How to plan for retirement income

As you near retirement, one question likely stands out: Will I have enough income? Here’s how to find the answer and plan accordingly.

3.5 min read

Summary

  • If you have a spouse or partner, it’s important to align on your goals for retirement; an objective advisor can help.
  • Income diversification can be just as important as portfolio diversification in protecting you from running out of money.
  • Fixed annuities can be a powerful instrument for generating consistent, lifelong income during retirement.

Will you have enough income?

As you approach retirement, one question likely stands out: Will I have enough income to maintain my current lifestyle and feel secure? Finding the right answer can be challenging. The future is inherently unpredictable, so there is no universally appropriate saving strategy. A sudden decline in health or unexpected change in tax laws can waylay even the best-laid financial plans.

While a one-size-fits-all solution may not exist, Shelly-Ann Eweka, CFP®, ChFC®, senior director of the TIAA Institute and an experienced financial planner, offers valuable advice for finding the right strategy. Below are the steps she suggests taking to create an income plan and gain peace of mind as your retirement nears.

Work with a financial advisor to determine your income needs.

An experienced financial advisor can guide you through the process of determining how much income you'll need in retirement. Typically, this involves calculating your preretirement income and estimating the proportion required during retirement, often between 70% and 100%, according to Eweka.

Importantly, if you have a spouse or partner, this process should also include aligning your goals for retirement (e.g., buying a boat, taking vacations, etc.), which tends to go more smoothly when facilitated by an objective advisor who has experience helping couples navigate such discussions.

An advisor can also help you leverage technology to estimate your cash flow more accurately. For example, TIAA advisors help clients using a tool called 360° Financial View. As Eweka explains, “I can ask you how much you spend, but I can almost guarantee you're going to leave off at least 30%.” The 360° tool provides a consolidated view of your net worth and spending, serving as a reality check to prevent clients from underestimating their income needs.

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Diversify your income sources.

Many of us understand the concept of portfolio diversification—owning a mix of various investments like bonds, stocks and real estate to safeguard and grow our assets. The idea of income diversification, on the other hand, may be less familiar. While less understood, income diversification can be powerful at shielding retirees from the risk of running out of money. The strategy generally involves blending the following income sources:

  • Social Security, which almost never provides enough income on its own
  • Lifetime income from pensions, fixed annuities and variable annuities
  • Portfolio withdrawals from your retirement and other investment portfolios

The ideal balance of income sources largely depends on your unique circumstances. Not everyone has a pension, for instance. However, as a general guideline, about two-thirds of your retirement income should originate from Social Security and lifetime income sources, according to Eweka. This mix helps effectively mitigate the risks associated with retirement, including market volatility, interest rate fluctuations, outliving your assets (a.k.a. longevity risk) and cognitive decline (which can impair financial decision-making).

Diversified income sources

A diversified income strategy helps protect against the risks of running out of money in retirement.

Consider fixed annuities for guaranteed retirement income.

Fixed annuities provide a guaranteed minimum interest rate on your contributions. Upon retirement, they can be "annuitized,” or converted, into regular, monthly payments. In this setup, the risk that you'll outlive your annuity's value is managed by the providing company, not you. Consequently, fixed annuities can be a powerful instrument for generating consistent, lifelong income during retirement, thereby alleviating financial stress. As Eweka describes, “For many, it improves their quality of life, as the emotional stress of constantly worrying about running out of money is mitigated. The guaranteed payment provides the freedom to spend, enabling them to enjoy their hard-earned savings more.”

Still, you might question what occurs if you pass away sooner than expected, potentially missing out on the full benefits of annuitization. Eweka explains that with"TIAA’s Traditional fixed annuity,1 there are options for providing payments that continue for the lifetime of your spouse or go to a designated beneficiary (including an estate or trust) for a specified period of time (e.g., 20 years). Eweka also highlights a more tailored solution for nonspouse beneficiaries for the particular risk of premature death: life insurance. A financial advisor can guide you through the advantages and disadvantages of these strategies in your specific context.

Plan your retirement withdrawal strategy.

Your withdrawal strategy in retirement should consider your total assets, the amount you need to withdraw each year to meet spending needs, and the tax implications of withdrawals from different accounts. This can get complicated quickly. A financial advisor can help you navigate these factors and develop a withdrawal strategy that maximizes your income while minimizing your tax liability.

Start planning for retirement security now.

Planning for retirement income doesn’t need to induce stress. By understanding your income needs, diversifying your income sources, and planning ahead for tax-efficient withdrawals, you can set yourself up for a secure and comfortable retirement. It's never too early to start planning.

Schedule a meeting with a TIAA financial advisor today to build your retirement income road map.

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1TIAA Traditional is issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY.

Any guarantees under annuities issued by TIAA are subject to TIAA’s claims-paying ability.

Annuity contracts may contain terms for keeping them in force. We can provide you with costs and complete details.

TIAA Traditional is a fixed annuity product issued through these contracts by Teachers Insurance and Annuity Association of America (TIAA), 730 Third Avenue, New York, NY, 10017: Form series including but not limited to: 1000.24; G-1000.4; IGRS-01-84-ACC; IGRSP-01-84-ACC; 6008.8. Not all contracts are available in all states or currently issued.

The TIAA group of companies does not provide tax or legal advice. Tax and other laws are subject to change, either prospectively or retroactively. Individuals should consult with a qualified independent tax advisor and/or attorney for specific advice based on the individual’s personal circumstances.

The views expressed in this material may change in response to changing economic and market conditions. Past performance is not indicative of future returns.

This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.

Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity and may lose value.

Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser. TIAA-CREF Individual & Institutional Services, LLC, Member FINRA, distributes securities products.

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