One of the most significant challenges in retirement is ensuring that your money lasts as long as you do. With longer life expectancies, rising healthcare costs, and unpredictable markets, building a retirement income plan that can withstand the test of time is essential.
The good news is that a thoughtful strategy can provide a steady income and peace of mind throughout your retirement years.
Step 1: Estimate Your Retirement Needs
The first step is understanding how much income you’ll need. While general rules suggest 70–80% of your pre-retirement income, everyone’s situation is different. Consider carefully the lifestyle you desire, including travel, hobbies, and healthcare expenses.
It’s also wise to factor in inflation. What covers your monthly expenses today may not be sufficient 10 or 20 years from now. Online calculators and retirement planning tools can help you create a realistic estimate, but working with a financial advisor often provides the most accurate picture.
For more insight on timing and benefits, see Social Security Claiming Strategies That Could Save You Thousands.
Step 2: Identify Guaranteed Income Sources
Reliable income streams form the backbone of any retirement plan. Social Security is the most common, but the timing of when you claim benefits makes a big difference. Pensions, if available, are another dependable source.
For those without pensions, annuities can provide a guaranteed income. While they require careful evaluation, certain annuities can ensure you won’t outlive your money. Combining these sources provides a stable foundation to cover essential expenses, such as housing, food, and healthcare.
Step 3: Create a Withdrawal Strategy
How you withdraw from savings is just as important as how you save. Many retirees use the “4% rule” as a guideline, withdrawing 4% of their savings annually, adjusted for inflation. However, market conditions and personal circumstances may require flexibility.
Another option is a “bucket strategy,” dividing savings into short-term, medium-term, and long-term accounts. The short-term bucket provides immediate spending money, while long-term investments remain in growth-oriented assets. This approach strikes a balance between security and growth potential.
Step 4: Diversify Investments for Growth and Safety
A lasting retirement income plan requires striking the right balance between risk and safety. Too much risk can expose you to market downturns, while being overly conservative may leave you vulnerable to inflation.
Diversification across various asset classes, including stocks, bonds, real estate, and cash equivalents, helps smooth out returns. Dividend-paying stocks and bond ladders can generate consistent income, while growth investments preserve purchasing power over the long term.
For a deeper dive, check out How to Balance Risk and Safety in Investments After 50.
Step 5: Plan for Healthcare and Long-Term Care
Healthcare is often the most significant and fastest-growing expense in retirement. Medicare covers many costs, but supplemental insurance and long-term care planning are crucial. Without preparation, these expenses can quickly drain savings.
Consider a Health Savings Account (HSA), long-term care insurance, or setting aside a dedicated portion of your savings for medical needs. Planning helps ensure that rising healthcare costs don’t derail your broader retirement strategy.
Step 6: Review and Adjust Regularly
A retirement income plan isn’t a one-time project. Life changes, market fluctuations, and new goals necessitate that your plan be reviewed at least annually. Adjusting your withdrawals, reallocating investments, or reassessing expenses can keep your plan on track.
Working with a financial professional can provide valuable guidance, but even simple check-ins on your spending and income can help you remain in control. Flexibility is key to making your money last.
If you’re also considering housing changes, read Should You Downsize After 50? Financial and Emotional Factors to Consider.
The Big Picture
Creating a retirement income plan that lasts isn’t about predicting the future perfectly; it’s about preparing for uncertainty. By estimating your needs, securing a guaranteed income, diversifying wisely, and reviewing your strategy regularly, you can build a plan that supports both financial security and peace of mind for years to come.
