The Part of Retirement Planning No One Talks About: Turning Savings Into Income
When most people think about retirement planning, their minds jump straight to saving: opening IRAs, maxing out 401(k)s, or setting aside as much as possible into brokerage accounts. Financial advisors hammer home the message that saving early and consistently is the surest way to build a secure retirement. But here’s the part that often gets overlooked—retirement doesn’t simply mean having money saved. It means knowing how to turn those savings into a reliable, sustainable income stream that lasts as long as you do.
In other words, the accumulation phase is only half the story. The real challenge begins the day you stop working.
Why “Income Planning” Is Different From Saving
While you’re working, you receive a steady paycheck. Your budget and lifestyle revolve around that predictable flow of money. Once you retire, however, that paycheck disappears. In its place, you’re left with a collection of accounts, investments, and possibly a pension or Social Security benefits.
The big question becomes: How do I pay myself in retirement without running out of money?
This shift is known as the decumulation phase—the period when retirees must transform their nest egg into income. Unlike saving, where you simply add to your balance, income planning requires strategic withdrawals, tax management, and risk mitigation.
The Risks That Make Income Planning Tricky
There are three major risks retirees face when converting savings into income:
Longevity Risk
People are living longer. That’s great news, but it means your money has to last 20, 30, or even 40 years. Outliving your savings is one of the biggest fears retirees face.Market Risk
When you’re working, market downturns hurt, but you have time to recover. In retirement, the timing of a downturn can devastate your finances. A bad market year early in retirement, paired with withdrawals, can shrink your nest egg dramatically—a phenomenon called sequence-of-returns risk.Inflation Risk
Even modest inflation erodes purchasing power over decades. A retirement budget that feels comfortable at 65 may feel tight at 85 if your income doesn’t adjust.
Add in healthcare costs, taxes, and unexpected expenses, and it’s clear why turning savings into income is much harder than simply saving in the first place.
Strategies to Turn Savings Into Income
While there’s no one-size-fits-all formula, several proven strategies can help retirees create sustainable income:
1. The 4% Rule (and Its Limitations)
For years, financial planners suggested withdrawing 4% of your retirement portfolio annually (adjusted for inflation) as a guideline. For example, with $1 million saved, you’d start with $40,000 per year. While simple, the rule has been criticized because low interest rates, market volatility, and longer lifespans make it less reliable today.
2. Bucket Strategy
This method divides your money into three “buckets”:
Short-term (1–3 years): Cash and liquid assets for immediate living expenses.
Medium-term (3–10 years): Bonds or conservative investments to replenish the cash bucket.
Long-term (10+ years): Stocks and growth investments to protect against inflation and sustain the later years of retirement.
By aligning investments with time horizons, you can smooth out income even during market swings.
3. Annuities and Guaranteed Income
Annuities, often misunderstood, can play a role in income planning. With the right type, retirees can guarantee a paycheck for life, shifting longevity risk to an insurance company. However, fees and complexity mean they aren’t right for everyone.
4. Social Security Optimization
Deciding when to take Social Security is one of the most impactful retirement decisions. Claiming early at 62 reduces benefits, while delaying until 70 increases them. For many retirees, delaying can create a larger guaranteed income floor.
5. Tax-Smart Withdrawals
Not all retirement accounts are taxed the same way. Traditional IRAs and 401(k)s create taxable income upon withdrawal, while Roth accounts offer tax-free distributions. Sequencing withdrawals—drawing from taxable, tax-deferred, and tax-free accounts in the right order—can reduce your overall tax burden.
The Psychological Side of Paying Yourself
Beyond the numbers, income planning has a psychological dimension. Many retirees struggle with the idea of spending down savings they’ve worked a lifetime to build. There’s comfort in watching account balances grow, but fear in watching them shrink—even if that’s the plan.
Creating a structured withdrawal strategy, with predictable “paychecks,” can ease this anxiety. Some retirees even prefer setting up automatic withdrawals that mimic their old paycheck cycle, making the transition smoother.
Why This Part of Planning Often Gets Ignored
So why doesn’t income planning get as much attention as saving? Two reasons:
It’s Complex
Saving is straightforward: put money in, let it grow. Decumulation, on the other hand, requires ongoing adjustments, projections, and careful coordination of taxes, healthcare, and investment risk.It’s Less Motivating
Watching your savings grow is exciting. Talking about spending it down feels less rewarding, even though it’s the very reason you saved in the first place.
Final Thoughts
Retirement planning isn’t complete until you’ve figured out how to reliably turn your savings into income. Building wealth is only the beginning; designing a strategy to make that wealth last a lifetime is what truly provides peace of mind.
Whether you prefer the simplicity of the 4% rule, the structure of a bucket strategy, or guaranteed income options like annuities, the key is to have a plan tailored to your goals, health, and lifestyle.
The next time you think about retirement, don’t just ask, “How much do I need to save?” Ask instead, “How will I turn what I’ve saved into the income I’ll need to thrive?”
Because at the end of the day, retirement isn’t about the size of your nest egg—it’s about creating a steady flow of income that lets you live the life you’ve worked so hard to build.
Schedule your appontment with me by clicking here. Together we will evaluate your personal circumstances.
Warm regards,
Sharon, Your Safe Money Lady™
Sharon Ben-David
Phone: (954) 261-5200
Licensed Mortgage Broker, Certified Professional Retirement Planning Adviser, and Financial Advocate
Protecting Your Nest Egg, Inc.
NMLS #2308601
