Retirement Income Planning: How To Avoid Outliving Your Retirement Savings

by | Oct 5, 2022 | Retirement Planning | 0 comments

Retirement income planning is the most important process in securing the longevity of your golden years.

Without the proper amounts coming in, your ability to maintain a lifestyle, keep life work-optional, and leave a legacy behind is called into question.

For these reasons it’s important to understand how to build a retirement income that lasts. Moreover, what actions you can take to put the fear of outliving your savings behind you. 

In this article, we’ll take you step-by-step through the retirement income planning process. This will expose you to the questions you should ask, areas you should consider, and professionals you can consult to start feeling more confident about your retirement’s durability. 

Let’s get started.  

I. How Much Income Will You Need for Retirement?

It’s best to work backwards when it comes to retirement income planning. The planning process is designed to support your goals, so you’ll first want a firm idea of what a successful retirement looks like to you. 

1) Retirement Healthcare Costs

The costs of healthcare are of particular importance when it comes to retirement income planning. And it can be helpful to break them up into three distinct categories: pre-Medicare coverage, Medicare coverage, and long-term care needs.

a. Pre-Medicare Coverage

Medicare coverage may kick in at age 65, but you’ll still need the proper health insurance before then. Afterall, your health insurance ensures you and your loved ones are protected both mentally and physically. But these protections get costly quickly. So review the following to minimize your expenses, and maximize your income in retirement.  

Pre-Medicare coverage considerations:

i. Review Employer Benefits

If you (or your partner) are employed, it’s critical to maximize your benefits during your benefit enrollment period. During this time you can take inventory of your benefits, weigh options, and uncover gaps in coverage. And don’t always assume the most expensive plan is the best plan!  

ii. Shop Out Health Insurance

It may be in your best interest to explore health insurance policies offered by a variety of carriers. Some may be more suited to you, and your family’s medical, financial, and network needs. So take the time to think through the insurance needs most important to you before shopping out policies. 

iii. Use A Health Savings Account (HSA)

If you participate in a qualifying high deductible health plan, it may also be worth opening a Health Savings Account (HSA). An HSA allows for tax-free saving, growth, and withdrawing. And once you’re 65, they operate like a traditional IRA account. You can take out funds for non-qualified medical expenses with no penalty.

b. Medicare Coverage

Once you’re 65, you can participate in Medicare. From a cost standpoint, this makes a substantial difference in your retirement income. That’s because a large portion of it comes “free” because you’ve already paid for it over the course of your working lifetime.

Still, Medicare has multiple parts that require due diligence.

You’ll need to understand its benefit selection, enrollment, premiums, and out-of-pocket costs.

Furthermore, you may need to acquire Medicare Supplemental Insurance (Medigap) to cover areas not overseen by Medicare.

These major cost changes should be accounted for when calculating retirement income.

c. Long-Term Care Needs

This is a retirement cost that can be tempting to avoid. But doing so is unwise.

Like it or not, at some point in retirement you may need more intense medical care that goes above and beyond what you’re used to now. 

The cost of long-term care insurance can be overwhelming. Its premium is affected by factors like gender, age, and present health status. The longer you wait, the more expensive it becomes. And it’s possible a deterioration in your health can disqualify you altogether. 

Your potential long-term care needs must be thought through carefully. Consider your own health, and that of your loved ones. You may want to review family histories for insights into what coverage may or may not be worth it. 

According to recent Administration for Community Living statistics:

    • After someone turns 65, the probability that they’ll need some sort of long-term care service during the remainder of their life is almost 70%. 
    • Out of all current 65 year olds, 20% will need long-term care support for more than 5 years. 
    • Women on average need longer long-term care (3.7 years) than men (2.2 years). 

It’s critical to consider healthcare costs at each stage of retirement, so book a free consultation.

2. Additional Retirement Costs to Consider

a. Costs Of Life Expectancy

First and foremost you’ll want a retirement that lasts. That means tailoring it properly to your life expectancy. People are living longer than ever. And as a result, your retirement income may need to span multiple decades. Make sure you calculate how long you may need to support yourself while not working so that you avoid running out of money.

b. Costs Of Inflation

Remember, your nest egg’s purchasing power is constantly being picked away by the impacts of inflation. Your income, at a minimum, needs to keep pace with inflation each year to retain its value, and maintain your lifestyle. 

c. Costs Of Monthly Spending

Understanding what’s going out is just as important as knowing what’s coming in. Make sure you, a trusted partner, or both are keeping a vigilant eye on the books. Generating a retirement income isn’t helpful if it’s consistently being overspent. 

d. Costs Of A Legacy

Maybe you’re planning on leaving an inheritance to kids, an endowment to a charity, or have another legacy goal. If so, make sure you incorporate what you intend to leave behind when calculating the retirement savings you’ll need. 

We can work together to track the costs of your retirement when you schedule your free call.

II. Sources of Retirement Income

1) Social Security Planning 

Now that we’ve accounted for the costs of retirement, let’s review the incomes.

We’ll start with Social Security, as it deserves special attention during your retirement income planning process.

Some may say it won’t continue to last, but our experience has shown that Social Security benefits are here to stay and should be treated as a core tenant of income in your retirement. 

Major Social Security considerations include:

a. How Much You’ll Receive

Your social security benefits are tied to your lifetime earnings, and when you choose to apply. For a quick benefit calculation visit here, or call the Social Security Administration at 800-772-1213.

b. When You Should Apply

You become eligible for Social Security at age 62, but you have the option of waiting (up to age 70) for higher monthly benefits. This is again why it’s critical you consider your life expectancy, and know your ideal retirement time frame.

c. Income Level

Depending on your reported income level, you may have to pay federal income tax on Social Security. But federally, you’ll never pay taxes on more than 85% of your benefits. And on the state level, there’s usually no taxes. But there are a few exceptions.

d. Survivor Benefits

Your social security may still be able to benefit family members in the event of your passing. You’ll have to check IRS requirements, but Social Security’s survivorship benefits may be able to contribute income towards your retirement’s legacy.

These are just some of the key considerations revolving around your Social Security. Depending on your specific circumstances, other Social Security planning strategies may need to come into play for the betterment of your retirement. 

2) Other Sources Of Retirement Income 

Outside of Social Security, your retirement will likely rely on multiple other streams of income. Below, we’ve listed some they may be relevant to you. 

Other sources of retirement income may include:

a. Pensions

Defined-benefit pension plans are becoming increasingly more rare. However, you may find yourself as an exception. Additionally, you may have to decide if you’d like to receive it as a lump sum or in monthly installments. It’s worth working through the pros and cons of each of these options as it will impact your retirement’s income potential. 

b. Retirement Accounts

Whether you have a plan through your employer, or opened one as an individual (or both) you’ll need to consider how your retirement account(s) will contribute to your retirement income. This involves understanding what required minimum distributions, early withdrawal penalties, taxes, and qualified expenses apply to your account(s).

c. Working Income

If your retirement still involves working for pay, that needs to be included in your retirement income planning. Even working part-time hours can make a drastic difference in your retirement. Do your best to estimate what you will likely be bringing in, and how long you plan to do so. It may be best to assume you’ll earn less and work shorter than you think.

d. Rental Income

Rental properties are sought after for their more passive income potential. If you own rental real estate it needs to be accounted for when calculating your retirement income. If you have historical returns to base your projections on, that’s best. Because you’ll need to account for maintenance, vacancy, damages, and more need when making an estimate.

There’s no need to calculate all your income alone, you can sign up for your free support call

III. Tax Planning

In the end, the income that truly matters is the amount you net. That is, the income you actually get to keep after Uncle Sam takes his share. For this reason, taxes can’t be overlooked during your retirement income planning.  

Key areas to consider when accounting for taxes in retirement: 

a. Required Minimum Distributions

Retirement accounts like traditional IRAs, have what’s known as required minimum distributions (RMDs). This means that once you reach a specific age (ex: 72) you’ll be required to make minimum withdrawals from your retirement account. And depending on your situation, these withdrawals could end up putting you in a higher tax bracket.

b. Retirement Account Conversions

Not all retirement accounts have RMDs. For example, with a Roth IRA, you are not forced to start withdrawing funds at any given age. And depending on your position, it may be worth your time to convert your retirement account, avoid RMDs, and pay less taxes in the long run.   

c. Property Taxes

If you’re looking to buy, sell, or maximize the value of a rental property in retirement, you’ll want to take a closer look at the tax code. Key tax considerations include, but are not limited to: sales taxes, state property taxes, and 1031 exchanges. 

d. Qualified Charitable Distributions (QCDs)

You’ll want to make sure the causes you care about get as much money as possible. A great way to ensure this happens is through the use of a Qualified Charitable Distribution (QCD). QCDs have a unique tax code allowance where withdrawals from an IRA become tax-free when paid directly to a qualifying charity.

Learn how our tax planning services handle these issues, and many more, during your free call.

IV. Converting Savings Into Income

Alright, you’ve calculated the costs of your ideal retirement. You’ve gone through your sources of income, and given due diligence to retirement tax planning. Now it’s time to create a structure that converts your income into a retirement that works.

Ways to convert your savings into retirement income:

1) Guaranteed Retirement Income Annuity

There’s a lot of skepticism when it comes to annuities. When you consider their commissions, fees, penalties, and surrender charges, many annuities become an unattractive option. However, depending on your ideal retirement, a guaranteed retirement income annuity may be worth checking out. 

Benefits of a guaranteed retirement income annuity include:

  • Income For Life: Create your own pension plan with a guaranteed retirement income annuity. This lets you eliminate the risk of ever outliving your income stream. 
  • Low Risk: Your guaranteed retirement income annuity isn’t tied to market performance. It never delivers below its guaranteed interest rate.
  • Simple And Reliable: There’s no complicated math with guaranteed income annuities. You’ll be fully confident in what you’re receiving, and how often you’re receiving it. 

Download Annuity Checklist

2) Additional Methods of Converting Retirement Savings into Income

a. Pension Decision

If you’re offered a pension through your employer, you’ll likely need to make a decision on how you plan to receive it. There are pros and cons to taking your income monthly or as a lump sum. And you need to think them through before converting your pension into an income stream.


b. Tailored Investments

The interest your portfolio earns each year is invaluable in creating a lasting retirement income. But for that to happen, your investments need to be aligned with your long-term goals, risk tolerance, and stages of life. 

c. Selling A Property

If your wealth is held in property, it may make sense to sell your asset(s) to create an income for retirement. This could entail downsizing and using your sale proceeds to invest and grow your nest egg. Or it might involve rolling your equity into a rental property to generate more monthly cash flow. 

d. Annuity Structuring

Depending on your situation, it may make sense to structure an annuity to make a reliable stream of income for your retirement. That being said, there’s a lot of bad annuities out there. You’ll need to do your due diligence in finding out if one is right for you [see more in the next section].

You’re not alone in making conversion decisions. Reach out to us, and schedule a free call. 

How Vertical Wealth Management Helps You Take Action

At Vertical Wealth Management, we understand the stresses that come along with retirement income planning. Outliving savings is the number one concern of our clients, and we see it as our responsibility to alleviate that problem. 

We do this by walking our clients step-by-step through our retirement income planning process. This includes understanding what they need to feel secure, identifying all their retirement income sources, maximizing their Social Security benefits, minimizing their long-term tax liabilities, and converting their savings into reliable streams of income. 

If you’re ready to work on creating a secure retirement, we’re here to help. Together we can understand your unique situation, and work the retirement income planning process in the way that’s best for you. To get started, schedule your free consultation call today.