Retirement income planning is complex. Assets, portfolio allocation, expected withdrawals, risk tolerance, age, longevity, and changing expenses all play a factor in portfolio/retirement income sustainability. Retirement income planning should start with a analysis, as in what is needed from the portfolio and what is possible.
Not only does your retirement savings need to last for many years, it also needs to be protected from rising prices. As you can see below, the cost of basic items is expected to increase significantly during the next 20 years. With your financial advisor’s assistance, you can develop a retirement investment portfolio that will help reduce the impact of rising costs on your savings.
Where Will Your Retirement Income Come From?
Now that you’ve estimated your expenses during retirement, it’s time to identify your potential sources of retirement income. In the coming years, Social Security and employer pensions are likely to become a proportionately smaller part of a retiree's income. That means personal savings will become much more important. An experienced financial advisor can help you understand how to convert your personal investments into a potential stream of cash withdrawals that can help make your savings last through retirement.
As you can see in the chart, today Social Security benefits only provide 33% of the income received by retirees, with part-time employment, pensions/retirement savings plans and personal investment savings providing another 59% of the total sources of retirement income.
"I’ve been planning to retire early for several years. Now I want to live out my hobby—painting full time. I’m not old enough to receive Social Security benefits, but thanks to a solid financial plan, I have enough to do what I want. At 50, I’m still young enough to see the world and have others see it through my paintings.”
—ANNE, AGE 50
* 2038 figures are based on historical averages. The hypothetical examples are for illustrative purposes only and are not intended to predict or project inflation rates. Actual inflation rate may be higher or lower.
1. Calculations are based on data from United States Life Tables, 2015. NVSR Volume 67, Number 7. Published on November 13, 2018. https://www.cdc.gov/nchs/products/life_tables.htm. Table 2. Life Table for Males: United States, 2015 & Table 3. Life Table for Females: United States, 2015. Based on the 25% probability that a male and female will live to age 88 and 91, respectively.
2. Calculations are based on data from United States Life Tables, 2015. NVSR Volume 67, Number 7. Published on November 13, 2018. https://www.cdc.gov/nchs/products/life_tables.htm. Table 2. Life Table for Males: United States, 2015 & Table 3. Life Table for Females: United States, 2015.
3. Based on an average annual inflation rate of 2.16% for the 20-year period ended December 31, 2018. Source: U.S. Postal Regulatory Commission. U.S. stamp prices are based on the year-end rate for the first ounce of a first-class letter. Source: U.S. Bureau of Labor Statistics. Price per gallon of milk prior to 1995 is based on year-end price per gallon. Source: U.S. Department of Commerce. New car historical prices are based on average prices per year, due to seasonality.