5 Retirement Income Decisions That Can Shape Your Retirement 

For most of your working life, retirement planning has a clear direction: save and invest for the future. Then retirement arrives, and the question changes from “How much have I saved?” to “How do I turn those savings into income?” 

That shift brings a new set of retirement income decisions. When should you claim Social Security? Which accounts should you draw from first? How much should you keep in cash? How will taxes and healthcare costs affect what you can actually spend? 

These retirement income planning decisions are also connected. Social Security timing can affect portfolio withdrawals, withdrawals can affect taxable income, and income may influence Medicare premiums. 

That is why the early years of retirement are about more than simply taking money out of your accounts. They are an opportunity to coordinate the wealth you’ve built around the life you want it to support. 

When Should You Claim Social Security? 

There is no single “best” age to claim Social Security. The better question is: When does it make sense within your retirement income plan? 

You can generally claim benefits as early as age 62, although doing so before full retirement age typically reduces your monthly benefit. Waiting can increase your benefit through age 70. 

Your Social Security timing decision may depend on factors such as: 

• When you plan to retire 

• Other income available to you 

• Your and your spouse’s benefits 

• Longevity considerations 

The key is to consider Social Security alongside the rest of your financial picture. A larger monthly benefit isn’t automatically the best overall strategy if delaying it requires you to draw more heavily from other assets. 

Ask yourself: If you delayed Social Security, where would your income come from in the meantime? That brings us to the next decision: which accounts should you draw from first? 

Which Retirement Accounts Should You Withdraw From First? 

Once your paycheck stops, you may have several retirement income sources to turn to: cash, taxable investments, traditional retirement accounts, Roth accounts, and other assets. But where you take money from can matter almost as much as how much you take. 

Different accounts receive different tax treatment, so your retirement withdrawal strategy order can affect your taxable income today and the assets you have available later. Required minimum distributions (RMDs) can also change the picture as you get older by requiring withdrawals from certain retirement accounts. 

Rather than automatically spending from one account until it is depleted, it may be helpful to think of your accounts as different parts of the same retirement paycheck. Coordinating withdrawals can help you evaluate taxes, future income needs, and flexibility together. 

Building a retirement paycheck involves more than deciding how much to withdraw each month. Our Building a Retirement Paycheck guide explores the decisions involved in turning your savings into an income strategy that reflects your needs. 

How Much Cash Should You Keep in Retirement? 

Cash can feel especially reassuring once your regular paycheck stops. Cash reserves in retirement can help cover everyday spending or keep you from having to sell investments at an inconvenient time. 

But more cash isn’t always better. Holding too much may mean giving up some long-term growth potential, which can matter when retirement could last decades. 

Rather than relying on a universal rule for how much cash to keep in retirement, consider what you actually need your cash to cover: 

• Regular spending not covered by Social Security or other income 

• Unexpected expenses such as home or car repairs 

• Planned expenses such as travel or helping family 

• Near-term flexibility during periods of market volatility 

The right amount will depend on your income sources, spending needs, portfolio, and comfort level. 

A better question than “How much cash should I have?” is “What does my cash need to do?” Once you know its purpose, you can decide how much should remain readily available and how much may be better positioned for longer-term goals. 

How Will Taxes Affect Your Retirement Income? 

A $100,000 retirement income does not necessarily mean you have $100,000 available to spend. Where that income comes from can influence how much ultimately stays in your pocket. 

Retirement income may come from several sources, each with different tax planning considerations in retirement: 

• Traditional retirement accounts: Withdrawals are generally subject to ordinary income taxes. 

• Roth accounts: Qualified withdrawals are generally tax-free. 

• Social Security: Depending on your overall income, a portion of your benefits may be taxable. 

• Taxable investments: Selling investments may generate capital gains. 

Your income can also affect other expenses. For example, higher modified adjusted gross income may result in income-related adjustments to your Medicare Part B and Part D premiums. 

This makes the years before required minimum distributions begin an important planning tax planning window in retirement. Depending on your circumstances, there may be opportunities to think strategically about which accounts you use for income and when. 

The number that matters most isn’t necessarily your gross retirement income. It’s how much of that income you can actually use to support your life. 

How Will You Plan for Healthcare Costs? 

Medicare can cover an important share of healthcare expenses in retirement, but it does not make healthcare free. If your retirement budget accounts for travel and everyday spending but leaves little room for healthcare costs in retirement, your retirement paycheck may need a second look. 

Potential costs can include: 

• Medicare premiums and income-related premium adjustments 

• Supplemental coverage and prescription medications 

• Deductibles and other out-of-pocket costs 

• Dental, vision, and services that may not be fully covered 

• Long-term care, which can become a significant expense later in life 

Healthcare expenses can also change as you age, making them different from many other items in your retirement budget. 

Build healthcare into your retirement income plan from the beginning, alongside the lifestyle you want your savings to support. That can give you a more realistic picture of what your retirement paycheck may actually need to cover. 

Case Study: Five Decisions, One Retirement Income Plan 

This example reflects a client experience. The client was not compensated for sharing it. The experience is not representative of all clients, and results are not guaranteed and will vary based on individual circumstances. 

Consider Mark and Susan, a hypothetical couple who are both 65, with $1.8 million across retirement accounts, taxable investments, and cash. 

Their initial plan sounds simple: retire, claim Social Security, and start withdrawing from their largest account. But that raises several connected questions: 

• Social Security: Should either of them delay benefits? 

• Withdrawals: Which accounts should fund their income first? 

• Taxes: How could those withdrawals affect their tax bill? 

• Cash: How much should they keep readily available? 

• Healthcare: What should they budget for now and later? 

Rather than answering each question separately, they work with their financial professional to see how each decision affects the others. 

The takeaway: A decision that looks right on its own may look different when viewed as part of the entire retirement income plan. 

Why These Retirement Income Decisions Should Be Made Together 

Retirement income decisions are rarely isolated. Pull one lever, and it can affect another part of your financial plan. 

• Social Security timing affects how much income your portfolio may need to provide. 

• Retirement withdrawal choices can change your taxable income and what remains invested for later. 

• Taxes influence how much of your income is actually available to spend. 

• Cash reserves can provide flexibility for upcoming expenses and changing markets. 

• Healthcare costs may require a larger share of your income as you age. 

The goal isn’t to make five “perfect” decisions. It’s to understand how the choices work together so your retirement income strategy reflects both your financial picture and the life you want to fund. 

Want to see how the pieces fit together? Our Building a Retirement Paycheck guide walks through the key considerations for turning the savings you’ve built into retirement income. 

Conclusion 

At Liberty Group, we help individuals and families look at retirement income planning as part of their broader financial picture, including investments, taxes, estate planning, and the legacy they hope to leave behind. 
 
The decisions around Social Security, portfolio withdrawals, cash reserves, taxes, healthcare costs, and longevity planning can affect one another. Looking at them together can provide a clearer view of how your savings may support your income needs throughout retirement. 

Wondering how your savings could translate into a retirement paycheck? Connect with our team to discuss your retirement goals and the decisions that may help shape the years ahead. 

Standard Disclosure 

This blog expresses the author’s views as of the date indicated, are subject to change without notice, and may not be updated.  The information contained within is believed to be from reliable sources.  However, its accurateness, completeness, and the opinions based thereon by the author are not guaranteed – no responsibility is assumed for omissions or errors.  This blog aims to expose you to ideas and financial vehicles that may help you work towards your financial goals. No promises or guarantees are made that you will accomplish such goals.  

Past performance is no guarantee of future results, and any expected returns or hypothetical projections may not reflect actual future performance or outcomes. All investments involve risk and may lose money. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must evaluate and investigate any investments considered or any investment strategies or recommendations described herein (including the risks and merits thereof), seek professional advice for their particular circumstances, and inform themselves about the tax or other consequences of any investments or services considered.   

Investment advisory services are offered through Liberty Wealth Management, LLC (“LWM”), DBA Liberty Group, an SEC-registered investment adviser.  For additional information on LWM or its investment professionals, please visit www.adviserinfo.sec.gov  or contact us directly at 411 30^th Street, 2^nd Floor, Oakland, CA  94609, T: 510-658-1880, F: 510-658-1886,  www.libertygroupllc.com. Registration with the U.S. Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training.