Retirement income planning begins with clarity around spending, then turns into a repeatable withdrawal system that works in both calm markets and volatile ones. Social Security timing, tax-aware withdrawals, and required minimum distributions (RMDs) shape the plan’s long-term cash flow and taxes. Learn how to plan your retirement income with a clear spending target, a withdrawal rhythm, and a tax-aware timeline.
Step 1: Know How Much You Need
Start with a monthly number, because retirement income is lived month to month. Build it from current expenses, then adjust for retirement-specific costs like healthcare, travel, and more time spent at home.
A clean way to do this is to split spending into two categories. First is baseline spending, which covers housing, utilities, food, transportation, and insurance. Second is lifestyle spending, which covers travel, hobbies, and other items that can be reduced in a down market. This two-layer view helps later when the plan calls for flexibility.
A quick formula creates instant clarity:
Income gap per year = Annual spending target − Guaranteed income.
Guaranteed income often includes Social Security and pensions. Social Security timing changes the amount you receive, because benefits can start at 62 and increase if claimed later, up to age 70.
Step 2: Estimate Your Guaranteed Income
List every source that is not tied to market returns. For many retirees, this is Social Security and a pension, if available.
Social Security timing is a planning lever. Claiming early can reduce monthly income, while delaying beyond full retirement age can raise it, which shifts pressure away from the portfolio later. When a household has two earners, timing is also a coordination decision, because the combined pattern can affect survivor income later.
Keep this section practical. Use the benefit estimates available to you, then build your model around two or three claiming ages so you can compare cash flow paths.
Step 3: Calculate Retirement Income from Your Portfolio
Once the income gap is clear, the next question is how much the portfolio can safely contribute each year.
A common starting framework is the 4% rule concept, which uses a first-year withdrawal rate around 4%, then adjusts withdrawals over time. This idea is often tied to the Trinity Study discussion and later safe withdrawal research. It is not a guarantee, but it is a useful baseline for planning.
Two simple formulas help:
Annual withdrawal = Portfolio value × Withdrawal rate.
Portfolio target ≈ Income gap ÷ Withdrawal rate.
Example: If your income gap is $40,000 and you use 4%, the implied target is $1,000,000 ($40,000 ÷ 0.04).
If you want a more conservative starting point, you can model 3.5% or 3%. Safe withdrawal research discussions frequently show that longer retirements and poor early market returns can pressure withdrawal rates.
Step 4: Pick an Income Framework You Can Follow
Most retirement income failures are behavioral. A plan can be mathematically sound and still fail if it forces you to sell assets during a downturn or if it has too many moving parts.
Two frameworks dominate because they are easier to live with.
The bucket strategy
Bucket planning divides money by time horizon. One bucket holds near-term spending in cash and near-cash. Another bucket holds steadier assets intended to refill the spending bucket. The long-term bucket holds growth assets meant to fight inflation.
This is less about fancy investing and more about creating a paycheck rhythm. It helps retirees avoid selling long-term holdings to pay next month’s bills.
Guardrails withdrawals
Guardrails introduce flexibility. Instead of withdrawing the same inflation-adjusted amount in every market condition, spending adjusts within a band. In strong markets, spending can rise modestly or reserves can be rebuilt. In weak markets, discretionary spending is reduced temporarily. This idea is often discussed as a response to sequence-of-returns risk in withdrawal research.
Step 5: Model Roth vs Traditional withdrawals
Withdrawal planning becomes far smoother when taxes are treated like a design variable, not a surprise.
Traditional IRA withdrawals are generally taxable as income, and later-life RMDs can force taxable withdrawals. Roth IRAs are funded with after-tax dollars and can offer tax-free qualified distributions, which can provide flexibility in years when you want to control taxable income.
A practical modeling approach is to create three lines in your spreadsheet: taxable withdrawals, traditional IRA withdrawals, and Roth withdrawals. Then test two strategies.
Strategy A is “traditional-first” spending, where taxable income is higher early, and Roth is saved for later flexibility. Strategy B is a blended approach, where traditional withdrawals are taken up to a target bracket range, and Roth is used to avoid pushing taxable income higher. This modeling matters because taxes can change your net income more than investment returns in many real-world years.
Step 6: Plan ahead for RMDs
RMDs are a turning point for many retirees. Under current IRS guidance, RMDs for traditional IRAs start at age 73 for tax years 2023 and later. Once RMDs begin, they can raise taxable income and reduce your freedom to choose how much to withdraw.
A basic RMD calculation uses an account balance divided by a distribution period. Publication 590-B provides an example: $100,000 divided by 24.6 equals an RMD of $4,065. The exact factor depends on age and the applicable table, but the planning use is the same. It helps you forecast future taxable income.
This is also where Roth strategy can matter. If a large portion of retirement savings sits in traditional accounts, some households model conversions or planned withdrawals earlier to smooth taxes later, rather than letting RMD years spike taxable income.
Step 7: Stress-test Your Plan with Three Scenarios
Many plans look fine in average returns. Stress tests show what happens when life is less polite.
Run three five-year scenarios:
- A normal market path.
- A bad early sequence, where the first two years are down.
- A higher inflation period, where spending rises faster.
Then decide what changes in each scenario. In the bucket framework, this often means drawing from near-term reserves instead of selling long-term assets during a drawdown. In a guardrails framework, it often means cutting lifestyle spending temporarily. These actions are simple, but they are where the plan becomes real.
Step 8: Turn the Plan into a Monthly Paycheck
A plan becomes usable when it turns into a routine. Pick a monthly transfer amount to your spending account, decide which accounts it will come from, and define when you will rebalance or refill cash reserves.
This is also where recordkeeping helps. Track withdrawals by account type so you can see the tax picture forming during the year, not after the year ends.
Step 9: Review Annually and After Life Changes
Retirement income planning changes when health changes, housing changes, a spouse dies, or a large market drawdown hits early retirement. Social Security timing and RMD forecasts may need updates as your portfolio changes. A yearly review keeps the plan aligned with current reality.
Example: A Simple Retirement Income Build
Assume a household targets $72,000 per year in spending. They plan to claim Social Security later, aiming for $26,000 per year once benefits start. That creates an income gap of $46,000 in the years after Social Security begins, and a larger gap in the bridge years before benefits start.
If the portfolio is $900,000, the household models a 4% style starting point for withdrawals, which is roughly $36,000 in year one ($900,000 × 0.04). The remaining gap during early years may be covered by temporary withdrawals, part-time income, lowering lifestyle spending, or adjusting the claiming strategy, because the plan is a system with levers, not a single number.
Later, when RMDs start at age 73 for traditional IRA money, the household forecasts forced taxable withdrawals and uses Roth reserves for flexibility in higher-income years.
Partner with Nevada Trust Company
Retirement income planning works best with a team that can manage details over decades, not just run a one-time projection. At Nevada Trust Company, founded in 1995, we provide trust, custody, escrow, retirement, and investment management services for individuals, families, and institutions.
Built around a client-first philosophy, our trust officers and professionals support long-term planning with governance, reporting, and administration for both traditional and private assets. Reach out through our contact page to discuss your retirement income plan and next steps.
