Success isn’t measured by how much you accumulate, but the sources of income you create.
You used to be able to offload saving for your retirement to an employer-provided pension plan, or “defined benefit” plan, that would generate a payment of the same amount each month throughout your retirement years. But today, the burden is on you, as pension plans have become almost non-existent. According to the Employee Benefit Research Institute (via the U.S. Department of Labor), of 739,381 total single employer plans active in 2020, 694,349, or 94 percent, were “defined contribution” plans—and virtually all of the remaining pension, or “defined benefit,” plans were registered to companies with fewer than 25 workers.
In a defined contribution plan, like a 401(k) plan, you commit a portion of your pay each month to the plan. In many cases, an employer “matches” that contribution up to a certain amount. That 401(k) or other “qualified” plan may be the cornerstone of your retirement savings, as your contributions and matches are tax deferred, meaning you won’t be taxed on that money until you start withdrawing funds in retirement.
While those tax-deferred retirement dollars are key to a successful retirement, it is important to note that there are risks associated with those savings, including:
- Outliving your money, which is an increasing risk as people are living longer
- Inflation, which erodes your spending power, meaning you’ll need increasingly more money to cover your living expenses
- Investment risk, because the investment markets, stock and bonds, are volatile, and the value of the assets in your portfolio can decline in certain periods
- Unforeseen expenses, like healthcare costs, home repair costs, any funds required for emergencies
Your retirement income
What’s even more important than piling up your retirement savings over the years is recognizing that it’s not how much you have, your assets, but how much income those assets can produce in retirement.
Consider that Social Security will cover only a small portion of most people’s needs. According to a 2025 J.P. Morgan study, Social Security payments were able to replace only 44 percent of a pre-retirement income of $100,000; the figure declines to just 16 percent of $300,000 of pre-retirement income. Planning for retirement, then, starts with determining “what goes out,” that is, your living expenses, taxes, inflation, and other known and estimates of unforeseen costs, versus “what’s coming in.” If your portfolio can be relied on to provide what you need in addition to your Social Security in terms of what goes out, you will have a successful retirement.
The formula for ensuring your investment portfolio can sustain you throughout retirement is different for everyone, but typically we consider drawing between 3 and 4 percent of your savings annually as sustainable. However, the formula is unique for each individual, the biggest factors being how long you will need to draw, your longevity, your appetite for portfolio risk to seek a higher investment return, and your anticipated portfolio withdrawals to supplement your other income, such as Social Security. We run Monte Carlo scenarios to help our clients determine how much money they will be able to withdraw to avoid running out. Of course, those scenarios include all their investments, such as any investment in real estate, business interests, and the cash value of a life insurance policy, and they consider multiple risk scenarios. If those scenarios indicate insufficient savings, the options are typically to spend less, save more, look for ways to earn a higher rate of return, delay retirement, or take a job, even a part-time job, in retirement.
Guaranteed income
One way to hedge against the risk of running out of money is to add more guaranteed income to your retirement planning. You might convert some savings in your investment portfolio to an annuity, a sort of “personal pension” plan. Annuities today come in many different options, including annuities with a guaranteed living income benefit.
Consider this real-life :
A 60-year-old takes $100,000 from his savings to invest in a deferred annuity with a 15-year deferral period. Several factors would affect the monthly income at age 75:
– Interest rates during the accumulation period (ages 60-75)
– The payout rate at age 75, which depends on:
-
- Prevailing interest rates at that time
- The individual’s life expectancy at age 75
- Whether the individual chose options like inflation adjustments or survivor benefits
Based on current typical annuity rates:
If your $100,000 grows at about 4 percent annually during the 15-year deferral period, it would reach approximately $180,000 by age 75. At age 75, a single life immediate annuity might pay around 8-10 percent annually of the accumulated value. This would generate roughly:
– Annual income: $14,400-$18,000
– Monthly income: $1,200-$1,500
Why you plan
The HBKS planning process involves determining your retirement needs, goals, and objectives and assessing your income resources to ensure a successful retirement. Everyone is unique so you need to plan based on your goals, your situation, your needs.
We can help. For more information or to schedule an interview with an HBK retirement funding expert, call us at (814) 836-5776; or email me at ptaylor@hbkswealth.com.
Important Disclosure:
The information and examples included in this document are for general, educational, and informational purposes only. It does not contain any financial or investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any financial or investment advice. If you would like financial or investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy, or allocation (including those recommended by HBKS Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy, or allocation may not be indicative of future results.
The historical and current information as to rules, laws, guidelines, or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified but was obtained from sources believed to be reliable. HBKS Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
HBKS Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.
Investment Advisory Services offered through HBK Sorce Advisory LLC, d.b.a. HBKS Wealth Advisors. Not FDIC Insured – Not Bank Guaranteed – May Lose Value, Including Loss of Principal – Not Insured By Any State or Federal Agency.
