Many aspects of鈥� 鈥痑re the subject of hot debate, even among experts. Here are that confront people planning retirement today.
Decision 1: How much to withdraw each year in retirement
It鈥檚 impossible to say at the outset of retirement what the 鈥渞ight鈥� withdrawal rate is. You don鈥檛 know what the major asset classes will return or how high (or low) inflation will run during your retirement. Nor do you know how long you鈥檒l live.
But you have to use something, and this is where the disagreements come in. A 4% starting withdrawal rate, with annual inflation adjustments to that initial dollar amount thereafter, is often cited as a 鈥渟afe鈥� withdrawal system for new retirees.鈥� suggested that a 3.3% withdrawal rate was a safe starting point for new retirees with balanced portfolios over a 30-year horizon. When we revisited the research鈥� , our safe starting withdrawal percentage was 3.8%.鈥� , thanks to rising fixed-income yields and moderating inflation.鈥� , and鈥� . Further complicating matters is that retirees don鈥檛 spend the same amount, adjusted for inflation, year after year.
There鈥檚 a comforting consensus in a few key areas.
Decision 2: Whether to buy long-term-care insurance
, about half of people turning 65 will need some type of paid long-term care. But paying for it can be financially devastating. What鈥檚 up for debate is whether and how to protect yourself.
The long-term-care insurance market is deeply troubled today. While鈥� , premiums have increased and several insurers have gotten out of the business.
That鈥檚 why purchasing pure long-term-care insurance is by no means a no-brainer. Hybrid products offer a long-term-care rider bolted onto a life insurance policy or annuity, but they鈥檙e complicated and often purchased with a lump sum.
Take a hard look at your retirement portfolio to decide whether your assets are sufficient to self-fund, you鈥檙e likely to qualify for Medicaid, or you fall somewhere in between. From there, you can create .
Decision 3: Whether to buy an annuity
Academic researchers have long championed simple income annuities for retirement, arguing they provide longevity risk protection and a higher payout than would be available from fixed-rate investment products like bond funds. Annuities have been getting even more attention as鈥� .
, from single-premium immediate annuities to more complicated products that provide equity exposure, guaranteed minimum living benefits, and death benefits.
Research has demonstrated that the鈥� 鈥痶hat accompanies the purchase of a basic annuity is greater than would be associated with holding the same amount in investment assets. Yet the annuity products that retirement researchers generally like best鈥攖he plain-vanilla immediate and deferred-income annuities鈥攈ave struggled in the sales department. Investors may be reluctant to part with the capital to purchase them, and advisers may not have a strong motive to recommend them.
While there鈥檚 no consensus on whether annuities are a must-have or which types to buy, there鈥檚 little doubt that the lifetime income they offer is in short supply. That鈥檚 especially true given that only about a fourth of baby boomers retiring today have pensions, and that number trends down for the generations behind them.
The starting point when鈥� isn鈥檛 an annuity. It鈥檚 Social Security, which is basically an annuity backed by the U.S. government. Only after maximizing lifetime income through Social Security should an annuity come into play.
_____
This article was provided to The Associated Press by Morningstar. For more retirement content, go to .
鈥痠s鈥痙irector鈥痮f鈥痯ersonal鈥痜inance鈥痑nd鈥痳etirement鈥痯lanning鈥痜or鈥疢orningstar and co-host of . Subscribe to her free newsletter, .
Related Links
The Retirement Planning Mistake That Makes Inflation Much More Expensive
Retiring Alone? Here鈥檚 How to Build Financial Security
How Your Plan Can Survive the Retirement Red Zone
Copyright © 2026 The Associated Press. All rights reserved. This material may not be published, broadcast, written or redistributed.
