What is the potential impact of setting a sustainable spending rate too high?

Setting a sustainable spending rate too high has significant implications for an individual's long-term financial health, particularly in the context of retirement. When the spending rate exceeds the sustainable level, it increases the risk of depleting one's financial resources earlier than anticipated, meaning that individuals may outlive their savings. This phenomenon is especially critical during retirement when resources are withdrawn rather than added.

If the withdrawal rate is too aggressive, it can impact the overall investment strategy and the ability to recover from market downturns. A sustainable rate ensures that funds can last throughout retirement, factoring in variables such as investment returns, inflation, and longevity. Setting this rate too high undermines that strategy, leading to financial distress in later years when funds may no longer be available to support essential living expenses or unexpected costs.

This concern highlights the importance of careful planning and regular reassessment of spending rates to ensure alignment with long-term financial goals and resource availability.