6 steps to keep your retirement income strategy on track

Managing your income when you’re working is relatively simple, but it’s more complicated for retirees who don’t have the security of a regular paycheck to rely on. When you’re retired, you need a strategy that helps your money last—a 65-year-old man in the United States has a life expectancy of another 18 years, while a woman of the same age lives, on average, another 20.5 years.1
Factor in market volatility during uncertain times, and you may wonder how to keep your retirement goals in reach when economic conditions beyond your control challenge your income strategy.  
Here are six steps that can help you manage your retirement income strategy 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. 
“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 how RMD rules may impact your withdrawals

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.
Additionally, the CARES Act was passed in 2020 in response to COVID-19. Part of that legislation allows individuals who normally would be required to withdraw RMDs the ability to waive their 2020 distributions. The CARES Act also lets those who have already taken all or a portion of their 2020 RMD put it back into their account. There are different rules depending on the type of account that you drew from and that you’re trying to return dollars to. Skipping the 2020 RMD and returning distributions you’ve already taken will allow the accounts some extra time to recover from the recent market volatility. Learn more about the CARES Act and securing your retirement savings.

Step 3: Review your investment mix—adjust the balance only if necessary

Your asset allocation has a large impact on your retirement income stream throughout the length of your retirement. In times of market volatility, it’s important to keep your eye on your goals and how your allocation aligns with those. Retirees are smart to remember that while market downturns might cause immediate financial concerns, retirement income strategies are strengthened by long-term vision. 
While decreasing some equity exposure can reduce market risk, moving too far into bonds and cash might make it more difficult to get your savings and income back on track while also exposing you to inflation risk—that is, your investments might not keep up with inflation—which can be damaging to your long-term withdrawal strategy. A diversified mix may help mitigate some of the risk.2 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.
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 the value of your investments has dropped or you’re looking for a way to buffer your retirement income against future market volatility, you may want to revisit your budget to make sure your existing sources of guaranteed income will cover your basic living expenses. If you think they will, then you’ll want to decide if now is the right time to use withdrawals from your investment accounts to cover discretionary expenses, such as charitable giving. 
If you anticipate a budget 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 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.
  • Inflation may mean you need to withdraw more money as time goes on to cover increasing costs.
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. 
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. 
1“Life Expectancy at 65,” Organisation for Economic Co-operation and Development, 2018
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.