How much income will I need to retire?

This is an age-old question. I have been asked this at cocktail parties, dinner parties, seminars, and even on airplanes. The answer is ------It Depends! It depends on what age you want to retire, how long you will be retired (life expectancy), your lifestyle needs, and your fixed expenses. What most people really want to know is, “How much can I safely withdraw from my investments without jeopardizing my retirement?” This is a fair question since investment income is the primary source used to supplement retirement income.

George Foreman once said, “The question isn’t at what age I want to retire: it is at what Income.”  Therefore, staying focused on the question of income need, allows us to set aside all the “it depends” statements, to answer our question.  The first step is to determine your risk tolerance for your investment portfolio.  Once we know how much market exposure is appropriate, we can then determine reasonable income expectations.  We do this by referring to a sophisticated algorithm called the "Decision Rules and Maximum Initial Withdrawal Rates."* It is based on 40 years of data and is used to compare the results of three investment allocation strategies where 50%, 65% and 80% of the portfolios were invested in equities while the remainder consisted of fixed income and cash.  To further explain, a 50% allocation means that the portfolio is comprised of 50% stocks (typically), and 50% in bonds (typically) and cash, while an 80% allocation means that you have 80% of your portfolio exposed to equities and the remainder in bonds and cash. Without boring you with all the details and exceptions regarding the research done using this algorithm, we can jump straight to the findings, which are astonishingly simple to understand. Jonathan Guyton and William Klinger’s analysis of the data indicated that if a portfolio has at least 65% exposure to equities, then an investor can have initial withdraw rates of 5.2-5.6%, annually, while sustaining the principal balance.  The study further states that an investor can hold this expectation with a 99% confidence level! If the investor is more conservative and decreases market exposure to an equity mix of 50%, then the withdrawal rate drops to 4.6%.

For example, my friend Connie** has $500,000 of investible assets in a balanced portfolio model (65% exposure).  She needs $24,000 a year from her investments to supplement her retirement income.  Can she count on having this amount at her retirement?  The answer is…YES! Connie can withdraw up to $26,000, with moderate risk tolerance, and have a confidence level of 99% that she will be able to continue drawing down this money for the next 40 years.***

Now, what about you?  You have just been armed with powerful information. It is time for you to consider your financial future. All you have to do is combine your estimated withdrawal amount with your other sources of income, such as pension and Social Security Benefits, to provide you with your ballpark retirement income potential.  If you have already retired, you can test to see if you are falling within these parameters or if you may be at risk of running out of money.

Knowing how much income you can derive from your investments is only one piece of information you will need.  When considering your retirement, always consult with a financial professional.  Need help?  Contact us at 714-572-8900 or email us at


Guyton, J. & Klinger, W., (2006). Decision Rules and Maximum Initial Withdrawal Rates. Journal of Financial Planning, March 2006.

* Decision rules and maximum initial withdrawal rates were derived from Jonathan Guyton’s analysis in 2004 and updated by Jonathan Guyton and William Linger in 2006
** This illustration is for educational purposes only and does not represent any real person or situation.
*** There are provisions to adjust the portfolio for inflation and
freeze the withdrawal rate if we are experiencing a bear market


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.