One common but mistaken idea out there is that one should never spend their principal. At first glance, this sort of thing might make sense. “Well, if I never spend principal, I'll never run out of money. So, I'll just spend the income.” If I really pin them down about where the principal will go, they admit it will go to their heirs. I then ask if I can be their heir, which sometimes gives them pause. In this post, I'll explain just how costly this idea of only spending principal really is. Let's come up with a hypothetical but reasonable situation, and then we'll run some numbers. What Usually Happens First, we need to consider the impact of Sequence of Returns Risk (SORR). One can run out of money in retirement, despite having solid average returns, if the crummy returns come first. That's SORR. Combining a shrinking portfolio with regular withdrawals can do a real number on a nest egg, especially with higher inflation (which is when SORR really shows up). However, SORR does not show up most of the time.…