The “Principles for Retirement Income” was recently published by Vanguard Group. If you do not know how much income your savings can support, you will spend too little or too much in retirement. If you are retired now or will be soon, you appreciate the challenge of turning savings into income. We do not want to run out of money in retirement.
The first principle is purpose. What matters most about your retirement? What are your goals and your priorities? Your income need includes your necessary expenses and your discretionary spending. You create your retirement spending estimate. For reference, first-year retirees typically spend about 80% of their pre-retirement income.
The second principle is to cover the essentials. You can cover necessary expenses with reliable income sources like Social Security, pensions, and annuities. And include your healthcare needs. The important number is the withdrawal rate from your savings portfolio.
Take your total expenses and subtract your income from Social Security, a pension, and any annuity. How much more income do you need? Divide the remaining income needed into your savings portfolio amount. That’s your withdrawal percentage. Is that a reasonable rate or are you likely to run out of money in the future?
Vanguard recommends you have a contingency or emergency fund to cover larger and unexpected needs, such as medical expenses or home repairs. This is often equal to one or two years of retirement income. You subtract this amount from your savings portfolio total.
You can cover your necessary expenses with guaranteed lifetime income, taking withdrawals for the rest of your income need. Suppose you need $100,000 in annual income and have $40,000 in Social Security. With $60,000 in necessary expenses, you can add an annuity for $20,000 of additional guaranteed income to cover your necessary expenses.
Your annuity purchase comes from your savings portfolio. You take $40,000 withdrawals from your remaining savings portfolio. A safe withdrawal rate today is between 3.5% and 5% perhaps. More guaranteed income can reduce the risk of running out of money, while a withdrawal strategy alone has more investment risk and more longevity risk.
The third principle is to make your wealth last. Reduce income taxes and high-cost debt. Do your estate planning. Work longer and claim Social Security later. The fourth principle is to Simplify. Reduce the number of accounts and make things easier to track so you worry less and make fewer mistakes.
Vanguard recommends this principles-based plan for retirement income. It is based on your needs and priorities and prefers you cover essential expenses with guaranteed income. It is not complicated and it can work well enough to avoid running out of money.
Disclosure: Dan White is an investment advisory representative and provides advisory services through CoreCap Advisors, LLC. Dan White & Associates, LLC and CoreCap Advisors, LLC are separate and unaffiliated entities. This presentation is for informational purposes only and is not intended as investment, tax, or insurance advice. 2026- 5860164
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