The dream of retirement often revolves around enjoying the fruits of a lifetime of hard work, but making your money last throughout your retirement can be daunting—especially without a guaranteed pension or income. For many, the question isn’t just how much to save, but how to make those savings work once the paychecks stop coming. Traditional advice, like the 4% rule, offers a starting point, but a deeper look reveals that a more personalized approach may be necessary for long-term financial security.

According to the U.S. Department of Health and Human Services, more than 1 in 5 Americans will be 65 or older by 2040, and over half of them will require some form of long-term care. The shift from pensions to 401(k)s has left many people unsure of how to make their retirement funds stretch far enough. Fortunately, there are strategies to help ensure your money continues to work for you, even as you stop working.

The 4% Rule: A Starting Point, But Not a Guarantee

The 4% rule, a guideline introduced by financial advisor William Bengen in 1994, suggests that retirees can safely withdraw 4% of their portfolio per year, adjusted for inflation, without running out of money for at least 30 years. For example, if you retire with $1 million, you’d take $40,000 in the first year and then increase that amount with inflation each year.

While the rule is a useful guideline, it’s not one-size-fits-all. The reality is that market fluctuations, inflation, and unexpected life events can dramatically affect how long your savings will last. In fact, a study by Christine Benz of Morningstar found that in simulations using the 4% rule, the median ending balance was $1.5 million after 30 years for balanced portfolios, and even higher for equity-heavy portfolios.

This suggests that, for many retirees, the 4% rule may result in leaving more money behind than necessary, particularly if you live longer than expected and don’t need to draw down as much each year. For those with smaller nest eggs, however, the 4% rule might leave them vulnerable to running out of money too soon.

A New Approach: The Hybrid Strategy

A more flexible strategy that combines the 4% rule with an annuity could offer a better balance between guaranteed income and the ability to benefit from market growth. In a recent study, researchers explored how retirees could combine the safety of an annuity with the potential for higher returns from a diversified portfolio. By using 50% of their nest egg to purchase an annuity and investing the other 50% in equities, retirees could enjoy guaranteed income while also benefiting from the growth potential of the stock market.

Mark Warshawsky, a co-author of the study, explained that this hybrid approach works well for many retirees. “It provides higher annual income and substantial money left over at the end of the 30 years,” he said. For those with large nest eggs—$5 million or more—the 4% rule may still be effective, but for those with more modest savings (e.g., $250,000), purchasing an annuity may be a safer choice to avoid the risk of running out of money.

Action Steps:

1. Assess Your Retirement Income Needs

Start by calculating your annual expenses, including both essential and lifestyle costs. Tools like Retirement Planner can help you estimate how much income you’ll need in retirement.

2.     Evaluate the Pros and Cons of Annuities

Annuities can provide peace of mind by offering guaranteed income for life, but they can be complex and come with fees. Consider working with a financial planner to assess whether purchasing an annuity is right for you. Websites like Annuity.org offer resources for understanding different types of annuities and how they work.

3.     Create a Balanced Portfolio

The key to a sustainable retirement income strategy is diversification. By combining safer income sources like annuities or bonds with growth assets like stocks, you can potentially increase your portfolio’s longevity. Websites like Vanguard offer tools to help you manage your asset allocation and create a diversified retirement portfolio.

Why You Should Work with a Financial Advisor

While tools like the 4% rule provide helpful guidelines, creating a sustainable income strategy in retirement is a personalized process that requires careful planning. Working with a financial advisor can provide tailored advice on how to balance withdrawals, investment choices, and income sources like Social Security or pensions.

Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute, notes that many people avoid annuities due to their complexity. However, they could be a valuable option for those seeking guaranteed income in retirement. “Annuities are not easy to understand. But as people move away from pensions, they may become an important part of the retirement planning process,” Copeland says.

Action Steps:

1. Consult with a Financial Advisor

If you’re unsure how to manage your nest egg in retirement, a certified financial planner (CFP) can help you create a sustainable withdrawal strategy. Look for advisors on websites like NAPFA or CFP Board for a list of fee-only financial planners.

2.     Explore Retirement Income Calculators

Use online tools like Fidelity’s Retirement Income Planner to estimate how long your savings will last based on different withdrawal strategies.

Final Thoughts: Retirement Planning Is a Lifelong Process

Making your money last in retirement requires planning, flexibility, and a willingness to adapt as your needs change. Whether you choose to follow the 4% rule, explore annuities, or combine both strategies, the key is to create a diversified and sustainable plan that aligns with your goals.

As you consider your own retirement plan, ask yourself: What is most important to you when it comes to income in retirement? Do you want the security of guaranteed income, or would you prefer the flexibility to manage your portfolio for growth?

Join the conversation and share your thoughts at the Age Brilliantly Forum.