How to Turn Retirement Savings into Income 

For decades, retirement planning has probably focused on one goal: building your savings. But as retirement approaches, the question changes from “How much do I need?” to “How do I turn what I’ve saved into income?” 

Learning how to turn retirement savings into income involves more than choosing a withdrawal amount. Your paycheck may need to come from several sources, each with its own tax and planning considerations. That is where retirement income planning becomes increasingly important. 

Reaching your retirement number is an important milestone. Now comes the next phase: deciding how to use it. 

How to Turn Retirement Savings into Income: Start with the Big Picture 

Before deciding which account to withdraw from, start with a more important question: What does your retirement paycheck actually need to do for you? 

Two people can retire with the same amount saved and need very different retirement income strategies. Your plan should begin with the life those savings need to support. 

Start with What You Need 

Think beyond your basic monthly bills. Consider: 

• Everyday expenses: Housing, food, transportation, insurance 

• Lifestyle spending: Travel, hobbies, family, and experiences 

• Changing expenses: Healthcare, housing changes, or other costs that may evolve over time 

• Flexibility: Room for unexpected expenses or opportunities 

Then, Look at What You Already Have 

Separate your retirement income needs from your income sources. 

For example, if you expect to need $120,000 per year and Social Security and a pension provide $55,000, your savings and investments may need to help provide the remaining $65,000. 

$120,000 spending needs − $55,000 other income = $65,000 portfolio income gap 

That $65,000 figure gives you a much more useful starting point for building a retirement withdrawal strategy than simply asking, “How much can I take out?” 

Your next step: Estimate your annual retirement spending, subtract the income you expect from sources outside your portfolio, and identify the gap your savings may need to cover. 

Identify Your Retirement Income Sources 

Your retirement paycheck probably won’t come from one place. Instead, it may be built from several retirement income sources that work differently and have different tax implications. 

What Could Fund Your Retirement Paycheck? 

Depending on your financial situation, your income may come from: 

• Social Security 

• Traditional IRAs and 401(k)s 

• Roth IRAs and Roth 401(k)s 

• Taxable investment accounts 

• Pensions 

• Annuities, when appropriate 

• Cash and savings 

• Rental or other income 

The important question isn’t simply what you have, but how and when you use it. 

For example, Social Security may provide monthly income for life, while portfolio withdrawals depend on decisions you make each year. Taking money from a traditional IRA can increase taxable income, while qualified Roth withdrawals generally do not. Cash can help cover near-term expenses without requiring you to sell investments at an unfavorable time. 

This is where separate accounts need to become a coordinated retirement income strategy. Rather than asking, “Which account should I use first?” consider how each source could play a role at different points in retirement. 

Your next step: Make a list of your expected retirement income sources and note whether each is predictable or flexible, as well as how it may be taxed. This gives you a clearer picture of the pieces available to build your retirement paycheck. 

Knowing your income sources is only the beginning. Our Building a Retirement Paycheck guide can help you think through how withdrawals, taxes, Social Security, and your other resources may work together. 

Determine How Much You May Need to Withdraw 

Once you know what you expect to spend and what income will already be coming in, you can estimate what your portfolio may need to provide: 

Annual spending needs − Social Security, pension, and other income = portfolio income needed 

If you expect to spend $120,000 and receive $55,000 from other income sources, for example, your savings and investments may need to provide about $65,000 that year. 

Why “That Year” Matters 

Your withdrawal needs are unlikely to stay the same throughout retirement. Spending may change, inflation can increase costs, and healthcare needs or market conditions can affect your plan. 

That’s why common withdrawal-rate rules can be useful starting points, but they aren’t personalized answers. Rather than asking, “What percentage can I withdraw every year?” consider asking, “What does my portfolio need to provide this year?” 

Your next step: Estimate your first-year portfolio income need, then plan to revisit it as your retirement evolves. 

Decide Which Retirement Accounts to Use First 

Where your retirement income comes from can matter almost as much as how much you withdraw. 

Most retirement savings fall into three tax categories: 

• Tax-deferred: Traditional IRAs, 401(k)s, and similar accounts, where withdrawals are generally taxable 

• Tax-free: Roth accounts, where qualified withdrawals are generally tax-free 

• Taxable: Brokerage accounts and other investments, where sales may generate capital gains or losses 

Simply spending down one account before touching another may not always make sense. Your retirement account withdrawal strategy order can affect your taxable income, future RMDs, Social Security taxation, and Medicare premiums. 

There is no universal “right” order. You may use different accounts at different stages of retirement based on your income needs and tax situation. 

Your next step: Before choosing where your next withdrawal comes from, consider its impact on both your current tax bill and your long-term retirement income strategy. 

Consider the Tax Impact of Your Retirement Income 

A $75,000 retirement paycheck doesn’t necessarily mean $75,000 is available to spend. Where the money comes from can change the tax picture. 

For example: 

• Traditional retirement accounts: Withdrawals are generally taxable. 

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

• Taxable investments: Sales may create capital gains or losses. 

• Social Security: A portion of benefits may be federally taxable depending on your income. 

• Higher income: May affect Medicare IRMAA surcharges. 

Look for Your “Tax Window” 

The years between retirement and required minimum distributions can be especially important. If your taxable income is temporarily lower, you may have opportunities to consider strategies such as Roth conversions or realizing capital gains. 

The goal isn’t simply to minimize taxes this year. Tax planning in retirement considers how today’s income and withdrawal decisions could affect your tax picture later in retirement. 

Your next step: Identify when Social Security, RMDs, and other major income sources are expected to begin. This can reveal years when you may have more control over taxable income. 

See how income, withdrawals, and taxes can work together in our Building a Retirement Paycheck guide. 

Plan for Market Downturns While Taking Withdrawals 

A market downturn can feel very different when you’re living off your portfolio instead of contributing to it. 

During your working years, a decline may give your investments time to recover. In retirement, you could be selling those same investments to pay your bills. Selling after a significant decline leaves fewer assets invested to participate in a potential recovery. This is known as sequence-of-returns risk. 

The timing of poor returns can therefore matter, especially during the early years of retirement. 

Give Yourself Options During a Downturn 

Rather than trying to predict the next market decline, consider how your retirement income plan would respond if one happened. That could include: 

• Keeping an appropriate amount of near-term spending needs in cash 

• Coordinating portfolio withdrawals with other income sources 

• Reviewing whether your asset allocation still fits your income needs 

• Adjusting discretionary withdrawals when appropriate 
   

Your next step: Ask yourself: If the market fell significantly tomorrow, where would my next 12 months of retirement income come from? If the only answer is selling investments, it may be worth revisiting your retirement withdrawal strategy. 

Case Study: Turning $1.5 Million Into a Retirement Paycheck 

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 a hypothetical couple, both age 65, retiring with: 

• $1.1 million in traditional retirement accounts 

• $200,000 in Roth accounts 

• $200,000 in taxable investments and cash 

• Social Security available to both spouses 

• $90,000 in annual income needs 

Their initial plan is simple: claim Social Security and withdraw the rest from their traditional retirement accounts. 

But a better question is: Which income sources should they use, and when? 

They may consider delaying one Social Security benefit, using different accounts strategically, exploring Roth conversions during lower-income years, or maintaining cash for periods of market volatility. 

The lesson is simple: $1.5 million tells them what they’ve saved. It doesn’t tell them how to turn it into a retirement paycheck. That’s where an income strategy comes in. 

Plan for a Retirement That Could Last Decades 

A longer retirement is a gift, but it also changes the math. 

If you retire in your 60s, your savings may need to support you for 20 or 30 years, possibly longer. Along the way, your retirement income needs can change because of: 

• Inflation: Today’s lifestyle may cost considerably more in the future. 

• Healthcare: Medical or long-term care expenses may become a larger part of your budget. 

• Lifestyle changes: Travel, housing, and everyday spending may evolve as you age. 

• Family and legacy: Helping loved ones or leaving an inheritance may remain important priorities. 

Planning for longevity doesn’t mean spending as little as possible. The goal is to enjoy what you’ve built while maintaining flexibility for the years ahead. 

Your next step: Think beyond your first five years of retirement. What expenses or priorities could look different at 75, 85, or beyond? 

Review Your Retirement Income Strategy Regularly 

Your retirement income plan shouldn’t be put on autopilot. 

The strategy that works at 65 may not be the one that makes sense at 75. Markets change, tax laws evolve, spending shifts, and your priorities may change along with them. 

A regular retirement income planning review can help you evaluate: 

• Income and withdrawals: Are they still aligned with your spending? 

• Taxes: Could upcoming RMDs or other income change your tax picture? 

• Investments: Does your portfolio still fit your income needs? 

• Life changes: Have healthcare, family, or legacy priorities shifted? 

Think of your retirement income strategy as a roadmap rather than a fixed itinerary. You know where you want to go, but you may need to adjust the route as conditions change. 

Your next step: Set a regular time to review your retirement paycheck alongside your investments, taxes, and longer-term goals so your strategy can evolve with your life. 

Conclusion 

You spent decades building your retirement savings. The next step is deciding how those savings can support the life you want to live. Thoughtful retirement income planning can help bring your spending needs, income sources, withdrawals, taxes, and longer-term priorities into one coordinated strategy. 

Our Building a Retirement Paycheck guide walks through the key decisions involved in turning retirement savings into income, from coordinating withdrawals and Social Security to considering taxes and your longer-term needs. 

If you’re approaching retirement or already retired, you don’t have to sort through every decision on your own. The Liberty Group team can help you bring your retirement income, investments, taxes, and broader financial picture together into a strategy built around your goals. Connect with us here! 

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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.  

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