Saving for retirement is only half the job, turning those savings into steady income is the other half. Here is how to plan it.
What retirement income planning involves
Retirement income planning is the process of converting your savings, Social Security, and any pension into reliable income that lasts your lifetime. It coordinates several decisions: how much to withdraw each year, which accounts to draw from first for tax efficiency, when to claim Social Security, and how to cover healthcare. The goal is usually to replace 70-80% of your pre-retirement income while minimizing the risk of running out. Unlike a single calculator estimate, an income plan is dynamic, it adjusts as markets, tax laws, and your needs change. The best plans blend guaranteed income sources with flexible portfolio withdrawals.
The building blocks of retirement income
Most retirees draw income from three layers. First, guaranteed income, Social Security and any pension, which covers essential expenses and never runs out. Delaying Social Security to age 70 can boost your benefit by about 76% versus claiming at 62. Second, portfolio withdrawals from 401(k)s, IRAs, and taxable accounts, often guided by the 4% rule or a flexible guardrails approach. Third, cash reserves of one to three years' spending to ride out market downturns without selling stocks. Coordinating which source you tap, and when, can reduce taxes and extend how long your money lasts.
Tax-smart withdrawal sequencing
The order you withdraw from accounts affects your lifetime tax bill. A common approach: spend taxable accounts first, then tax-deferred (traditional 401(k)/IRA), then tax-free Roth last, while watching tax brackets. Strategic Roth conversions in low-income early-retirement years can reduce future required minimum distributions, which begin at age 73 under current law. Coordinating withdrawals with Social Security timing and Medicare premiums (which rise at higher incomes via IRMAA) can save thousands. A modest income increase can also raise Medicare Part B premiums, so plan withdrawals carefully.
Healthcare: the income plan's hidden line item
A retirement income plan is incomplete without a healthcare strategy. Medical costs are large and rise with age, Fidelity estimates a 65-year-old couple may need about $330,000 in retirement. Original Medicare leaves gaps with no out-of-pocket maximum, which can blow up a careful income plan. A Medigap plan converts unpredictable medical bills into a fixed premium, making your income needs steadier and easier to plan around. Call 1-800-MEDIGAP at 1-800-633-4427 to build the Medicare piece into your income plan.