You have spent years saving and investing, and now you have a retirement nest egg. The challenge is that retirement assets do not automatically turn into a paycheck. The process of creating retirement income is simple in principle, but the details matter and can significantly affect your outcome. This guide explains the key steps and highlights important nuances to watch carefully.
Start by knowing your retirement income target. The best way to estimate this is by creating a retirement budget. Use four categories: Needs, Wants, Giving, and Goals. Under each category, list individual expenses and estimated costs. Needs may include housing, insurance, healthcare, food, utilities, taxes, transportation, and home maintenance. Wants may include dining out, travel, hobbies, subscriptions, and gifts. Giving may include church and charitable donations. Goals may include helping grandchildren, taking a major trip, leaving a legacy, or buying a vacation home. Mark each cost as recurring or one-time. Add up your recurring costs to identify your retirement income target.
Next, understand your sustainable withdrawal amount. To calculate this, you need to total up your liquid assets like stocks and mutual funds. Historically, many people relied on the 4% rule, but Bill Bengen, who introduced it, now suggests that 5% may be more appropriate for many retirees. 1 The right amount depends on your age, time horizon, portfolio size, and future spending needs. For example, $1.5 million in liquid retirement assets could potentially support about $75,000 per year. After estimating what your portfolio can sustainably provide, map out your other income sources.
For many retirees, Social Security is the primary income source. Other sources may include pensions, annuities, or rental real estate. Add up all expected income streams, then combine them with your sustainable portfolio withdrawal amount. Compare that total to your income target. This comparison will reveal whether you may need to adjust spending, save more, or refine your strategy. Decisions about when to claim Social Security can also meaningfully affect retirement income. Benefits can start as early as age 62, but claiming early reduces the amount.
Waiting beyond full retirement age increases benefits by 8% per year until age 70. Taxes in retirement often work differently than taxes while working. Earned income is generally subject to FICA tax, but retirement income is not. In addition, only up to 85% of Social Security benefits are taxable, and some states do not tax Social Security at all. This can make retirement income more tax-efficient than employment income, sometimes allowing retirees to withdraw less while maintaining the same lifestyle.
The steps to creating retirement income are straightforward, but the details are not always simple. Factors such as healthcare, long-term care, relocation, family support, and large irregular expenses can change the picture. Thoughtful planning can make a major difference, and working with an experienced financial advisor may help you create a more confident and sustainable retirement plan. At Steward Wealth, we provide comprehensive, planning-focused, faith-based guidance to help clients navigate retirement income decisions with clarity, stewardship, wisdom, and confidence today.
1 https://www.cnbc.com/2025/09/03/4percent-rule-inflation-retirement.html
Neither Creative Financial Designs, Inc., nor any of its advisers are offering legal or tax advice. For any discussion of legal or tax implications of an investment strategy, consult with your attorney or tax preparer. Advisory Services are offered through Creative Financial Designs, Inc., a Registered Investment Adviser, and Securities are offered through cfd Investments, Inc., a Registered Broker/Dealer, Member FINRA & SIPC, 2704 S. Goyer Rd., Kokomo, IN 46902. 765-453-9600. Neither Christian Wealth Management or Steward Wealth Management are associated with either cfd Investments, Inc. or Creative Financial Designs, Inc. or each other.
This hypothetical example is used for illustrative purposes only and does not represent any specific investment. The projection assumes that current tax laws and IRS rules remain constant; inflation is not considered. Rates of return and levels of risk will vary over time, particularly for long-term investments. Actual results will vary. Distributions from traditional IRAs are taxed as ordinary income and, if taken prior to age 59½, may be subject to an additional 10 percent federal income tax penalty. The foregoing piece is intended for general education only, and is not intended as a recommendation to purchase or sell any investment or security, or as to the value of any investment or security, or to solicit investment advice. This material may or may not be relevant to any particular reader, and this is not intended as being particular to any investor and/or particular financial situation. Past performance is no guarantee of future results.
