How to Turn Your Savings into Retirement Income

Saving for retirement is only half the battle. Once you retire, you need to turn those savings into a steady income stream that will last for the rest of your life. This process—called retirement income planning—is crucial to maintaining your lifestyle and avoiding the risk of running out of money. In this guide, we’ll walk you through the smartest retirement withdrawal strategies to convert your savings into anticipated income and help you understand how to generate income in retirement.

Why Retirement Income Planning Matters

Retirement can last 20–30 years or more. Without a clear income plan, it’s easy to withdraw too much too soon—or too little and miss out on enjoying your retirement.

Smart retirement income planning aims to ensure your money:

• Lasts your entire retirement

• Keeps up with inflation

• Minimizes taxes

• Covers both essential and lifestyle expenses

For a deeper look at retirement planning as a whole, visit our Retirement Planning page.

Step 1: Know Your Retirement Expenses

Start by estimating your monthly and annual expenses in retirement. Include:

• Housing and utilities

• Food and transportation

• Travel and leisure

• Insurance premiums (e.g., Medicare supplements)

• Medical and long-term care costs

Use tools like the AARP Retirement Calculator or a budget worksheet to estimate your monthly income needs. This estimate is the foundation of how to generate income in retirement that supports your lifestyle.

Step 2: Identify Guaranteed Income Sources

These are income sources you can rely on each month, such as:

• Social Security – Estimate your benefit using the SSA Retirement Estimator

• Pensions – If you have a pension, know your payout options (single vs. joint life)

• Annuities* – Can provide lifetime income in exchange for a lump sum payment

Many retirees aim to cover essential expenses with guaranteed income and use savings and investments for discretionary spending.

*Annuity guarantees backed by the claims paying ability of the insurer.

Step 3: Create a Retirement Withdrawal Strategy

If you rely solely on savings, how much can you safely withdraw each year? Here are some time tested retirement withdrawal strategies:

The 4% Rule for Retirement: Withdraw 4% of your savings in the first year and adjust for inflation each year thereafter.

• Pros: Simple to follow

• Cons: May not work well in low-return or high-inflation environments

Bucket Strategy for Retirement: Divide your savings into short-, medium-, and long-term “buckets” based on when you’ll need the money.

• Bucket 1: Cash for the next 1–2 years

• Bucket 2: Bonds for years 3–10

• Bucket 3: Stocks for long-term growth

This bucket strategy for retirement aims to reduce risk and smooth out your cash flow over time.

Dynamic Withdrawal Strategy: Adjust withdrawals annually based on market performance and spending needs.

• Suitable for retirees who are flexible with their expenses and want to maximize the longevity of their portfolio.

Step 4: Manage Taxes on Retirement Income

Taxes don’t stop in retirement—if anything, they become more complex. Understanding how different accounts are taxed is essential to smart retirement income planning:

• Tax-deferred: Traditional IRAs and 401(k)s—taxed when withdrawn

• Tax-free: Roth IRAs—qualified withdrawals are tax-free

• Taxable: Brokerage and bank accounts—dividends, interest, and capital gains may be taxed

A thoughtful withdrawal order (e.g., taxable → tax-deferred → Roth) can potentially reduce your tax burden and preserve more of your income.

Step 5: Prepare for Required Minimum Distributions (RMDs)

Once you reach age 73 (under current IRS rules), you must begin withdrawing from most tax-deferred retirement accounts. These RMDs are taxable and could push you into a higher tax bracket if not planned for properly.

Use the RMD Calculator from Fidelity to understand how much you’ll need to take and when.

Step 6: Consider Working with a Financial Planner

Converting your nest egg into income involves many moving parts—investment returns, taxes, healthcare, inflation, and more. A retirement financial advisor can:

• Build a personalized retirement income plan

• Strive to optimize your retirement withdrawal strategy

• Help you adjust as your needs or market conditions change

You worked hard to build your retirement savings. Now it’s time to make those savings work for you. Schedule a free consultation with Sage Hills Financial to get started.

Disclaimer: Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.