Retirement planning is complex. With fewer retirees relying solely on pensions, more people need to look for alternative sources of retirement income and manage issues such as tax implications when withdrawing funds from different types of accounts, when to start taking Required Minimum Distributions (RMDs), and how to set appropriate asset allocations for their retirement portfolios. Here are three challenging decisions that retirement planners face today.
At the outset of retirement, it is impossible to determine the “correct” withdrawal rate. A commonly seen “safe” withdrawal strategy for new retirees is to start with an initial 4% withdrawal rate and adjust that amount annually based on inflation. In 2021, our research indicated that for new retirees with a balanced investment portfolio and a 30-year retirement horizon, a safe initial withdrawal rate is actually 3.3%. By the end of 2024, that number had increased to 3.7%. What complicates matters further is that retirees’ annual spending adjusted for inflation is not fixed.
Adjust your withdrawal rate over time. Older retirees can reasonably increase their withdrawal rates compared to younger retirees with longer expected spending periods.
Stay flexible. Many studies on withdrawal rates emphasize the importance of adjusting withdrawal amounts flexibly, especially reducing withdrawals during periods of poor investment performance.
Maximize non-investment income. Most retirees have some sources of non-investment income such as social security benefits, pensions, annuities, rental income, etc.
Long-term care is an uncomfortable topic. Contemplating the need for long-term care can be disheartening, and the costs involved could lead to a severe financial blow. In 2025, Genworth estimated the annual cost of long-term care to be $111,325, a 7% increase from the previous year. Most such care is not covered by federal health insurance (Medicare) unless it falls under the category of “rehabilitation” after a hospital stay.
The issue lies in whether and how to protect oneself from these costs. The likelihood of needing long-term care is essentially like flipping a coin: a 2019 study estimated that about half of individuals turning 65 will require some form of paid long-term care during their lifetime. If I told you that there is a 50/50 chance of you totaling your car during retirement, you would almost certainly choose to have insurance.
Twenty years ago, purchasing long-term care insurance was the standard practice for middle-income and upper-income adults to cover long-term care costs. Wealthy individuals could pay out of pocket for long-term care expenses, while low-income adults had to rely on Medicaid for long-term care coverage.
However, the long-term care insurance market is in dire straits today. While recent rate increases have improved the economic structure of the long-term care insurance industry, premiums have risen accordingly, and several insurance companies have completely pulled out of the business. Consumers who thought purchasing insurance was the right choice now face three difficult options: surrendering their policies, accepting benefit reductions, or paying higher premiums.
This means that buying standalone long-term care insurance is no longer an obvious choice. Hybrid products are gaining popularity, incorporating long-term care provisions into life insurance or annuity policies. However, these products are complex in structure and often require a lump-sum payment, creating a consideration of opportunity cost for buyers.
Carefully review your retirement asset allocation, assess whether you have enough resources to self-fund for care expenses, whether you could qualify for Medicaid, or if you fall somewhere in between. Then, formulate your long-term care action plan based on this evaluation.
For years, researchers have advocated for purchasing simple income annuities in retirement planning, believing that these products not only provide longevity risk protection but also offer higher returns than fixed-income investment products like bond funds. Recently, there has been a growing focus on annuities in retirement toolkits, as annuity payments usually increase when interest rates rise.
There are significant differences in types of annuities, from straightforward immediate annuities to more complex products that offer market exposure, guarantee minimum living benefits, and death benefits.
Studies have shown that acquiring basic annuities provides more peace of mind than simply holding the same amount in investment assets. However, the sales of annuity products favored by retirement researchers – immediate and deferred income annuities – have been less than ideal. This may be due to various factors such as investors being unwilling to invest a large sum of money into annuities at once, or financial advisors lacking the incentive to recommend these products.
There is disagreement on whether annuities are necessary and what type of annuity to purchase, but few doubt the scarcity of lifetime income they offer. Particularly considering that only about a quarter of the baby boomer generation currently in retirement have pensions, and this percentage is declining in subsequent generations.
When considering lifelong income, the starting point isn’t necessarily annuities but maximizing the benefits you receive from Social Security, essentially a government-backed pension. As social security expert Mike Piper points out, for single individuals in good health, delaying benefits until age 70 is typically a wise move.
For married couples, having the higher-income earner delay benefits often helps boost the couple’s lifelong income. After maximizing income from Social Security, if retirees require additional foundational income beyond what Social Security provides, that’s when annuities should be considered. For retirees with stable pension income covering most of their living expenses, the role of annuities may be relatively lower.
This article was translated and adapted from a piece originally published in English by a licensed media outlet. The content represents the author’s views and opinions and is provided for general informational purposes only, without any intention of recommendation or solicitation. The publisher does not offer advice on investment, tax, legal, financial planning, estate planning, or other personal finance matters. The publisher does not guarantee the accuracy or timeliness of the article.