Retirement Income Planning: Build a Plan in Four Steps

Saving for retirement and turning savings into income are different challenges. A retirement income plan connects what you expect to spend with Social Security, pensions and withdrawals from your portfolio.

The four steps below help organize those decisions. The aim is not to find one perfect withdrawal percentage, but to build a plan you can adjust as your life and markets change.

What is a retirement income plan?

A retirement income plan maps expected spending to income sources and investment withdrawals over time. It considers when money is needed, how withdrawals are taxed and how the portfolio might respond to changing conditions.

What steps are required to create a retirement income plan?

There are four steps you can follow to develop a thorough retirement income plan. Gathering the information you will need may take some effort, but the details you collect will be instrumental to building your plan.

Step 1: Estimate Your Spending

Estimate your expenses in retirement. If you've always kept a monthly budget, you're off to a good start. Many people aren't that disciplined, and it's easy not to track income against spending while you have a steady paycheck.

That changes once you retire. To build an effective retirement income plan, you first need to figure out what your expenses will be after you stop working.

There is no single income target that fits every household. Start with essential costs and flexible spending, then add irregular expenses and the changes you expect after leaving work rather than relying on a percentage of your former salary.

Try to account for all of your monthly expenses, like housing, utilities, and transportation, plus discretionary spending like entertainment and travel. Will your house be paid off, or will your household expenses go up if you plan to finance a second home?

Include property taxes in your housing budget and check whether you qualify for any local exemptions or other relief.

Budget for the travel and activities you want to enjoy. Include health insurance premiums, supplemental coverage where appropriate and out-of-pocket medical costs.

If helping family members or making gifts is part of your plan, include those amounts alongside your own spending needs.

Step 2: Map Income and Account Types

List your expected income sources and when each may begin. Separately inventory taxable investments, tax-deferred retirement accounts, Roth accounts and cash, including accounts left with former employers.

These account types have different tax and withdrawal rules. Required minimum distributions, or RMDs, are one consideration; our RMD guide explains the starting ages and account distinctions.

If you have a pension, request benefit estimates from the plan administrator. Include any part-time earnings, rental income, existing annuity payments or other expected income in the same inventory.

For Social Security, use your personal my Social Security estimates to review your earnings record and compare benefit amounts at different claiming ages. An estimate based on your record is more useful than someone else's maximum benefit.

For each source, note the expected amount, timing and tax treatment so you can compare the income available for spending with your projected expenses.

Step 3: Test a Withdrawal Plan

Compare expected spending with income that does not depend on portfolio withdrawals. The gap is a starting point for testing how much the portfolio needs to provide and from which accounts.

Use a range of return, inflation and longevity assumptions rather than one stock-return forecast or withdrawal rule. Review what weaker early returns, a large one-time expense or a longer retirement could mean, and identify which spending could change if needed.

Coordinate taxable, tax-deferred and Roth withdrawals with benefit timing and taxes. The sequence of withdrawals can matter as much as the total amount.

If the first version of the plan shows a shortfall, compare adjustments rather than assuming the portfolio should take more risk. Working longer, changing spending or revisiting benefit timing can each have different financial and personal consequences.

For example, would downsizing reduce housing expenses, or would a part-time role help cover the gap? Consider the trade-offs alongside the life you want in retirement.

Step 4: Review the Portfolio and Revisit the Plan

Choose an investment mix that balances near-term spending with the need to support a potentially long retirement. Income, growth, liquidity and the ability to absorb losses all belong in that decision; moving entirely to conservative investments is not automatically the answer.

Review the plan regularly and after major changes in spending, family circumstances or work. Your investment approach should support those decisions rather than sit apart from them.

Schedule a free, no-obligation introductory meeting with Todd to discuss how your income needs, portfolio and personal financial plan could fit together.

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