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In Part 2 of A Sure Thing, or A Maybe, we assume a blend of guaranteed income and a hedge against inflation is ideal when planning for income in retirement, and we dig deeper to help you ascertain the correct blend for you.
(Missed Part 1? Click here!)


When aiming for clarity about retirement planning and the income you will need, beware of relying too heavily on rules of thumb and so-called experts with “always this” and “never that” advice. Generalized advice may not be useful for your specific situation and can be more paralyzing than helpful. We caution staying with the beliefs of your “tribe”, or dealing with someone who asserts a specific bias. Keep an open mind and explore your options.


Begin your exploration by answering some questions honestly. Do you know what you are you currently spending to live? How do you know if you have enough to retire? Will you be able to generate enough income in retirement? Or, will you need to keep working (and saving)?

“Experts” suggest a rule of thumb that 70-80% of your pre-retirement income is what to shoot for. For most people, particularly in the early years of retirement, no reduction in current income seems appropriate. Commuting and other work-related expenses may be replaced with travel, entertainment, or increasingly, towards support for other family members. It really all depends, doesn’t it?

Consider Assets

Next, look at your assets. Remember, you don’t live on assets; you live on income. The question becomes – How do you convert your invested assets into income? More importantly, how can you create an income stream you can’t outlive?

Most financial advisors suggest you use a safe withdrawal percentage of your invested assets for annual retirement income. For years the popular number was 4%, but with current yields on fixed income some experts say the 4% rule no longer applies. They suggest a percentage of 3% or even lower. Try telling a boomer with a million dollars that he risks running out of money if he draws more than $40,000 a year.

Depending on your age, income annuities yield 5-8% and provide guaranteed lifetime income too, but they aren’t going to keep pace with inflation. Balancing income annuities and a diversified stock portfolio is a good solution for many. But how much should be invested in income annuities?

If you have $500,000, that amount could be most your invested assets. If you have $5 million, it could be between 15 or 20%, and for folks in between, 40-60%. Obviously, the smaller the percentage needed to fund the annuity the greater the remaining assets that can be invested as a hedge against inflation. If little is left to invest as an inflation hedge, then “laddering” annuities might help.

Getting there from here

Start with your current living expenses. Then subtract Social Security and any pension income (if you are fortunate enough to have one). The remainder is the income shortage that you will want to fill with annuity income. An independent annuity expert can help you determine how much of your current nest egg would be required to solve for the income shortage. Also, if you are unsure when you (or your spouse) should claim Social Security, don’t rely on any rules of thumb. Consult an expert. At my firm, we utilize retirement income planning software that takes these factors into consideration and makes the job much easier.

Another thought

Do you own a home? What is the market value? Do you have equity, and if so, how much? Did you know that a reverse mortgage can be an excellent hedge against market downturns, particularly early in retirement?

Seek an objective advisor who specializes in retirement income planning to help you do the math and figure out the best balance of variables for you.

If your advisor is independent, and understands all the moving parts, the best mix of your existing assets, Social Security, possible pension, home equity and continued employment can be put to work for you based on what you decide matters most in your retirement years.

This is Part 2 of a series. Click here for A Sure Thing, or A Maybe? (Part 1).