6 steps to keep your retirement income strategy on track

Managing your income and spending needs during your working years can be challenging. However, it becomes more complex when you retire and can no longer rely on the security of a regular paycheck. In addition, the money you do receive needs to support your lifestyle needs for several decades or more in retirement. Keep in mind, a 65-year-old man in the United States has a life expectancy of nearly 18 years, while a woman of the same age lives, on average, another 20 years.1

Yet, longevity is not the only risk to your income in retirement. Conditions beyond your control, including market volatility, taxes, inflation and unexpected expenses can all take a toll on your income over time. That makes it critical to put a strategy in place to help ensure that your income lasts as long as you need it.

Here are six steps that can help you manage your income needs in retirement with confidence now and in the future.

Step 1: Understand your retirement income options when conditions change

When market conditions fluctuate, you can choose to adjust your income strategy or stay the course. How you respond during an economic downturn can have a long-lasting impact on your retirement. For example, if you react too strongly to a drop in the market by selling many of your long-term investment assets, you might find it more difficult to meet goals down the road. That's because moving money out of equities during a downturn also locks in any losses and means you won't be able to take advantage of a potential market rebound.

"When the market is in flux, you want to avoid drawing down on long-term assets, which are assets you don't intend to use for three to five years or longer, or reduce drawing down from assets that have greatly declined in value," says Dan Keady, Chief Financial Planning Strategist for TIAA Individual Advisory Services.

Step 2: Consider waiting until age 72 to begin taking RMDs

Uncle Sam does not require you to start taking required minimum distributions (RMDs) from tax-deferred retirement accounts, such as 401(k)s, 403(b)s or IRAs, until you reach age 72. This was recently increased from age 70½ by the passage of the SECURE Act in 2019. If you are under age 72 and able to cover your everyday expenses and meet your short-term goals without dipping into your retirement accounts, your savings will have additional time to grow, tax-deferred. Learn more about RMDs.

Step 3: Make sure your investment mix is aligned with your goals and risk tolerance

Your asset allocation—how you distribute your investments dollar across different asset classes, such as stocks, bonds and cash—plays a significant role in determining your risk exposure. Typically, the greater the allocation to equity (stock market) investments, the more risk your portfolio is subject to. While decreasing equity exposure may help reduce market risk, moving too far into bonds and cash might make it more difficult to meet your investment growth goals, while also exposing you to inflation risk. That's because a strategy that's too conservative may not keep up with inflation over time, which can be damaging to your long-term withdrawal strategy. A well-diversified portfolio may help mitigate some of these risks.2

One way to think about your asset allocation is through the lens of “investment buckets.” With this segmentation strategy, you could divide your assets into different levels of risk to help reduce your overall exposure to market risk. One bucket may hold cash or fixed-income investments to produce income and preserve principal in the near term, while another may hold more aggressive investments to pursue growth over a longer period. Your financial professional can help you determine the right mix of investments to help you pursue your goals while keeping your savings as safe as possible.2

Step 4: Consider your sources of guaranteed income

Guaranteed income, such as Social Security or a pension, should be the backbone of your retirement income strategy. It's money that you can count on month after month, no matter how long you live or how the market performs. If your investments, and therefore total assets, stumble in a bad economy, guaranteed income can help you maintain your current lifestyle. The more guaranteed income you have, the less you may need to withdraw from your investment accounts, enabling you to stay on track toward your mid- and long-range retirement goals.

If you anticipate a gap, you could consider converting some of your investment income into additional guaranteed income by purchasing a fixed annuity. For example, many recent retirees who are delaying their Social Security benefits choose to cover their temporary income gap with a fixed annuity that pays them monthly guaranteed income until age 70, giving their investments and the value of their monthly Social Security benefits more time to grow.

If longevity is your goal, a lifetime income annuity can help ensure that you don't outlive your money, even if the market drops later in your retirement when recovering your investment value might be more difficult.3

Step 5: Determine your income strategy—but don't be afraid to adjust it over time

Based on how much guaranteed income you can expect and the amount of your annual RMD, you'll have a better idea of how much extra you may need to withdraw from your investment accounts to supplement that income and round out your budget in retirement.

Fixed withdrawals
One strategy is to withdraw a fixed amount, somewhere around 4%, from your portfolio each year, to minimize the possibility of running out of money. This 4% figure typically includes your RMD for the year. This offers the flexibility to control and change the amount and frequency of your income. However, temper that flexibility with caution in managing your withdrawal amount so as not to increase the risk of outliving your assets.

Three things to consider regarding fixed withdrawals:

  • If your portfolio is vulnerable to market volatility and the market goes down, you may have a significantly smaller amount to withdraw from in the future.
  • Your income requirements from one year to the next are not likely to be as consistent as your withdrawal plan.
  • As inflation rises, you may need to withdraw more money to cover increasing costs over time.

Fixed, systematic withdrawals might make the most sense if you need income for a limited period, like when working part time or waiting to receive other income, such as Social Security. If you are working, your workplace plan may allow you to set up systematic cash withdrawals and receive payments monthly or annually.

Interest-only withdrawals
Another strategy is to keep your principal intact and only withdraw your interest earnings to supplement other sources of retirement income. That means you may have more income when the markets perform well and less income when they perform poorly.

For investors who hold fixed annuities in their retirement accounts and want to take withdrawals between the ages of 55 and 71, it's possible to receive only the interest from the account as income, without drawing from the principal balance, until minimum distributions are required at age 72. The interest-only withdrawal strategy may be a viable option as you transition from your job or are waiting on other sources of income, such as Social Security, to begin.

Step 6: Determine whether consolidating your accounts will help you

If you have retirement or other financial accounts at multiple financial service providers, there may be benefits to consolidating several or all of them. You could consolidate multiple retirement accounts into one IRA, for example. Many people find it easier to manage their portfolio and retirement income by working with only one provider because it gives them a more complete picture of all their assets.4 This can be especially helpful when navigating the complexities of a volatile market and evolving federal rules.

Consider seeking the guidance of your financial professional and tax advisor before consolidating assets to make sure the process eliminates as many potential fees or penalties as possible. Your advisors can help you review all of your options and the advantages and disadvantages of each.

Remember, it's never too late to create or revise your retirement income plan and withdrawal strategy. Knowing what your retirement lifestyle will cost each year and how you will cover those expenses with withdrawals can help you better enjoy the years ahead—no matter what surprises they might have in store.

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1“Vital Statistics Surveillance Report,”  The National Center for Health Statistics (NCHS), February 2021.

2Please note that there is no guarantee that asset allocation reduces risk or increases returns.

3Any guarantees are backed by the claims-paying ability of the issuing company.

4Before consolidating assets, be sure to carefully consider the benefits of both the existing and new product. There will likely be differences in features, costs, surrender charges, services, company strength and other important aspects. There may also be tax consequences or other penalties associated with the transfer of assets. Indirect transfers may be subject to taxation and penalties. Speak with a TIAA consultant and your tax advisor regarding your situation.

This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances. 

Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser