What Is a Safety-First Retirement Plan? – Retirement Researcher

If you are struggling with retirement planning, I urge you to read the full article at the link below.

What you see in the illustration is a practical, common sense picture of spending in retirement. The main point of the article is that you need different types of investments designed to meet each of the need levels. The first two levels are most important. For example, to meet Essential Needs funds should come from Social Security, a defined benefit pension or an annuity (or combination of all three). In other words,  minimally risky assets that you can’t outlive. As you move up the scale, investments may be more risky such as stock investments because while desirable, that money is not essential to your day-to-day living. 

I add a few thoughts of my own 

  • Do not underestimate the need for a contingency fund. One big unplanned expense can throw your retirement plan into a tailspin and jeopardize the other funds
  • Plan for inflation. Social Security may provide some help and some annuities have inflation adjustments (but they cost you upfront), but basically you are on your own so plan how your income or spending will cope. 
  • Don’t forget survivor income. This may come from your legacy fund, life insurance or survivor benefits under Social Security or your pension or annuity. 

The safety-first school of thought was originally derived from academic models of how people allocate their resources over a lifetime to maximize lifetime satisfaction.

“In developing Modern Retirement Theory, financial planner Jason Branning and academic M. Ray Grubbs create a funding priority for retiree liabilities. Essential needs are the top priority, then a contingency fund, funds for discretionary expenses, and a legacy fund. They illustrate these funding priorities with a pyramid. Building a retirement strategy requires working from the bottom to properly fund each goal before moving up to the next.

Their pyramid is recreated in Figure 1. There is no consideration of discretionary expenses or providing a legacy until a secure funding source for essential needs and contingencies is in place.”

Article in by Wade Pfau. Source: What Is a Safety-First Retirement Plan? – Retirement Researcher


5 replies »

  1. The biggest problem is price inflation. Not what the government reports for COLA adjustments, but what stuff is really going to cost in retirement. I now spend more on food than anything else. Debt is the next big item, by retirement you should have your home paid off. No credit card debt, but you would be surprised how many people enter retirement with loads of debt, including a mortgage payment. I have planned well, pinched every penny, you have to when you live on a $19,644 per year military pension. . I retired at 50 and when I start getting my Social Security at 62, it does not have to be earmarked for anything.
    I am thinking rental property might be a good investment, but will use a little to do some traveling.


      • I was working delivering newspapers to 300 customers and my last child graduated from high school and moved to OK to live and I no longer needed the income. I value my free time more than money.


    • I can’t understand how one can live on $19,000 a year and have anything left to travel or anything else. I know where you live matters, but even so that’s pretty basic. In the Northeast my property tax alone on a quite modest home on a small lot is $14,000 a year.


      • Monthly income right now $1637. I own my 1983 Mobile home, property tax $16.34 per month, lot rent 337.00, includes water and trash, utilities – elect, gas, cable phone and internet $175, insurance – auto, home, life 130.63 total = $658.34. Right now my 1966 Mercedes needs repairs, so I am not driving it. My wife and I use the city bus for shopping, Dr appointments, etc. $20 per month, we are both 60 and get 50 cent reduced fare now. Right now I am paying down credit card debt, so the car repair will have to wait, but I will be debt free in Dec 2017, 2 months before I start getting Social Security – family benefit $1,150 + 1,700 military pension = $34,200 per year, more income than I have ever had in my working career. I will buy a used 2016 Chevy Volt in 2018 for $20,000, maybe less and operate it on electric power 80% of the time, we have cheap hydroelectric power. I have an Avionics / Electronics background and learned auto repair from my mechanic father. I have almost never paid a repair shop for car repairs, in 42 years of car ownership. Last Sept my gas furnace fan motor went out, I found the motor for $104 and fixed it myself. I know many that would of called the repairman and spent $600 or more. They might of even been sold a new furnace install for several thousands. I installed my own gas water heater in 2006 for $399. The local plumbing company wanted $1,100. In 2011 when we returned from a six month stay at my sister’s in TX. We found the plastic water pipes busted from the cold winter. I installed all new water lines and faucet shutoffs with sharkbite quick connections ( you just cut the plex pipe and push it into the connectors, no glue, no crimping) for $800, Plumber estimate $2,400. In Oct 2014 cut cable TV, stream Netflix, Hulu $21 and use a $24 power antenna to get 12 local channels for free, saving $720 per year It is not how much money you have, it is what you use it for, choices.


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