Wealth Insights

Retirement income planning: How to retire on your own terms

Explore your ideal version of retirement and calculate the income it will take to fund it.

When you think of retirement, what do you picture? Do you want your home to be paid off? Do you want to travel or volunteer in the community? Diving into these details will help you with retirement income planning that is customized to your needs and desired lifestyle.

There is no such thing as a one-size-fits-all retirement income plan, because every retirement is different. However, there are risks to consider, as well as retirement income strategies that can help you make the most of your retirement savings.

Working with an advisor to create a financial plan that includes these nuances can help you face important decisions with confidence, both before and during retirement.

The risks to retirement income

Today, traditional pensions are increasingly rare, with only about 15 percent of workers in the private sector having access to them, according to the Bureau of Labor Statistics.¹

Another major source of retirement income is Social Security. However, government estimates show that it only covers around 30 percent of retirees' income on average.²

That means that the majority of people approaching retirement have money invested in the stock market through 401(k)s and IRAs and need to pay attention to certain types of investment risk that can impact money set aside for retirement.

• Timing risk: A market downturn right before retirement might lead to a shortfall in your portfolio. This could impact your retirement timeline and your income.
• Sequence-of-returns risk: Withdrawing from your portfolio during a market dip will likely lock in your losses and can quickly erode your savings. That means early-in-retirement market turbulence can have an outsized negative impact on people drawing down their portfolios. Simply put, the order of market returns matters greatly when you’re in the decumulation phase.

If you’re thinking of retiring soon but market volatility is giving you pause, the following are strategies that can help you moderate these risks and pursue your goals.

Dynamic withdrawals

A flexible approach to retirement income can mitigate some investment risks. In this strategy, you vary your spending to match the performance of your portfolio.

For example, a hypothetical retiree might increase spending when the market is up, checking items off a “bucket list” such as traveling, and decrease spending from the portfolio back to essentials when the markets are down, or perhaps taking advantage of an opportunity to work part-time to bring in extra income in this situation to maintain spending levels.

The less predictable spending that accompanies this strategy is not for everyone but has the potential to lessen the risk of running out of money in retirement.

A bucketing approach

The bucketing strategy leverages a cognitive bias called mental accounting, where specific pools of money are assigned subjective values – something like a Christmas savings account, where you’ve assigned a specific purpose for that money.

The bucketing approach for retirement income typically separates money designated for essential expenses, such as housing, health care and food, from money intended for more long-term goals, such as leaving an inheritance.

The money needed for essential expenses in the short- to medium-term would be invested in more conservative ways. This first bucket is where the retiree would pull their income needs from, and it would be regularly replenished by the other, more long-term bucket.

The funds that are earmarked for long-term goals would be invested in a diversified portfolio, allowing for more growth potential.

This strategy is designed to give investors the confidence of knowing that their income pulled from the short-term bucket will not be severely impacted by market dips and that there is time to recover from market swings in the long-term bucket.

Striving for a tax-efficient withdrawal strategy

Finally, an additional retirement income planning consideration: Tax efficiency. When you withdraw from your portfolio, you’ll want to ensure what you’re doing is tax-efficient.

When you withdraw from retirement accounts such as 401(k)s and traditional IRAs, the IRS treats that money as if it were part of a regular paycheck, and it’s taxed at your ordinary income tax rates. Keep in mind that owners of 401(k), traditional IRA, and SEP and SIMPLE IRA accounts must begin taking required minimum distributions (RMDs) by April 1 of the year in which they turn 73.

Roth accounts are handled differently, and sometimes these can be a valuable tool in a tax diversification strategy. You may have a mix of accounts, from taxable to tax-advantaged, that you can use in your customized approach.

In years that you are going to spend more — to buy a vacation home or fund your child’s wedding — you might want to dip into Roth IRAs, which provide tax-free withdrawals. In years that you spend less, you can take more out of accounts that are taxed more heavily, since you’re still likely to be in a lower tax bracket.

Your financial team, including your tax professional and advisor, can help guide you on how to smooth out distributions to maximize your resources.

Life on your terms

Many people get the investment jitters on the eve of retirement and want to pull their money from investments like stocks and instead put it into bank accounts and bonds. However, you don’t need your entire nest egg on the day you retire. You’ll be slowly drawing it down over the course of decades.

That’s why trying to eliminate all risk in your portfolio prior to retirement can create risks of its own. The most notable risk is that your investment returns might not keep pace with inflation, diminishing your buying power with each year that passes.

While headlines about market swings can cause anxiety, it’s crucial to maintain a long-term perspective. Volatility in the markets does not necessarily mean your best laid plans for retirement will be scrapped.

Plan to review your retirement income plan at least once a year. You’ll also want to review the plan after a major upturn or downturn in the markets or in response to a significant life change, such as leaving a job, receiving an inheritance or getting divorced.

Through proactive planning, you can create a resilient retirement income plan that is designed to withstand the test of time and fund retirement on your own terms.

Talk to your advisor at Regions about:

1. Calculating your retirement income and updating your plan.
2. Portfolio strategies that can help support your desired lifestyle in retirement.

Unsure of how to get started with retirement income planning?
Answer some questions through our wealth management guide to take the first step.

Interested in talking with an advisor but don’t have one?
Find a contact in your area.

Sources:
¹U.S. Bureau of Labor Statistics. “15 Percent of Private Industry Workers Had Access to a Defined Benefit Retirement Plan,” April 2024.
²Social Security Administration. “Social Security Fact Sheet,” January 2025.