Create a replacement income in retirement

5 steps that will help take the guesswork out of funding it all

You've spent years putting away money so that, one day, you'll be able to retire. Now that time is near. What you've saved is no longer a nest egg—it's the source to fund your vision of retirement. And you can turn your savings and investments into a source of steady, monthly retirement income with a detailed income plan.

1. Picture your lifestyle

First, think about the lifestyle you want in retirement.

This includes thinking through how you will spend your time in retirement, where you will live, what is most important to you, what your family will look like, what your preferences are, what concerns you have, etc. Discuss these important topics with your partner to make sure you both have a clear understanding of how you both feel about them and how you prioritize them.

2. Determine your expenses and how much your lifestyle will cost

Some people aim to replace between 70% and 100% of the income they received while working; your exact retirement cash flow needs will depend on your lifestyle goals and personal situation. To get a better estimate, start with a budget worksheetOpens PDF separating essential or everyday expenses from those that are more discretionary—separate the needs from the wants.

Calculate essential living expenses

Include the cost of essentials such as housing and household expenses, food and clothing, healthcare, transportation, insurance, taxes and loans.

Be realistic about discretionary expenses

Plan correctly and you can also indulge in the things you enjoy most. This may include travel, hobbies and clubs, socializing, volunteering, starting a business, or leaving gifts for the next generation.

Account for changes over time

Expenses may increase with inflation, or simply change with age. For example, more of your budget may be used for discretionary travel early on. But it may shift toward essential healthcare costs as you age.

3. Understand your monthly retirement income and make a plan

You may have multiple savings and investment accounts, plus Social Security. All can pay you back in retirement, but each works in different ways.

If you're within 10 years of retirement and you’re a TIAA plan participant, you can log in to use our Retirement Income Illustrator to explore your income options and learn how to help maximize your income payouts. You have been saving all these years. Do you know how much income you can generate?

If you're unsure about how to best utilize and combine various sources of income, a detailed income plan can help give you a sense of your estimated income and your anticipated needs. A good income plan will identify what combination of income choices is right for your current situation, and build in the flexibility for changes as your vision for retirement evolves. Here are the basics:

Estimate Social Security income

Along with Social Security, evaluate other sources of reliable income (such as employer-sponsored pensions). This could become the base of your "income floor" to cover budget essentials.

Consider covering gaps with income you can’t outlive

If existing sources of guaranteed income fall short of paying your expenses, consider using a portion of your savings to create lifetime income from an annuity to help bridge the gap.

Be smart about withdrawals

A dynamic approach to withdrawing from your investment portfolio may allow you to respond to changes in the market, and provide the flexibility and growth potential needed to cover discretionary expenses.

4. Pay attention to required minimum distributions (RMDs)

The age at which required minimum distributions (RMDs) must begin is now 73, up from age 72. In 2033, the age to start taking RMDs increases to 75. If you are taking a RMD for the first time, you have until April 1 of the following year to do so. If you were 72 in 2022 or earlier, you need to continue to take your RMDs. In 2023, the SECURE 2.0 Act also reduced the penalty from 50% to 25% for not taking an RMD or failing to take enough out of your retirement account.

5. Take taxes into account

To maximize tax advantages, consider drawing first from the savings in taxable investment accounts, leaving any earnings in the retirement accounts to be tax deferred (or in the case of Roth IRAs, potentially tax free).

The TIAA group of companies does not provide legal or tax advice. Please consult your legal or tax advisor.

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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.