You’ve been diligently putting money away into a retirement savings plan for years. Congratulations! You are ahead of the majority of your peers! But, have you thought about the “how” in converting those savings to a retirement income?

This is an area that is often neglected. Unfortunately, without proper planning, the money you saved may not support the retirement you’ve been planning for. Here are six steps to take to help you save for retirement with the end goal – retirement income – in mind.

#1: Know What Income You Will Need

Before you know what to save or how to convert it to income, you need to know how much income you’ll need. Although many people talk about averages or percentages of income, we understand that each retirement is unique. That means the best way to determine your needs is to look at your actual circumstances.

First, make a list of basic needs, such as food, shelter, and medical care. These are the things that you need for survival.

Then, make a list of wants, such as traveling, hobbies, and entertainment. Do you want to learn to play the piano? Have you always wanted to see all the major National Monuments? This portion of the list is what makes retirement enjoyable.

Once you know your needs and wants, you’ll have a general idea of income requirements. This list also makes it easier to make adjustments when needed. 

#2: Determine Predictable Income

The income sources you can count on each month form your retirement income foundation. These typically include the following sources:

  • Social Security: Currently, you can begin taking reduced benefits at 62. The longer you wait (up to 70), the higher the benefits will be. You’ll need to determine the right time for claiming those benefits. You can determine your benefit by using the SSA calculator or signing up for a “My Social Security” account to see your online statement.
  • Pensions: Although not as popular today, you may have an employer pension. Things to consider are whether the benefits increase with inflation and whether you have a single annuity that ends with your death or a joint and survivor annuity that provides reduced benefits until your spouse’s death. If you are married, you likely have a joint and survivor annuity unless your spouse waived the rights.

#3: Compare Your Foundation to Your Needs

Add together your foundational income and compare this to the needs you calculated in Step #1. If your income covers these needs, then your retirement savings can be used solely for your wants. If, however, you need more income for your needs, you will have to consider how to create that income from your retirement plan and other assets.

#4: Employer-Sponsored Plan Options

When you leave your employer, you will have to determine how to handle the money in the employer-sponsored plan. Here are a few options most plans provide:

  • If allowed, you may leave the money alone. However, you may have to begin taking distributions at the plan’s designated retirement age.
  • Withdraw money as a lump sum.
  • Withdraw money in equal payments for life(Consult your tax advisor this may have tax consequences)
  • Withdraw money in periodic payments
  • Roll money into an IRA – always look at investments, fees, and expenses to determine if this is right for you. If you roll into a Roth IRA, you may incur a tax on the converted assets. Always speak to a tax advisor to understand the tax consequences.
  • Roll into a new employer’s plan if you continue working elsewhere – once again, compare investments, fees, and expenses.
  • Roll all or a portion of your funds into an annuity to help create a steady income.  Rolling all of your funds to an annuity usually only makes sense when you have other liquid assets for retirement.  So consider this option carefully. 

An annuity is an insurance contract that may provide steady income over time – either a designated period or a lifetime. Always carefully look at the contract and all the related limitations, exclusions, terms, and provisions along with the fees and expenses before deciding an annuity is right for you. Also, note that the guarantee of payments is based on the claims-paying ability of the insurance company. Finally, remember that having an annuity does not provide additional tax benefits beyond those available in the plan or IRA that purchased the annuity.

#5: Evaluate the Tax Status of Your Accounts

Different types of accounts have different tax statuses. For instance, tax-deferred accounts allow you to earn interest and dividends and gains without current taxation but will be taxed at your future tax rate upon withdrawal. Roth accounts tax the money you put into the account but allows you to withdraw the money (within guidelines) tax-free. Therefore, you need to consider which accounts to draw from first in order to minimize taxes.

Of course, once you reach 70 ½, you will be subject to required minimum distributions (RMDs) on all IRAs and employer-sponsored plans. Roth IRAs are not subject to these rules until your death. 

#6: Seek Help

With so many moving parts, trying to figure out the best way to convert your retirement savings into income can be a bit overwhelming. Not only do you have to think about income and expenses, but you have to look at taxes, other assets, health, estate planning, how you want your retirement to look, unexpected costs, market swings, and timing of withdrawals. Whew!!

Thankfully, you do not have to do this alone. Click here to connect with us and discover how we can help you turn your retirement savings into the retirement you’ve been planning for.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal.  No strategy assures success or protects against loss.

The Roth IRA offers tax deferral on any earnings in the account.  Withdrawals prior to age 59 ½ or prior to the account being opened for 85 years, whichever is later, may result in a 10% IRS penalty tax.  Future tax laws are subject to change.

How useful was this post?

Click on a star to rate it!

We are sorry that this post was not useful for you!

Let us improve this post!

Tell us how we can improve this post?