Some individuals don’t want to rely on market growth to fund their expenses. They’re comfortable committing to something that will solve their lifetime need, like an annuity with a floor of reliable lifetime income to cover basics, and then they can invest on top of that for more discretionary goals. Either approach can work. It depends on a person’s preferences.

When you find your style, you can build the strategy that works for you. If you’re pushed into a total return investing strategy and you’re not comfortable relying on market growth, that’s where people might abandon the strategy at the worst possible time, say, after a big market downturn, and then they miss a subsequent recovery, and it really disrupts their retirement plan.

Find your style in advance of retirement.

You believe that Social Security is the best annuity that a retiree can have, hands down. Discuss.

Social Security is an annuity. It’s inflation-adjusted lifetime income. Claiming your Social Security benefit at age 70 will give you, with the delayed credits, 77% more inflation-adjusted benefits at that point than if you started at age 62.

That completely dominates what any commercial annuity is able to do. So anyone who’s thinking about annuities in retirement, step one is delay your Social Security benefit.

When it comes to retirement income, can you explain front-loading and back-loading?

Front-loading is: ‘I know I’m alive and healthy today. I want to make sure I get the most enjoyment possible. I want to spend my money now. I’m not so worried about getting into my nineties and running out of money.’

Back-loading is for people who are more worried about running out of money than about dying. They’re worried about getting to an advanced age and not having the necessary resources to fund expenses and being pushed into poverty. That means spending a little bit less at the present.

Let’s talk about why the 4% rule might not cut it for some people.

The 4% rule was a simple research idea developed by Bill Bengen about what’s a sustainable spending rate in retirement.

But there are reasons why it might be too low.  One reason is the 4% rule assumes your spending will increase for inflation every year in retirement. And the reality is that tends not to be the case. We have go-go, slow-go, and then no-go years in retirement. People tend to spend less as they age, at least until healthcare expenses can pick up late in life.

Most people can expect their spending will not maintain pace with inflation throughout retirement. And that can allow for a higher spending rate at the beginning because you don’t have to build on that assumption of those future inflation increases.

For the average retiree, relative to inflation, their spending might drop by 20 to 30% between their sixties and their eighties. That lets you spend more at the beginning.

Have a question about retirement? Personal finances? Anything career-related? Click here to drop Kerry Hannon a note.

“What’s a common pitfall in retirement planning that has nothing to do with money?

People don’t fully anticipate what changes when they leave work. Their work provides all kinds of benefits that they may not have appreciated outside of a salary — social companionship, a feeling of purpose, a way to spend your time, and a structure to your day. Now you have to fill that gap.

Not having a plan for how to replace work, not having something else that gives you purpose and passion, is something people don’t expect. They just might find themselves doomscrolling on their phone all day until they figure it out.

Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work,” and “Never Too Old to Get Rich.” Follow her on Bluesky and X.

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