“Peace of Mind in Retirement: How to Create Your Retirement Paycheck is essential reading for anyone who wants steady, reliable income after leaving the workforce.”
If you’ve been saving steadily for retirement, you probably have one big goal in mind: reaching a point where you no longer rely on an employer for a paycheck — you become your own payroll department. But turning that retirement nest egg into a steady income stream takes more than just hope. It takes a plan.
Many people worry about outliving their savings, and that concern is totally valid. But here’s some good news: a lot of retirees are actually doing just fine. According to the Federal Reserve’s 2024 Report on the Economic Well-Being of U.S. Households, more than eight in ten retirees said they’re either “doing okay” or “living comfortably.”
That’s a hopeful sign — and a reminder that with smart decisions and the right strategy, a secure, low-stress retirement is absolutely possible.
Key Takeaways
- Most retirees combine multiple income sources, including Social Security, pensions, and retirement accounts like 401(k)s.
- Replacing your working income in retirement is achievable. Through proper planning, Americans at age 72 typically replace 84% to 103% of their spending power in their mid- to late-50s.2
- Experts recommend withdrawing 3% to 4% of your savings in your first year of retirement and staying flexible to adjust subsequent withdrawals as your needs change.
Assessing Your Retirement Income Needs
Building your retirement paycheck starts with one essential question: How much do you really need every month? Before you can create a solid income plan for your retirement years, you need a clear, realistic understanding of what your expenses are going to look like.
Start by tracking your current spending for at least six to twelve months. Break your expenses down into two main buckets:
✅ Fixed costs, like your mortgage or rent, insurance premiums, utility bills, and property taxes
✅ Discretionary spending, such as travel, hobbies, entertainment, dining out, and other lifestyle choices
Ken Mahoney, CEO of Mahoney Asset Management, puts it this way:
“Look closely at what you’re actually spending—then adjust for things like inflation and rising healthcare costs, and subtract the work-related stuff you won’t have anymore, like commuting.”
This step really matters, because even modest inflation can take a big bite out of your budget over a retirement that could last 25 to 30 years. And don’t forget: healthcare expenses tend to rise as we age, so it’s smart to include those in your estimates from the very beginning to avoid being caught off guard.
There’s also your investment strategy to think about. Mahoney cautions against getting too conservative too quickly:
“Don’t rush to shift everything into ultra-safe, low-growth investments. You still need some assets growing to make sure your retirement paycheck keeps up with the cost of living.”
By taking the time to understand your monthly retirement needs — and planning for inflation, healthcare, and other evolving costs — you’ll be setting yourself up with a more realistic and sustainable income plan that can carry you through the years ahead.
Where Your Retirement Paycheck Will Come From
Once you know what your monthly expenses might look like in retirement, the next big question is: Where’s that money going to come from? The truth is, most retirees don’t rely on just one source of income. Instead, they piece together a mix of income streams to create a steady, dependable “retirement paycheck” that covers their needs and wants.
According to Western & Southern Financial Group, here are some of the most common ways retirees bring in money:
✅ Social Security
✅ Pensions
✅ Retirement accounts like 401(k)s and IRAs
✅ Part-time work or side gigs
✅ Rental properties
✅ Dividends and interest from investments
“If you’re lucky enough to have a pension, that’s a huge win,” says Ken Mahoney, CEO of Mahoney Asset Management. “Especially if it’s enough to handle your basic monthly bills — housing, utilities, insurance — that kind of stability is gold.”
But if you don’t have a pension? Don’t worry — that’s where retirement savings come in. Accounts like 401(k)s and IRAs often fill the gap between Social Security and your actual cost of living. Social Security helps, sure, but Mahoney puts it plainly: “It usually won’t cover everything.” Think of it as the starting point, not the whole picture — it’s great for essentials like groceries and utilities, but you’ll likely need more for the rest.
That’s where dividends and interest income come into play. These returns from your investments give you extra breathing room — they’re great for fun stuff like travel, hobbies, or treating the grandkids without dipping into your savings too fast.
Working part-time has also become a go-to option for many retirees. It’s not just about the paycheck — though the extra cash is nice. It’s about purpose, structure, and staying active. Whether you’re consulting in your old field, picking up a side hustle, or doing something completely new, work in retirement can keep you sharp and socially connected.
And if you own rental property, that can be another solid stream of income — but it’s not passive magic. Mahoney cautions, “It sounds great on paper, but rental properties come with headaches — maintenance, vacancies, repairs. Be realistic and make sure it fits your lifestyle before you count on it.”
In the end, building a reliable income in retirement is like putting together a puzzle — Social Security, savings, investments, maybe some work or real estate. The more you diversify, the more control and peace of mind you’ll have. It’s not just about having money — it’s about knowing where it’s coming from, so you can focus on enjoying life.
How to Make Your Retirement Savings Last
Once you’ve saved up for retirement, the real challenge begins: figuring out how to make that money last. You’ve likely heard of the “4% rule” — it’s a popular guideline that suggests withdrawing 4% of your savings in your first year of retirement, then adjusting that amount for inflation each year. So, if you’ve saved $1 million, you’d take out $40,000 in year one, and slightly more in each following year to keep up with rising costs.
Sounds simple enough, right? But in today’s world of market ups and downs, longer life expectancies, and unpredictable inflation, many experts are recommending a more cautious approach. For 2025, a withdrawal rate closer to 3.7% is often seen as safer, especially if you’re planning for a retirement that could last 30 years or more.
Still, there’s no one-size-fits-all number. “The right withdrawal rate really depends on your personal situation,” says Ken Mahoney, CEO of Mahoney Asset Management. “If you’ve got strong income sources like a pension or rental income, or if your investments are doing well, you might have more wiggle room. But for others, sticking to a 3%–4% range may be essential — especially early on.”
His biggest advice? Stay flexible. The 4% rule is just a starting point. Each year, take a fresh look at your spending needs, market conditions, and portfolio performance. Some years you may pull back a little, others you may afford to take out more. That kind of smart adjusting helps you avoid running out of money during rough market patches — and helps you enjoy your retirement more during the good years.
Another key strategy is thinking carefully about where your withdrawals come from. A tax-smart withdrawal plan can help your money last a lot longer. Here’s a general rule of thumb:
✅ Start with taxable accounts — You’ll pay capital gains taxes, but this gives your tax-deferred accounts more time to grow.
✅ Next, tap into tax-deferred accounts like traditional IRAs or 401(k)s — These are taxed as ordinary income.
✅ Save Roth accounts for last — Let those tax-free investments grow as long as possible.
Mahoney also recommends looking into Roth conversions in lower-income years to create more tax-free income down the road. And don’t forget strategies like tax-loss harvesting to offset gains and reduce your tax bill.
One common mistake? Getting too conservative too early. “Don’t move everything into low-growth investments just because you’ve retired,” Mahoney warns. “You still need your money to grow — inflation doesn’t stop when you stop working.” Keeping a portion of your portfolio in growth assets — like stocks — can help your savings keep pace with rising costs.
In the end, the key is balance: stability for the short term, and growth for the long haul. That’s how you give your retirement paycheck the best shot at lasting — not just for 10 or 20 years, but for however long you need it.
Plan for Required Minimum Distributions (RMDs)
Once you turn 73, the IRS says it’s time to start pulling money out of your traditional IRAs and 401(k)s. These mandatory withdrawals are called required minimum distributions (RMDs) — and yes, they’re taxable. If you forget to take them or don’t take out enough, you could face a pretty steep penalty — up to 25% of what you should’ve withdrawn.
That’s why planning ahead for RMDs is so important. It’s not just about avoiding penalties — it’s also about managing your tax bill and keeping your Medicare premiums from unexpectedly jumping.
Here’s a common example: Let’s say you wait until the required age to touch your tax-deferred accounts. When RMDs kick in, the withdrawals could suddenly bump you into a higher tax bracket, especially if you’ve got other sources of income. But if you start taking smaller withdrawals earlier — or do partial Roth conversions in your 60s or early 70s — you can spread the tax impact out over time and keep things more manageable.
Plan for Sequence of Returns Risk
When the stock market drops right as you’re stepping into retirement, it can really mess with your game plan — especially if you’re pulling money from your investments at the same time. This is known as sequence of returns risk, and it’s one of the sneakiest threats to your nest egg. If you’re forced to sell during a downturn, you lock in those losses, and it can be tough for your portfolio to recover.
A good way to guard against this? Set aside a year or two of essential expenses in cash or something ultra-safe, like short-term bonds. That cushion gives you breathing room so you’re not stuck selling stocks when the market’s having a bad day (or year).
Take the 2008 financial crisis, for example. Retirees who had a cash reserve didn’t have to panic-sell at the bottom. They let their stocks sit, waited for the market to rebound — and came out in much better shape.
The bottom line? A little planning up front can save you a lot of stress later. Having that safety buffer means you can ride out the rough patches without derailing your retirement.
Use Dynamic Spending Strategies
Instead of sticking with a rigid 4% rule, a dynamic spending approach allows you to adjust withdrawals up or down depending on market performance. You might cut spending by 5–10% in years when markets decline, then enjoy a little extra in good years.
Example: One strategy is the “guardrails” method, where you keep withdrawals between upper and lower limits tied to portfolio value.
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Account for Unexpected Expenses
Retirement is full of surprises, from a new roof to medical emergencies or family needs. Build a cash reserve or emergency fund apart from your regular spending plan to handle these shocks without disrupting your long-term portfolio.
Example: Keep $10,000–$20,000 in a high-yield savings account dedicated to unplanned expenses.
Include Inflation Hedges
Over a 30-year retirement, inflation can quietly erode your purchasing power. Consider including assets that historically outpace inflation, such as dividend-growing stocks, real estate, or Treasury Inflation-Protected Securities (TIPS).
Example: A retiree with 30% of their portfolio in dividend-growth stocks might better maintain purchasing power over decades than one holding only bonds.
Factor in Legacy or Gifting Goals
If you want to leave money to family or charity, factor that into your withdrawal plan early. This helps you balance enjoying your money while alive with fulfilling your legacy wishes.
Example: A charitable remainder trust (CRT) lets you receive income during your lifetime while guaranteeing gifts to a charity later.
Rebalance Regularly
Rebalancing means adjusting your portfolio back to its intended asset mix at least once per year. It helps control risk, especially after big market swings.
Example: If stocks grow faster than bonds, you may end up too heavily weighted in stocks; rebalancing trims that back to your target.
Plan for Cognitive Decline
No one likes to think about mental decline, but it’s smart to plan ahead. Set up powers of attorney, update your estate documents, and simplify your accounts while you’re still fully capable.
Example: Consolidating scattered retirement accounts into one IRA makes them easier to manage later.
Review Fees and Costs
Small investment fees can quietly drain your nest egg. Periodically review expense ratios, advisor fees, and trading costs to make sure they don’t erode your long-term returns.
Example: Reducing a portfolio’s average fees from 1% to 0.3% could save tens of thousands over 20–30 years.
Run Worst-Case Scenarios
Stress-testing your retirement plan against pessimistic assumptions — like prolonged market declines, higher inflation, or a long-term care event — helps ensure your plan is truly resilient.
Example: Use a financial advisor’s software to test what happens if you need nursing home care for five years, or if the market drops 30% early in retirement.
CONCLUSION
At the end of the day, retirement isn’t just about saving enough—it’s about feeling secure enough to enjoy the life you’ve imagined. Building your own retirement paycheck gives you that sense of comfort. When you know your bills are covered, your lifestyle is protected, and you still have room for the fun things that make life meaningful, the stress lifts. By mixing steady income sources with flexible strategies, you can turn your savings into a plan that works month after month. And that’s what real peace of mind looks like in retirement: the freedom to focus on living, not worrying.