How Much Do I Need To Retire?
Guest Expert: Wade Pfau, PhD, CFA, RICP®,
Date:
Webinar Replay Description
Click Here to Download the Summary Below
1. Retirement Planning Fundamentals
No One-Size-Fits-All Number:
- Retirement needs depend on lifestyle goals, life expectancy, healthcare costs, inflation, and desired legacy.
- The often-quoted “$1 million rule” is overly simplistic; individualized projections are essential.
Fact check: https://www.ssa.gov/benefits/retirement/planner/planretire.html
Longevity Considerations:
- The average life expectancy at 65 is about 20 more years for men and 22 more years for women, but many live significantly longer—requiring extended income planning.
Fact check: https://www.cdc.gov/nchs/fastats/life-expectancy.htm
2. Common Income Replacement Rules
70–80% Income Replacement Rule:
- Many planners target replacing 70–80% of pre-retirement income to maintain lifestyle.
Fact check: https://www.dol.gov/general/topic/retirement/typesofplans
The 4% Rule:
- A traditional withdrawal guideline suggesting 4% of the initial portfolio value per year, adjusted for inflation, can sustain 30 years of retirement.
- Critics note it may not hold in low-return environments or with higher inflation.
Fact check: https://www.bls.gov/opub/mlr/2022/article/retirement-savings-and-withdrawal-rates.htm
3. Key Expense Categories to Model
Healthcare:
- Healthcare costs in retirement can exceed $300,000 per couple over a lifetime, excluding long-term care.
Fact check: https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
Housing:
- Housing remains one of the largest expenses; downsizing or relocation can free capital for investments or reduce costs.
Lifestyle:
- Travel, hobbies, and family support can meaningfully alter required savings.
4. Tax and Investment Strategy Implications
Tax-Efficient Withdrawals:
- Coordinating withdrawals across taxable, tax-deferred, and tax-free accounts can minimize lifetime tax burden.
Fact check: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions
Roth Conversions:
- Strategic Roth conversions before RMD age (73) can reduce future taxable income and Medicare premium surcharges.
Fact check: https://www.ssa.gov/benefits/medicare/medicare-premiums.html
Inflation Protection:
- Use of equities, TIPS, and real assets can help preserve purchasing power over decades.
Fact check: https://www.treasurydirect.gov/marketable-securities/tips/
5. Behavioral and Emotional Factors
Spending Shifts:
- Many retirees spend more early in retirement (travel, leisure) and less later—except for healthcare spikes.
Market Volatility:
- Sequence of returns risk means poor market performance early in retirement can have lasting effects—making dynamic withdrawal strategies important.
Fact check: https://www.finra.org/investors/insights/sequence-returns-risk
6. Advisor Action Items
- Run Multiple Scenarios: Include optimistic, base-case, and pessimistic projections.
- Incorporate Stress Testing: Model market downturns, inflation surges, and long lifespans.
- Address Healthcare & LTC Early: Discuss insurance, self-funding, or hybrid approaches.
- Plan Tax Diversification Before Retirement: Balance tax-deferred, taxable, and Roth assets.
- Revisit Plan Annually: Adjust based on market changes, spending patterns, and personal goals.
Comments
A few comments from listeners when they were asked what the learned from the webinar:
One of the things Dr. Pfau said was to assume a fixed rate of return, a bond-like return; I appreciated the visuals of the blocks of The Retirement Income Optimization Map, in having them to scale so you can see if any one of these is out of balance with another; and the funded ratio - I need to hear this one again; it was so important.
- Lois B.
A different and interesting way to look at retirement planning/feasibility. Wade and his collaborators again are on the cutting edge of retirement issues and planning. As discussed, RISA does not replace the traditional financial plan or planning process, but can be a good complement.
- David D.
A retirement readiness test versus financial planning or in addition to financial planning. Also the idea of your future expenses as a liability, then check the PV. That your home shouldn't be set up as a retirement asset unless you are planning on spending it down. It's a back up.
- Nancy A.
The funded ratio philosophy - which is based on the value of assets and liabilities on the retirement balance sheet -when used with a conservative discount rate it depicts whether goals can be met without taking market risk.
- Jacqueline B.
The retirement income preferences, or "styles" are a helpful way for financial advisors to understand their clients from a behavioral finance as well as a risk tolerance perspective.
- Michael D.
One of the things Dr. Pfau said was to assume a fixed rate of return, a bond-like return; I appreciated the visuals of the blocks of The Retirement Income Optimization Map, in having them to scale so you can see if any one of these is out of balance with another; and the funded ratio - I need to hear this one again; it was so important.
- Lois B.
A different and interesting way to look at retirement planning/feasibility. Wade and his collaborators again are on the cutting edge of retirement issues and planning. As discussed, RISA does not replace the traditional financial plan or planning process, but can be a good complement.
- David D.
A retirement readiness test versus financial planning or in addition to financial planning. Also the idea of your future expenses as a liability, then check the PV. That your home shouldn't be set up as a retirement asset unless you are planning on spending it down. It's a back up.
- Nancy A.
The funded ratio philosophy - which is based on the value of assets and liabilities on the retirement balance sheet -when used with a conservative discount rate it depicts whether goals can be met without taking market risk.
- Jacqueline B.
The retirement income preferences, or "styles" are a helpful way for financial advisors to understand their clients from a behavioral finance as well as a risk tolerance perspective.
- Michael D.
How Much Do I Need To Retire? 08-14-2025
Attendees Comments:
One of the things Dr. Pfau said was to assume a fixed rate of return, a bond-like return; I appreciated the visuals of the blocks of The Retirement Income Optimization Map, in having them to scale so you can see if any one of these is out of balance with another; and the funded ratio - I need to hear this one again; it was so important.
- Lois B.
A different and interesting way to look at retirement planning/feasibility. Wade and his collaborators again are on the cutting edge of retirement issues and planning. As discussed, RISA does not replace the traditional financial plan or planning process, but can be a good complement.
- David D.
A retirement readiness test versus financial planning or in addition to financial planning. Also the idea of your future expenses as a liability, then check the PV. That your home shouldn't be set up as a retirement asset unless you are planning on spending it down. It's a back up.
- Nancy A.
The funded ratio philosophy - which is based on the value of assets and liabilities on the retirement balance sheet -when used with a conservative discount rate it depicts whether goals can be met without taking market risk.
- Jacqueline B.
The retirement income preferences, or "styles" are a helpful way for financial advisors to understand their clients from a behavioral finance as well as a risk tolerance perspective.
- Michael D.