Retirement Income Planning Basics

The Shift from Saving to Spending

During your working years, the goal is simple: save as much as possible. In retirement, the challenge is different — you need to convert those savings into income without running out of money. This requires thinking about withdrawal rates, sequence of returns risk, inflation, and longevity in ways that are not relevant during the accumulation phase.

The Income Floor Strategy

The most widely recommended approach to retirement income is the income floor strategy. The goal is to cover all essential expenses — housing, food, healthcare, utilities, transportation — with guaranteed income sources that cannot be depleted. Social Security forms the foundation. An annuity with lifetime income can fill any gap between Social Security and essential expenses. Discretionary spending comes from flexible investments.

The 4% Rule — A Starting Point

The 4% rule is a widely cited guideline that suggests you can withdraw 4% of your portfolio in the first year of retirement, then adjust for inflation each year, with a high probability of not running out of money over a 30-year retirement. While useful as a starting point, the 4% rule has limitations — it does not account for individual circumstances, market conditions, or the availability of guaranteed income sources.

Sequence of Returns Risk

Sequence of returns risk is the danger that poor market performance early in retirement can permanently damage your portfolio, even if long-term average returns are acceptable. Withdrawing money from a declining portfolio locks in losses and reduces the amount available for recovery. Guaranteed income sources (Social Security, pensions, annuities) reduce sequence of returns risk by reducing the amount you need to withdraw from investments.

The Role of Insurance in Retirement Income

Insurance products play a specific role in retirement income planning that investment products cannot fill:

• Annuities: provide guaranteed income that cannot be outlived
• Life insurance: protects a surviving spouse and provides legacy planning
• Medicare and supplemental insurance: manage healthcare costs, the largest variable expense in retirement
• Long-term care insurance: protects savings from catastrophic care costs

Creating Your Retirement Income Plan

A complete retirement income plan identifies all income sources, matches guaranteed income to essential expenses, determines a sustainable withdrawal strategy for investments, and addresses healthcare, longevity, and legacy goals. AG Insurance helps West Virginia retirees build the insurance component of their retirement income plan — Medicare, annuities, and life insurance — as part of a comprehensive approach.