Do’s and Don’ts for Retirement Income

Plan Now. Live Now 

Prepare now and do a regular review to stay on the right track for the retirement lifestyle you want. 

  • DO know your sources of income: Social Security net deposit, Pension income (if you are lucky enough to have one) and any Deferred Compensation or Annuity income. Now list your other sources of supplementary income: investment accounts, bank balances, IRAs or 401k plan balances.
  • DON’T fixate on a “number” or total balance figure to achieve in those investment accounts and think that will set you up for life. This “need number” is a moving target.
  • DO know what you need to live on in retirement, and how long you want that income to last. We recommend assuming at least one person of a couple will live into his or her mid-90’s.
  • A Must Do “DO” of that exercise is to separate out your Wants from your Needs. Needs are basic living costs such as housing, food, utilities, notes payable – you know what I mean here. Your Wants are all the other things that make retirement wonderful – travel, entertainment, eating out, discretionary charges to your credit cards. Whether you are planning for retirement or you are already in retirement, this is an important discovery. Need is a moving target based on inflation, health, or family change of circumstance; “Wants” are those lifestyle expenses which can or must be cut or reduced in those years when distributions from your investment accounts should be pared back.

Knowing what you need to supplement the income which will be deposited monthly into your bank account should not exceed 4% of your total portfolio at the start of retirement. If this 4% withdrawal only covers your basic Needs, you should consult with a professional. Ask her how your plan can be adjusted when investments decline to the point where that same 4% does not give you your basic living needs. Inflation can also greatly alter retirement income plans: If your expenses grow by 5% and your total income from all sources does not cover your need, you will need to adjust somewhere. Our experience is that people will simply withdraw more. Beware here, excessive withdrawals create a downward spiral which you want to avoid at all costs.

If you have a lifestyle which is supported by a 4% withdrawal, but your Needs are covered by only 2%, you are in excellent shape to weather a market downturn. Your Wants come from the other 2%, and when necessary, you can delay travel or other discretionary spending until market conditions bring your portfolio balances back up to support both Wants and Needs without excessive withdrawals.

After a lifetime of investing and saving with an “Accumulation” strategy, transitioning to a new strategy of “Retirement Spending” may be difficult. Make no mistake, however, we all will have to transition to the new mindset. And it doesn’t matter how well prepared you may or may not be. We all have the same question: “Will I have enough?”.

Plan Now, but remember to review that plan regularly so as to be able Live Now. 


Linda P. Erickson, CFP® is a Registered Representative of Cetera Advisor Networks LLC, member FINRA/SIPC.

The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.