Retirement Income Planning: What to Know

What if I run out of money in retirement? This is a legitimate concern retirees face. 64% of Americans in a 2025 Allianz study said they’re more worried about running out of money than dying. Longer lifespans, market uncertainty, and rising healthcare costs contribute to this fear.

In this article, we’ll explain why income planning is such a pivotal aspect of a comfortable retirement. Additionally, we’ll outline various income strategies, how to find what works for you, and the challenges you might face as you draw down your savings.

What Is Retirement Income Planning and Why Does It Matter?

Once you retire, you begin a new phase of life where you’re no longer earning a consistent, regular income from a job. Instead of earning a steady paycheck at work, you’re now faced with the reality of spending your savings or relying on other sources like Social Security, pensions, or annuities. While this might sound simple, turning those assets into reliable, job-replacing income can be daunting without a clear plan.

As mentioned earlier, retirement income can come from several different sources. Most notably, your savings in tax-advantaged accounts—such as a 401(k) or Roth IRA—are powerful ways to support yourself without employment. Regular payouts from pensions, Social Security, and businesses or real estate investments can also boost your lifestyle.

“Ultimately, retirement success isn’t about beating the market or following rules of thumb. It’s about having a plan—and regularly reviewing that plan,” notes Samuel Flaten, a financial advisor at Narrow Road Financial Planning.

So, how much income do you need when you retire? Well, this depends on several factors, including your spending needs, goals, and lifespan.

However, “a good back-of-the-napkin method” Flaten recommends is to “assume [you’ll] need about 70–80% of [your] current income.” This technique, he adds, is “rooted in basic math: once you remove savings for retirement plans like a 401(k) (typically 8–10%), payroll taxes (7.65–8.55%, depending on income), HSA contributions, and benefit deductions (life, disability, etc.), you end up needing less income just to maintain the same standard of living.”

Setting yourself up for retirement success, as Flaten explains, requires a tailored income plan. This ensures you can replace your previous job’s income while stretching your savings as far as possible.

Different Drawdown Methods

Saving for retirement over decades is important, but how you begin to withdraw is also essential. There are various methods to draw down your assets in tax-advantaged accounts to create regular income. Generally, these aim to incrementally take cash out while still allowing assets to stay invested and avoid a substantial tax burden.

Below is a breakdown of each withdrawal method and a table to compare them side-by-side:

4% Rule

The 4% rule is a drawdown strategy that suggests you withdraw approximately 4% of your retirement savings each year. Typically, it assumes a 30-year time horizon once you retire. For example, consider that you have $2,500,000 saved. Here, you would take out $100,000 annually for 30 years.

This framework is easy to follow and may work for some; however, it may not suit everyone. The rigid structure might not align with your spending needs, whether for discretionary purchases or necessities. Additionally, the 30-year time horizon may not be accurate, especially if you retire early.

Bucket Strategy

The bucket strategy is another way of drawing down and holding your assets during retirement. It involves placing your assets in three main categories:

• A short-term bucket for immediate needs or expenses, such as discretionary purchases, housing, and food. Typically, assets are held as cash in savings accounts or short-term near-liquid investments, like a money market fund.
• An intermediate bucket containing low- to moderate-risk investments, such as bonds, which you can reasonably expect to grow more than cash.
• A long-term bucket that includes more high-risk and potentially high-reward investments, like individual stocks or exchange-traded funds (ETFs).

Because the short-term bucket needs regular replenishing, you must periodically draw from the intermediate and long-term buckets. However, this is ideal when market conditions are favorable. The approach helps manage market volatility and blend risk and reward during retirement.

Proportional Withdrawals

An additional strategy is making proportional withdrawals. This strategy focuses on withdrawing from tax-deferred and taxable accounts first, then tax-free savings later. By doing so, you manage your tax burden and avoid a bump in your income bracket at age 73, when required minimum distributions (RMDs) occur.

For average people, however, this approach may bring a learning curve. The help of a financial advisor is extra valuable to ensure you’re timing your withdrawals in a way that’s most beneficial.

Guardrails Strategy

The guardrails approach is a traditional retirement drawdown strategy. Similar to the 4% rule, it sets a target withdrawal rate each year. Instead of following a rigid structure, it allows you to adjust your withdrawal rate depending on market conditions and your portfolio’s performance. When your portfolio performs well, you set a higher guardrail, and a lower one if it performs poorly.

This method, however, can be quite complex to implement. It mandates careful attention to market conditions and portfolio performance. Thus, it’s wise to consult with a financial advisor before committing.

Strategy	Pros	Cons
4% Rule	Simple and easy to follow.	Doesn’t adapt to market changes or personal needs; assumes 30-year retirement.
Bucket Strategy	Matches withdrawals to time horizons; balances income needs and growth.	Requires active management and rebalancing.
Proportional Withdrawals	Helps manage tax brackets; spreads tax impact over time.	More complex; may miss long-term tax optimization opportunities.
Guardrails Strategy	Flexible; helps avoid running out of money in downturns.	Can result in fluctuating income; requires careful planning or software.

Obstacles to Look Out For

There are some notable challenges to consider as you plot out your retirement income. These include external ones, like poor economic conditions, and internal mistakes, like overspending habits or overestimating the impact of Social Security. Keeping these in mind can help you stay on track and potentially save money.

Taxes

One of the most critical obstacles to pay attention to is your tax burden. Many retirement vehicles are subject to taxes when you begin withdrawing from them, such as a 401(k) or traditional IRA. Being aware of this, however, can help you time when you take distributions smartly.

Also, the Internal Revenue Service (IRS) taxes your Social Security payments by 50 to 85%, depending on your income. This is a key consideration if you’re factoring your government benefit as part of your monthly income.

Required Minimum Distributions (RMDs)

RMDs, which require you to take cash out of tax-deferred retirement accounts, begin at age 73. These can pose a tax risk if you wait too long because you’ll withdraw in large lump sums. It’s crucial to think ahead and plan strategic distributions on your terms.

Inflation

Over time, inflation can erode your purchasing power and cut into your retirement savings. It’s important to stay mindful of this and take steps to counteract it, such as holding funds in intermediate buckets rather than all in cash. Your financial advisor will be able to help you manage rising costs in a way that aligns with your time horizon and goals.

Sequence of Returns Risk

External market conditions can impact your plans and savings. For example, if the market dips as you begin retirement, drawing down long-term assets may lock in losses. It’s for this reason that people often rebalance their portfolios before they retire.

How a Financial Advisor Can Help

Planning your retirement income effectively can get complicated. Having a financial advisor by your side can be a massive help. The right professional should be able to work with you to identify the strategy for your needs and overcome obstacles you might face, such as tax considerations or inflation.

When you’re mapping out retirement, having a strategy tailored to your needs is crucial. Financial advisors can gain an understanding of your goals and circumstances, and then help you build a plan to put into action. “Balancing income needs with long-term success becomes much easier with a comprehensive plan in place,” says Flaten.

As you search for an advisor, it’s vital to prioritize fiduciaries who put your best interest first. Look for professionals with designations that reflect their ethical standards and require a high level of experience and expertise. When it comes to retirement income planning, this includes:

• Certified Financial Planner (CFP)
• Chartered Financial Consultant (ChFC)
• Retirement Income Certified Professional (RICP)
• Chartered Retirement Planning Counselor (CRPC)

If you need help finding a high-quality advisor, we recommend using this free matching tool. After a short quiz about financial goals and circumstances, it’ll connect you with a fiduciary expert who suits your needs.