When people see their Confidence Spend™ number for the first time, the first reaction is usually relief.
The second is doubt.
"Can I really spend that? Every single year? And trust my money won't run out?"
It's the right question to ask. So here's the honest answer.
Yes, you can. But the number isn't a promise the market makes you, no projection can promise that. It's a plan, and it holds as long as you hold up your end and markets don't do far worse than they have in the past.
Four things make it real. None of them are complicated.
1. Your investments are diversified, with most of your money in ETFs, not individual stocks.
Your Confidence Spend assumes your portfolio earns something close to the broad market over time. A handful of index ETFs does exactly that. A few concentrated single-company bets do not. One company can go to zero. The market as a whole never has.
What this means: if any single stock is a large slice of your portfolio, you're carrying a risk the number doesn't account for. Spread it out, and your returns track the assumption the plan is built on.
To be clear, this isn't "never own a single stock." Owning a few is fine. The risk is concentration, when one company is a big enough slice that its fate can swing your whole plan. Keep any single position small enough that a bad year for it is a footnote, not a crisis.
2. You don't buy and sell often. You sell only when you need the cash.
Every time you trade on a hunch, you're betting you can time the market, and paying capital gains taxes for the privilege. The plan assumes you stay invested and let compounding do the work. The only reason to sell is to fund your spending, not to react to a headline.
3. Your cash sits in a high-yield savings account.
The money you'll spend in the near term shouldn't sit in checking earning nothing, and it shouldn't sit in stocks that could drop right when you need it. A high-yield savings account keeps it safe, available, and earning a competitive yield while it waits, instead of losing ground in checking.
4. You keep a cash and bond reserve, anywhere from about 2 to 8 years of spending.
This is the big one. (More on how I rebuilt that number here.)
The idea is simple: hold a chunk of your near-term spending in cash and short-term bonds, so a bad market never forces you to sell stocks at the bottom. The high-yield savings account from the last point is the front of that reserve, the money you live on first, with short-term bonds sitting behind it.
How big should it be? That's your call, and it's a real trade-off. A larger reserve, up to about 8 years, is the most resilient. It's long enough to ride out the large majority of downturns and their recoveries, so even a long, ugly market becomes survivable. A smaller reserve, as little as 2 years, keeps more of your money invested and can support higher growth, but it leaves you more exposed if a downturn lasts longer than the years you've set aside. Either way, the people who got hurt in past crashes were the ones forced to sell at the bottom to pay for groceries. A reserve means you don't have to.
Here's the key: your Confidence Spend is always calculated on the full, conservative reserve, about 8 years. That's what makes it a number that holds up even in the worst historical markets. Choosing to hold less cash doesn't raise it. It just moves more of your money into stocks, more growth potential, but also more risk, without the full cushion the number counts on.
How big that reserve needs to be depends on where you are in life:
- Still working, and your income covers your expenses? Your retirement reserve is basically $0. Your paycheck is the buffer, so there's no portfolio drawdown to protect against yet. You still want a normal emergency fund, about a year of cash, but that's a different job: it covers a layoff or a surprise, not a market crash, and with layoffs as common as they are now, it matters more than ever.
- Retiring in the next 5 years? This is the window that matters most. Work out what your portfolio will need to cover in your first years of retirement, and start building that reserve now, shifting from stocks into cash and bonds a little at a time. The real danger isn't a crash someday. It's a crash in your first few years of retirement, when you've just started drawing down with no paycheck to fall back on. Planners call this sequence-of-returns risk: the same downturn hurts the most when it hits in your early retirement years. Walk in with the reserve already built, and it becomes a non-event. And because the risk of a long downturn is concentrated in these early years, this is the time to lean toward the larger end of that range, closer to 8 years than 2. The cushion matters most right when you're most fragile.
What this means: the reserve isn't extra caution layered on top of your plan. It is the plan. It's what turns a frightening market drop into a non-event for your spending.
So, can you really spend up to your Confidence Spend every year?
Yes. As long as you stay diversified, stay invested, and keep your buffer.
That's the whole reason the number exists. Not to make you hoard out of fear. To let you spend what you've worked for, every year, without lying awake wondering if it lasts.
Your number is built for the plan you gave it. Change the plan, and you re-run the number. That's the whole idea.
Educational only, not financial or tax advice. Everyone's situation is different. Model your own numbers, or check with a fiduciary advisor or CPA, before acting.