Solving
the retirement income puzzle

Some people may be inclined to begin receiving their Social Security benefits as soon as possible, even if it means reduced payouts. Whether this is the best financial decision depends on several factors, including your health, your life expectancy, your current wealth, your tax profile, and your employment status. For most people, delaying Social Security to a later age is a prudent choice. In general, the longer your life expectancy, the more it pays to put off taking Social Security benefits. Even those with average life expectancies will generally benefit from delaying Social Security.

For planning purposes, consider factors such as your health and your family's health and longevity history as well as current life expectancy measures to make an educated guess about your life expectancy. Another factor in determining when to start your benefits is whether you intend to continue working early in retirement. If you have earned income, you may want to delay taking Social Security and receive higher benefits later.

We recommend you withdraw between 3% and 5% of your total savings the first year of retirement. However, while a rigid withdrawal plan based on straightforward calculations is easy to understand, it's unlikely to perfectly align with your actual spending needs in retirement.

You'll probably have additional expenses some years, whether they're planned (a new car) or unplanned (a medical emergency). If you're willing and able to take less than your "allowed" amount some years, it will give you the security of knowing you can safely "overspend" in others.

If you have different types of retirement accounts, you may be able to stretch your savings by withdrawing money in the most tax efficient order:

1. Spend from your taxable accounts before taking withdrawals from tax-advantaged accounts.
2. Consider withdrawing money from tax-deferred accounts, such as an employer's plan or a traditional IRA.
3. Finally, withdraw money from tax-free accounts, such as qualifying Roth contributions made to an IRA or your employer's plan.

There are real behavioral challenges to purchasing an annuity. We've done the research, and for the vast majority of participants the fear of making a bad decision is greater than the fear of outliving their assets.

That's not to say an annuity can't be a viable retirement income option. But given participants' understandable wariness, an annuity shouldn't be the primary—and certainly never the only—option they are given.