After decades of watching paychecks come in, many new retirees struggle to start spending the money they worked so long and hard to save. A common version of that worry takes the form of a simple rule: Never touch the principal.
Wes Moss, fiduciary financial advisor and host of Ask an Advisor on the Clark Howard Podcast, heard it from a client he calls “Jim” on a July 2026 episode. Jim was retiring after more than 40 years of work and told Wes he was scared of not having earned income and didn’t want to touch his principal. For Jim, Wes said, it’s very possible, and the way he got there works for plenty of other retirees too.
Start With the Gap
Your portfolio doesn’t have to pay for all of retirement. It only has to cover what your guaranteed income doesn’t.
How to calculate your gap: Add up Social Security for you and your spouse, plus any pension or lifetime annuity, and subtract that from what you plan to spend each year.
Wes used a simple illustration. If your guaranteed income adds up to $75,000 a year and you need $100,000, your investments only have to produce $25,000. That number, not your total budget, is what decides whether you can leave the principal alone.
Where the Income Comes From
To leave principal alone, you live on what the portfolio pays out. That means stock dividends plus interest from bonds, CDs and other fixed income.
Stock dividend yields are lower than they used to be. Wes noted that prices have risen so much that 4%, 5% or 6% yields are harder to find, even though the dollar amount companies pay out has kept climbing. Stocks with dividend yields of 2% or 3% are still easy to find, and bonds pay around 4% to 5% (without going into junk bond territory). Put them together and a balanced portfolio can yield about 3%.
At 3%, a $1 million portfolio pays $30,000, enough to cover a $25,000 gap with room to spare. “If you never have to worry about touching the principal, you just live off of the income, dividends, interest, distributions, then you really do not have to ever worry about messing with the principal or ever even coming close to running out,” Wes said.
Don’t Forget Inflation
Leaving the principal alone keeps the dollar balance intact, but not its buying power. At 3% inflation, $1 million left untouched for 20 years buys about what $550,000 does today.
Your gap tends to grow too. Social Security gets a yearly cost-of-living adjustment, but many pensions and lifetime annuities pay the same amount every year. If the $25,000 gap in Wes’s example rises with 3% inflation, it’s about $33,600 in 10 years and about $45,200 in 20.
Where your income comes from matters here. Bond interest is fixed, so a bond paying $4,500 a year still pays $4,500 in 2040. Stock dividends have historically grown over time, which is why you should keep a meaningful share of your portfolio in stocks even when income is the goal.
It also helps to start with income comfortably above your gap, as Jim’s $30,000 covers his $25,000, and to plan for income that can grow rather than just cover today’s bills.
When Income Alone Isn’t Enough
For many retirees, a 2% to 4% yield won’t cover the gap. Wes’s next step is what he calls the “4% plus rule.” You withdraw roughly 4% to 4.5% of your portfolio each year, up to 5% in some years, and increase the dollar amount with inflation. Part of that comes from dividends and interest, and the rest comes from selling some shares.
That sounds like spending principal, and technically it is. Over time, however, it often doesn’t feel that way. Wes pointed out that in most of the research on these withdrawal rates, balances keep growing. A mix of stocks and bonds that earns 6% to 7% a year on average, while you pull out 4% to 5%, tends to stay ahead over five, 10 and 15 years, even if a single bad year knocks it down.
Keeping a year or two of spending in cash or short-term bonds helps here. In a down market, you can draw from the cash instead of selling stocks at low prices.
The Cost of Being Too Careful
A never-touch-the-principal rule protects you from running out of money, but it can also keep you from using money you could safely spend. If your portfolio’s income more than covers your gap, as it did for Jim, the balance is likely to keep growing for the rest of your life, and you may end up with more than you started with.
Leaving money to your kids or a cause you care about is a fine goal. If that isn’t the plan, a portfolio built to never shrink may cost you trips, help for your family or simply less worry about every expense.
How To Find Out if It Works for You
Add up your yearly guaranteed income from Social Security, pensions and annuities.
Subtract it from what you expect to spend. That’s your gap.
Look at last year’s statements and total the dividends and interest your portfolio paid.
If that income covers the gap, you can likely leave principal alone. If it falls short, a withdrawal rate around 4% to 4.5% is the next place to look.
Set aside a year or two of spending in cash so a bad market doesn’t force you to sell.
Final Thoughts
Retirement planning isn’t just about accumulating money. It’s about making that money work for you throughout your lifetime.
Living on dividends and interest can help you cover expenses without selling investments, but it isn’t an absolute guarantee that your principal will remain intact or that you’ll never run out of money. Dividends can change, inflation can erode your purchasing power, and market downturns can affect how long your savings last. Even a portfolio that earns more than you withdraw in an average year can face challenges if poor returns come early in retirement.
The goal isn’t necessarily to preserve every dollar at all costs. It’s to build a retirement plan that balances your spending needs today with the need to make your money last. Start by understanding your income, expenses and portfolio yield, then consider how inflation, taxes and market risk could affect your plan over time. If you’re unsure how much you can comfortably spend, a fiduciary financial advisor can help you evaluate your options.
After decades of saving, you deserve to enjoy your money. The key is making sure you can do so without sacrificing your financial security down the road.
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