Preparing for Lifetime Income in Retirement

Steven Neeley |

Reevaluating Retirement: Beyond Outdated Models

For many years, traditional retirement planning relied heavily on rules like “the 70 percent rule.” This rule suggested that retirees only needed 70% of their pre-retirement income to live comfortably. While this might have worked several decades ago, today’s financial landscape presents a vastly different reality. The cost of retirement has increased significantly, and the “rules” of the past may no longer suffice for securing a comfortable retirement. Let's delve into why these models fall short and how modern strategies can better address today’s retirement needs.

The Evolution of Retirement Planning

Old Rules vs. New Realities

Traditional models like the 70 percent rule were based on a simpler financial environment where life expectancy was shorter, and retirement costs were lower. Today, retirees face a longer life expectancy, higher healthcare costs, and the potential for decades of post-retirement life. For example, a healthy 65-year-old today has an average life expectancy of 18.5 years. This increased longevity means that the standard retirement planning approaches must evolve to address the extended financial needs of modern retirees.

Consider a retiree from the 1970s, who might have relied on a pension plan and modest savings. Their retirement planning might have involved minimal adjustments to their lifestyle. Fast forward to today, where pensions are rare, and retirees must often depend on personal savings and investments. The financial demands are far greater, requiring more sophisticated planning and strategies.

The Biggest Retirement Risk: Longevity

Understanding Longevity Risk

One of the most significant risks facing retirees today is the risk of outliving their savings, also known as longevity risk. This risk is compounded by the fact that life expectancy continues to increase. Relying on standard life expectancy tables can be misleading, as they assume a predictable lifespan. However, real life is rarely so neat and predictable.

Consider a who planned her retirement based on living until age 85. She had a comfortable savings plan that she believed would last her through retirement. However, advancements in healthcare and lifestyle changes meant Alice lived well into her 90s. By age 85, her savings were nearly depleted, and she faced financial hardship in her later years. This scenario underscores the importance of planning for a longer-than-expected retirement.

Preparing for Lifetime Income Sufficiently

Embracing Longer Life Expectancy

While the prospect of a longer life might cause anxiety about outliving your savings, it should also be a cause for optimism. A longer life means more time to enjoy with loved ones, travel, and pursue new interests. The key is to prepare adequately for these extended years.

Steps to Prepare for Extended Longevity

  1. Define Your Retirement Vision
    • Begin by crafting a clear and detailed vision of your ideal retirement. This should include where you want to live, the lifestyle you wish to maintain, and any activities you plan to pursue. Knowing what you want will help you set specific financial goals and determine the amount of savings required.
  2. Estimate Your Retirement Costs
    • Develop a budget that reflects your retirement vision. Include all potential expenses, such as housing, food, healthcare, travel, and leisure activities. Consider the impact of inflation and rising healthcare costs. For instance, if you plan to travel extensively in retirement, factor in the potential costs of airfare, accommodations, and related expenses over time.
  3. Assess Your Risk Tolerance
    • Determine your risk tolerance based on your financial goals and time to retirement. While a conservative investment strategy might seem safer, it may not provide sufficient growth to keep up with inflation or cover unexpected expenses over a long retirement. Consult with a financial professional to create a balanced investment plan that aligns with your risk tolerance and retirement objectives.
  4. Consider Downsizing Your Lifestyle
    • Many retirees find it beneficial to downsize their lifestyle, either out of necessity or a desire for simplicity. This could involve moving to a smaller home, reducing the number of vehicles, or cutting back on luxury expenditures. Downsizing can free up resources and reduce the financial burden of maintaining a larger property or high-cost lifestyle.
    • And don’t just consider the financial burden of maintaining a large property well into your golden years, but also consider the physical burden as well. Will you really be up for climbing ladders or trimming hedges when you are 90?

Example of Effective Retirement Planning

Let’s take a look at Bob and Carol, a couple in their early 60s planning for retirement. They envision a lifestyle that includes modest travel, spending time with grandchildren, and enjoying hobbies. Bob and Carol worked with a financial advisor to develop a detailed budget that accounts for their desired lifestyle and potential healthcare costs. They adjusted their investment strategy to include a mix of growth and income-generating assets, ensuring they could maintain their purchasing power over time. Additionally, they downsized from a large family home to a smaller, more manageable property, reducing their housing costs and freeing up funds for other pursuits.

They are a great example of how proactive planning can allow you to get the most out of your retirement.

Navigating Healthcare Costs in Retirement

The Growing Cost of Healthcare

Healthcare is one of the most significant expenses in retirement, and costs continue to rise. According to a 2022 report by Fidelity, a 65-year-old couple retiring today can expect to spend an average of $315,000 on healthcare throughout their retirement. This figure does not include long-term care costs, which can be substantial.

Strategies to Manage Healthcare Costs

  1. Medicare Planning
    • Understand the different parts of Medicare (Part A, B, C, and D) and how they fit into your healthcare plan. Consider supplemental insurance (Medigap) to cover expenses that Medicare doesn’t fully pay for, such as copayments and deductibles.
  2. Long-Term Care Insurance
    • Explore long-term care insurance options to cover costs associated with extended medical care or assistance with daily activities. Policies can vary widely in terms of coverage and cost, so it’s important to shop around and choose one that fits your needs.
  3. Health Savings Account (HSA)
    • If you’re still working and have access to a high-deductible health plan, contribute to a Health Savings Account (HSA). HSAs offer tax advantages and can be used to pay for qualified medical expenses in retirement.

Example: Managing Healthcare Expenses

Consider Jane, a retiree who carefully planned for her healthcare needs. Jane started contributing to an HSA in her early 50s, allowing her to accumulate a substantial fund by the time she retired. She also purchased a long-term care insurance policy in her 60s, providing her with peace of mind knowing she would be covered for extended care if needed. By planning ahead, Jane was able to manage her healthcare costs effectively and avoid unexpected financial burdens.

Creating a Comprehensive Retirement Plan

Integrating Various Elements

A successful retirement plan integrates multiple elements, including income planning, expense management, and risk mitigation. Here’s how to create a comprehensive plan:

  1. Income Planning
    • Identify all potential sources of retirement income, including Social Security, pensions, personal savings, and investment returns. Develop a strategy to maximize these income sources and ensure they provide sufficient funds to cover your expenses.
  2. Expense Management
    • Create a detailed budget that outlines all expected expenses, including housing, food, healthcare, and leisure activities. Review this budget regularly and adjust as needed to reflect changes in your lifestyle or financial situation.
  3. Risk Mitigation
    • Consider potential risks, such as market volatility, inflation, and unexpected expenses. Develop strategies to manage these risks, such as diversifying your investments, purchasing insurance, and maintaining a cash reserve for emergencies.

Example: A Holistic Approach to Retirement Planning

David and Linda are a couple in their late 50s, approaching retirement. They worked with a financial advisor to develop a comprehensive plan that integrates various elements. Their plan includes a mix of income sources, a detailed budget, and strategies to manage risks. They also set aside a portion of their savings in a low-risk account to cover potential emergencies. By taking a holistic approach, David and Linda feel confident about their financial future and are prepared to enjoy a comfortable retirement.

Exploring Alternative Retirement Strategies

Considering Part-Time Work or Consulting

For some retirees, continuing to work part-time or pursuing consulting opportunities can provide additional income and keep them engaged. This approach not only helps supplement retirement income but also offers a sense of purpose and fulfillment.

Advantages of Working in Retirement

  1. Additional Income
    • Part-time work or consulting can provide a steady income stream, reducing the need to draw down on savings.
  2. Social Interaction
    • Continuing to work can offer valuable social interaction and a sense of community, which is important for mental and emotional well-being.
  3. Skill Utilization
    • Retirees can leverage their skills and experience in new ways, contributing to meaningful projects and staying mentally sharp.

Example: Combining Work and Retirement

Tom, a retired engineer, decided to start a consulting business after retiring from his full-time job. This allowed him to stay connected with his professional network, use his expertise, and earn additional income. Tom enjoys the flexibility of consulting, which allows him to work on his terms while still having time for travel and hobbies.

Exploring Gig Economy Opportunities

The gig economy offers retirees various opportunities to earn income through flexible, short-term jobs. This could include freelance work, driving for rideshare services, or offering handyman services. The gig economy can provide retirees with the flexibility to work as much or as little as they want.

Example: Earning Through the Gig Economy

Susan, a retired teacher, joined a tutoring platform to offer her services online. She enjoys the flexibility of setting her schedule and helping students succeed. The additional income from tutoring supplements her retirement savings, allowing her to maintain a comfortable lifestyle.

Adapting Your Plan to Changing Circumstances

Regular Reviews and Adjustments

Retirement planning is not a one-time task. It requires regular reviews and adjustments to ensure it remains aligned with your evolving needs and goals. Here’s how to keep your plan on track:

  1. Annual Reviews
    • Review your retirement plan annually to assess its performance and make necessary adjustments. This includes evaluating your investment strategy, budget, and income sources.
  2. Adjusting for Life Changes
    • Life events such as health changes, family dynamics, or economic shifts may require adjustments to your plan. Be proactive in updating your plan to reflect these changes.

Example: Adapting to New Circumstances

Mary and John, a retired couple, initially planned to travel extensively in their retirement. However, due to health issues, they had to scale back their travel plans. They adjusted their budget and reallocated funds towards healthcare and local leisure activities. By being flexible and adapting their plan, Mary and John were able to maintain their financial stability and enjoy their retirement.


Planning for retirement in today’s complex financial environment requires a shift from outdated models to a more nuanced approach that considers extended longevity, rising costs, and the need for flexible strategies. By clearly defining your retirement needs, estimating costs, assessing risk tolerance, and exploring alternative income sources, you can build a robust plan that supports a fulfilling and secure retirement.

Remember, retirement planning is an ongoing process. Regularly review and adjust your plan to ensure it stays aligned with your goals and changing circumstances. Whether you choose to downsize, continue working, or explore new opportunities, a well-thought-out plan will provide the foundation for a comfortable and enjoyable retirement.

If you need assistance in developing or updating your retirement strategy, consider consulting with a financial professional who can offer personalized guidance tailored to your unique situation and aspirations. With careful planning and a proactive approach, you can navigate the challenges of retirement and achieve your financial goals.

1 Murphy SL, Kochanek KD, Xu JQ, Arias E. Mortality in the United States, 2020. NCHS Data Brief, no 427. Hyattsville, MD: National Center for Health Statistics. 2021.

This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. The individuals used in the examples are fictional and used for illustrative purposes only.