Building retirement savings is only half the equation. Once you stop receiving a paycheck, you’ll need a plan to turn those assets into reliable income that can support your lifestyle for decades. Retirement income planning helps you balance spending needs, taxes, healthcare costs, inflation and longevity risk so your savings can work as hard in retirement as they did during your working years.

Whether retirement is a few years away or already underway, creating a sustainable withdrawal strategy can help provide confidence and financial flexibility. Here’s what to consider when developing your retirement income plan.

Understanding Your Retirement Income Sources

There are generally four sources of income during retirement:

Social Security Income

Social Security is often the foundation of a retirement income plan, but for most retirees it was never intended to be their sole source of income.

Before you decide when to begin receiving your Social Security payments, consider all aspects of your financial circumstances, health, and desired retirement lifestyle. Today’s workers become eligible for Social Security at age 62. The amount received is based on your highest 35 years of earnings and varies based on when you elect to receive it.

Those who wait until full retirement (age 67 for those born in 1960 or later) receive a greater amount, and people who wait until they are 70 or older to collect are entitled to an even larger amount per check each month. According to the Social Security Administration, beginning benefits at age 62 reduces the amount you receive each month by about 30% and waiting until age 70 allows you to collect about 124% of your full retirement benefit. Online calculators and benefit estimators can help you and your advisor to determine what age is best for you to begin collecting benefits.

Employer-Sponsored Retirement Plans (401(k), IRA, Pensions)

Employer-sponsored retirement accounts such as 401(k)s, IRAs and pensions can provide a significant portion of retirement income. Because traditional pension plans are less common than they once were, retirees are increasingly dependent on their personal retirement savings to fund retirement.

With the decline of pension plans, contributing to a 401(k) and/or an Individual Retirement Account (IRA) is more important than ever. Everyone, especially younger workers, should be encouraged to contribute early and consistently to take advantage of any employer match and the power of compounded earnings over time.

When designing your retirement income plan, be aware of Required Minimum Distribution (RMD) rules: The IRS enforces mandatory annual withdrawals from tax-deferred retirement accounts once you reach age 73 if born before 1960 and age 75 if born after.

Personal Savings and Investments

In addition to Social Security and employer retirement plans, your brokerage accounts, real estate, and dividends can all be sources of retirement income. You can use investment dividends and cash flow from real estate to supplement your monthly Social Security income or to cover unbudgeted expenses.

Annuities and Guaranteed Income

Annuities provide a guaranteed stream of retirement income. An annuity is a contract with an insurance company, which allows you to use part of your retirement savings to purchase a dependable monthly payment no matter how long you live. Immediate annuities are bought with a lump sum, with income payments starting within a year. In contrast, a deferred annuity accumulates money gradually, and then the income stream starts years later.

Annuities can be variable or fixed. Variable annuity payments fluctuate based on their market investments. A fixed annuity pays the same or a minimum interest rate throughout the contract period. While annuities provide tax-deferred growth and guaranteed income you can’t outlive, they can come with complicated, expensive fees, and limited liquidity. As with any contract, carefully analyze the pros and cons before committing to an annuity.

When to Start Planning Your Retirement Income Strategy

Whether you are in the accumulation phase or planning the withdrawal phase of your retirement journey, it’s important to start early, do your research, talk to your advisor, and consider all your circumstances and options. Remember that retirement planning is not a one-and-done project. Over time you will need to adjust your plans as your life evolves.

5 Steps to Building Your Retirement Income Plan

Step 1: Estimate Your Retirement Needs

First, take a close look at your budget. What did you spend and how did you spend it over the past few years? Think about how your expenses may increase or decrease during retirement. Perhaps your expenses will go down because you won’t need to commute or buy work clothes. Maybe you’ll have more time to cook so you won’t order take-out or go to restaurants as much. Maybe you will no longer need a house cleaning service. Or your expenses may increase if your dream is to travel the world or indulge in a hobby. Do you plan to stay in your current home or downsize and/or move to a less expensive part of the country? Will you and your spouse retire at the same time? Is it important for you to leave money for your children and grandchildren? Do you plan to make a significant donation to your favorite charity? There are so many factors to consider.

Whatever retirement means to you, begin by striving to generate 70-90% of your pre-retirement income. Don’t forget to factor in taxes, inflation, and healthcare costs. Then adjust based on your circumstances and desires.

Step 2: Calculate Expected Income

Next, do a deep dive into what retirement income you expect to receive, using Social Security tools and calculators to test scenarios. Review your 401(k) and investment statements, as well as your savings, and pension plan, if applicable. Compare anticipated income to expected expenses over the potential span of your retirement.

Step 3: Create a Withdrawal Strategy

Since some of your withdrawals will be taxed and others will not, work with a tax advisor to build a sequence of withdrawals that will minimize your tax exposure over time.

One of the most common retirement planning questions is how much can safely be withdrawn from savings each year. While there is no universal answer, many retirees use the “4% rule” as a starting point. This guideline suggests withdrawing approximately 4% of retirement assets during the first year of retirement and adjusting for inflation thereafter.

However, withdrawal strategies should consider investment performance, tax consequences, expected lifespan and income needs. A personalized withdrawal plan can help balance current spending needs with long-term sustainability.

Step 4: Plan for Longevity and Risks

Because no one knows how long retirement will last, it’s important to plan for a range of scenarios. Maintaining an appropriate investment allocation, considering guaranteed income sources and managing withdrawal rates can help reduce the risk of exhausting your savings prematurely.

Step 5: Consider Guaranteed Income Options

When designing your retirement income plan, it’s best to align essential spending (necessary expenses) with reliable, guaranteed income options such as Social Security, pensions, or annuities. Then cover discretionary spending (optional expenses) with your fluctuating income streams like dividend income or part-time work. In other words, once you cover your needs (housing, utilities, food, healthcare, taxes, etc.), then you can address your wants (dining out, travel, entertainment, hobbies, gifts, etc.) This strategy will give you peace of mind and the needed confidence to genuinely enjoy your retirement years.

Don’t Overlook Healthcare Expenses

Healthcare is often one of the largest retirement expenses. Premiums, deductibles, long-term care and prescription costs can significantly affect cash flow. Incorporating healthcare projections into your retirement income strategy can help reduce unexpected financial pressure later in life.

Tools and Resources for Retirement Planning

Here are some of the best free tools and resources to help you plan your retirement income strategy:

• Social Security calculators and accounts
• Retirement planning worksheets and tools [usa.gov]
• Government benefit finders (healthcare, assistance programs)

Common Retirement Income Planning Mistakes

Avoiding these common mistakes can help you build a more tax-aware, flexible, and reliable retirement income plan.

• Claiming Social Security without evaluating timing strategies
• Underestimating healthcare and long-term care costs
• Ignoring inflation’s impact on purchasing power
• Relying too heavily on a single income source
• Neglecting tax consequences of withdrawals
• Failing to plan for required minimum distributions (RMDs)
• Maintaining an investment strategy that doesn’t align with retirement goals
• Not revisiting the plan regularly as circumstances change

Building Confidence in Retirement with a Sustainable Income Strategy

A successful retirement is determined by how effectively your savings generate income throughout retirement. A comprehensive retirement income strategy coordinates Social Security benefits, retirement accounts, investment income, taxes and estate planning goals to support your lifestyle for the long term.

The Anders Family Wealth and Estate Planning team helps individuals and families create retirement income strategies that align with their financial goals, tax situation and legacy objectives. Whether you’re approaching retirement or already drawing income from your assets, proactive planning can help provide confidence and peace of mind.