Know What You Want in Retirement Before You Buy the Tools to Build It
Too many people go about building their retirement plan backward. They get caught up in the investment part of the plan first and figure they'll worry about what their actual goal is later.


Imagine you hired a contractor, gave him some money and told him to go out and buy whatever tools and supplies he might need for the job — but you didn’t say what you wanted him to build.
He doesn’t know if it’s a house or a commercial office building. Or maybe it’s a hotel or hospital.
And, of course, the tools differ depending on the project.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

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.
That’s how a lot of people go about building their retirement plans. They tend to focus on the tools they think they should have — stocks, bonds, annuities, real estate or commodities — instead of what they ultimately hope to accomplish with those tools: a comfortable lifestyle with enough money to last at least 20 or 30 years.
That’s a big project that requires a lot of problem-solving:
- You should have an emergency fund with six months’ to a year’s worth of easy-to-access money to cover everything from home or car repairs to unexpected health care costs.
- You have to generate income, so you have something to pay the bills when your paycheck goes away.
- You have to pay attention to taxes, and figure out how to outpace inflation.
- You have to take long-term care costs into consideration, too, and put away something in case you or your spouse needs special or extended health care.
- And you may want to leave some money behind for your children or grandchildren.
The project should start with an income plan.
If you haven’t done so already, you’ll need to put together a realistic budget for your retirement years. Next, you should figure out how you’ll cover those day-to-day costs with money you know you can count on — Social Security, a pension if you have one, maybe an annuity or rental properties. Once you’ve done that, you can determine how much you’ll need to add every year from your investment savings.
And that’s when you can begin looking for the appropriate tools and strategies to generate the income you’ll need.
It starts with a change in the way you look at investing. While you’re working, your goal is to accumulate money — and the tools you choose should help you with that — but when you are in or near retirement, you have to worry about making that money last.
It helps to break your needs into three levels.
1. Income for your immediate needs.
This is the money you’ll use to supplement your guaranteed income streams and pay your bills, so you want to make sure it’s enough and that it’s safe.
I like the idea of creating your own pension with a deferred annuity, a contract in which the money you deposit grows, protected and tax-deferred, until you’re ready to use it. Many people misunderstand annuities: They like the idea of lifetime income, but they believe that if they die prematurely, the money will be lost and won’t go to their loved ones. But this type of annuity includes a death benefit component that ensures your beneficiaries will receive any remaining principal investment and any gains in the account.
2. Income for your intermediate needs.
Once you’ve figured out how you’re going to pay your monthly expenses, you can move on to some other things that might come up during retirement. Maybe you’ll want to buy a new car at some point, or to travel, or you may need something to live on until you turn on the income from your deferred annuity.
This money can come from stocks and bonds, but they should still be conservative investments. If you’ll need to access the money sometime in the next 10 years, you can’t afford to take a lot of risk with it.
3. Income for your long-term needs.
This is money you won’t touch for at least 10 years, but it will come in handy when you have to deal with inflation and more health care costs and if you want to leave money to your children. Because these are costs you’ll face down the road, you can choose more aggressive investments to help pay for them. If the market experiences a downturn, you’ll still have time to recover. And if you’ve already covered the costs you might have in the short to medium term, you won’t have to sell at a loss.
Unless you win the lottery or inherit a fortune, the money you have when you retire is pretty much all you’re going to have to work with. How you’ll make it last is up to you.
To build a stable retirement, come up with a vision of what you want to accomplish, use a well-designed blueprint to get you started (preferably with the help of an experienced financial professional), and then worry about gathering the tools that can help you do the job.
Kim Franke-Folstad contributed to this article.
Investment advisory services offered through AE Wealth Management, LLC (AEWM). AEWM and Freedom Financial Group are not affiliated entities. Investing involves risk, including the potential loss of principal. Any references to protection benefits, lifetime income and safety generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Tad Hill is the founder and president of Freedom Financial Group, a retirement planning firm in Birmingham, Ala. Hill is a Chartered Retirement Planning Counselor (CRPC®) and a Registered Financial Consultant (RFC). His clients are those who are either already retired or who are within five or 10 years of retirement.
-
$425 Million Google Class Action Lawsuit: Do You Qualify for a Payout?
Google was found liable for violating the privacy of 98 million users in a class action lawsuit. Are you one of them?
-
Kiplinger News Quiz, September 5, 2025
Quiz 401(k)s, Google's Alphabet and tariffs on luxury goods all made Kiplinger headlines this week — but why? Test your knowledge of this week's financial news.
-
Greed, Fear and Market Volatility: A Financial Adviser's Guide to Keeping Emotions Out of Investment Decisions
Don't panic! And don't be so confident in the stock market that you overlook risk. Instead, be logical. Your retirement security could depend on it.
-
Want a Financial Adviser Who Shares Your Faith? Look for One With a CKA Designation
Financial professionals with a Certified Kingdom Advisor certification are committed to integrating biblical principles with sound financial advice.
-
10 Ways to Stay Safe From Grandparent Scams and Other Fraud, Courtesy of a Financial Planner
Scams are increasingly hard to detect, and anyone can be fooled, from older people to educated professionals. Here are 10 ways to avoid becoming a victim.
-
This Is How the Student Loan Bubble Is Primed to Pop, From a Student Funding Expert
Fueled by easy money, inflated tuition and high default rates, the student loan bubble mirrors the 2008 subprime mortgage crisis. We could be headed for a potential financial collapse. What can we do?
-
More Than Money: The Hidden Toll of Financial Abuse of Older Adults
Financial abuse from schemes involving tech support, government impostors, false sweepstakes, grandchild hoaxes and online shopping issues can cause thousands of dollars in losses.
-
I'm a Financial Planner: Here Are Three High-Impact Ways to Make a Difference With Your Dollars
The world often feels out of control, but here are three ways to use your money — through investments, charitable giving and political donations — to help create a more just and sustainable future.
-
The Unsung Hero of Aisle 5: A Tale of Forgotten Change and Compassion at the Supermarket
This supermarket manager went above and beyond to help when a child forgot her change at the checkout counter. You might be surprised at some of the complications that supermarkets face when it comes to customers' forgotten change.
-
Train, Integrate, Retain: A Strategic Playbook for Adviser Onboardings
Build a thriving practice by training new advisers with clear goals, structured processes and consistent mentorship for strong team growth.