When it comes to retirement, there are some factors we can control, and many more we can’t. We can choose how much to save, and how to invest those savings. We can choose the retirement start date. We can choose whether to keep working in retirement, and we may have some discretion in our spending. However, we can’t control the economic environment that will exist at and during retirement, so having an “all weather” plan is important.
Back to basics
Begin with a five-step process:
- Review all income sources. Inventory all the predictable income streams you expect to receive, such as:
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- IRAs and qualified retirement plan accounts
- Pensions and annuities
- Projected Social Security benefits
- After-tax portfolio income
- Net rental income from real estate
- Deferred compensation plans
- Employer stock option plans and restricted stock
- Consider liquidity events to boost retirement capital. These events could include selling a business, downsizing a personal residence, or selling investment property.
- Project expenses. Estimate your monthly and annual expenses in retirement. Then, categorize the expenses into two groups: essentials—food, clothing, housing, transportation, insurance and taxes—and discretionary—travel, entertainment, gifts, and so on. Remember to account for taxes on Social Security benefits and Required Minimum Distributions from qualified plans and IRAs.
- Identify assets for essential and discretionary expenses. If you identify a gap keeping you from meeting essential expenses, you may want to identify the assets that can be liquidated as needed to fill the hole. Alternatively, you could consider a guaranteed income product, such as an immediate annuity, to take care of the shortfall. Once the essentials are fully funded, remaining funds may be allocated to the discretionary expenses.
- Monitor the plan annually. Each year you should review your plan with a financial professional, making adjustments if needed, as your retirement circumstances, priorities or goals change.
How much will you need?
The alternative option to meet essential income needs is to delay retirement, which gives you more time to accumulate funds for retirement. How many years of retirement should you plan for? That depends on a variety of factors, but more and more people are expecting a 30-year retirement.
How much money will you need for a comfortable retirement? That depends on how well your investments perform, as well as if, and how deeply, you have to dip into your savings each year.
How long will your retirement capital last?
The table below will help you make a rough estimate of the life of your retirement resources, given different assumptions about your initial withdrawal rate and the rate of return on your investments. The withdrawals are increased by 3% each year after they begin, to account for inflation. Rates of return are assumed to be constant, but in reality they will vary from year to year. Also important – taxes and transaction costs are not included in the table. That’s why the estimate is “rough.”
For example, assume that you start with $500,000. If you begin with a 7% withdrawal, or $35,000, your capital will last for 15 years if your rate of return is 4%. If the return could be boosted to 8%, you would get seven more years of payments, each increased by the 3% inflation factor. The table shows just how difficult it can be to fund a 30-year retirement.
This example is for illustration purposes only, and does not represent any particular investment.
| Percentage of capital withdrawn in the first year | If your withdrawals increase by 3% annually, your capital might last this many years, invested at the following rates of return | |||||
| 4% | 5% | 6% | 7% | 8% | 9% | |
| 4% | 28 | 30+ | 30+ | 30+ | 30+ | 30+ |
| 5% | 22 | 24 | 29 | 30+ | 30+ | 30+ |
| 6% | 18 | 19 | 22 | 25 | 30+ | 30+ |
| 7% | 15 | 16 | 18 | 20 | 22 | 27 |
| 8% | 13 | 14 | 15 | 16 | 18 | 20 |
| 9% | 11 | 12 | 13 | 14 | 15 | 16 |
Source: Merrill Anderson Co.
We can help with your investment choices
Some retirees enjoy managing their own investments, but many others prefer a financial professional to be involved. If you would like professional guidance on your investment and retirement portfolio decisions, an Arvest Wealth Management client advisor will be pleased to help you work toward your goals.
This content has been prepared by The Merrill Anderson Company and is intended as a general guideline.
© 2025 M.A. Co. All rights reserved.
Arvest and its associates do not provide tax or legal advice. The information presented here is not intended as, and should not be considered, tax or legal advice. Consult your tax and legal advisors accordingly.