Retirement Income Planning: How to Turn Savings into a Paycheck

Retirement income planning is the process of turning the savings and assets you’ve accumulated into income you can draw on throughout retirement. It involves coordinating sources such as Social Security and investment accounts, choosing a sustainable withdrawal strategy, planning for taxes and inflation, and adjusting the approach as your needs and the markets shift over the years.

What is Retirement Income Planning?

Retirement income planning is the work of converting the savings you’ve spent your career building into income that supports you and your lifestyle once your paychecks from work stop. For most people, the decades of contributing to a 401(k) and funding their IRAs while watching balances grow is what makes up the accumulation phase.

The phase that follows accumulation asks a more personal question… How do you draw on those assets so they cover your expenses for as long as you live, while managing the taxes that come with each withdrawal?

That phase introduces risks that can feel much heavier than they ever have before. While you were working, a market downturn was uncomfortable, but you had time and ongoing income to recover from it. Once you begin drawing income from your retirement accounts, the timing of market returns starts to matter more than ever. Withdrawals taken during a down market can do lasting damage to a portfolio that needs to last for decades.

According to the Social Security Administration, a 65-year-old man today has a 50% chance of living to about 84 and a 65-year-old woman to about 87, with roughly one in four people who reach 65 living past 90. For a married couple, the likelihood that at least one spouse lives into their 90s is higher still. A sound plan must support a retirement that could stretch for 25 or 30 years.

Taxes are the other piece that makes income planning a specialty of its own. Much of the money waiting in traditional 401(k)s and IRAs has never been taxed. Because the IRS wants its cut, it eventually requires you to begin withdrawing it in amounts based on how long they think you will live. For those born in 1960 or later, those required minimum distributions (RMDs) begin at age 75. A large tax-deferred balance can push a retiree into a higher tax bracket once those withdrawals start. Coordinating which accounts you draw from, and in what order, can shape your lifetime tax bill in ways a single-year view tends to miss. The years before those withdrawals begin are some of the most valuable planning years you’ll have.

When Should You Start Retirement Income Planning?

The most valuable time to start is earlier than many realize. For households with significant assets, the mid-to-late 50s are when income planning carries the most leverage, because the decisions that matter most take years to pay off, and you still have the full range of choices in front of you. When savings reach seven figures or more, the question shifts from “Will I have enough?” to “How do I draw it down tax-efficiently while leaving a legacy for my family?”

Your retirement income comes from several sources that start at different ages, and the timing of some is yours to choose. You can claim Social Security as early as 62, though waiting closer to 70 increases the monthly benefit for most people. Required withdrawals from your retirement accounts don’t begin until 75 for this generation. Between the year your paycheck from work stops and the year those RMDs begin, there is often a stretch when your taxable income dips. That period is one of the most workable windows in your financial life, and maximizing it effectively takes proactive planning.

In your 50s, your decisions can still shape how your accounts are positioned, the order you’ll eventually draw from them, when you switch on each income source, and how you manage your tax brackets along the way. As you move into retirement and income begins flowing, some of those choices narrow or close for good. Planning early keeps them open.

It’s important to note that there is no need for alarm in any of this. A 56-year-old still has time to map the years ahead and adjust as circumstances change, which is what makes the mid-50s such a sound time to begin strategizing. Every year you wait is a year of flexibility you don’t get back, and the more runway you give your plan, the more options stay on the table.

That strategy starts with a basic question: How much income will you actually need once the paychecks stop?

How Much Income Will You Need in Retirement?

There is no single right number, and any honest answer starts with the life you picture rather than a formula. A common rule of thumb suggests you will need roughly 70% to 80% of your pre-retirement income once you stop working. That shorthand is a reasonable starting point for an average earner, though it tends to break down for households with substantial assets whose spending was never a fixed percentage of income in the first place.

A more reliable estimate comes from your own expected expenses. Start with the essentials that continue regardless of the market, such as housing, food, insurance, and transportation. Layer on the discretionary spending that makes retirement worth looking forward to, like travel, hobbies, time with family, and any giving you plan to do. The sum of those two gives you a working picture of the income your portfolio and other sources will need to produce each year.

Keep in mind that retirement spending rarely holds steady. Many retirees spend more in the early, active stretch when travel and projects fill the calendar, ease off through the middle years, then see costs climb again later as health care needs grow. Building a plan around a single flat number can miss that arc.

Healthcare deserves its own line, because it is one of the largest and least predictable costs retirees face. Fidelity’s 2025 estimate puts average lifetime health care spending for a 65-year-old at about $172,500, and roughly $345,000 for a couple, with neither figure including long-term care. Those costs also tend to rise faster than general prices, with health care inflation often running in the range of 5% to 6% a year. Long-term care is the wildcard on top of that, since close to 70% of people turning 65 will need some form of it during their lives.

Whatever number you determine now will also need to grow with inflation, since the income that covers your life comfortably at 65 may afford noticeably less at 85.

Where Your Retirement Income Will Come From

Retirees typically build their income from a handful of sources. The real retirement planning work is in how you combine them. For a household with significant assets, the main pieces usually include Social Security, any pension or deferred compensation, and withdrawals from your investment accounts, sometimes alongside rental properties or business interests.

Social Security forms a base layer for nearly everyone, though it replaces a smaller share of income for high earners than it does for average ones. When you claim the benefit is an important consideration. Benefits can begin as early as 62, and delaying toward age 70 increases the monthly amount for most people. That decision impacts your entire income strategy, which is why we start planning well before you reach the eligible age.

Traditional pensions have grown scarce in the private sector, leaving many professionals and business owners with deferred compensation or executive plans with their own rules and tax treatments. Those arrangements often carry timing choices that interact with everything else, and they typically benefit from early coordination.

The largest and most flexible source for many affluent retirees is the portfolio itself, drawn from a combination of taxable accounts, tax-deferred accounts like 401(k)s and IRAs, and Roth accounts. Each of those buckets is taxed differently, which means the order you draw from them shapes both your annual tax bill and how long the money lasts.

The takeaway here is that these sources work as a system. Coordinating when each one turns on, and how much you draw from each, is what separates a collection of accounts from a real income plan in retirement.

How Much Can You Safely Withdraw Each Year?

A useful starting framework is the well-known “4% rule,” which suggests withdrawing 4% of your portfolio in the first year of retirement and adjusting that dollar amount for inflation each year after. It was introduced in 1994 by financial advisor, Bill Bengen, based on historical market data, and it remains a helpful reference point for building a sustainable withdrawal strategy.

However, more recent research points to a somewhat more cautious figure. Morningstar’s 2025 analysis puts the highest safe starting withdrawal rate at about 3.9% for a 30-year retirement, assuming inflation-adjusted withdrawals and a 90% probability of not running out of money. That is up slightly from 3.7% the prior year, and it sits just below the classic 4% because the estimate uses forward-looking assumptions about returns and inflation rather than the historical record alone.

A fixed percentage is only the beginning of the conversation. Morningstar’s research also found that flexible approaches, such as adjusting spending in response to market performance or delaying Social Security, can support meaningfully higher starting rates. A retiree willing to trim spending after a down year can often afford to start higher than one who wants the same inflation-adjusted paycheck no matter what markets do.

The reason any of this requires care is sequence-of-returns risk. Withdrawals taken from a falling portfolio in the first years of retirement lock in losses the account never fully recovers from, even if the market eventually rebounds. A poor stretch of returns early in retirement does far more damage than the same stretch a decade later, which is part of why the transition years are so critical.

None of these figures are a guarantee, and the right withdrawal rate for you depends on your spending flexibility, your other income sources, your time horizon, and your tolerance for adjusting along the way. The percentage is a place to begin building the plan, not a rule to set and forget.

What Order Should You Draw Down Your Accounts?

The order you draw from your accounts can shape your lifetime tax bill as much as the investments inside them. A long-standing default is to spend from taxable accounts first, then tax-deferred accounts like traditional 401(k)s and IRAs, and finally Roth accounts. The idea behind this is to let the tax-advantaged money keep compounding as long as possible.

That default is a reasonable place to start, though following it mechanically can backfire. Leaving a large traditional balance untouched for years lets it grow into a sizable future tax obligation. We recommend smoothing your taxable income across decades rather than letting it build toward one large bill late in retirement.

A more deliberate approach blends withdrawals from different account types each year to manage which bracket you land in, drawing a little more from traditional accounts in lower-income years and leaning on Roth and taxable dollars when income runs higher. The right blend shifts once you factor in Social Security timing, future tax law, and what you hope to leave behind, which is one of the places coordination between your investment plan and your tax plan earns its keep.

The Retirement Tax Problem Most People Don’t See Coming

For all the attention paid to growing a retirement balance, far less goes to the tax bill that builds in the background. The money in traditional 401(k)s and IRAs has never been taxed, and the government does not wait forever to collect. Once you reach 75, if you were born in 1960 or later, RMDs force a taxable withdrawal each year whether you need the income or not.

For a retiree with a large tax-deferred balance, those forced withdrawals can do more than raise the year’s income tax. They can push you into a higher bracket, increase the share of your Social Security that gets taxed, and raise your Medicare premiums through income-related surcharges. A balance you spent a career building can, without planning, deliver a tax bill you never chose. The larger your pre-tax balance, the bigger that bill can be, which is why RMD strategy matters most for households with seven figures or more in traditional accounts.

The encouraging part is that the years before those distributions begin are when you have the most room to act. In the lower-income stretch between leaving work and reaching 75, your tax bracket is often at its lowest of your adult life. That window is what makes proactive tax planning so valuable, and one of the most useful tools within it is the Roth conversion: moving money from a traditional account into a Roth in those lower-bracket years, paying tax on it now at a known rate, and reducing the RMDs and taxes that would otherwise land later.

Roth conversions carry enough nuance to deserve their own discussion, and we cover the strategy in depth in a companion article on making the most of the pre-retirement window. The point for now is that the tax problem is foreseeable, and the time to address it arrives years before the first required withdrawal.

Common Retirement Income Planning Mistakes

A few missteps come up again and again, and most are avoidable with enough lead time.

• Underestimating health care: Many people budget for a fraction of what they will actually spend. Fidelity projects individuals spend $172,500, and about one in five pre-retirees say they have never factored health care into their retirement at all.
• Treating any withdrawal rule as fixed: The 4% rule and its successors are tools, not promises. A plan that never adjusts to the market conditions or changing needs leaves money on the table in good years and runs uncomfortably tight in bad ones.
• Claiming Social Security on autopilot: Taking benefits at the first opportunity without weighing the trade-offs can permanently reduce household income, especially for the higher earner in a married couple.
• Ignoring the tax bill inside tax-deferred accounts. Waiting until RMDs begin removes most of the options for managing them. The planning value lives in the years before they begin, often before retirement even starts.
• Planning for too short a retirement. Building around average life expectancy overlooks that half of retirees outlive the average. A plan that runs dry at 85 fails the people who live the longest.
• Keeping investments and taxes in separate silos. When the people managing the portfolio and the people managing the taxes never talk, the household often pays for the gap in planning.

How a Tax-Integrated Approach Changes the Picture

Everything in this guide connects. Your withdrawal order depends on your tax picture, your tax picture depends on when you claim Social Security, and all of it shifts as RMDs approach and as the law changes. When those pieces are handled by separate people who don’t regularly compare notes and strategize together, the plan can only ever be as good as its weakest hand-off.

Holistic Planning is built around closing that gap. Our tax professionals work on the same team as your financial advisor, so your income strategy and your tax strategy are developed as a single plan rather than stitched together after the fact. That structure lets us project your tax picture across many years, coordinate withdrawals and conversions around it, and adjust the plan as tax law and your own circumstances evolve.

The practical result is planning that is measured in decades. A coordinated team looks 10, 20, and 30 years ahead, asking how a decision today changes the tax you will owe across the whole of retirement rather than only on next spring’s return.

This is what a holistic plan is meant to deliver: a strategy where your investment, income, and tax decisions are pulling in the same direction for as long as the plan is in place.

Working with a Retirement Income Planner

If you are in your mid-50s and starting to think seriously about turning your savings into retirement income, the most valuable step is simply to begin while the runway is long. A retirement income planner, or financial advisor at Holistic Planning, can help you determine the income you will need, coordinate your Social Security and withdrawals, and build the multi-year tax strategy that makes the whole plan more efficient.

Holistic Planning works with individuals and families, including many households approaching retirement with significant assets and complex tax considerations. Our work combines retirement income planning with in-house tax expertise and estate planning, so the income and tax pieces of your plan are built and managed together.

If a conversation would be useful, we are happy to talk through where you stand and what the years ahead could look like. The sooner you map the path, the more of it stays yours to shape.

Disclosure: This content is intended for general educational purposes and does not constitute tax, legal, or investment advice. Tax laws are subject to change, and their application depends on individual circumstances. Please consult your tax, legal, or financial professional before implementing any strategy.

Advisory services are offered through Uptick Partners, LLC, an SEC-registered investment adviser doing business as Holistic Planning. Registration does not imply any level of skill or training.

Before making any financial decisions, readers are encouraged to consult with a qualified financial professional. The views expressed may not reflect those of Uptick Partners, LLC as a whole. Uptick Partners, LLC does not guarantee the accuracy or completeness of any information contained herein and is not responsible for any errors or omissions.

Frequently Asked Questions About Retirement Income Planning

Sources:

1. Life Expectancy Tables 2026: SSA, IRS RMD Charts by Age
2. Guide on Taking Social Security: 62 vs. 67 vs. 70 | Charles Schwab
3. Fidelity Investments® Releases 2025 Retiree Health Care Cost Estimate, a Timely Reminder for All Generations to Begin Planning
4. Understanding the 4% Rule for Retirement Withdrawals
5. The State of Retirement Income for 2026 | Morningstar