Turn your savings into a paycheck that lasts

A common way to think about retirement income is in layers. The base is income that is guaranteed for life and does not depend on markets. On top of that sit the more flexible sources you control — and, for many people, a little extra from work or other assets.

• Guaranteed income comes first. Social Security and any pension form a floor that pays for life and, in the case of Social Security, rises with inflation. Many plans aim to cover essential spending — housing, food, healthcare — from this layer alone.
• Portfolio withdrawals do the heavy lifting. Withdrawals from your 401(k), IRA and brokerage accounts usually fund the gap between guaranteed income and the life you actually want. This layer is flexible and can grow, but it rises and falls with markets.
• Other income fills the rest. Part-time work, an annuity bought to top up the guaranteed floor, or rental income can round out the picture — useful in the early years, or to bridge the gap before Social Security starts.

The best-known starting point for sustainable withdrawals is the 4% rule: draw around 4% of your portfolio in the first year of retirement, then adjust that dollar amount for inflation each year after. It comes from historical US market data and was only ever meant as a rough guide for a roughly thirty-year retirement.

• It is a rule of thumb, not a rule. The 4% figure is a historical benchmark, not a promise about your own retirement. Future returns, how long you live, fees and your tax position all move the real number, and it says nothing about any specific outcome.
• Advisers tend to make it dynamic. Rather than spend the same inflation-adjusted amount whatever happens, many advisers flex withdrawals with markets — trimming a little after a poor year, taking a little more after a strong one — which can let a portfolio last longer or support more spending.
• Guardrails and a cash buffer. Setting upper and lower spending limits, and holding a year or two of spending in cash or short bonds, lets you avoid selling investments into a downturn — the practical defence against the sequence-of-returns risk shown above.

Most retirees hold money across taxable, tax-deferred and Roth accounts. The order you draw them down affects how long the money lasts and how much tax you pay along the way. A broad, frequently cited default looks like this — though the right answer depends on your own tax picture.

• Taxable accounts first. Spending brokerage savings early often means realising long-term capital gains, which are generally taxed more lightly than ordinary income. It also leaves your sheltered accounts to keep compounding.
• Tax-deferred next. Drawing from a 401(k) or Traditional IRA next spreads that ordinary-income tax across more years, and starts to draw the balance down before required minimum distributions force larger withdrawals later.
• Roth last. Leaving Roth money until last lets the one pot whose growth is tax-free compound the longest, and gives you a tax-free source to draw on in years when an extra withdrawal would otherwise push you into a higher bracket.
• Why the order is only a starting point. A purely sequential approach can waste low-tax years. Blending sources — filling up a low bracket from tax-deferred accounts, then topping up from Roth — often beats draining one account type before touching the next.

Two risks shape almost every retirement income plan because they compound slowly and are easy to underestimate: living longer than you planned for, and the steady erosion of what your money buys.

• Longevity risk. A couple retiring at 65 has a reasonable chance of one partner living into their 90s. Planning to a realistic age rather than average life expectancy is what stops the other risks — a market drop, a few years of high inflation — from turning into outliving your money.
• Inflation risk. Even modest inflation steadily reduces purchasing power over a long retirement. Income that does not grow buys a little less every year, which is part of why an inflation-linked source like Social Security is so valuable as the base layer.
• They magnify everything else. Longevity stretches your plan over more years, and inflation raises the bar each one — so both make sequence-of-returns risk and healthcare costs matter more. Income that lasts is built to absorb all of these together, not one at a time.

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