levers of financial strength

I’ve long mentioned the importance of having backup plans – ways you can adapt during bad markets when living off your assets.

But I don’t think people realise just how many levers you actually have at your disposal.  I’ve got a list to share with you.  You’ll find each one more or less appealing depending on yourself and your situation.

Some of these by themselves are enough to plug the gap and create all the flex you need.  When used wisely, there’s basically zero chance you ever run out of money.

Here they are, in roughly the order you’d use them.

1. Cash buffer.

Your first line of defence.  This could be 1-2 years of spending in an offset or high-interest savings account.  This smooths out unexpected expenses, gets you between dividend payments, or tops up your income in weak years.

2. Reduce expenses.

Most households could probably cut 20% temporarily if need be.  And people naturally do this anyway during a recession – even those who are still working.  Combined with the above will see you 90% of scenarios.

3. Part-time work.

The truth is, most retirees under 50 will end up doing something anyway.  It takes pressure off the portfolio and makes you feel productive.  Even being open to doing one day per week makes a huge difference.

4. Superannuation.

If you’re leaving full-time work in your 30s or 40s, there’s a decent chance you haven’t fully factored super into your plans.  But super is compounding and can turn into a meaningful income later, even if it seems small now.

5. Optimise your housing.

Owners could rent out a spare room for a while, potentially earning $15k/year or more.  Another option is downsizing to free up sizeable cash.  Renters could down-price or switch locations for a few years (Geo FIRE anyone?).

6. Government pension.

You might prefer to not need it, but it’s a genuine backup plan.  As of 2026, a full Aussie pension is around $31k for singles and $47k for couples, growing with inflation.  That’s equivalent to a $1m portfolio in the background.

7. Reverse mortgage / home equity.

If you’ve got many hundreds of thousands in equity stored in your home, you can tap it via the Government’s Home Equity Access Scheme.  The interest rate is fairly low, and it could be a way of maintaining a better quality of life if you end up on the pension without investments.

Bonus tip for homeowners:

Before you leave full-time work, consider applying to access equity in your home (up to 80% of the value).  You leave this money untouched in an offset account attached to the loan so you aren’t paying interest unless you use it.  This becomes a gigantic backup plan in itself.  It can also help you avoid selling shares at the worst possible time.  Only do this if you’ve got the discipline not to spend it!

You can make your own judgement call on these ideas – I’m just pointing out they exist.  It’s your job to tailor-make a plan that fits your situation and priorities.

The flex stack

Because retirement modelling is complex, studies will often test one variable at a time.

“What if someone used a cash bucket?” “What if someone had variable spending?”  “How does that affect the failure rate?”

But in real life, you don’t have just one lever.  You have all of them.  And when you stack them together, the idea of your portfolio not lasting forever becomes increasingly unrealistic.

Say you start with a 4% withdrawal rate from 100% stock portfolio.  You retire at 30 and live to 100.  The historical success rate on this is 87%.

Then you layer in a bit of flexibility…

A bit of cash – say 1-2 years worth of expenses.  Some spending reductions. Maybe the odd bit of part-time income (likely anyway).

This alone takes you to 100% success extremely easily.

Then of course there’s all the other ideas mentioned above.  With ‘flex stacking’, there’s basically no scenario where all of these levers fail simultaneously…

The market would have to crash AND stay down for years AND you’d refuse to do any work AND you would not modify a single expense AND you’d have zero cash AND super would have to melt away AND the pension would have to be cut AND you’d refuse to touch any home equity.

At that point, you are deliberately creating your own failure.

Can you see the theme with all this?  The power lies with you, not with  markets.

When you stack these flex ideas together, you build your own financial fortress – much of which is invisible, because it’s in your mind and your own willingness to adapt.

Flexibility is the most overlooked weapon in personal finance.

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Framing risk in probabilities

The future will bring a whole host of unknown events and factors we didn’t plan for.

But what are you going to do about that?  You can only really plan for the known risks.  The unknown risks are solved by how you adjust when they happen.

Let’s say there’s an unspecified and unknown risk that has a 1% chance of blowing up your entire plan.  Are you really going to keep delaying your freedom on the off chance it occurs?

You’d be giving up 100% of your freedom to protect against a 1% risk.  Meanwhile, the 99% base case is that you have a great life and your wealth holds up just fine.

So you’re giving up freedom now in a bid to protect… future freedom.

I’m all for being conservative and sensible, but at some point you have to acknowledge when you’re just creating false barriers because you’re scared.

Sometimes the risk isn’t external, but ourselves.  Common destroyers of long term wealth are often bad decisions.  Getting bored or worried and changing your investment strategy.  Panic-selling during a recession.  And lifestyle creep that grows faster than your wealth.

It’s not so much bad markets that hurt retirements.  It’s bad decisions in bad markets.  Luckily, that is also within your control.

And yes you can pile up more money to account for additional risks.  But more money won’t cure your worries.  Plenty of rich people stress about money.  The people I’ve seen who retire happily – even without several million – are those who are willing to go with the flow and adapt to the environment.

Sure, their portfolio matters as the primary source of income.  But they also see lots of other ways cash can be generated to plug any gap.

A practical exercise to help

To make this more real, take a few minutes and add up your backup plans.  This way you can put a dollar figure on your optionality.  You might surprise yourself at how much flex you actually have.

Cash buffer:  How much could you draw to top up income? For example, $10k/year for 5 years.

Spending: Which categories could you trim if necessary? Dining out, travel, entertainment, subscriptions.

Part-time work: What could you earn working 1-2 days a week?

Housing options: Could you rent out a room or downsize? How much cash/income would this create?

Future income: What can you pull from super each year later on?

Add these up, and come to an annual figure.  Now, compare this to your annual spending.  By stacking them together, what’s your flex rate?

Most people can often easily find flexibility equal to 50% of their annual expenses. And that basically means YOU WILL NEVER RUN OUT OF MONEY.

Even if you use a withdrawal rate of 5-6%!  Which means you can retire much sooner, with a high level of certainty over the safety of your plans – all provided you’re able and willing to have that level of flexibility.

If you’re raising an eyebrow because that doesn’t sound right, go read my flex article for yourself which has the calculations for it.

Final thoughts

People worry endlessly about their investments not performing.  But the truth is, the outcome is well within your control.

Between your investments, your flexibility, and the stack of backup plans available to you, the scenarios that could blow up a reasonable person’s plans are next to zero.

The real magic ingredient to making all this work isn’t really the numbers.  It’s YOU.

At this point, you should be financial strength personified.  The culmination of all my writing for the last 9 years has created not only the base of money and assets that underpins everything, but the mentality which powered it.

The same determined mindset that built your wealth – “I’ll do whatever is required to make this happen” – is the exact same mindset that preserves and sustains it.

So stop worrying about whether your money is going to last.  Realise you are the kind of person who can MAKE it last.

Burn this into your brain: you no longer need to worry about money.

You’ve built a powerful base.  You’ve got a stack of backup plans.  And you’re a flexible, open-minded individual.

At that point, all that’s left is to get on with enjoying your life!