Step-by-step basics of retirement income planning

june 21, 2024

Many people put off retirement income planning because it can feel overwhelming, and they might not know where to begin. And then there’s the anxiety: With inflation again an economic factor and the future so uncertain, how can you ever create a portfolio large enough to support your retirement? What tools and investments are available to you, and how do you choose among them to create a financial strategy to minimize risk and prepare you for the retirement you want, when you want it?

Don’t get overwhelmed. Jackson is here to guide you through retirement income planning. If you’ve never been down this particular road before, here are six milestones to check off on your roadmap:

1. Set your retirement goals and needs.

Think about the retirement life and lifestyle you want. Is it the same life you have now? Is it more expensive, with more travel, vacations, and dining out, buying a retirement home, or paying for the grandkids’ educations? Or is it less expensive, with the mortgage paid off and a focus on inexpensive pursuits such as community service or gardening?

Either way, pencil in a big-picture budget so you can understand how much you might need. Lots of factors can complicate your budget – such as the cost of living and taxes in the retirement locale of your choice. Our Jackson Retirement Income and Expense Calculator can help you estimate the income required to meet your retirement goals.

2. Calculate how much retirement income you'll need.

Or, put another way, how long will you need your retirement income to last.

We partnered with the Center for Retirement Research at Boston College to study Longevity Risk, and we found some alarming statistics. The vast majority of survey participants over- or underpredict their potential longevity when compared to the life expectancy tables provided by the Social Security Administration. In fact, 32% are underpredicting, making themselves vulnerable to living for some time in retirement with insufficient income.1

Your intended retirement age and likely longevity might be at odds. Longevity is based on your family history, lifestyle habits, personal health, and more. Come up with an optimistic estimate—you might just reach it. Learn more from our new Insights on Longevity Risk.

Another approach to deciding how much retirement income you’ll need is considering the various rules of thumb out there, and deciding which ones make sense for you. Some suggest saving about $1 million to $1.5 million (beware of one-size-fits-all advice) or 10 to 12 years of your pre-retirement income.2 Others suggest that many retirees spend 70% to 85% of their pre-retirement income3 (more or less for you, based on the goals you identify in step 1). Still others work backward from the 4% rule, which suggests spending no more than 4% of your nest egg each year.4 

3. Determine how long it will take to reach your target number.

Once you know how much retirement income you’ll likely need, determine how long it might take to save it, which determines when you can afford to retire. Consider all your potential income sources, including savings, 401(k)s, IRAs, Social Security, rental income, and others. Your financial planning professional can help you determine whether you can reach your goal by your intended retirement date.

If not, you may have to reconsider your goals, your intended retirement date, or both. But none of this is an all-or-nothing proposition. You might choose to spend a few years between career and retirement in “semi-retirement,” working part time to top-off your savings. Or you might break up your retirement into periods or components, and implement your goals over time, rather than all at once. 

4. Set your priorities.

Your retirement income planning and saving shouldn’t happen in a vacuum because retirement shouldn’t be the only financial goal in your future. Having an emergency fund can be just as important. For many people, emergency funds hold three to six months’ worth of expenses.

Paying down your debts – such as credit cards, mortgages, personal and auto loans – could be another priority. You don’t have to go into retirement completely debt free, but it’s often a good idea to pay off at least the higher-interest loans. That’s because every dollar you pay out in interest – before or after you retire – is a dollar you can’t invest to generate more retirement income.

5. Choose retirement accounts and tools.

You know (approximately) how much you’ll need and when you’ll need it. Now it’s time to consider the allocation of accounts and tools you might use to save that money. If you have a 401(k) at work, that can be the easiest way to start – and your company’s contributions help the pot grow faster. An IRA can be right if you don’t have a 401(k), want to save more than you can in a 401(k), or prefer to invest in ways not possible in the company plan.

Those are the most publicized options – but they’re not the only ones. If you’re over 50, you may qualify to make additional, “catch-up” deposits in your 401(k). Insurance – such as long-term care plans – can be a good way to prepare for what could be among your biggest retirement expenses. And annuities remain a popular choice to include guaranteed income in your portfolio.

6. Choose your investment strategy.

How you invest over the years leading up to – and during – your retirement can be just as important as how much you save for retirement. Basically, you’re balancing risk and reward. Where you fall out on the risk-and-reward spectrum often depends on your tolerance for risk and how long you have to recover any losses your portfolio may suffer.

Many people do best with a retirement savings strategy that tolerates more risk (and offers more potential reward) when they’re in their 20s and 30s, with a gradual shift toward more conservative (but potentially less rewarding) investments as they get closer to, and enter, retirement. At that point, preservation of capital is often the key goal.

You don’t need to go it alone on your retirement income planning journey. Work with your financial professional to get the education, develop the strategies, and create the portfolio and investment mix that’s right for you.

Annuities are long-term, tax-deferred vehicles designed for retirement.  Variable annuities involve investment risks and may lose value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59 ½ unless an exception to the tax is met. 

1. “Research, Analysis, and Insights on Addressing Longevity Risk,” Jackson in partnership with Center for Retirement Research at Boston College, January 2024.

2. "How much do you need to retire? Consider these guidelines on your financial journey," Tina Hurley accessed June 7, 2024.

3. 5 steps for retirement planning, Vanguard, accessed June 6, 2024.

4. "What Is The 4% Rule For Retirement Withdrawals?," Rob Berger and Benjamin Curry, February 2023.

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