Retirement is one of the most exciting stages of life. It’s a time to focus on things like family, hobbies, or travel. However, leaving the workforce also means leaving behind the steady paycheck that likely funded your lifestyle for decades. A common topic brought up to advisors at Prime Capital Financial from members of every generation is how to create sustainable retirement drawdown plans for financial security. Everyone’s situation, expenses, savings, and investments are unique, but the most important aspects of building a consistent “retirement paycheck” apply from one person to the next. By understanding your income options, tracking expenses, and making strategic decisions about where your money comes from and when to use it, you should be able to enjoy a secure, fulfilling retirement.
Knowing When You Can Retire
Before you create a retirement paycheck, you need to determine when retirement is feasible for you. Unlike working life—where regular weekly paychecks make budgeting simpler—retirement requires a clear understanding of what you’ll need to support your lifestyle for potentially decades.
Finding Your Retirement Age
Start by asking yourself the following:
- Do I have enough savings to retire now?
- Am I eligible for income benefits like Social Security or a pension?
- How much will my monthly expenses come to?
Social Security integration, for example, can start as early as age 62, but delaying benefits until age 70 can increase your monthly payments substantially. Similarly, if your employer offers a pension, payouts may vary based on when you choose to start collecting.
The key takeaway is to do the math and plan accordingly. Too many people retire without fully understanding how long their savings must last. Speaking with a financial advisor for help calculating your “magic number” can be invaluable.
Defining Your Retirement Paycheck
Your retirement paycheck is essentially the total monthly income you’ll use to cover living costs. Since you’ll no longer earn a traditional paycheck, this money will probably need to come from a mix of reliable sources, including guaranteed income streams, investments, and emergency funds. Setting up the proper income stream diversification strategy is essential.
Building Your Guaranteed Income
Guaranteed income provides a foundation for your retirement finances. These income sources offer consistent payments over time, regardless of market conditions.
Social Security
Social Security is one of the most common income streams for retirees. While you can start collecting as early as age 62, you’ll receive higher monthly benefits the longer you wait—up to age 70. If possible, delaying Social Security can significantly boost your guaranteed retirement income.
Pensions
If you’re lucky enough to have a pension, this can form another key piece of your income. Depending on your plan, you may have options to take monthly payments or a lump sum. Carefully evaluate which option best fits your long-term goals before retiring.
Annuities
Annuity income strategies require you to pay an upfront amount in exchange for regular income payments during retirement. Fixed annuities can offer stable income, while variable annuities may provide growth opportunities based on market performance.
Creating a Reliable Income Stream
For additional income beyond Social Security, pensions, or annuity payouts, consider options generally deemed “reliable.” While these may fluctuate slightly, they can still offer dependable support.
Bond or CD Ladders
A bond or CD ladder involves staggering the maturity dates of your bonds or certificates of deposit over several years. This strategy ensures you have money maturing at regular intervals, which reduces the risk of withdrawing from poorly performing investments during a down market.
Rental Income
Owning rental property can be a powerful way to generate monthly income. While it requires managing tenants, property maintenance, and expenses, rental real estate often performs well in both stable and uncertain economies and offers many tax deductions.
Part-Time Employment
Many retirees work part-time to supplement their income and stay socially or mentally active. This could be anything from consulting in your past profession to pursuing a completely new interest, like teaching yoga or working in a bookstore.
Emergency Fund
An essential component of maintaining reliable income is preparing for the unexpected. Aim to keep one year’s worth of expenses in your emergency fund. Ideally, you’ll also allocate two to four years’ worth of projected withdrawal amounts into stable investments. This helps ensure you won’t need to sell assets during a market downturn.
Leveraging Your Investment Portfolio
Your 401(k), IRA, and brokerage accounts represent a critical part of your income. When properly managed, these assets can supplement your guaranteed and reliable income streams.
401(k)s and IRAs
A 401(k) or Individual Retirement Account (IRA) offers significant tax advantages, but timing is everything. Currently, withdrawals are required starting at age 73 (referred to as the Required Minimum Distribution or RMD) for most accounts. However, for anyone born in 1960 or later, the RMD will begin at age 75. Take care to plan and withdraw strategically, minimizing taxes and penalties.
Brokerage Accounts
Brokerage accounts provide you access to dividends, interest, or proceeds from selling investments. Since they don’t come with the same withdrawal rules as 401(k)s and IRAs, they’re a flexible option to fill income gaps when needed.
Diversification Is Key
Diversifying your portfolio ensures that not all assets rely on a single market sector. A mix of stocks, bonds, mutual funds, and ETFs balances risk and offers multiple potential income sources.
Prioritizing Your Retirement Paycheck
Once you’ve outlined and built your income streams, the next step is determining when and how to tap into each one.
Start by listing out your priorities. Do you need to focus on covering health expenses? Will travel or hobbies claim a significant portion of your budget? From there, align your income streams with your goals:
- Use guaranteed income first to handle fixed costs, like housing, groceries, and insurance.
- Leverage investment accounts for discretionary spending or larger purchases, such as vacations or home improvements.
- Keep emergency funds intact for unexpected needs while protecting your financial plan from economic shocks.
It’s also important to revisit this plan annually. Life circumstances, markets, and personal goals are likely to evolve, so adjustments will be necessary.
Balancing Your Retirement Paycheck
Managing the balance between income and expenses is a constant process throughout retirement. Here are some strategies to help ensure you stay on track:
- Focus on Essential Expenses First – Use guaranteed income or other stable cash flow sources to cover housing, utilities, and healthcare.
- Track Discretionary Spending – Hobbies, travel, and entertainment are vital for an enjoyable retirement, but they should fit within your overall budget.
- Plan for Inflation – Remember, costs rise over time. Factoring inflation into your spending plan can help with preparing for potential surprises down the road.
Seeking Professional Advice
One of the most important steps in your retirement planning is to consider reaching out to a financial advisor. With their experience, you may:
- Develop tax-efficient strategies to help reduce tax liabilities
- Customize your retirement paycheck based on your specific goals and circumstances
- Get insights on investment opportunities appropriate for your stage of life
When meeting with an advisor, come prepared with questions. For example:
- How can I minimize the tax burden of withdrawals?
- What’s the best order to utilize my income streams?
- How do I prepare for changing expenses as I age?
Their insights and guidance can provide you with confidence as you build your financial future.
Start Building Your Retirement Paycheck Today
Retirement is no longer a simple one-step process; it’s a dynamic phase of life that requires meticulous preparation and regular assessment. The professionals at Prime Capital Financial help adults nationwide structure a reliable retirement paycheck, make tax-efficient withdrawals, and balance income with expenses. Taking small, actionable steps now can help lead to a much smoother retirement later. Whether it’s speaking with an advisor, building an emergency fund, or creating an income strategy, start planning today for the fulfilling retirement you deserve. Contact us today to start planning your retirement paycheck.
This information does not constitute legal or tax advice. PCIA and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting regarding the applicability of this information for their situations.
Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness.
