How to Take the Guesswork Out of Retirement Income Planning

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How much will you need to retire? It’s one of the most common questions people ask as they start thinking about life after work.

Most of us are taught to chase a “magic number.” Maybe it’s $1 million. Maybe it’s $2 million. Maybe it’s whatever matches your current salary.

But a successful retirement depends on more than just how much you’ve saved. What matters most is how you turn those savings into steady, reliable income that can support your lifestyle for decades to come.

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The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

A well-structured income plan helps you stay on track. It shows how long your money might last, how reliably it can cover your monthly needs, and how flexible it can be when life throws something unexpected your way.

Income planning: The missing piece in retirement

Retirement today looks radically different than it did a generation ago. People are living 20 or even 30 years after they stop working.

Traditional pensions are becoming a thing of the past. Social Security may only cover a portion of your monthly expenses. And relying on market returns alone for income can leave your retirement vulnerable to forces outside your control.

Even with a sizable nest egg, you might still feel uncertain about how much you can afford to spend.

That’s where income planning comes in. You want to build stability, create confidence, and give your retirement structure and direction. You might already have a diversified portfolio, a Social Security estimate, and even a target retirement date.

However, without an income strategy, you’re missing the part that ties it all together. Here's why income planning should be a top priority.

You need consistency, not guesswork

Markets naturally rise and fall. Interest rates often change. Your bills don’t go anywhere. In fact, they will probably become more expensive. A strong income plan shows where your money will come from and when, helping create dependable monthly cash flow that isn’t tied to market swings.

Withdrawals without a strategy can backfire

Pulling money from your accounts without a plan can lead to real damage. For instance, withdrawing too much during a down market can shrink your portfolio faster than expected. A coordinated strategy helps you choose the right accounts at the right time and helps manage the tax impact along the way.

Not just more income, but smarter income

The goal isn’t necessarily to generate more money but rather to make your income work more efficiently. Timing Social Security, taking strategic Roth withdrawals, or using annuities or dividend income in the right way can reduce your tax burden and help your savings go further.

Turning savings into income

Creating steady income in retirement means thinking strategically about how and when to use different sources of money. Having a variety of tools is a great start.

However, you also have to use them in the right way at the right time to balance stability, growth and tax efficiency. Take a look at a few smart strategies to consider when building your income plan.

Layer income based on needs

Start by separating your essential expenses (housing, food, insurance, healthcare) from your discretionary expenses (travel, entertainment, hobbies). Cover your essential expenses with more reliable income sources such as these:

Social Security
Pension income (if available)
Annuities with guaranteed lifetime payments
Laddered bonds or CDs

For discretionary spending, you may be more comfortable drawing from investments that can fluctuate in value, such as dividend-paying stocks or growth-focused portfolios.

Manage timing and risk with a bucket strategy

Try grouping your retirement savings into three buckets.

Short-term bucket (0-2 years): Cash and highly liquid assets for near-term income
Midterm bucket (2-7 years): Bonds or conservative investments that replenish your short-term bucket
Long-term bucket (7-plus years): Growth-oriented investments that can outpace inflation over time

As you spend from the short-term bucket, refill it with assets from the mid-term bucket to avoid selling long-term investments during a downturn.

At the same time, allow your long-term bucket to stay invested and focused on growth. This strategy creates a natural flow of income, keeps your portfolio aligned with your time horizon, and helps reduce the risk of making emotionally driven decisions during volatile markets.

Time withdrawals to reduce taxes

Coordinating your withdrawals across different account types, such as Roth accounts, traditional IRAs and taxable investment accounts, can make a big difference in how much you pay in taxes over the course of retirement.

One approach is to draw from taxable accounts early on, which can help keep you in a lower tax bracket during the first few years. Later, you can use Roth withdrawals strategically to avoid pushing yourself into a higher bracket or triggering higher Medicare premiums.

It’s also important to be proactive about required minimum distributions (RMDs). Waiting too long can result in a larger-than-necessary tax bill and fewer options for managing your income in a tax-efficient way.

Use annuities to fill income gaps

Annuities can help provide predictable monthly income, especially if you’re concerned about outliving your savings. But they work best when filling specific gaps, not to replace your entire income strategy. Consider fixed or income annuities with inflation protection or survivor benefits if you’re married.

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Don’t rely too heavily on market-based income

Dividend-paying stocks and growth funds may offer long-term income and appreciation, but they also carry risk. You can balance them with more stable options like bond ladders or structured payouts to help smooth out the ups and downs.

Mistakes to avoid

Even with a healthy nest egg and years of disciplined saving, retirement can bring unexpected financial challenges. Without a clear income strategy, it’s easy to fall into patterns that chip away at your financial security over time.

The good news is that many of the most common missteps are preventable — if you know what to look out for. Take a look at these key mistakes that can derail even the most well-funded retirement.

Ignoring inflation

What feels like enough income today may not keep up with rising costs down the road. Inflation may seem small year to year, but over two or three decades it can have a major impact on your purchasing power.

Underestimating longevity

Many people plan for 20 years of retirement, but it’s not uncommon to live 30 or more. Planning for a longer timeline helps ensure your income doesn’t run out before you do.

Spending too much too soon

Without clear guidelines or a withdrawal strategy, it’s easy to draw too much from your savings in the early years of retirement. This can put long-term income sustainability at risk.

Waiting too long to plan

Income planning isn’t something to save for your retirement party. Ideally, it should begin five to 10 years before you stop working, while you still have time to adjust your investment mix, reduce taxes and build flexibility into your future income.

The bottom line

Retirement isn’t about crossing a finish line. Think of retirement instead as a new phase of life, one that could last almost as long as your career did.

You need a clear strategy that supports your lifestyle, covers your needs and keeps you financially confident for the long haul.

If you’re five to 10 years from retirement, now is the time to start asking the right questions. Where will your income come from each month? How much can you safely spend? Will it last as long as you need it to?

The sooner you find those answers, the better positioned you’ll be to turn your retirement savings into lasting financial independence and enjoy the freedom that comes with it.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Doug Wright is the President of Wright Choice Financial Group and is a Chartered Retirement Planning CounselorSM. He has been in the insurance and financial services industry since 2003 and has a bachelor’s degree in management from California State University, Northridge. Doug holds a Series 65 securities license as well as life and health insurance licenses in New Hampshire, Massachusetts and California. He operates under a fiduciary standard to act in his clients’ best interest and firmly believes in doing what’s right, not what’s easy.