This Could Be Your Ticket to Not Running Out of Money in Retirement

Americans now say they need about $1.46 million to retire comfortably, up sharply in just a few years. This is in stark contrast to how much they actually have saved. Median retirement account balances are far below that, with some having just tens of thousands set aside.

The core problem is that relying on a simple withdrawal rule from an undersized portfolio leaves people exposed to market swings, inflation, and the risk of outliving their cash. Instead of obsessing over a giant lump sum, what if you could use a guaranteed income strategy that pays you every year of your retirement plan? Learn more about this key to not running out of money.

Why hitting the "magic number" isn't enough

That $1.46 million nest egg goal may seem like a dream, and it's very common to fixate on the perfect number that will see you through the end of your life. However, goals like this are squishy and ignore personal factors like housing, health, or part-time work.

They also ignore sequence-of-return risk, or the order in which market returns show up as you withdraw your portfolio. Bad markets in early retirement can permanently damage your nest egg, even if the average over 30 years looks fine. It's likely you may rethink pulling a fixed percentage (like 4% annually) and look at a structure that protects near-term cash flow while letting long-term investments ride until they are healthier.

Build your foundation with three buckets

A counter approach to the one-bucket framework is to look at three buckets that protect near-term spending from volatile markets:

• Cash (short term): About one to two years of essential expenses in a high-yield savings, money market funds, or short CDs
• Bonds (intermediate): Several years of income in high-quality bonds or bond funds to replenish that cash bucket
• Stocks (long term): Growth engine of diversified stock funds for money you won't spend for at least seven to 10 years, but that keeps up with market changes and inflation

Adding in annuities

Another option is the "paycheck for life" — or annuity plan. It covers the gaps that the three buckets might not fill, especially if you live longer than most. A lifetime income annuity is a contract with an insurance company that converts part of your savings into a guaranteed stream of income, no matter what markets do.

You collect each year you're alive, and the money helps cover what Social Security might not. These products act like a personal pension, addressing the fear of outliving your funds.

Deferred annuities as longevity insurance

Longevity insurance, often structured as a specific type of deferred income annuity (DIA), lets you pay a premium now in exchange for a guaranteed paycheck that starts in your 70s or early 80s. It appeals to those nervous about locking up too much money.

The initial up-front investment is smaller than an immediate annuity, since you won't get anything out until later. But if your investments do struggle, you have at least a floor of income to work with in old age. Buying a modest deferred contract can be a backstop that doesn't require tying up your entire nest egg.

Figuring out the right bucket mix

Your unique inputs determine the ideal mix of buckets, annuities, and deferred income, and this is usually where a fee-only financial planner comes in. They can look at factors such as:

• Expected Social Security benefits (a form of inflation-protected lifetime income)
• Pensions or other guaranteed payments
• Health status and family longevity
• Risk tolerance and desire for flexibility vs. predictability

They'll typically look at the knowns (Social Security and pension) and weigh them against the unknowns (lifespan, medical expenses) to get a number for how much of an annuity you can comfortably fund.

Bottom line

Many Americans will likely need to boost a fixed income, but accelerating toward a magic number isn't the only approach to take. Outliving your income is a valid concern that may not be relieved by these bigger numbers alone.

The right mix of income types and annuities can balance the here and now with the "what ifs" that happen later. Just be sure you use a fee-only planner when forming your plan, as they don't make more money when you choose one annuity over another.