Saving gets you to retirement. Income planning decides whether the money lasts once you’re there, and the accounts you fund in your 20s and 30s decide how many options you’ll have.
You’ll spend 30 or 40 years putting money into retirement accounts. Most people never think about how it comes back out until the paychecks stop. That second half is income planning. It’s where taxes, market drops, and spending habits can quietly drain a plan that looked fine on paper. You don’t need the full playbook yet. But the decisions you make now set the rules you’ll play by later.
What Is Income Planning?
Income planning is the strategy for paying yourself once you stop working. You flip the switch from saving to pulling. A good income plan decides how much you need, which accounts it comes from, in what order, and how to keep taxes and market swings from eating into it.
When I build one with a client, taxes come first. Market risk comes second. Most retirees pull from a mix of Social Security, maybe a pension, investment accounts, and cash. Each one is taxed differently, and each one behaves differently when the market drops.
How Is Income Planning Different From Saving for Retirement?
Saving fills the buckets. Income planning decides how you empty them. Most people run the first part on autopilot and skip the second one entirely.
Here’s the pattern I see. Someone saves for 30 years into a traditional 401(k) and arrives at retirement with one large untaxed bucket. Every dollar they pull out gets taxed as income. Nobody knows what tax rates will look like in 20 years, and they’ve left themselves no other bucket to pull from.
What Does Running Out of Money Actually Look Like?
It usually starts with bad timing or slow leaks. The biggest timing risk is called sequence of returns. If the market drops early in your retirement while you’re pulling income, you’re selling shares at a loss, and those dollars never get the chance to recover.
Here’s the math on two hypothetical retirees. Both start with $1 million. Both pull $50,000 a year. Both get the exact same three annual returns. Only the order is different.
| Year | Retiree A (drop comes first) | Retiree B (drop comes last) |
|---|---|---|
| Start | $1,000,000 | $1,000,000 |
| Year 1 | -40%, then withdraw → $550,000 | +20%, then withdraw → $1,150,000 |
| Year 2 | +10%, then withdraw → $555,000 | +10%, then withdraw → $1,215,000 |
| Year 3 | +20%, then withdraw → $616,000 | -40%, then withdraw → $679,000 |
Hypothetical illustration only, with withdrawals taken at year-end. Not a projection of any investment’s performance.
Same returns. Same withdrawals. Retiree A ends up $63,000 behind, and that gap keeps compounding for the next 20 years. Without any withdrawals, both portfolios would land at exactly $792,000. Order only hurts when you’re pulling money out, which is why retiring in 2008, right before a roughly 40% decline, was so painful for so many people.
The slow leaks are more personal. Fortunately, it’s not common among our clients. But when someone is at risk of outliving their money, it’s usually overspending, and most often that means gifting to the kids and helping out the grandbabies. Sometimes it’s a scam, like a romance scam that takes a large sum at once. My colleague Wayne Maslyk, GLB’s founder, will tell a client directly when their spending is going to run the account dry.
What’s One Income Mistake You Can Avoid Starting Now?
Carrying debt into retirement. I saw it again recently. If you’re paying $1,000 a month on old student loans at 66, that’s $12,000 a year going toward something you already lived. If that money comes out of a traditional IRA, you’d need to pull about $13,600 to net $12,000 in the 12% federal bracket, before Ohio tax. Paying it down while you’re still earning keeps your retirement income working for the life you’re living now.
What Does an Income Plan Look Like at Great Lakes Benefits?
It starts with a real number. We go line by line through an expense sheet so we know what your life actually costs. Then we build income streams designed so they don’t depend on whether the market is up or down that year. A lot of people chase dividend stocks for income, but those still swing with the market, and companies can stop paying dividends. Where it fits, we prefer income sources backed by contractual guarantees.
We typically map the plan out about 20 years, often from 65 to 85, and keep it flexible. Here’s how that looks for a hypothetical client with $750,000 saved:
- $500,000 is earmarked to fund the planned income from 65 to 85.
- $250,000 stays invested as a reserve for the roof, the car, and whatever else life throws at you.
- Whatever’s left at the end either passes to the kids or covers a longer life.
That’s usually the eye-opening moment. People see that they have enough, plus extra.
The personal side is what a robo-advisor misses. Do you want to leave an inheritance? Does a grandchild need a special needs trust? Is an inheritance coming your way that we shouldn’t count on yet? Spending isn’t flat, either. It tends to run higher early in retirement, when you’re doing everything you waited for, and taper off later.
We revisit the plan at least once a year, and any time life changes in a big way, like a spouse getting sick, moving into long-term care, or passing away. Every review includes the same question: are you holding back on things because you think you can’t afford them? As Wayne tells clients, let me tell you what you can afford. Emotions cloud that judgment.
What Should You Do About Income Planning in Your 20s and 30s?
You don’t need a withdrawal strategy yet. You need two things: a rough idea of when you want to retire, and money in more than one bucket. Your target age tells you how much to save. Multiple buckets give you flexibility when it’s finally time to pull.
Work backward from that target age. Retiring early takes diligent saving up front, and it takes the right buckets, because some of them stay locked until your late 50s or early 60s.
| Bucket | Taxed going in? | Taxed coming out? | When you can use it |
|---|---|---|---|
| Pre-tax (401(k), traditional IRA) | No, it lowers your taxable income now | Yes, every dollar as income | Generally age 59½ to avoid the 10% penalty |
| Roth (Roth IRA, Roth 401(k)) | Yes, you pay the tax now | Qualified withdrawals are tax-free | Roth IRA contributions anytime; earnings after 59½ and five years |
| General investment (brokerage) | Yes | Only the gains, often at lower capital gains rates | Anytime |
| Social Security | Payroll taxes along the way | Partly, depending on your income | Age 62 at the earliest |
Now picture retiring at 55 with everything in pre-tax accounts. You’re generally four and a half years from penalty-free access and seven years from Social Security. A general investment bucket, plus Roth contributions you can reach, is what bridges that gap. It’s never too late to improve your situation, but setting this up is easiest while your balances are still small.
Can Everyone Retire When They Want To?
No, and we’ll tell you if the math doesn’t work. It’s a hard conversation, but it beats saying yes and watching someone go back to work 10 years later. The surprise goes the other way too. Plenty of people come in planning to work until 67, and we show them they could retire now. Sometimes a pension and Social Security bring in $6,000 a month when their paycheck is $5,000.
What’s Your First Move?
If every dollar you’ve saved sits in one pre-tax bucket, open a Roth IRA and put $50 a month into it. That’s the start of the flexibility your future self gets to use. If you’re a few years from retirement, or your parents are, get a second set of eyes on the income side before the paychecks stop, ideally at least a couple of years ahead. Getting started beats getting it perfect.
