Preparing for Lifetime Income Sufficiency in Retirement

Scott Russell |

When financial planners first began to calculate retirement income needs back in the 1970s and 1980s, many of them latched on to the “70 percent” rule, which says that retirees should plan on needing just 70 percent of their pre-retirement income to live comfortably in retirement. It’s a straightforward rule with assumptions that probably worked well back then, but are dangerously flawed in today’s “new normal” retirement.

The fact is that the “cost” of retirement has increased significantly in the last three decades to the point where many retirees may need as much as 100 percent of their pre-retirement income and be able to make it last for 25 or 30 years.  Planning for lifetime income sufficiency in today’s environment needs to focus less on archaic rules and formulas, and much more on today’s realities.

Your Biggest Retirement Risk

The real risk faced by retirees today is their own longevity, which, as measured by life expectancy, continues to expand each day. A healthy 65-year old male today can expect to live until age 81. When he turns age 70, he can expect to live until age 85, and will have a 25 percent chance of living to age 100. The risk is compounded further when traditional planning assumptions use standard life expectancy tables to calculate a person’s retirement income need.  Many financial planners and retirement calculators still assume that we will all die on time which means we will run out of money the day after we die. But what if we don’t?

Preparing for Lifetime Income Sufficiency

Ensuring your retirement income outlasts you requires deliberate and thoughtful preparation guided by these essential steps:

Clearly and Realistically Define Your Retirement Needs
With the cost of retirement increasing, it is more important than ever that you have a clear, realistic vision of what your retirement will look like and be able translate your vision into very specific goals in terms of income need and time horizon. If you don’t have a clear target to aim for, you are most likely not to hit it. Over time, your vision is likely to change requiring adjustments to your goals and your retirement savings objectives; so your plan should be reviewed frequently. 

Know Your Retirement Costs
Whatever your vision retirement, it will have a cost. The trap that ensnares many people is to estimate retirement costs based on some general rule of thumb (i.e. 70 percent rule). If you’re concerned with outliving your income, you should take a more deliberate approach to calculating your costs. Create a budget today that reflects your vision and then factor in the cost of living increases that will occur over your retirement lifetime. Don’t forget to account for the likelihood of increased health care expenses.

Don’t Invest to Conservatively
In today’s environment, the biggest mistake pre-retirees and retirees can make is to invest too conservatively. While you may feel a sense of “peace-of-mind” by investing in guaranteed or safe vehicles, your assets are exposed to a number of other risks, such as inflation or outliving your income, that can have a devastating impact on your lifetime income sufficiency. With the possibility of living more than 30 years in retirement, it is essential to invest for growth just to maintain your purchasing power, let alone ensure your income outlives you.  A well-conceived investment strategy consisting of a broadly diversified portfolio of equities, bonds and cash is the best defense against inflation over a prolonged period of time.

Consume Like a Retiree
Whether out of necessity or a desire to simplify their lives, an increasing number of people have “downsized” their vision of life in retirement. Today’s retirees are moving into smaller homes, driving less expensive cars, and learning the virtues of frugal living. The focus is beginning to shift from “life style” to “quality of life” which can actually produce more sustainable happiness with far less stress. So, why not make that choice now, well ahead of your desired retirement date? In doing so, you’ll not only have more excess cash to invest for retirement, you’ll experience a much easier and more seamless transition into your golden years.


Today’s retirement income planning needs to be grounded into today’s realities; so, it would be a mistake to succumb to standard formulas or a generalized approach to retirement planning.  Right now, your retirement vision, formed by your own needs, wants, attitudes and beliefs, is your most important benchmark  for determining how much money you will need to save and how to invest it. Preparation, which entails having a realistic vision, a plan, a strategy and a disciplined approach to following them, is the key to achieving retirement success.