the retirement income puzzle

Retirement income

A timely issue critical to financial well-being

Retirement plan participants must save enough for retirement and then spend wisely once they get there to achieve and maintain financial well-being. And while retirement plan sponsors can take pride in the progress made in encouraging increased saving behavior, most participants say they also need help spending in retirement.

Yet many plan sponsors continue to struggle with helping their participants spend in retirement.

The reason: Solving for retirement spending is especially complicated, largely because each participant's situation is unique. There is no one-size-fits-all retirement income solution.

Read our research
Colleen Jaconetti, a senior investment strategist in Vanguard Investment Solutions.

Watch Colleen Jaconetti, a senior investment strategist in Vanguard Investment Solutions, explain our approach to retirement income.

Addressing the needs of all participants

Each retiree's goals, risk tolerance, and resources are different, and their health, longevity, and tax situations unique. That's why we believe the most effective retirement income solution must consider each participant's individual needs.


To learn more about these goals, read Section 1 of our Roadmap to Financial Security


To learn more about these risks, read Section 2 of our Roadmap to Financial Security


To learn more about these resources, read Section 3 of our Roadmap to Financial Security

The benefits of offering a retirement income solution

Particpants benefit from continued fiduciary oversight and Institutinal pricing. Plan sponsors benefit from scale and bargaining power and preserving particpants' wealth View our Vanguard retirement income solutions

Retirement income in focus

What can retirement plans do to be more retiree-friendly?

The road to helping participants in retirement begins with ensuring your plan is retiree-friendly, says Colleen Jaconetti, a senior investment strategist in Vanguard Investment Solutions.

How can advice help meet the needs of participants in retirement?

Advice allows for the development of a retirement income strategy unique to each retiree's individualized goals, says Kevin Megargel, a senior investment strategist in Vanguard Institutional Advisory Services®.

Do annuities have a role to play in providing retirement income?

While an annuity can be a viable retirement income option for some, it shouldn't be the primary option available, says Kaitlyn Caughlin, principal and head of Vanguard Portfolio Review Group.

See more retirement income content from Vanguard experts

Answering your participants' questions about retirement income

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.

Partnering with you

Retirement income isn’t straightforward. Retiree goals and circumstances can vary dramatically. To accommodate these differences, we believe plan sponsors should:

  • Ensure the plan's fund lineup supports retiree goals.
  • Provide spending guidance with streamlined implementation.
  • Offer advice services.

We can help. We have the tools and services to not only get participants TO retirement, but THROUGH retirement as well.

Learn more about our solutions
  1. 2020 Retirement Confidence Survey Summary Report, EBRI, April 2020.

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