Building a Paycheck That Lasts:
For decades, you’ve worked hard, saved, and invested for the future. Now retirement is on the horizon and a new question emerges: How do I turn my savings into a reliable income?
You have been saving for retirement for most of your life, but it always felt so far off in the distance, and the years have flown by. Generating income in retirement is different from saving for it. You’re no longer adding to your accounts you’re withdrawing from them. You are faced with a number of decisions you likely haven’t made before.
Have I saved enough? When do I take social security? Which accounts do I pull from, how do I take money from the investments in those accounts?
Here are the key factors to consider when building your retirement income plan:
1. Diversify Your Income Sources
Most retirees draw income from multiple places:
Social Security
Pension (if applicable)
Investment accounts (IRAs, Roth IRAs, brokerage accounts)
Annuities or other income vehicles
The right mix can help balance taxes, cash flow, weather market downturns and provide growth potential.
2. Plan for and EXPECT Downturns
Using historical returns of the S&P500 as an example, US stocks go down at least 20% 1 out of every 5 years. Think about how many 5 years periods you hopefully have left. If someone is going to live in Florida, they must be prepared for Hurricanes!
- Build a cash buffer: consider having 1 or more years’ worth of expenses out of the market. It provides time before you have to sell investments at a loss
- Many retirees rely on dividends for a part of their income. Although reliable most of the time, companies have and will cut or stop their dividends during significant downturns
- Consider having your essential expenses covered by guaranteed and predictable sources of income
- Understand your level of diversification and risk with your investments. Investments that go up the fastest in good times are prone to drop faster in bad times.
- Taking precautions has increased importance in the early years of your retirement. The domino effect(sequence of returns risk) of losses early in retirement matters more than losses that occur later in life.
3. Use Income Guardrails
Rather than relying on a fixed “4% rule,” dynamic withdrawal strategies (such as income guardrails) allow you to adjust spending based on market performance, helping your portfolio stay resilient. Because this approach entails taking less if markets perform badly enough, this approach could support more spending during the “Go-go” years of early retirement.
4. Plan for selling investments
When selling investments to generate cash flow, consider the tax ramifications and impact to your investment mix. It is important your investments don’t accidently drift too risky or too conservative.
5. Don’t Forget Inflation
Your income needs will rise over time. Investing for growth remains important even in retirement. Lack of growth can greatly impact your lifestyle.
6. Beware the dividend trap
Buying investments that provide regular income without selling your investment is very appealing and can often make since as part of your plan. If you look solely at the payout, consideration of the whole picture, you may be tricked into owning or owning too much of a poorly performing investment.
7. Taxes
Taxes will be one of, if not your most significant expense in retirement. Without careful planning, it’s very possible to have a higher tax bill in retirement than as a working professional. Consider your sources of income like social security or rental income. Consider how much you need to pull from your investments and the balance of pretax, Roth, and non-retirement account dollars you have. Planning for which account and how much you pull from each account can make a big difference over the years. Consider what tax bracket various combinations of account withdrawals would place you in as well as if you would be subject to Medicare surcharges or net investment income tax. Although it may be tempting to focus on paying as little tax as possible now, if done poorly this can lead to a much larger tax bill later. We often find planning over multiple years makes the biggest impact.
The Bottom Line
Creating a sustainable retirement income takes more than just owning good investments it takes a coordinated plan.
At Morrison Wealth Advisors, we help clients build custom income strategies designed to last through all market conditions, so you can focus on living the retirement you’ve earned. Schedule a 1 on 1.
Not ready to schedule a meeting, but want a helpful resource to see where you stand? Download Our Retirement Checklist
