Retirement Income Plan: How to Turn Savings Into Income

Most people spend decades focused on saving for retirement. They contribute to a 401(k), watch the balance grow, and measure their progress by a number.

What happens after that is less clear.

The transition from saving to spending is one of the more consequential shifts in personal finance, and one of the least discussed. Accumulating money and distributing money require different decisions, different strategies, and a different way of thinking about your financial life.

This guide covers the core components of a retirement income plan: what it is, what it includes, and what questions it is designed to answer.

How do I turn my retirement savings into income?

Turning retirement savings into income requires a plan that addresses four interconnected questions: how much you will spend, where the money will come from, in what order you will draw from different accounts, and how long the money needs to last.

A retirement income plan brings those questions together into a coherent structure. It is not just a savings target. It is a picture of what your financial life looks like on the day your paycheck stops, and a strategy for managing it from that point forward.

For most people, the income sources in retirement include some combination of Social Security, withdrawals from retirement accounts such as a 401(k) or IRA (Individual Retirement Account), pension income if applicable, and other savings or investment accounts.

What is a retirement withdrawal strategy?

A retirement withdrawal strategy is a plan for which accounts to draw from, in what order, and in what amounts, to fund retirement spending in the most tax-efficient way possible.

The order in which you draw from different account types matters because different accounts are taxed differently. Traditional 401(k) and IRA withdrawals are taxed as ordinary income. Roth IRA withdrawals are generally tax-free. Taxable brokerage account withdrawals may be subject to capital gains tax.

A common approach is to draw from taxable accounts first, then tax-deferred accounts such as traditional IRAs and 401(k)s, and preserve Roth accounts for last. However, the right sequence depends on your tax situation, your other income sources, and your goals. There is no universal rule that applies to every household.

Which accounts should I draw from first in retirement?

The answer depends on your overall tax picture, your income needs, and your estate planning goals. A few general principles apply.

Drawing from taxable accounts first can allow tax-deferred and tax-free accounts to continue growing. Managing withdrawals from traditional accounts to stay within lower tax brackets can reduce the total tax paid over a retirement. Roth conversions before required minimum distributions (RMDs) begin can reduce future taxable income.

Required minimum distributions are mandatory annual withdrawals from most tax-deferred retirement accounts, beginning at age 73 under current law. Failing to take an RMD results in a significant penalty. Planning around RMDs is an important part of retirement income strategy for most account holders.

How does Social Security fit into a retirement income plan?

Social Security is often the largest single income source in retirement for American households. According to the Social Security Administration, Social Security benefits represent about 30 percent of the income of older Americans on average.

When you claim Social Security affects your benefit amount significantly. Claiming at age 62, the earliest eligible age, reduces your benefit permanently compared to waiting until full retirement age (between 66 and 67 depending on birth year). Waiting until age 70 increases your benefit by approximately 8 percent per year beyond full retirement age.

For married couples, the claiming decision is more complex. Coordinating when each spouse files can meaningfully affect the household's total lifetime benefit. This decision connects directly to the withdrawal strategy: the longer you delay Social Security, the more you may need to draw from savings in the early years of retirement to bridge the gap.

How do I build a paycheck in retirement?

One way to think about retirement income planning is to reverse-engineer a paycheck. What does a reliable monthly income look like in retirement, where does it come from, and how do you make sure it keeps up with inflation and unexpected expenses?

A few components typically factor in:

• A Social Security income baseline, optimized for timing

• Systematic withdrawals from retirement accounts, managed for tax efficiency

• A cash reserve or short-term bucket to cover near-term expenses without selling long-term investments in a down market

• A plan for required minimum distributions beginning at age 73

• A strategy for handling sequence of returns risk, which is the risk that a market downturn early in retirement can have an outsized negative effect on long-term portfolio health

Building this structure before retirement begins, rather than figuring it out after the paycheck stops, is one of the most practical things a pre-retiree can do.

What keeps people from having a retirement income plan?

In our experience, most people who are approaching retirement without a formal income plan are not behind because they failed to save. They are behind on this specific piece because no one has walked them through it.

The accumulation phase of retirement planning has a clear metric: the account balance. The distribution phase is more nuanced, and the tools for thinking about it are less familiar.

A 2023 report from the Employee Benefit Research Institute found that a significant share of retirees reported spending more than expected in the first years of retirement, often due to healthcare costs and underestimated day-to-day expenses. Having a spending plan in place before retirement can reduce the likelihood of that kind of surprise.

Retirement Income Planning in Toledo, Ohio

At MPM Wealth Advisors, retirement income planning is one of the core conversations we have with clients in Toledo and Northwest Ohio. We help families build a clear picture of what their income looks like in retirement, how their accounts are structured to support it, and what the plan is if something changes.

If you are within five to ten years of retirement and you are still thinking about this in terms of a savings number rather than an income plan, that is a conversation worth having.

Ready to build a retirement income plan?

The savings number matters. But knowing how to turn it into income is what makes retirement feel manageable. If you are getting close and want to build that picture, we are here to help.

Schedule a conversation with the MPM team.