Retirement isn’t just about stopping work — it’s about creating a plan that allows you to confidently replace your paycheck with income from the savings and investments you’ve built over time. That’s why a strong retirement income plan is essential.
Here’s what it should consist of:
1. A Clear Picture of Spending Needs
A realistic retirement plan starts with knowing what it costs to live the life you want. This includes:
- Essentials: housing, utilities, healthcare, food, and insurance.
- Lifestyle expenses: travel, dining out, hobbies, or helping family.
- Future needs: long-term care, healthcare inflation, and unexpected costs.
Most retirees might spend about 70–80% of their pre-retirement income, but the real number depends on your personal lifestyle.
2. Income Sources and Stability
Your income plan should blend multiple streams:
- Social Security – timing your benefits strategically can increase lifetime income.
- Pensions or annuities – guaranteed sources of cash flow.
- Retirement accounts – 401(k), IRA, or Roth accounts.
- Taxable brokerage accounts – flexible, accessible funds.
- Other income – rental property, part-time work, or business ownership.
The more diversified your income, the more stable and flexible your plan will be.
3. Guardrails for Retirement Income
A traditional approach is to withdraw a fixed percentage (like 4%) each year. But this can create problems when markets are volatile. That’s where guardrails come in.
Guardrails are spending thresholds that adjust withdrawals based on portfolio performance. Here’s how they work:
- Base Income: Set a sustainable starting withdrawal (e.g., $40,000/year on a $1M portfolio).
- Upper Guardrail: If the portfolio grows significantly (say, by 20%), withdrawals can be increased (a “raise” for the retiree).
- Lower Guardrail: If the portfolio declines past a set threshold, withdrawals are reduced to preserve longevity.
This approach:
✅ Helps prevent running out of money during market downturns.
✅ Allows flexibility to spend more when markets perform well.
✅ Creates peace of mind by keeping retirement income sustainable.
It’s a dynamic system that adapts, instead of being locked into a rigid withdrawal rate.
4. Tax-Efficient Withdrawal Strategies
Taxes don’t stop in retirement — in fact, poor planning could cause retirees to pay more than necessary. A tax-aware income plan helps you keep more of what you’ve earned.
Key strategies include:
- Withdrawal sequencing: Deciding whether to pull from taxable, tax-deferred, or Roth accounts first. The order can reduce lifetime taxes.
- Roth conversions: Converting traditional IRA/401(k) money to Roth accounts in lower-income years to reduce Required Minimum Distributions (RMDs) later.
- Harvesting capital gains/losses: Using taxable accounts strategically to offset income or rebalance portfolios tax-efficiently.
- Coordinating with Social Security: Avoiding “tax torpedoes” that can occur when Social Security benefits become taxable alongside withdrawals.
These strategies require planning but can save tens of thousands of dollars over a retirement lifetime.
5. Flexibility and Contingency Planning
Markets, health, and life circumstances will change. A strong plan includes:
- Cash reserves for 6–12 months of expenses.
- Growth investments to keep pace with inflation.
- Insurance planning for healthcare and long-term care costs.
- Estate and legacy planning for transferring wealth efficiently.
The Bottom Line
A retirement income plan isn’t about a single number — it’s about building a flexible strategy that balances income, growth, taxes, and risk. By incorporating guardrails and tax-efficient withdrawal strategies, you can enjoy the retirement lifestyle you want without the constant fear of running out of money.
At Ferlita Nussel Dowell Financial Group, we design retirement income strategies tailored to your goals, with a focus on long-term sustainability and tax efficiency.