Retirement | April 9, 2021

Will You Have Enough for Retirement?

A third of those who receive an inheritance have negative savings within two years.1 The reason? Failure to plan ahead.

Retirees can face the same risk. While many of us have been setting aside a portion of our income on a regular basis for years, far fewer have a plan for converting those savings into a steady income stream that will last.

Creating income during retirement may sound daunting, but it doesn’t have to be. We recommend doing so in three simple steps: plan, invest and distribute. Here, we’ll take you through the first, and arguably most important, one: planning.

Your life, your plan

No two retirements are the same. Your plan should encompass your vision: What are your goals, and what resources will you need to meet them? Here are three basic questions you should ask as you begin the planning process:

  1. How much will you need to spend to achieve your goals?
  2. How much do you expect to earn from a savings, Social Security and other potential sources of income?
  3. What will you do if your savings fall short?


1. How much will you need to spend?

One school of thought says you’ll need 75% to 80% of your current income in order to maintain your present standard of living. That’s because some costs—such as mortgage payments or work-related expenses like clothing and commuting—are expected to decrease or go away altogether.

However, while some costs may be reduced, others—such as travel, entertainment and health care—may increase. Therefore, it might be safer to assume you will need roughly the same level of annual income that you earn now, minus other potential sources of income, such as savings and Social Security.

As an example, let’s say you earn $100,000 a year before taxes and are saving $10,000 a year toward retirement. Based on the 75% to 80% rule, you’d need between $75,000 and $80,000 a year in retirement. But it’s safer to assume that you’ll need $90,000 annually—that is, $100,000 minus the $10,000 you are currently allocating to retirement savings, all things being equal.

A hypothetical investor earning $100,000 per year and saving $10,000 per year for retirement could be expected to spend $90,000 annually in retirement.

Another approach is to create a detailed budget by breaking anticipated expenses into two groups:

  • Essential expenses, or those you can’t live without, such as food, health care and housing.
  • Discretionary expenses, or those that are nice to have, not need to have, like entertainment, restaurants and travel.

If you own your home, you should also budget for expenses like major appliance replacements and other improvements and repairs that may be required during your retirement. You might also include possible one-time expenses, such as relocation or that dream trip you’ve been putting off.

A detailed budget can be more meaningful, and helpful, near retirement.

2. How much do you expect to earn?

Once you have an idea of how much you’ll need to spend, you can begin to calculate whether you’ll have the resources to meet your needs.

First, tally up any earnings you expect to receive from pensions, Social Security and any other sources of income—other than that from your savings. Then subtract that amount from your estimated expenses to determine how much of your income will need to come from your portfolio.

For example, let’s say you’re shooting for $90,000 in annual spending. Assuming your nonportfolio income amounts to $30,000 a year, you will need $60,000 a year from your portfolio.

A hypothetical investor seeking an annual income of $90,000 in retirement, and who expects to receive $30,000 per year from non-portfolio sources (such as Social Security payments), should plan to withdraw $60,000 per year from a retirement investment portfolio.

According to the Schwab Center for Financial Research, a portfolio that is roughly 25 times as large as the amount you’ll need in your first year of retirement can reasonably be expected to last 30 years, even with annual adjustments for inflation.2 So, to generate your $60,000 a year portfolio contribution, the 25x target would lead you to a portfolio value of $1.5 million.

An investor planning to withdraw $60,000 per year during a 30-year retirement should plan to create an aggregate portfolio worth approximately $1.5 million—that is, $60,000 times 25.

Although the so-called "25x rule" is a target, if you're nearing retirement and haven't saved this much, don't panic. We see the guideline as a conservative rule to provide high level of confidence that savings will last.

It's always a good idea to consult a financial planner to create your own personalized financial calculations and planparticularly as you approach retirement.

3. What if your savings fall short?

While some investors will find themselves on target, others will discover that they may not have saved as much as they would have liked. If you experience the latter, here are several ways to adjust:

Step up your saving

  • Contribute the maximum to your 401(k).
  • Contribute to an individual retirement account (IRA).
  • Contribute to a SEP-IRA if you’re self-employed.
  • Make additional catch-up contributions if you’re over 50.
  • Earmark bonuses, raises and tax refunds for retirement.

Consider waiting

  • Work longer to help preserve your savings.
  • Work until you’re eligible for Medicare to avoid potentially pricy private coverage.
  • Wait to collect Social Security. You can begin collecting benefits as early as age 62, though it will be reduced by about 30% compared with your so-called full retirement age (currently 66 but rising to 67 for those born in 1960 or later). Once you attain full retirement age, every year you wait up to age 70 increases your benefit by 8%.
  • Consider a phased retirement that includes part-time work to help reduce the need to file for Social Security payments before full retirement age and reduce withdrawals from your portfolio.


  • Reduce discretionary spending by separating “nice to haves” from “need to haves.”
  • Cover “need to haves” with proceeds from pensions, Social Security and other relatively reliable sources of income whenever possible.
  • During retirement, prioritizing spending is helpful too—in a down market, you can reduce discretionary spending to help savings last.

Periodic check-ins

It’s important to remember that retirement-income planning isn’t a “set it and forget it” exercise, especially after retirement begins. Rather, your retirement plan should be a working document that is reevaluated at least annually to account for any changes to inflation, investment returns, life expectancy, spending, and taxes.

This may sound like a lot of work, but remember the fate of one-third of all heirs. By planning today, you can confidently count on going the distance tomorrow. Remember, these are guidelines. Following a plan, but remaining flexible, can help savings last so that you enjoy retirement.

1One in three Americans who get an inheritance blow it,”, 09/03/2015.

2This is a general estimate only. It is recommended that investors use a retirement-plan calculator with Monte Carlo simulations for a more refined, personalized estimate.

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