Imagine you have prepared a plan for John and Patricia. John is 57 years old, and Patricia is 56 years old. They retire at age 65. The inputs are:
Planned spending life phases
One-off expenses
Income sources
Total portfolio allocation
Total Balance = £438,426
Let's explain the outputs using the sustainable spending chart.
For example, one of the chart's scenarios is for October 1936 to October 1976. According to this scenario, if John and Patricia want to spend a certain amount each year and pay their taxes, the maximum amount he could spend sustainably over this period is £74,500 per year.
But you know life is unpredictable, and relying on more than just one scenario would not be wise. So you look at the entire data set of all the scenarios and stress test it against different possibilities of what might happen in the future.
The chart shows that the red line represents the worst-case scenario, in which John and Patricia would only be able to spend £67,000 per year. On the other hand, the best-case scenario shows he could spend £134,000 per year. However, most scenarios fall around the £70,000 to £71,000 per year mark, which is a good baseline as a spending plan.
With this information, you can help John and Patricia make informed decisions about how much they want to spend in different life phases. For example, he might choose to spend more in the first 20 years of his retirement and then scale back in the last 20 years.