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Ask most people what they need to retire and you will probably get a number. A million dollars. A million and a half. Maybe whatever amount a calculator told them to save years ago. That number is not necessarily wrong, but it is not enough.
I grew up here on Martha’s Vineyard, the youngest of three boys raised by my mother, Mary Jo, the West Tisbury librarian, who made sure we always felt secure even when money was tighter than I realized at the time. After graduating from college, I began working at Charles Schwab in 2007, just before the global financial crisis. Over the next several years, I worked with many people who were watching their savings decline during one of the most frightening financial periods in recent history. Some had a plan they could fall back on. Others, understandably frightened, began making major financial decisions in the middle of the crisis.
I saw people sell investments after substantial losses, abandon long-term strategies, and make permanent decisions in response to what ultimately proved to be a temporary market decline. A financial plan would not have made the downturn disappear or guaranteed that everything would be fine. It could, however, have provided a framework for deciding what actually needed to change and what did not. Without that framework, fear often took over, and some people locked in losses that materially changed their financial futures.
Since then, I have spent nearly two decades helping people prepare for and navigate retirement. I have worked through thousands of financial plans and retirement-planning scenarios. Every household has been different, but the strongest plans have shared something important: the major decisions were considered together and made when everyone was calm, rather than in response to a market decline, an unexpected expense, or a frightening headline.
That is why retirement planning cannot be reduced to a single account balance. Retirement is really an income-planning question. How much will you spend each month? How much will Social Security, a pension, or other reliable income cover? How much will need to come from your investments? Most importantly, will the plan still work if markets fall, inflation remains elevated, or life does not unfold exactly as expected?
Those are much more useful questions than simply asking whether you have saved enough.
Before deciding whether your portfolio is large enough, estimate what retirement will actually cost. Begin with the expenses you have today, but do not assume they will all disappear when you retire. Your mortgage might be paid off and commuting expenses may decline, while travel, healthcare, home repairs, and helping family could take up a larger share of your budget. It also helps to separate essential expenses, such as property taxes, groceries, insurance, and utilities, from more flexible spending on travel, dining out, and hobbies.
Once you have an annual spending estimate, subtract the income you expect from Social Security, pensions, rental properties, or part-time work. For example, if you expect to spend $100,000 a year and those income sources will provide $60,000, your investments need to cover the remaining $40,000, plus any taxes associated with the withdrawals. As a general rule of thumb, using a starting withdrawal rate of 4% to 5% means multiplying that income gap by roughly 20 to 25. In this example, that points to a portfolio of approximately $800,000 to $1 million. That shorthand can tell you whether you are in the neighborhood, but it is not a retirement plan. It does not account for taxes, inflation, your investment mix, the length of your retirement, market conditions, large one-time expenses, or the likelihood that your spending will change over time. The real question is not simply whether your portfolio can produce $40,000 in the first year. It is whether it can continue producing the income you need as markets and your life change.
Deciding when to claim Social Security should be considered alongside that income gap. Starting early provides income sooner, but it generally means accepting a smaller monthly benefit. Waiting can produce a larger benefit, but you may need to rely more heavily on your savings during the intervening years. The best choice depends on more than a simple break-even calculation. Your health, life expectancy, marital status, tax situation, and other sources of income all matter. For married couples, one spouse’s decision may also affect the survivor benefit available to the other spouse later.
In some cases, drawing from investments for a few years while delaying Social Security can create more reliable income later in retirement. In other cases, claiming sooner may make more sense. The important thing is to compare the options as part of the entire plan rather than making the Social Security decision on its own.
The same is true of your investment strategy. Average returns do not tell the whole story once you begin taking withdrawals. Two retirees could earn the same average return over 20 years and end up with very different results depending on when the difficult market years occur. A major downturn early in retirement, when you are also withdrawing money, can do considerably more damage than the same downturn later. Selling investments while they are down leaves fewer assets available to participate when markets eventually recover.
That does not mean retirees should avoid investing. A retirement that could last 20 or 30 years will usually still require some long-term growth. However, keeping an appropriate portion of upcoming withdrawals in cash and high-quality bonds may reduce the likelihood that you will have to sell long-term investments during a market decline. The right amount depends on your spending needs, reliable income sources, and comfort with market fluctuations.
Taxes add another layer because not every retirement dollar is treated the same way. Withdrawals from traditional IRAs and 401(k)s are generally treated as ordinary income. Roth accounts may provide tax-free income when the requirements are met, while brokerage accounts have their own tax treatment. Higher income can sometimes increase Medicare premiums as well, which makes the order in which you use your accounts important.
The years between retirement and required minimum distributions can create particularly valuable planning opportunities. Depending on your circumstances, those years may be a good time to realize capital gains, complete Roth conversions, or take strategic IRA withdrawals at lower tax rates. The goal is not simply to pay the least tax in one particular year. It is to manage taxes over the course of your retirement.
One of the most practical ways to evaluate a retirement plan is to try living on it before you leave work. Calculate the monthly income your plan is expected to provide and live within that amount for several months, saving the difference. This can reveal expenses you overlooked, show whether the budget feels realistic, and potentially provide some additional savings during your final working years.
You should also consider what would happen if the first few years do not go according to plan. Could you handle a market decline shortly after retiring? What if inflation remains higher than expected, your home needs a major repair, or healthcare costs more than you anticipated? A retirement plan should not require everything to go exactly right.
There is no single withdrawal rate, Social Security age, or portfolio mix that works for everyone. The amount you can comfortably withdraw depends partly on when you claim Social Security. Your Social Security decision may depend on your other income and tax situation. Your investment strategy depends on how much you need from the portfolio and when you will need it. Pull one lever and the others move.
If you are within five years of retirement, this is the time to put those decisions on paper together. If you are already retired, it is worth revisiting the plan regularly as markets, tax laws, spending, and family circumstances change. Comfortable retirement is not about reaching one magic number. It is about building a dependable paycheck from the resources you have and making sure the plan can adapt when life does not follow the original script.
For more retirement planning resources, visit vineyardwealthgroup.com to download our Retirement Income Planning Guide and watch the accompanying video.
Grant Joiner, CFP®, EA, is the founder of Vineyard Wealth Group. Joiner grew up on Martha’s Vineyard and graduated from MVRHS in 2003.
