The Job We Do

Planning a Retirement Income Strategy

How well do your clients really understand the process?

by Sosseh Malkhassian

Ms. Malkhassian is head of participant engagement strategies at John Hancock Retirement Plan Services, LLC. Visit for more about John Hancock’s personalized approach to the participant journey.

Although two-thirds of workers are actively saving for retirement, only 4 in 10 have tried to calculate what they’ll need1, and very few have a financial plan for retirement2. People know they need to save, but they’re unaware of the importance of creating a retirement income strategy. It’s a critical area of retirement education that needs more attention.

Transitioning to retirement

Roughly 10,000 people retire each day3, taking the leap from retirement savers to retirement spenders. With life expectancy and healthcare expenses growing, and defined benefit plans all but disappearing, having a retirement income strategy is becoming even more important for retirees. Plan sponsors, record-keepers, and financial professionals have to be sure we take the retirement savings discussion further, including retirement income strategies, to help ensure retirees don’t run out of their hard-earned savings too soon.

In order to put together a retirement income plan, pre-retirees need to consider a few 
key elements:

  • The unknowns of retirement
  • Sources of income
  • Spending needs
  • Withdrawal strategies

The unknowns of retirement: Plan for uncertainty

Planning for retirement income is especially complicated because of the uncertainty involved in three factors—longevity, inflation, and investment returns.

  • Longevity: Today, a healthy 65-year old could spend more than 20 years in retirement4. And there’s a 25% chance that one member of a retired couple will reach age 985. That’s—potentially—a lot of years to plan for.
  • Inflation: Prices have doubled since 19906. There’s a very real danger that, if a retiree is invested too conservatively, inflation could erode the value of their savings.
  • Investment returns: Retiring into a falling stock market or with some poorly performing investments can mean irrecoverable losses, even if markets later rebound.

Sources of retirement income: Account for everything

Retirees may have several sources of retirement income. Potential sources include 401(k)s, traditional pensions, IRAs, savings accounts, and Social Security. What are the withdrawal rules for each? Will any of the sources—besides Social Security—supply a regular income? Tallying up what’s available from all sources, when it’s available, and how it’s available will show pre-retirees what they have to work with.

They’ll also need to understand what to expect from Social Security. Social Security payments vary depending on when the participant starts receiving retirement benefits. The current average annual benefit is less than $18,000 per year—just a third of the income today’s retirees need.3

Spending needs: Visualize lifestyle in retirement

Expenses in retirement—just like expenses before retirement—come in three categories: essentials, medical/healthcare, and discretionary (nonessential spending).

Lifestyle choices will have a direct effect on essential and discretionary expenses. Pre-retirees should consider how they want to live in retirement and how much that will cost. Will they stay in their home or move? Take public transportation or keep their car? Travel or enjoy more leisure in their community? Eat out or cook in?

Healthcare, on the other hand, isn’t as controllable—and could add up to $285,000 for a married couple over the course of their retirement7.

And it’s also helpful to understand that retirement spending tends not to be a straight line but is actually more of a curve. Spending generally starts high, driven by leisure activities, then declines as activity subsides with age, and rises as age and illness drive healthcare expenses up.

Withdrawal strategies: How much to take and when

Once pre-retirees have pictured their retirement lifestyle and related spending needs and tallied up their sources of income, they’re ready to consider their retirement income strategy. Again, there are a few factors they need to plan for.
Taxes: One school of thought is that retirees should tap into their taxable investments first, as the capital gains tax may be more favorable than an ordinary income-tax rate. This also enables qualified retirement investments to continue building tax deferred8.

Stay in plan or roll over: Retirees will need to decide whether to leave their retirement balance in a workplace savings plan or move it to an IRA. To make this decision, they’ll need to know whether their plan allows regular installment payments that fit their needs, and what the process is to request a withdrawal if they have an unexpected need for money9.

Minimum required distributions: Unless there’s a change to the current law, the IRS requires that distributions be taken from retirement plans and IRAs starting at age 70½. This is one of many reasons for participants to consider combining plans, leaving them with fewer accounts to manage. It may also help them with asset management, account maintenance, and goal tracking10.

Rate of withdrawal: Determining how much to safely withdraw without the risk of running out of cash is one of the most important elements of a retirement income strategy. The old rule of thumb was taking out 4% per year. But rules of thumb don’t take personal preferences into account. This is where it’s helpful to have visualized retirement and estimated expected retirement expenses: to understand how much will actually be needed.

Personalized tools motivate by making planning more relevant

For guidance in creating a retirement income strategy, participants will need tools to help them determine how long their money will last. Online and in-person advice are important resources, as a personalized, relevant approach is what people are looking for.

Almost 9 out of 10 workers say that seeing projections of their retirement expenses would motivate them to save more.2 At John Hancock, our new interactive retirement planner projects a participant’s retirement spending needs using predictive analytics so each participant can visualize their potential expense needs in retirement11. Rather than relying on industry standards, we provide personally relevant information that lets participants envision what their retirement may look like. Their individualized plan includes guidance on the actions that will help them get on track if they’re behind—or improve their general financial health if they’re already on track. Having a plan means they’re more apt to take educated and purposeful action.

Another way to provide support to decumulating participants is to include a managed account option as part of the plan design, as managed accounts often include drawdown tools and strategies for retirees. Since it’s not always possible for a retirement plan advisor to reach every participant, in-plan advice through a managed account adds a personalized approach that can complement the advisor’s guidance.

Adding retirement income to the savings discussion

Retirement plan participants would like help from their employer with preparing for retirement income.2 And when they need to make a financial decision, they do their own personal research, and then they rely on financial professionals, their retirement plan record-keeper, and their employer to help influence their decisions.2 The industry has, correctly, been focused on accumulation—getting people to save enough for retirement. But with baby boomers, and soon Generation X, retiring, we need to be sure they also have support for the other 




01 – “Retirement Confidence Survey,” Employee Benefit Research Institute, 2019.
02 – John Hancock sixth annual financial stress survey, John Hancock and Greenwald & Associates, June 2019. A survey of more than 3,500 workers to learn more about individual stress levels, their causes and effects, and strategies for relief.
03 – LIMRA Secure Retirement Institute, 2019.
04 –  “Social Security Program Fact Sheet,” Social Security Administration, June 2019.
05 –  “For your retirement planning, count on living until age 95,” USA Today, October 2016.
06 –  U.S. Bureau of Labor Statistics.
07 –  “Estimates for Health Care Costs in Retirement Continue to Rise,” PLANSPONSOR, April 2019.
08 –  Income-tax rules on how withdrawals are handled may vary from state to state
09 –  There are advantages and disadvantages to all rollover options; you are encouraged to review your options to determine if staying in a retirement plan, rolling over to an IRA, or another option is best for you.
10 – As other options are available, participants are encouraged to review them to determine if combining their retirement accounts is suitable for them.
11- The projected retirement income and expenses within the spending curve are hypothetical and for illustrative purposes only. Results are not guaranteed and do not represent the current or future performance of any specific account or investment. Due to market fluctuations and other factors, it is possible that investment objectives may not be met. All investments carry a degree of risk, and past performance does not guarantee future results.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date but may be subject to change. John Hancock does not provide investment, tax, or legal advice (unless otherwise indicated).