How to Create Retirement Income

Turning Your Retirement Savings Into a Coordinated Income Strategy

Saving for retirement is only part of the journey. Once retirement begins, the focus often shifts from accumulating assets to converting savings and other financial resources into income that can support your lifestyle.

Developing a retirement-income strategy involves more than selecting an annual withdrawal amount. It requires coordinating Social Security, pensions, investment accounts, taxes, healthcare expenses, inflation, and changing financial needs.

No investment portfolio can guarantee that income will continue indefinitely. However, a personalized strategy can help you better understand where your income may come from, how much you may need, and when different assets could be used.

Where Does Retirement Income Come From?

Many retirees receive income from several sources rather than relying on one account.

Potential sources include:

• Social Security benefits

• Employer pensions

• Traditional IRAs

• Roth IRAs

• 401(k), 403(b), and other employer-sponsored retirement plans

• Taxable investment accounts

• Bank savings

• Rental income

• Part-time employment

• Business income

• Annuity or insurance-contract payments

A retirement-income plan evaluates how these sources may work together to support spending needs throughout retirement.

Start by Estimating Your Retirement Expenses

Before creating an income strategy, it is important to estimate how much you expect to spend.

Common retirement expenses may include:

• Housing

• Healthcare

• Food

• Transportation

• Insurance

• Travel

• Taxes

• Charitable giving

• Entertainment

• Family support

• Home maintenance

• Long-term-care expenses

The U.S. Department of Labor recommends evaluating current expenses, estimating how those expenses may change in retirement, and adjusting future costs for inflation.[1]

Your retirement-income plan should be designed around your anticipated lifestyle rather than relying entirely on a general percentage of your pre-retirement income.

Separate Essential and Discretionary Expenses

It may be helpful to divide retirement spending into two categories.

Essential expenses

These are expenses that generally must be paid, such as:

• Housing

• Utilities

• Food

• Insurance

• Healthcare

• Taxes

• Basic transportation

Discretionary expenses

These may include:

• Travel

• Entertainment

• Gifts

• Recreational purchases

• Dining out

• Optional home improvements

This distinction can help determine how much dependable income may be needed for essential expenses and how much spending could be adjusted during periods of market volatility or unexpected financial stress.

Identify Your Predictable Income

The next step is to estimate income that may arrive regularly and does not depend directly on annual investment withdrawals.

This may include:

• Social Security

• Pension payments

• Rental income

• Part-time employment

• Certain annuity payments

• Other recurring income

Social Security retirement benefits are generally based on an individual’s lifetime covered earnings and the age at which benefits begin. Eligible workers may generally claim between ages 62 and 70, with the monthly amount typically increasing when benefits are delayed, up to age 70.[2]

Pension and other income elections may also affect survivor benefits, inflation protection, and the amount received each month. These decisions should be reviewed carefully before an election becomes permanent.

Calculate the Retirement-Income Gap

After estimating expenses and predictable income, you can calculate the amount your savings and investments may need to provide.

For example:

• Estimated annual expenses: $90,000

• Social Security benefits: $36,000

• Pension income: $18,000

• Remaining income need: $36,000

In this simplified example, the investment portfolio may need to provide approximately $36,000 during the year before considering taxes, unexpected expenses, and changes in income.

This calculation should be revisited regularly because spending, inflation, benefits, and portfolio values can change.

Planning for Inflation

Inflation reduces purchasing power over time. A retirement that lasts 20, 30, or more years may require substantially more income later than it did at the beginning.

The Department of Labor specifically recommends adjusting estimated retirement expenses for inflation when evaluating future income needs.[1]

Inflation does not affect every expense equally. Housing costs may decline if a mortgage is paid off, while healthcare, insurance, travel, and other costs may increase.

A retirement-income strategy should consider how expenses may evolve rather than assuming spending will remain unchanged.

Healthcare Costs Matter

Medicare can cover a significant portion of eligible healthcare expenses, but it is not free and does not cover every cost.

Depending on coverage, retirees may be responsible for:

• Medicare premiums

• Deductibles

• Copayments

• Coinsurance

• Prescription drug costs

• Supplemental insurance

• Dental, vision, and hearing expenses

• Services that Medicare does not cover

• Long-term-care expenses

Medicare premiums and other costs can change annually. Certain premiums may also be higher for individuals with income above applicable thresholds.[3]

Healthcare should therefore be included as a separate component of retirement-income planning rather than treated as an ordinary expense that will necessarily remain stable.

Managing Investment Withdrawals

Withdrawals from investment accounts should be coordinated with your complete financial plan.

Important considerations include:

• Portfolio allocation

• Market conditions

• Investment expenses

• Tax consequences

• Cash-flow needs

• Required minimum distributions

• Other income sources

• Retirement length

• Spending flexibility

• Legacy goals

The appropriate withdrawal amount is not determined by portfolio value alone. It also depends on how the portfolio is invested and how much risk the retiree can reasonably accept.

Investor.gov explains that asset allocation should reflect an investor’s time horizon and tolerance for risk. Diversification may help manage investment risk, but it cannot ensure a profit or prevent losses during a market decline.[4]

Understand Sequence-of-Returns Risk

Market losses can be especially damaging when they occur near the beginning of retirement.

A retiree who withdraws money while investments are declining may be forced to sell more shares to create the same amount of income. That leaves fewer assets invested when the market eventually recovers.

This is commonly called sequence-of-returns risk.

Potential planning responses may include:

• Maintaining an appropriate allocation to cash and fixed-income investments

• Reducing discretionary withdrawals after a significant decline

• Rebalancing the portfolio

• Delaying major purchases

• Coordinating withdrawals with other income sources

FINRA notes that stretching retirement assets requires disciplined withdrawals and that retirees may need to reduce optional expenses when their portfolios experience losses.[5]

These approaches cannot eliminate investment risk, but flexibility may reduce the pressure placed on a declining portfolio.

Consider a Cash-Flow Reserve

Some retirees maintain a portion of their portfolio in cash or short-term investments to cover near-term expenses.

A reserve may reduce the need to sell longer-term investments during a temporary market decline. However, holding too much in cash can create other risks because cash may lose purchasing power after inflation.

The appropriate amount depends on factors such as:

• Upcoming expenses

• Other dependable income

• Portfolio volatility

• Risk tolerance

• Access to emergency funds

• Current interest rates

• Retirement timeline

A cash reserve should be evaluated as part of the overall asset allocation rather than treated as a separate decision.

Taxes Matter

The account used for a withdrawal can affect the amount of spendable income the retiree receives.

Traditional retirement accounts

Withdrawals from Traditional IRAs and pre-tax employer retirement accounts are generally included in taxable income, except for amounts representing previously taxed basis.[6]

Roth accounts

Qualified Roth IRA withdrawals are generally federal income-tax-free. Nonqualified distributions may be taxable or subject to an additional tax, depending on the circumstances.[6]

Taxable investment accounts

Selling investments in a taxable account may create capital gains or losses. Interest, dividends, and fund distributions may also be taxable, even when those amounts are reinvested.[7]

Social Security

Depending on filing status and other income, a portion of Social Security benefits may be subject to federal income tax.[8]

Because different income sources receive different tax treatment, withdrawing an equal percentage from every account may not always produce the most favorable result.

Which Account Should You Withdraw From First?

There is no withdrawal order that is best for every retiree.

Some strategies begin with taxable accounts, allowing tax-deferred assets more time to grow. Other strategies use distributions from Traditional retirement accounts earlier to manage future required minimum distributions. Some retirees coordinate taxable, tax-deferred, and Roth withdrawals each year.

Factors that may influence the order include:

• Current and expected future tax brackets

• Capital gains

• Required minimum distributions

• Social Security taxation

• Medicare premiums

• Roth conversion opportunities

• Charitable giving

• Estate-planning objectives

• State income taxes

• Beneficiary considerations

Withdrawal sequencing should be coordinated with a qualified tax professional because the tax result depends on the individual’s complete circumstances.

Required Minimum Distributions

Required minimum distributions, commonly called RMDs, may require account owners to withdraw money from certain retirement accounts after reaching the applicable age.

Under current federal law, the applicable age depends on the account owner’s birth year. It is generally age 73 for individuals born from 1951 through 1959 and age 75 for individuals born in 1960 or later.[9]

RMD rules generally apply to accounts such as:

• Traditional IRAs

• SEP IRAs

• SIMPLE IRAs

• Traditional 401(k) accounts

• Traditional 403(b) accounts

• Certain other employer retirement plans

Roth IRA owners generally do not have lifetime RMDs from their own Roth IRAs, although beneficiaries may be subject to distribution requirements.

An RMD determines the minimum amount that must be distributed. It does not determine how much the retiree should spend. Money that is not needed for current expenses may generally be reinvested in a taxable account after applicable taxes are addressed.

Roth Conversions and Retirement Income

A Roth conversion involves moving eligible pre-tax retirement assets into a Roth account.

The taxable portion of the conversion is generally included in income for the year of the conversion.[6]

Some retirees evaluate conversions during years when taxable income is temporarily lower, such as:

• After retirement but before Social Security begins

• Before required minimum distributions begin

• During a year with unusually large deductions

• During a temporary decline in account value

A conversion may affect income taxes, Medicare premiums, Social Security taxation, and other income-based provisions.

It is not automatically beneficial. The tax cost, expected holding period, future tax circumstances, and estate-planning goals should be evaluated before proceeding.

Coordinate Social Security With Portfolio Withdrawals

The decision to retire and the decision to claim Social Security do not have to occur at the same time.

A retiree may choose to:

• Claim Social Security when employment ends

• Retire and delay Social Security

• Continue working while receiving Social Security

• Use savings temporarily before benefits begin

Delaying Social Security may increase the monthly benefit until age 70, but it can also require larger portfolio withdrawals during the delay period.[2]

The decision should consider longevity, health, marital status, survivor benefits, taxes, and the availability of other income.

The goal is not necessarily to maximize Social Security independently. It is to coordinate Social Security with the complete retirement plan.

Consider the Needs of Both Spouses

Married couples should evaluate retirement income at the household level.

Planning considerations may include:

• The age difference between spouses

• Each spouse’s Social Security benefit

• Pension survivor elections

• Health insurance

• Life expectancy

• Individual retirement accounts

• The financial effect of one spouse’s death

• Beneficiary designations

• Long-term-care needs

Household income may decline after one spouse dies while certain expenses remain largely unchanged. Tax filing status may also change, potentially affecting the survivor’s tax circumstances.

A retirement-income strategy should therefore evaluate both the joint retirement period and the financial needs of the surviving spouse.

Retirement Income Should Be Flexible

Your retirement plan should evolve as your life changes.

You may need to adjust your strategy because of:

• Market fluctuations

• Inflation

• Healthcare expenses

• Changes in spending

• Family needs

• Tax-law changes

• Longevity

• The death of a spouse

• Changes in housing

• New estate-planning goals

Flexibility may involve increasing or decreasing withdrawals, changing which accounts are used, revising the investment allocation, or adjusting discretionary spending.

A strategy that worked at age 65 may not remain appropriate at age 75 or 85.

How Often Should the Plan Be Reviewed?

Many retirees may benefit from reviewing their retirement-income strategy at least annually and after major financial or life events.

A review may consider:

• Actual spending compared with the plan

• Upcoming major expenses

• Portfolio performance

• Current asset allocation

• Inflation

• Tax projections

• Social Security and pension income

• Required minimum distributions

• Healthcare costs

• Beneficiary designations

• Changes in financial goals

A review does not mean the strategy must change every year. It provides an opportunity to determine whether an adjustment is appropriate.

Our Approach

At Liberty Point Financial, retirement-income planning is about creating a strategy that supports the life you want to live.

We evaluate your:

• Retirement goals

• Expected expenses

• Social Security benefits

• Pension income

• Investment portfolio

• Tax circumstances

• Risk tolerance

• Healthcare needs

• Family considerations

• Estate-planning objectives

Rather than relying exclusively on one withdrawal rule or account order, we focus on developing a strategy based on your complete financial circumstances.

No retirement-income strategy can guarantee that assets will last for life or that investment losses will be avoided. Regular monitoring and the willingness to make adjustments remain important.

Frequently Asked Questions

How much income will I need in retirement?

The amount depends on your lifestyle, expenses, retirement age, healthcare needs, income sources, taxes, and financial goals.

A useful starting point is to estimate expected expenses and subtract predictable income such as Social Security and pension benefits. The remaining amount may need to come from savings and investments.

Should I withdraw from all my accounts equally?

Not necessarily.

Withdrawals may have different tax consequences depending on whether the money comes from a taxable account, Traditional retirement account, or Roth account.

Required minimum distributions, Medicare premiums, Social Security taxation, capital gains, and future tax circumstances may also affect the strategy.

Should I spend dividends and interest without selling investments?

Dividends and interest can contribute to retirement cash flow, but they may not be sufficient to cover all expenses.

Focusing only on income-producing investments may also create an inappropriate portfolio allocation or lead to excessive concentration. A total-return strategy may use interest, dividends, and selective sales of investments.

The appropriate approach depends on the investor’s goals and risk tolerance.

Should I keep several years of expenses in cash?

Possibly, but there is no universally appropriate amount.

Cash may provide stability and reduce the need to sell investments during a decline. However, excessive cash holdings may reduce long-term growth and expose more of the portfolio to inflation risk.

Can my retirement income change over time?

Yes.

Income needs may change because of inflation, healthcare, housing, travel, family needs, taxes, and market performance. A retirement-income strategy should be reviewed and adjusted when appropriate.

Do required minimum distributions have to be spent?

No.

An RMD must generally be withdrawn from the applicable retirement account, but the amount does not have to be spent. After taxes are addressed, money that is not needed may generally be saved, invested in a taxable account, gifted, or used for other financial goals.

Can a financial advisor help with retirement-income planning?

A financial advisor can help evaluate expenses, investments, Social Security, pensions, withdrawal strategies, and long-term goals as part of a comprehensive financial plan.

Tax and legal questions should be coordinated with appropriately qualified professionals.

Final Thoughts

Creating retirement income is about more than withdrawing money from investments.

A thoughtful strategy coordinates:

• Spending

• Social Security

• Pension income

• Investments

• Taxes

• Required distributions

• Inflation

• Healthcare

• Family needs

• Long-term financial goals

The objective is not to predict every future expense or market movement. It is to build a flexible framework that can be reviewed and adjusted as circumstances change.

With personalized planning and regular reviews, you can approach retirement with greater clarity and financial flexibility.

Ready to Build Your Retirement-Income Strategy?

If you are preparing to retire or reviewing your current retirement-income plan, Liberty Point Financial can help you develop a personalized strategy designed around your goals.

Schedule a complimentary consultation to learn more.

Important Disclosure

This article is provided for educational and informational purposes only and should not be considered individualized investment, legal, tax, accounting, Social Security, Medicare, or retirement-income advice. Every individual’s financial situation is unique, and laws, regulations, tax provisions, benefit programs, and account rules are subject to change.

Illustrations are hypothetical, simplified, and do not reflect investment returns, taxes, fees, inflation, or the circumstances of any particular investor. They are not intended to project or guarantee a specific result.

Liberty Point Financial does not provide tax or legal advice. Please consult qualified tax and legal professionals and the appropriate government agencies regarding your specific circumstances. Advisory services are provided only pursuant to a written advisory agreement. Diversification and asset allocation do not ensure a profit or protect against loss. Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results.

Sources

1. U.S. Department of Labor, Employee Benefits Security Administration — “Taking the Mystery Out of Retirement Planning.” Guidance regarding estimating retirement expenses, inflation, income sources, assets, and planning for a lengthy retirement.
   Department of Labor source

2. Social Security Administration — “Plan for Retirement.” Information regarding retirement eligibility, lifetime earnings, claiming between ages 62 and 70, and the relationship between claiming age and monthly benefits.
   Social Security Administration source

3. Medicare.gov — “What Does Medicare Cost?” Information regarding Medicare premiums, deductibles, coinsurance, drug-plan expenses, annual cost changes, and income-related premium adjustments.
   Medicare.gov source

4. U.S. Securities and Exchange Commission, Investor.gov — “Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing” and “What Is Risk?” Educational guidance regarding time horizon, risk tolerance, asset allocation, diversification, and investment losses.
   Investor.gov asset-allocation source

5. Financial Industry Regulatory Authority — “Managing Your Retirement Portfolio.” Guidance regarding retirement spending, portfolio withdrawals, market losses, inflation, taxes, and the need for flexibility.
   FINRA source

6. Internal Revenue Service — Publication 590-B, “Distributions from Individual Retirement Arrangements.” Rules regarding Traditional and Roth IRA distributions, taxable amounts, basis, Roth conversions, qualified distributions, and required minimum distributions.
   IRS Publication 590-B

7. Internal Revenue Service — Publication 550, “Investment Income and Expenses.” Federal tax information regarding interest, dividends, capital gains, investment sales, mutual funds, and other taxable investment income.
   IRS Publication 550

8. Internal Revenue Service — Topic No. 423, “Social Security and Equivalent Railroad Retirement Benefits.” Information regarding when Social Security benefits may be included in taxable income.
   IRS Topic No. 423

9. Internal Revenue Service — “Retirement Topics: Required Minimum Distributions” and Final Regulations Published in Internal Revenue Bulletin 2024-33. Information regarding covered retirement accounts, RMD deadlines, taxation of distributions, and applicable beginning ages based on birth year.
   IRS RMD guidance

Sources reviewed July 14, 2026. Readers should verify current tax, Social Security, Medicare, and retirement-account rules before making financial decisions.