Creating Retirement Income From Your Savings
Understanding how your savings may be used to help support your income throughout retirement.
Saving for Retirement Is Only Part of the Picture
During your working years, the focus is often on building savings. In retirement, the focus may shift toward how those savings can be used to help support your income while addressing changing needs over time.
Retirement expenses can change over time. Understanding how much income you may need can help put your savings into context.
Deciding when and how much to withdraw can affect how long savings may last and how your remaining assets are positioned.
Taxes, inflation, market performance, healthcare costs and unexpected expenses can all affect the role your savings play in retirement.
The key question isn't simply how much you've saved. It is also how your savings, other income sources and spending needs may work together throughout retirement.
Where Can Retirement Income Come From?
Retirement income may come from several different sources. Looking at them together can provide a clearer picture of how your expenses may be supported over time.
The mix of income sources can vary from person to person and may change throughout retirement.
Social Security
Social Security may provide a source of retirement income, with the timing of benefits being one consideration in overall retirement planning.
Retirement Accounts
401(k)s, IRAs and other retirement accounts may become sources of income when withdrawals begin.
Pensions & Other Income
Some retirees may have pension benefits, part-time employment, rental income or other sources that contribute to their overall income.
Personal Savings
Taxable investment accounts, cash savings and other assets may also play a role in meeting retirement expenses.
Think in terms of the whole picture. Retirement income does not necessarily have to come from a single source. Understanding how different sources may fit together can help frame the larger retirement-income discussion.
Different Ways People Use Retirement Savings
Once retirement begins, accumulated savings may be used in different ways to help meet spending needs. The approach can depend on the type of account, other income sources, taxes, spending needs and the length of retirement.
Regular Withdrawals
Some retirees take withdrawals from their investment or retirement accounts on a regular schedule to help meet ongoing expenses.
Flexible Withdrawals
Others may adjust withdrawals from year to year based on spending needs, account values or other sources of income.
Coordinating Multiple Sources
Retirement income may involve coordinating withdrawals with Social Security, pensions, cash reserves and other assets.
Income From Specific Assets
Certain assets may be structured or positioned with the goal of providing income, while others may remain available for longer-term needs or unexpected expenses.
There Is More Than One Way to Approach Retirement Income
These approaches are not mutually exclusive. A retirement-income plan may use more than one method, and the appropriate approach can depend on an individual's circumstances, goals, time horizon and resources.
How Withdrawals Can Affect a Retirement Portfolio
Taking money from retirement savings can change the amount that remains invested. The timing and size of withdrawals can therefore be important considerations when thinking about how savings may support a long retirement.
Withdrawal Amount
Larger withdrawals may leave less money invested for future needs. Understanding expected spending can help put withdrawal decisions into context.
Withdrawal Timing
When withdrawals occur can matter, particularly when investment values are changing. Early withdrawals during periods of market declines can affect the amount remaining in the portfolio.
Remaining Savings
After withdrawals begin, the remaining savings may continue to be invested, potentially experiencing gains or losses over time.
Why This Matters
Retirement income planning involves balancing today's spending needs with the possibility of needing those savings for many years to come. There is no single withdrawal approach that applies to every retirement situation.
Taxes Can Affect How Much Income You Actually Keep
The amount you withdraw from savings is not always the same as the amount available to spend. Depending on the type of account and the circumstances, withdrawals may have different tax implications.
This is one reason retirement-income planning can involve more than simply estimating how much money you want to receive each month.
Account type matters. Traditional retirement accounts, Roth accounts and taxable investment accounts can have different tax treatment.
Where the money comes from
Different accounts and income sources may receive different tax treatment.
When withdrawals occur
The timing of withdrawals can be relevant when considering taxes and overall retirement income.
Required distributions
Certain retirement accounts are subject to required minimum distribution rules that can affect retirement-income planning.
Your overall tax situation
Other income, deductions and changes in circumstances may also affect the tax picture.
Market Volatility Can Matter More Once Withdrawals Begin
Investment values can rise and fall over time. When someone is also taking withdrawals, the timing of market gains and losses can become an important part of the retirement-income discussion.
Retirement Begins
Savings may still be invested while withdrawals begin to support retirement expenses.
Markets Decline
If investment values decline while withdrawals continue, the account balance may be affected by both market losses and distributions.
Recovery Takes Time
Future market performance is uncertain, and the remaining portfolio may have a different starting point after withdrawals and market changes.
Time Horizon
Retirement savings may need to support income for many years, making the length of the retirement period an important consideration.
Withdrawal Needs
Spending needs can change, and withdrawals may not be the same every year.
Portfolio Allocation
The investments held in a portfolio can have different levels of market risk and different potential responses to changing market conditions.
Flexibility
Having a plan that can be reviewed as circumstances change may be part of managing retirement-income needs.
Past market performance does not predict future results. Retirement-income planning involves uncertainty, and investment losses are possible.
Questions to Consider Before Creating an Income Strategy
Creating retirement income can involve several moving parts. These questions can help organize the conversation before deciding how savings may be used.
How much income might I need?
Consider essential expenses, discretionary spending and how those needs could change over time.
What other income sources do I have?
Social Security, pensions, employment and other income may affect how much needs to come from savings.
Which accounts am I using?
Different account types can have different tax considerations and withdrawal rules.
How long might my savings need to last?
A retirement-income plan may need to account for a potentially long retirement horizon.
What happens if markets change?
Consider how changing investment values could affect the amount available for future withdrawals.
What could change in the future?
Healthcare costs, inflation, spending needs and other circumstances may change the income picture over time.
These questions are intended as educational considerations, not individualized financial, investment or tax advice.
A Practical Framework for Thinking About Retirement Income
Retirement income planning can be easier to understand when you break the larger question into a few key areas.
Estimate Your Needs
Consider the expenses you expect to have in retirement and how those expenses could change over time.
Identify Income Sources
Look at Social Security, pensions, employment income and other resources that may contribute to retirement income.
Consider Your Savings
Consider which accounts and assets may be used for retirement income and how withdrawals could affect remaining savings.
Review the Variables
Taxes, inflation, market conditions, healthcare costs and changing spending needs can all affect the income picture.
Creating retirement income isn't simply about deciding how much to withdraw. It's about understanding how income, savings, spending and changing circumstances may fit together.
Your Retirement Income Is Part of the Bigger Picture
Understanding how your savings, income sources, spending needs and other factors may work together can help you ask better questions as you prepare for retirement.
Educational Disclosure
This material is provided for educational and informational purposes only and is not intended to provide individualized investment, financial, tax or legal advice. Retirement-income decisions depend on individual circumstances, goals, resources and other factors. Investment and retirement accounts can lose value, and past performance does not guarantee future results.
Consider consulting qualified financial, tax and legal professionals regarding your individual circumstances before making financial decisions.