Retirement Income Planning: Play Checks Vs. Pay Checks

Saving for retirement is one problem.

Figuring out how to actually live on that money for the next 20, 30, or even 40 years is another.

During your working years, the goal is relatively straightforward: earn money, save money, invest it, and accumulate as much as reasonably possible.

Retirement changes the equation.

Now your portfolio has to produce income. And that income has consequences.

Where the money comes from, which account it comes from, how much you withdraw, when you withdraw it, and how those withdrawals interact with Social Security, taxes and required minimum distributions can all materially affect how much money you actually get to spend.

That's why retirement income planning shouldn't simply be:

“How much can I withdraw each year?”

It should be:

“How do we create the income we need while managing the taxes and risks that come with getting it?”

Your Retirement Assets Don't All Behave the Same

A retiree might have $2 million spread across a traditional IRA, Roth IRA, taxable brokerage account, bank accounts, an annuity and perhaps a pension.

On paper, that's $2 million.

From a retirement-income perspective, however, those accounts are very different.

A traditional IRA generally produces taxable income when deductible contributions and earnings are distributed. A Roth IRA has completely different tax treatment, with qualified distributions generally being tax-free.

A taxable brokerage account may contain stocks with unrealized gains, bonds producing taxable interest, or assets with different tax characteristics.

A nonqualified annuity has its own taxation rules.

And Social Security can add another layer to the equation.

So when someone says, “I need $100,000 a year in retirement,” the next question should be:

$100,000 before taxes or $100,000 after taxes?

That's a very different retirement plan.

The Goal Is Income You Can Actually Use

Ultimately, retirement income planning is about converting a collection of assets into something much more useful:

spendable income.

Your retirement plan should tell you where your income is coming from, how reliable that income is, what taxes it may create, how much liquidity you have available, and how the strategy changes as you age.

It should account for the fact that markets won't always cooperate.

It should account for inflation.

It should account for longevity.

And it should account for the possibility that your tax situation at 75 looks very different from your tax situation at 65.

The best retirement income strategy isn't necessarily the one that produces the highest projected return.

It's the one that coordinates your assets, your taxes, your income needs and your risks into a plan that you can actually live with.