NEW YORK (CNN/Money) - My husband recently retired at age 56. His annual salary for the past 3 years was over $300,000 and we have a portfolio worth about $3 million. Now he's saying we must "economize" and live off interest and dividends. Given the size of our portfolio, I feel it's insane to have to live on a budget. Am I wrong, or is he? Help!

-- Kathy, Charleston, South Carolina

Uh oh, The Expert is treading in dangerous territory here. The last thing I want to do is get into the middle of a marital spat, especially one involving money. But the issues you're raising are just too important for me to walk away. So here goes...

The first thing you have to realize is that while $3 million dollars is certainly a lot of money, it's not a license to spend freely, especially if you want it to last for the rest of your life. A couple in their 50's should plan on drawing on that portfolio for at least 30 more years and probably more like 40 to 45 years.

So how much money should you reasonably expect to be able to pull out of a $3 million portfolio each year with decent assurance that you won't run out of money before you run out of time?

Obviously, the answer depends on how you invest the money. But assuming you're going to increase your withdrawals to keep up with inflation -- and you should, otherwise your standard of living will decline -- you probably shouldn't count on an inflation-adjusted withdrawal rate of more than 4 percent or so. By that I mean your initial withdrawal should be 4 percent of your portfolio's value -- $120,000 in this case -- and that amount should be increased by the inflation rate each year. This way, you'll maintain the purchasing power of your withdrawals.

Now for a word to your husband. He speaks of living off "interest and dividends." That sounds good, but this strategy also has its shortcomings. Let's say you invest your $3 million in a 20-year U.S. Treasury bond that pays 5.5 percent interest, which is roughly the going rate. That will throw off income of $165,000 a year. Not bad, except that $165,000 payment won't grow. Even assuming a modest 2 percent annual inflation rate, your income would have lost a third of its purchasing power in 20 years.

Investing in dividend-paying stocks would allow for the possibility of income growth -- assuming you chose stocks that increase their dividends. And stocks also allow for the possibility of rising share prices, which means your original nest egg would also likely grow. But if you focus mostly on stocks that pay dividends, you're not likely to have a very diversified portfolio. You'll probably have a lot of utilities, financial stocks, consumer-goods companies and perhaps some beaten-down value stocks. Not a bad combination necessarily. But I wouldn't want my entire portfolio invested in these kinds of stocks. I would also want some growth stocks that pay little or no dividends.

So what should you and your husband do? I recommend that first you sit down and try to figure out how much income you'll need once you retire. In all likelihood, this figure will be less than your husband's current $300,000 salary. After all, you won't have work-related expenses, you won't have to set aside savings anymore and I suspect you'll pay less in taxes. On the other hand, since one of you think it's "insane" to live on a budget, I wouldn't count on a radical downward shift in expenditures.

Once you've got a decent idea of how much you're going to need, you want to see how long your $3 million portfolio is capable of sustaining withdrawals of that size (again, adjusted for inflation). Determining this can be a tricky proposition because it's not just a question of trying to gauge the average return your portfolio might earn in retirement, but the order of those returns. If you get high returns initially, you may be able to easily weather a bear market. But if you run into a bear market early on, your losses combined with your withdrawals could deplete your portfolio so much that it may never recover sufficiently even if the market picks up.

Fortunately, there is a tool on the web that can run variety of possible return scenarios. It's called the T. Rowe Price Retirement Income Calculator, and although the analysis it does is pretty sophisticated, the tool itself is easy to use. You just plug in information like the size of your portfolio, how your assets are allocated between stocks and bonds, your retirement age, how long you want your money to last, the size of withdrawals you plan on taking...and bingo! Retirement Income Manager gives you the odds of your money not running out. I'm not suggesting this tool will be accurate down to the week or day, or even the month for that matter. But it should give you a pretty good idea of whether the withdrawals you're planning on are likely to deplete your portfolio or not.

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I'm sure if you and your husband both approach this issue with an open mind and the recognition that each of you may have to change your attitudes a bit, you'll come up with a workable plan. On the other hand, there's always the possibility that this process may lead to even deeper disagreements about money issues...in which case you may need a marriage counselor rather than an investment adviser.

Walter Updegrave is the author of Investing for the Financially Challenged and can be seen regularly Monday mornings at 8:40 am on CNNfn.