Retirement Income Explained: How to Make Your Money Last

You have spent decades saving, contributing to your employer retirement plan(s), IRAs, and other investment accounts, watching your nest egg grow. But here is the challenge: unless you only have a pension and no other savings, your retirement accounts do not automatically turn into a paycheck for you. Unlike a job, where income comes on a schedule, retirement requires you to create your own income stream. If it is not done thoughtfully, you risk withdrawing too much too soon and depleting your savings or withdrawing too little and missing out on experiences and lifestyle choices you worked so hard to achieve.

Crafting a retirement income strategy is about finding the balance: generating a reliable, sustainable paycheck while still enjoying the life you have earned. An effective retirement income strategy examines your income sources, withdrawal methods, taxes, and risk management together. It is about creating a roadmap for a secure and sustainable retirement lifestyle.

Shifting Your Focus From Saving to Spending

Retiring requires a major shift in mindset. During your working years, the focus is on accumulation – maximizing contributions to retirement accounts, investing in the market, and letting compound interest work its magic to grow your nest egg. Once you retire, the focus shifts to distribution. Instead of asking, “How much am I saving?” the question becomes, “How do I make my money last while supporting the lifestyle I want?” This is not just a financial shift; it is an emotional one. Every withdrawal has long-term implications, and being intentional with your strategy is crucial to a successful retirement.

To navigate this transition, it is helpful to follow a structured approach. The first step is to coordinate your withdrawals with your other income sources. Social Security, pensions, annuities, and any other streams of income you may have all play a role in your overall retirement cash flow. Understanding how much these sources get you closer to your income needs will help you determine how much you truly need to withdraw each year from your savings.

The second step is to understand your portfolio’s sustainable withdrawal rate. Not every portfolio can support the same level of spending, and market performance can dramatically affect how long your savings will last. Determining a sustainable rate requires careful analysis of your asset allocation, expected returns, and anticipated retirement duration.

Finally, you must factor in taxes. Withdrawals from traditional retirement accounts are subject to income tax, Roth accounts allow for tax-free distributions, and taxable accounts could incur capital gains taxes if you sell any positions in your portfolio. The order in which you access these accounts can significantly impact your net income. Coordinating withdrawals with tax planning can help extend your portfolio's longevity and prevent you from paying more in taxes than necessary.

By approaching retirement income with this three-step framework, you establish a foundation for a disciplined, strategic approach to spending in retirement. This mindset shift transforms your focus from simply protecting assets to actively managing your income, ensuring that your savings support the lifestyle you envision.

Understanding Your Income Sources

Most retirees rely on multiple income streams, each with their own characteristics to consider. Combining these sources effectively can create financial stability and help ensure that your retirement portfolio lasts.

Social Security provides a foundation of guaranteed, inflation-adjusted income, and the timing of when you claim benefits can have a meaningful impact on your financial security. Delaying Social Security by even a few years can significantly increase monthly payments, helping cover essential expenses later in retirement. If you worked in a profession that left you subject to the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO), it is important to be aware of the passage of the Social Security Fairness Act, which repealed those provisions. Also, if you earned significantly less than your spouse during your working years, you may qualify for a spousal benefit, which can further supplement your income.

Pensions and annuities, if available, add another layer of predictable income and reduce reliance on investments. These guaranteed sources of income can form the backbone of your retirement cash flow, so understanding the options available to you and the choices involved is critical.

Beyond guaranteed sources, most retirees draw from investment accounts, and the order and timing of these withdrawals can dramatically influence how long a portfolio will last. Careful planning of withdrawals can help balance spending needs with portfolio longevity.

Some retirees also generate supplemental income from rental properties, part-time work, or business ventures. These sources add flexibility and peace of mind but often require ongoing attention, effort, or financial management. As you progress through retirement, it is important to evaluate whether the benefits you receive from these supplemental sources outweigh the effort and resources you must commit to them.

Crafting a Sustainable Withdrawal Strategy

Determining how much to safely withdraw from your portfolio each year is central to a retirement income strategy.

Some retirees rely on fixed-percentage or rule-of-thumb approaches – like the 4% rule. This method suggests withdrawing four percent of your portfolio in the first year and adjusting for inflation in subsequent years. While it can provide a helpful starting point, it is not a one-size-fits-all solution and does not account for changes in market performance or personal circumstances.

Many retirees benefit from dynamic withdrawal strategies that adjust distributions based on market conditions or spending needs. This approach, sometimes called retirement guardrails, allows retirees to increase withdrawals in strong markets while conserving capital during downturns. By adapting to changing circumstances, this method helps maintain a sustainable income stream while protecting long-term portfolio value.

Another important consideration is the order in which you access your assets, which can be guided by the bucket strategy. This method divides your portfolio into short-term, medium-term, and long-term funds. Short-term buckets hold cash or low-risk investments to cover immediate expenses, medium-term buckets focus on moderate growth, and long-term buckets remain invested for growth over decades. The bucket strategy reduces the risk of having to sell long-term investments at a loss during market downturns and provides a structured framework for withdrawals, ensuring a steady flow of income throughout retirement.

Tax Planning: Keeping More of What You Have Saved

Taxes play a central role in retirement income planning because not all income is taxed the same way. Two retirees with identical gross income can experience very different outcomes depending on where that income comes from and how it is coordinated. A well-designed retirement income strategy does not look at withdrawals in isolation. It considers how each income source is taxed at the federal and state levels and how those taxes affect net, spendable income.

• Social Security Income – Social Security is unique in that it may be partially taxable at the federal level, depending on your total income. For many retirees, up to 85 percent of Social Security benefits can be subject to federal income tax once certain income thresholds are exceeded. At the state level, Social Security is treated more favorably. Many states do not tax Social Security benefits at all, while others offer partial exemptions or income-based exclusions.

• Pensions and Annuities Income – Pension income is generally taxed as ordinary income at the federal level, assuming contributions were made on a pre-tax basis. Similarly, most annuity payments are at least partially taxable, depending on how the annuity was funded. Annuities purchased with pre-tax dollars, such as those inside an IRA, are fully taxable when distributions are taken. Annuities purchased with after-tax dollars typically include a mix of taxable earnings and non-taxable return of principal.

• Withdrawals from IRAs and Other Tax-Deferred Accounts – Withdrawals from traditional IRAs, 401(k)s, and other tax-deferred retirement accounts are taxed as ordinary income at the federal and state levels. These withdrawals increase adjusted gross income and can have cascading effects, such as pushing you into a higher tax bracket, increasing the taxation of Social Security benefits, and increasing your Medicare premiums. Required minimum distributions add another layer of complexity, as they force taxable income in later retirement years, whether the funds are needed or not.

• Withdrawals from Roth IRAs and Tax-Free Accounts – Qualified withdrawals from Roth accounts are tax-free at the federal and state levels and do not increase adjusted gross income. This means Roth withdrawals do not trigger additional taxation of Social Security benefits and do not count toward required minimum distributions during the original account owner’s lifetime.

• Withdrawals from Taxable Investment Accounts – Withdrawals from taxable brokerage accounts are subject to capital gains taxation, either short-term or long-term, depending on how long you have held the asset. Short-term capital gains are taxed as ordinary income, whereas long-term capital gains are taxed at lower federal rates. This can make taxable accounts surprisingly tax-efficient in retirement. Additionally, only the gain portion of a sale is taxable, not the full withdrawal amount. State treatment of capital gains varies. Many states tax capital gains as ordinary income, while others offer preferential treatment or no income tax at all.

• Other Supplemental Sources of Income – Supplemental income sources, such as rental income, business income, or part-time work, are typically taxed as ordinary income at the federal level and may also be subject to self-employment taxes, depending on the structure. These income sources can increase overall tax exposure but may also offer deductions, depreciation, or expense offsets that reduce taxable income. At the state level, supplemental income is generally taxed similarly to earned income, although rules vary.

The real power of tax planning lies in coordinating these income sources rather than treating them individually. Strategic withdrawal sequencing, thoughtful timing of Social Security benefits, and selective use of Roth assets can help manage your lifetime taxes and increase the amount of income you are able to spend. A retirement income strategy that integrates tax planning does not simply focus on gross income. It prioritizes after-tax income, sustainability, and flexibility, helping ensure that your money supports your lifestyle as efficiently as possible.

Managing Risk: Market Volatility and Longevity

Risk management is a key component of retirement income planning. One major concern is sequence of returns risk, which happens when market declines occur early in retirement. If withdrawals continue during a market downturn, a portfolio can be depleted faster than expected, jeopardizing long-term income. By structuring withdrawals thoughtfully, maintaining a mix of liquid, medium-term, and growth-oriented assets, and using strategies like the bucket method, retirees can protect themselves from market volatility. Longevity risk is another critical consideration. With life expectancies increasing, retirement savings may need to last 25 to 35 years or more. Balancing income needs with investment growth ensures that your savings support you throughout an extended retirement.

Reviewing and Adjusting Your Plan

Retirement is a dynamic phase of life. Spending habits change, markets fluctuate, and unexpected expenses or life events can arise. Regularly reviewing your retirement income strategy is essential to ensure that it continues to align with your goals. This includes adjusting withdrawal amounts to match actual spending, rebalancing your portfolio to maintain your target risk level, and updating assumptions about taxes and income streams. A proactive, flexible approach allows your plan to adapt to changing conditions, giving you confidence that your income will remain sustainable.

If you are unsure about how to structure your retirement income strategy, schedule a complimentary, no-obligation call with us. To learn more about how Holzberg Wealth Management can help you achieve your financial goals, learn more about us here!

If you liked this post, please share it and let us know if you have any comments or questions!

---

About the Author

Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and nationwide with the financial decision-making process to organize, grow, and protect your assets.

** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions.