Turning decades of savings into a retirement paycheck
A paycheck is a habit, and retirement takes it away. Rebuilding one is the first job of a retirement plan, and the order you build it in matters more than most people expect.
Most of the couples I meet have never spent from their savings. For thirty or forty years money went in and the balance went up, and the idea of reversing that feels wrong in a way that's hard to explain. The first thing I do is replace the vague anxiety with a number: this is what arrives in your checking account on the first of each month, and this is where it comes from.
Start with what's guaranteed
Social Security, a pension if you have one, maybe an annuity. These show up whether the market is up or down, and they're the foundation of the paycheck. For a lot of couples, guaranteed income covers somewhere between half and two thirds of what they spend. Knowing that number changes how the rest of the portfolio can be invested, because only the gap has to come from savings.
Then decide what the portfolio has to cover
The difference between spending and guaranteed income is the portfolio's job. I like to keep the next year or two of that gap in cash or something close to it, so that a bad market year never forces a sale at the wrong time. Everything beyond that stays invested for the decades you still have ahead of you.
Pull from accounts in an order, not at random
Three types of accounts, three different tax treatments. The taxable brokerage account is usually first, because selling long-held investments is taxed gently and it leaves the retirement accounts to keep growing. The traditional IRA comes next, with an eye on filling the lower tax brackets each year without spilling into the higher ones. The Roth is last, because tax-free growth is the most valuable thing you own and it's also the best thing to leave behind.
That order bends when the situation calls for it. In the gap years before Social Security, drawing more from the IRA on purpose, or converting some of it, can make sense. After required distributions begin, the IRA stops being optional. The point isn't a rigid rule, it's that each year's withdrawals are a decision with a reason behind it.
Make it boring
Once the sources are set, the paycheck should feel like a paycheck: a fixed deposit on the same day each month, raised a little each year for inflation, reviewed once a year and otherwise left alone. The illustration on the right builds one. Change the spending and the Social Security amount and watch how the portfolio's share, and the tax on it, moves.
A good retirement paycheck is one you stop thinking about. Getting there takes a few deliberate decisions up front.