If you are too conservative in spending at the start of retirement, you are highly likely to discover in 10-15 years into retirement that you are way ahead of target and able to increase spending substantially, just at the time that you are physically and perhaps psychologically least likely to want to do so.
The ability to adjust spending dynamically gives greater scope to spend more in the early years of retirement. However, taking more risk with spending requires a sensible basis to assess the chance that funds may run out and a process for monitoring and adjusting spending if needs be – in other words a "retirement spending policy".
To develop a retirement income spending policy we calculate the probability of your funds running out at a projected life expectancy age using Monte Carlo projections. If the target confidence level drops more than 5% below the target then your spending level needs will need to be decreased. If the confidence level rises 5% above the target confidence then spending can increase to bring it within 5% of the target.