Your 3-Step Guide to Constructing Rock-Solid Income in Retirement, From a Financial Planner
Real life can lay waste to shaky retirement income formulas, such as the 4% rule. It's better to build a stable and flexible plan for your money in three layers: Need, want and grow.
If there's one question that keeps pre-retirees up at night, it's this: Will my money last?
For decades, the financial industry has leaned heavily on rules of thumb, such as the 4% rule, to answer that question. But real life rarely follows a straight line.
Markets fluctuate, inflation rises and falls, and unexpected expenses — especially healthcare — have a way of showing up at the worst possible times.
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A more reliable approach to retirement income planning doesn't depend on guesswork. Instead, it starts with structure.
I like to think of retirement income in three distinct layers: Need, want and grow. When built correctly, this framework creates stability, flexibility and long-term resilience, regardless of market conditions.
It may not be flashy. In fact, it's intentionally a bit boring. But that's the point: A boring portfolio supports an exciting retirement.
Here's how it works.
Step 1: Guarantee your 'need'
The foundation of any successful retirement plan is ensuring that your basic living expenses are covered — no matter what happens in the markets.
Your "need" income is the amount required to maintain your core lifestyle. Think housing, utilities, groceries, insurance and other essential expenses. These are non-negotiable. They must be paid whether the market is booming or in a downturn.
The key here is certainty.
To guarantee this level of income, retirees should rely on sources that are dependable and, ideally, last for life. These typically include:
- Social Security
- Pension income (if available)
- Interest from high-quality, long-duration government bonds (such as 30-year Treasuries)
- Annuities with lifetime income riders
Each of these sources shares a common characteristic: They provide income that isn't directly tied to stock market performance.
A practical strategy is to carve out a portion of your retirement savings specifically to fund this layer. Once your need is covered by guaranteed or highly predictable income streams, you've eliminated the biggest risk in retirement: The inability to meet your basic expenses.
This step alone can dramatically reduce financial stress. When retirees know their essentials are covered, they can approach the rest of their portfolio with greater confidence and clarity.
Step 2: Protect your 'want'
Once your foundational needs are secured, the next layer focuses on enhancing your lifestyle.
Your "want" income is what allows you to enjoy retirement — not just survive it. This includes:
- Travel and vacations
- Dining out
- Hobbies and entertainment
- Gifting to family
- Experiences that make retirement meaningful
While these expenses are more flexible than your needs, they're still important. After all, retirement should be about enjoying the life you've worked hard to build.
The goal in this step is protection with moderate flexibility.
Unlike step one, this layer doesn't need to be fully guaranteed — but it should still be relatively stable and low risk. Appropriate tools often include:
- Government bond portfolios
- Fixed index annuities
- Other conservative income-oriented investments
These options typically offer a balance between safety and modest growth potential, helping preserve principal while generating income.
Again, the strategy is to allocate a portion of your retirement savings to fund this layer after step one is complete.
By doing so, you create a buffer between your lifestyle spending and the volatility of the stock market. Even during market downturns, your ability to enjoy retirement isn't immediately compromised.
Step 3: 'Grow' the rest
With your needs guaranteed and your wants protected, the remaining portion of your portfolio can be positioned for growth.
This is where you invest for:
- Inflation protection
- Future healthcare expenses
- Legacy goals
- Emergencies and unexpected costs
This portion of your portfolio is typically invested in a diversified mix of market-based assets, such as:
- Stocks
- Exchange-traded funds
- Mutual funds
- Other growth-oriented investments
The exact allocation should align with your personal risk tolerance, time horizon and financial goals.
Because your essential and lifestyle income needs are already addressed in steps one and two, this growth portion can be invested more strategically — without the pressure of needing to generate immediate income during unfavorable market conditions.
This is a critical advantage.
In traditional retirement strategies, retirees often draw income directly from market-based portfolios. When markets decline early in retirement — a phenomenon known as sequence of returns risk — this can significantly damage long-term outcomes.
By separating income needs from growth assets, you give your portfolio time to recover and compound over the long term.
How the pieces fit together
In practice, most retirees will allocate:
- 50% to 60% of their portfolio to steps one and two combined
- Up to 70% at most in more conservative income and protection strategies
- The remaining portion to growth investments
This balance creates a structured yet flexible approach to retirement income.
It's also fundamentally different from relying solely on the 4% rule.
The 4% rule assumes a consistent withdrawal rate from a market-based portfolio, regardless of market conditions. While that rule can work in favorable environments, it offers limited protection during prolonged downturns or periods of high inflation.
In contrast, the need-want-grow framework is designed to work in both good markets and bad markets.
In strong markets, your growth portfolio can flourish, supporting future needs and legacy goals.
In weak markets, your essential income remains intact, and your lifestyle is largely protected.
This reduces the emotional and financial strain that often leads retirees to make poor decisions — such as selling investments at the wrong time.
Why 'boring' works
It's easy to be drawn to complex strategies or high-return opportunities, especially after decades of saving and investing.
But retirement is about maximizing reliability and peace of mind, not maximizing returns.
A structured, layered approach may feel conservative, even boring, but that's exactly what makes it effective.
When your income plan is predictable:
- You worry less about market volatility
- You avoid emotional decision-making
- You gain the freedom to actually enjoy retirement
And that's ultimately the goal.
While an exciting portfolio might look good on paper, it's a boring, dependable one that supports an exciting life.
Final thoughts
Creating a rock-solid income in retirement doesn't require complicated formulas or blind faith in market performance; it requires clarity.
By breaking your retirement income into three distinct steps — guaranteeing your needs, protecting your wants and growing the rest — you can build a plan that is resilient, adaptable and aligned with how real life actually unfolds.
And perhaps most importantly, you can replace uncertainty with confidence. Because in retirement, the best plan isn't the one that promises the highest return; it's the one that lets you sleep at night — and wake up excited for the day ahead.
Centennial Advisors, LLC is an Investment Adviser registered with the U.S. Securities and Exchange Commission ("SEC"). Registration as an investment adviser does not imply a certain level of skill or training.
Dan Dunkin contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
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