Part II of our “Have I Saved Enough?” series
By Jeff Herman
In Part I: “I Have $1 Million in My 401(k). Is That Enough to Retire?,” we explained why an account balance alone cannot determine whether you are ready. What matters is whether your savings can generate enough income—and how long that income may need to last.
That could be much longer than many people expect.
The Stanford Center on Longevity, citing Society of Actuaries data, reports that a 60-year-old woman who does not smoke and is in excellent health has:
- More than a 50% chance of living to age 90
- A 33% chance of reaching age 95
- A 14% chance of reaching age 100
If she retires at 65 and lives to 100, her retirement will last 35 years—potentially almost as long as her career.
At the same time, the Peak Boomer Impact Study estimates that nearly two-thirds of the 30.4 million Americans born between 1959 and 1964 will face financial challenges in retirement. Median retirement savings are approximately $225,000, while expected annual Social Security benefits average about $22,000.
The challenge is not simply retiring with money in the bank. It is creating a strategy that can generate income for three decades or more.
Here are seven steps to begin building that strategy.
1. Start With the Life You Want to Fund
A retirement-income plan should begin with spending—not an arbitrary portfolio target.
Estimate how much you expect to need each month for housing, food, transportation, insurance, healthcare, and other essentials. Then account for travel, hobbies, dining, gifts, and the experiences you want retirement to include.
Separating essential expenses from flexible spending can help you understand which income needs must be met consistently and which could be adjusted during difficult periods.
The goal is not to predict every expense perfectly. It is to establish a realistic picture of the life your retirement income must support.
2. Inventory Your Predictable Income
Next, identify the income you expect to receive without withdrawing from your investment portfolio.
That may include:
- Social Security
- Pension benefits
- Annuity income
- Rental income
- Part-time employment
- Other recurring sources
Timing is important to consider. Social Security benefits can change depending on when you claim them. Employment income may end after a few years. A pension may offer different survivor-benefit options.
Your plan should show not only how much predictable income you expect, but when it begins, whether it changes, and what happens after the death of a spouse.
3. Calculate the Income Gap Your Portfolio Must Fill
Subtract your predictable income from your anticipated spending.
The difference is your retirement-income gap—the amount your 401(k), IRA, and other investments must produce.
For example, if your retirement lifestyle requires $8,000 per month and predictable sources provide $5,000, your portfolio must supply the remaining $3,000.
That gap is more important than the portfolio balance by itself. It tells you what your investments must accomplish and provides a starting point for evaluating whether your withdrawal strategy may be sustainable.
4. Give Every Asset a Time Horizon and a Purpose
Money needed soon should not necessarily be managed the same way as money that may not be needed for 20 years.
A long-term retirement strategy should distinguish among:
- Assets intended for current and near-term spending
- Assets that may be needed later in retirement
- Assets intended for emergencies, healthcare or legacy goals
Maintaining accessible resources for near-term needs may help reduce the pressure to sell long-term investments during an unfavorable market.
At the same time, a 35-year retirement may still require growth. Holding everything in cash may reduce short-term volatility, but it can leave purchasing power vulnerable to decades of inflation.
The objective is to balance present stability with future income needs.
5. Prepare for Market Declines Before They Happen
A market decline shortly after retirement can be particularly disruptive because withdrawals may force you to sell investments when their values are down.
Your income strategy should answer several questions in advance:
- Where will spending money come from during a prolonged decline?
- Which withdrawals could be reduced or postponed?
- How much readily available liquidity should be maintained?
- When and how will investments be rebalanced?
- Which assets are intended to participate in a future recovery?
The goal is not to predict the next downturn. It is to avoid making every decision in the middle of one.
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6. Stress-Test the Plan for a Long Life
A retirement projection should include more than an average market and an average lifespan.
Test how your income may hold up if:
- Inflation remains elevated
- Healthcare expenses increase
- Markets decline early in retirement
- One spouse lives significantly longer than the other
- A major home or family expense occurs
- You live to age 95 or 100
Longevity magnifies nearly every retirement risk. Inflation has more time to erode purchasing power, healthcare needs may increase, and small income gaps can compound over decades.
If the strategy only works when everything goes according to plan, it may not be ready for retirement.
7. Set It—and Monitor It
A 35-year retirement-income strategy should not remain unchanged for 35 years.
Spending changes. Markets change. Tax laws change. Health and family circumstances change. Your plan should be reviewed regularly to determine whether current withdrawals, investments, and assumptions remain appropriate.
That does not mean reacting to every market movement. It means monitoring the structure
and making thoughtful adjustments when your life or the financial environment changes.
At The Jeffrey Group, we call this “set it and monitor it.”
A strong retirement plan provides direction without becoming rigid. Its ability to adapt is part of what helps it endure.
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A Long Retirement Requires More Than a Starting Number
No one can predict exactly how long they will live or what the next 35 years will bring.
But you can create a strategy that identifies your income needs, coordinates your available resources, prepares for difficult markets, and adjusts as your circumstances change.
A long life should be something to celebrate—not something that causes your retirement plan to fail.
Ask your advisor to show you, in real dollars, where your income will come from at ages 70, 80, 90, and 95. Ask how the strategy may respond to inflation, market declines, healthcare expenses, and the loss of a spouse.
If those answers are unclear, your retirement income plan may not be complete.
At The Jeffrey Group, we help individuals and families transform what they have accumulated into an income strategy designed around the life they want to live. If you would like a second opinion on your retirement income plan, we welcome the conversation.
