If You’re Retired,Your Reliance Rate Matters

By Scott Thoma October 02, 2017

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When it comes to your retirement, you want to create a strategy that allows you to do what you want – and helps ensure your money lasts as long as you need it. First, you’ll need to calculate how much income you need in retirement. Then you can add up how much you can expect from outside sources of income, such as Social Security and a pension. Your investment portfolio will likely need to make up any shortfall. How much you rely on your portfolio for your retirement income is called your reliance rate.

Why is your reliance rate important?

Your withdrawal rate – or how much you are withdrawing from your portfolio – helps to determine how long your retirement income may last. But your reliance rate helps to determine your potential sensitivity to market fluctuations. The more you rely on your portfolio for income, the greater the impact market declines could have on your strategy, regardless of your withdrawal rate.

That said, your withdrawal and reliance rates are related:

  • The more conservative your withdrawal rate, the more you may be able to support a higher reliance rate.
  • The higher your withdrawal rate, the riskier a high reliance rate may be.

Ultimately, the higher your reliance rate, the more flexible you may need to be with your spending – especially if you have a higher withdrawal rate. Your financial advisor can work with you on maximizing outside sources of income, such as Social Security, to potentially reduce your reliance rate.

Retirement reliability

Each investor has different goals for retirement – but all investors have one goal in common: ensuring their income provides for their needs as long as they need it. Your financial advisor can help you find the right balance between your sources of income to help provide more stability and reliability to your income strategy.

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