Retirement Income Planning: How to Turn Your Savings Into a Retirement Paycheck

I once sat across the table from a woman who had worked for 50 years. She had done what she was supposed to do: worked hard, saved consistently, and accumulated a nice nest egg.

Then she retired.

She looked at me and said, “Derek, all I’ve ever done is work and save. What do I do now?”

That question gets to the heart of retirement income planning.

For most of our working lives, we’re in the accumulation phase. We earn money, save, invest, and hopefully watch those assets grow. Then retirement arrives, and suddenly we’re asked to reverse a habit we’ve spent decades building.

Instead of saving a paycheck, we need our savings to create a paycheck.

That transition can be emotional as well as financial, and it requires more than simply choosing a withdrawal rate.

The Shift From Saving for Retirement to Living in Retirement

You’ve probably heard of the “4% rule.” It can be a useful starting point, but retirement income planning involves many more moving parts.

Social Security, pensions, retirement accounts, investments, cash, taxes, real estate, and other income sources can all play a role. The challenge is determining how these resources should work together to provide the income you need throughout retirement.

Because no two retirements are exactly alike, your income strategy should start with your goals, not a generic formula.

When Should You Take Social Security?

One of the most common questions I hear is, “Derek, when should I take Social Security?”

My answer is almost always the same: It depends.

Should you claim at 62? Wait until full retirement age? Delay until 70? If you’re married, how should you coordinate benefits?

The right approach depends on your goals, income needs, other assets, and circumstances. There simply isn’t one Social Security strategy that works for everyone.

The same thinking applies to pensions, including survivor benefits and how those benefits fit with your other retirement resources.

Which Retirement Accounts Should You Withdraw From First?

Once retirement begins, another important question arises: Where should your paycheck come from?

You may have traditional IRAs or 401(k)s, Roth accounts, taxable investments, cash, or income from real estate or a business.

It can be tempting to simply start spending from one account and move to the next, but the order and timing of withdrawals can matter.

A thoughtful strategy may consider current and future tax brackets, capital gains, Roth conversions, required minimum distributions, and Medicare-related income considerations.

Your situation isn’t necessarily the same as your neighbor’s or coworker’s. Your withdrawal strategy should be built around your life.

How Sequence-of-Returns Risk Can Affect Your Retirement

One risk retirees sometimes overlook is experiencing a significant market decline just before or shortly after retirement.

This is often called sequence-of-returns risk.

When you’re working and contributing to your accounts, a market downturn is different from one that occurs after you’ve started withdrawing money. Selling investments during a decline to fund living expenses can put additional pressure on your portfolio.

That’s why I believe the five years before and five years after retirement deserve special attention. Your strategy should prepare for the possibility that markets won’t always cooperate.

How to Plan for Changing Expenses in Retirement

Retirement spending rarely happens in a straight line.

There are essential expenses such as housing, food, transportation, and utilities. Then there’s lifestyle spending, including travel, entertainment, hobbies, and experiences.

And then there are those large, one-time expenses: replacing a car, installing a new air-conditioning system, helping family, or, as some clients might suggest, buying a boat.

Healthcare deserves special attention, too. Expenses may become more frequent as we age, so your plan should consider not just the retirement you want today, but your potential needs later.

Planning for Family, Charitable Giving, and Your Legacy

Retirement planning isn’t only about paying bills.

Maybe helping children or grandchildren is important to you. Perhaps you want to support a charity or leave a legacy through your estate.

There are many ways to approach these goals. What matters is identifying what’s important to you and making it part of your plan rather than an afterthought.

Why You Should Review Your Retirement Income Plan Every Year

A retirement income plan shouldn’t be something you create once and put on a shelf.

Markets change. Taxes and laws change. Spending changes. Family circumstances change. Most importantly, your priorities can change.

That’s why I believe your retirement income strategy should be reviewed every year to make sure it still fits your life.

Build a Retirement Income Strategy Around the Life You Want

A retirement portfolio isn’t simply a pile of money to draw down. It’s a collection of resources that need to work together to support the life you want to live.

You spent decades learning how to save for retirement. You deserve a thoughtful plan for how to live from what you’ve built.

If you’re approaching retirement or already retired and would like to talk through your retirement income strategy, give us a call. We’d be happy to help.

About Moffatt

Moffatt Financial Strategies (MFS) is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. 

MFS may discuss and display, charts, graphs, formulas which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions.