Turning a Lifetime of Savings Into Income

For decades, the goal is simple to describe: save more. Retirement flips that question on its head. The challenge is no longer how to build the nest egg, but how to turn it into a paycheck that may need to last thirty years or more.

From accumulation to distribution

The years spent saving are often called the accumulation phase. Retirement begins the distribution phase, and the skills that served well in one are not always the same as the other. Growth still matters, but so does stability, and so does the order in which you draw from different sources.

Many people find it helpful to think in terms of an income plan rather than a single number. The question becomes not only how much you have, but how reliably it can be converted into the income you will actually spend.

Building an income floor

Some retirement income tends to be dependable and lasts for life, such as Social Security and, for some, a pension. Thinking of these as a floor can be useful. They cover a baseline of essential expenses regardless of how markets behave.

Income above that floor often comes from personal savings and investments, which can vary with the markets. Separating essential expenses from discretionary ones can help clarify how much certainty you need and how much flexibility you can afford.

The sequence of returns

One risk that receives less attention during the saving years is the sequence of returns. A string of poor market years early in retirement, while you are also withdrawing, can affect a portfolio differently than the same poor years later on. The timing, not just the average, can matter.

This is one reason many retirees hold a cushion of more stable assets to draw from, so they are not forced to sell investments at an inopportune time. There is no single approach that fits everyone, and the right balance depends on your circumstances.

A plan you revisit

Spending in retirement is rarely a straight line. Early, active years often look different from later ones, and unexpected costs can arise. A retirement income approach is less a one-time calculation than a plan you revisit as life unfolds.

Reviewing the plan periodically, and adjusting as your needs and the environment change, is often more valuable than trying to predict the future precisely at the outset.

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