Battle the Big 4 Retirement Risks With a Solid Income Plan
Putting your money in the right places and being smart about how you'll draw it down are the keys to defeating the top four retirement foes: taxes, inflation, stock downturns and legacy pitfalls.
If you thought saving for retirement was tough, wait until you see what’s next for your nest egg.
The reality is that pile of money you accumulated won’t do you much good unless you can turn it into income that will last 20 years or more. And that means keeping a watchful eye out for all kinds of risks in retirement.
Having an income plan in place can help you battle the Big 4:
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Tax risk
Of course, your goal is to keep as much of your money as possible. But if you’ve been socking away savings in a tax-deferred retirement plan (such as an IRA, 401(k), 403(b), etc.), you have a silent partner in Uncle Sam. Withdrawals from those accounts — whether you take them in your 60s or when they’re required starting at age 70½ — will be taxed as ordinary income. It’s critical to have strategies built into your plan to keep the damage to a minimum. Talk to a financial adviser and/or tax professional about how you can manage your tax bracket each year — filling up the lowest bracket possible without spilling into the next. And keep an eye on how your deductions and exemptions may change once you retire — if you pay off your house, for example, or if you no longer own a business.
2. Inflation risk
Taxes take a bite out of your nest egg; inflation slowly erodes it. If you live on $5,000 a month right now, by 2027, you’ll likely need a little more than $6,700 a month to maintain the same lifestyle (based on a 3% rate of inflation). You can’t necessarily count on getting the same cost of living adjustments (COLAs) that you got when you were employed. Some pensions offer them, but many do not. And Social Security’s COLAs are unpredictable. To hold onto your purchasing power over the decades, you’ll have to build some inflation protection into your plan. Long-term, stocks may be your best inflation fighter — but they come with their own risks. Consult with your financial professional to discuss your specific needs and options.
3. Investment risk
A market downturn can devastate your nest egg — especially if you’re close to retiring or recently retired. It’s important to position your savings in a way that ensures you have sustainable, reliable income every month. The easiest way to think about it is as though your money is in different buckets.
- The first bucket is the money you’ll spend down through the first five years of your retirement. It should be filled with cash and safer investments. They may earn only 2% or 3%, but in the worst downturn, they shouldn’t lose more than 1%.
- The next bucket is for years six through 10. This money can be a bit more growth-oriented, but as you get closer to using it, you should become more conservative with how it’s invested … like bucket No. 1.
- The third bucket is for money you won’t need to touch for 11 or more years. Eventually, you’ll use it for income, but it can be invested more aggressively than the money in the first and second buckets, because if there’s a loss, you’ll have time to recover.
4. Estate and legacy risk
Your plan also should extend to the loved ones who will inherit your money. Proper positioning will help you leave a legacy without passing on any estate-planning snafus or excessive taxes to those who receive it. Talk to your adviser about how this applies to your retirement accounts, and if you should be looking at life insurance and other alternatives.
Your income plan is arguably the most important part of your comprehensive retirement plan. It will help you figure out what you need and where that money will come from. And when you reach retirement, it will help preserve the money you’ve worked so hard to save.
Kim Franke-Folstad contributed to this article.
-
Stocks See First Back-to-Back Losses of 2026: Stock Market TodayRising geopolitical worries and a continued sell off in financial stocks kept pressure on the main indexes on Wednesday.
-
Countries That Will Pay You to Move: Cash Grants, Incentives and What to KnowExplore real relocation incentives — from cash grants and tax breaks to startup funding — that make moving abroad or to smaller towns more affordable and rewarding.
-
Mortgage Protection Insurance: What It Covers and When It Makes SenseHow mortgage protection insurance works, what it costs, and when it’s actually useful in a financial plan.
-
I'm a Real Estate Expert: 2026 Marks a Seismic Shift in Tax Rules, and Investors Could Reap Millions in RewardsThree major tax strategies will align in 2026, creating unique opportunities for real estate investors to significantly grow their wealth. Here's how it works.
-
When Can Tax Planning Be an Act of Love? This Family Found OutHow can you give stock worth millions to a loved one without giving them a huge capital gains tax bill? This family's financial adviser provided the answer.
-
Forget Job Interviews: Employers Will Find the Best Person for the Job in an Escape Room (This Former CEO Explains Why)Escape rooms can give employers a better indication of job candidates' strengths than a standard interview. Here's how your company can get on board.
-
The Paradox Between Money and Wealth: How Do You Find the Balance?Wealth reflects a life organized around relationships, health, contribution and time — qualities that compound differently than money in a mutual fund.
-
Billed 12 Hours for a Few Seconds of Work: How AI Is Helping Law Firms Overcharge ClientsThe ability of AI to reduce the time required for certain legal tasks is exposing the legal profession's reliance on the billable hour.
-
General Partner Stakes: Why Investors Are Buying Into the Business of Private EquityGP stakes in asset management firms offer exposure to private markets and are no longer just for the wealthy. Find out why it looks like a good year to invest.
-
5 Golden Rules We (Re)learned in 2025 About InvestingSome investing rules are timeless, and 2025 provided plenty of evidence demonstrating why they're useful. Here's a reminder of what we (re)learned.
-
I'm a Financial Adviser: Here's How to Earn a Fistful of Interest on Your Cash in 2026 (Just Watch Out for the Taxes)Is your cash earning very little interest? With rates dropping below 4%, now is the time to lock in your cash strategy. Just watch out for the tax implications.
