How to Turn Retirement Savings into Retirement Income

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Over the years, we’ve had a number of clients ask us how to turn their retirement savings into retirement income. While this may not answer every question about your particular situation, these are some of the key concepts to guide the conversation.

Take Stock of Your Retirement Savings

You may be wondering what, precisely, qualifies as retirement savings. That’s probably because retirement savings portfolios can (and often should) be composed of a diverse array of assets, from plans to accounts to much, much more.

For many Americans, a 401(k) is a primary way of saving for their future.

It’s a tax-advantaged saving plan that allows employees to make pre-tax contributions and employers often match some or all of the contributions. Other common tax-advantaged savings accounts include IRAs, 403(b)s, 457s, college saving plans, annuities, and municipal bonds.

There are also a number of other financial vehicles that can be used for retirement savings including a bank, brokerage account, or health savings accounts.

While this isn’t exhaustive of all the financial vehicles that can be used for retirement, each comes with its own set of rules, which can be complex and should guide your transition strategy. For example, you’ll need to consider how money will be taxed when you make withdrawals from each account for retirement income.

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Prepare to Transition to Retirement

Financial decisions are quite different before retirement than at retirement. Early in an investor’s career, arguably the two most important decisions were 1) Will I save for retirement? and 2) How much?

As retirement draws closer, decisions are vastly more complex and also have heavier consequences. With investors that have saved rigorously, choices and mistakes can be serious and overwhelming. That’s why it’s important to have a retirement income plan.

One of the most important decisions you’ll encounter as you formulate your plan will be how to turn your retirement savings into retirement income. Understanding the various rules can help you determine when to convert savings to income, how much savings to convert, and from which vehicles you should withdraw. All of these factors must be considered to achieve and maintain your desired retirement lifestyle and goals.

Rollover Accounts

There are a wide variety of reasons to move from a 401(k) to an IRA during retirement such as:

  • Greater investment choice and control
  • Professional money management
  • Access to comprehensive planning
  • Simplification
  • Distribution and income planning

Many Americans transition from a 401(k) to an IRA when they leave an employer or transition into retirement, but that doesn’t mean they do it without hiccups or mistakes. As always, not every strategy works for every person, and this approach should be avoided in some cases.

We suggest working with a financial professional to assist you as there are many rules and there can be unintended consequences.

Create Retirement Income

As you finish working and retire, we recommend a three-bucket approach to replacing your paycheck income. We’ve been using this process for thirty years and have seen it work from the beginning of retirement until the end of life.

Using this process, money is divided into three separate buckets, which are differentiated by when you may need them to supplement your income: short-term, mid-term, and long-term.

Start by determining your guaranteed income sources of cash flow during retirement, which include Social Security, pensions, and annuities. Depending on your income gap needs, short-term money that is needed within 1-3 years can be allocated to bucket one.

The mid-term bucket holds money that isn’t needed for 4-6 years and the long-term bucket is for money that isn’t needed for more than 7 years.

To understand this process more in depth, see our article on Retirement Income Planning and the Bucket Strategy.

Develop a Withdrawal Strategy

Unfortunately, there isn’t an easy answer to creating an effective withdrawal strategy that applies to everyone, as each family’s goals and circumstances are different. When working with clients one-on-one, we’ve found that analyzing and then developing a customized approach provides the best long-term solution.

Here are specific items to consider when developing a withdrawal strategy:


How will your investments be taxed? Depending on your retirement situation, it is important to determine whether income is pulled from tax-free, tax-deferred, or taxable accounts. For example, tax-deferred vehicles, such as IRAs and 401(k)s will be taxed as ordinary income when money is withdrawn. (Be aware that before age 59 ½ there is a 10% penalty in most cases).

Liquidating Investments

Often, your investments will need to be liquidated to free up cash. Which investments will you sell to create the cash? There can be a myriad of decisions to weigh with this question. From only a tax perspective, if your investments are in taxable accounts, be aware that you’ll create either a short or long-term capital gains event. As mentioned above, tax-deferred accounts will be taxed as ordinary income in most cases.


Do you want to pull money out monthly, quarterly, or annually? Each type of investment account may have strings attached, which could impact how often you would want to take a withdrawal.

Additional Investments

Depending on a client’s risk tolerance, it can be wise to set aside funds for growth-minded investments. However, this should only be done with funds that you won’t need to withdraw in the near future. That way, your investments have a chance to grow and can weather any market downturns.

Phases of Retirement

We call the first ten years of retirement the go-go years. These are years when you have the greatest chance of health and energy. You’ll then transition into the slow-go years. These years are often characterized by continued mobility but reduced interest in travel and new experiences. The final stage is the no-go years when most retirees elect to spend most of their time close to home.

Tailoring a withdrawal income strategy to support the different needs and priorities you’ll have throughout these stages should be an important part of your withdrawal strategy. Specifically, you should plan to make the most of the go-go years and create great experiences with those you love, such as travel, vacations, and adventures.

Creating Experiences

Our process is called the DREAM Experience, as retirement is about much more than just the money. However, good planning is often necessary so that you have confidence to spend the money on those retirement experiences you’ve dreamed about.

A good retirement income withdrawal strategy is vital, so you have the confidence to create the retirement you’ve dreamed of.


Accumulating retirement savings and understanding each financial vehicle’s strengths and weaknesses will give you the foundation to plan your retirement income.

As you transition into retirement, the three-bucket planning process can assist you in creating retirement income, minimizing taxes, and managing the risk of your investments.

Lastly, as you put your withdrawal strategy in place, weigh the complexities of each decisions, such as taxes, liquidating your investments, the phases of retirement, and having fun!

Our team at Advanced Retirement Strategies specializes in helping diligent savers in Utah with $250,000 or more of investment and retirement assets (not counting your primary residence) create and implement income plans to help them prepare for and then transition into retirement. We would love the opportunity to assist you. Just go to the get started page and set up a free 15-minute quick consult so we can get to know if our expertise matches your needs.


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