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  • Nancy Webb

Six Points to Consider Regarding Your Retirement Paycheck

Updated: Mar 18, 2023


"As your life changes, it takes time to recalibrate, to find your values again. You might also find that retirement is the time when you stretch out and find your potential." - Sid Miramontes, Retirement: Your New Beginning.


You have been saving money for your retirement for years. You have concentrated on saving as much as you can while also making sure you have chosen the correct asset allocation to maximize returns in a conservative manner.


As your retirement approaches, you assume that managing your money will get a bit easier. On the other hand, the retirement rules of money management will be different and will require an entirely different approach.


Please know that I am not qualified in any way to give Financial Advice. This post is a summary of my own research into managing my Retirement Funds. If you are not sure of how to manage your own Retirement Funds – I strongly encourage you to consult a Financial Advisor who is a fiduciary. If they are not fiduciaries, the advisor can earn commissions on sales, and they are legally entitled to put your interest LAST! AARP is an excellent source of information regarding Retirement Financial Advisors.



"People who complain about paying their income tax can be divided into two types: men and women." - Anonymous


1. Taxes. When you are working, taxes can be an invisible expense as they are often deducted from your paycheck. After Retirement, you will still pay Annual Income Tax on your Social Security, 401K Withdrawals, Roth Conversions, Pensions, Capital Gains, Interest Income, and other sources such as part-time job wages. Tax Rates will range depending upon your income from 10% - 37%. To calculate your estimated tax payments, you can use the IRS Worksheet Form 1040 ES. If you are not doing automatic withholdings on taxable income, you could consider paying quarterly tax payments.


2. Retirement Income Planning. Below are two popular strategies that will provide an outline of how you get your money from your Retirement Stash to your Checking Account for monthly expenses. There are other approaches such as going the Annuity Route – however, the Bucket and 4% Rule as outlined are straightforward approaches and can be a good place to start for most retirees.


Bucket Approach


The bucket approach is a system so that you will never run out of money. It is also known as a “time segmentation strategy,” which establishes different buckets or accounts for different spending in different time periods.


For Example:


Near-Term Monetary Needs: Two to five years of income would be in cash or cash equivalents. This bucket should cover 2-3 years’ worth of living expenses.


Mid-Term Income: The second bucket should be allocated to low-risk investments such as bonds, CDs, or mutual funds. These types of investments are considered to be more conservative while at the same time providing some growth. This bucket would replenish bucket one so that you always have 2-3 years’ worth of living expenses.


Long-Term: The third bucket can be more heavily invested in mutual funds and stocks as you shouldn’t have to touch that bucket for at least 10 years. This bucket is for long-term growth and eventually will be used to refill buckets one and two.

4% Rule


There is also a simpler and more common retirement strategy where there is only one bucket for investments. Your portfolio would hold between 50 and 75% in equities, and the remaining in CDs, and or Treasury Bonds (depending upon your risk tolerance) and then follow the 4% rule. The 4% rule philosophy is that you withdraw 4% of your retirement savings in your first year of retirement and adjust that amount for inflation for every subsequent year without risking running out of money for at least 30 years.


3. Maximize Your Social Security: If you wait to start Social Security until your maximum retirement age, then you will have a significantly higher monthly retirement income than if you start at age 62. Delaying Social Security to your maximum retirement age pays off – as benefits expand at a rate of 8% per year for each year you wait to claim your benefits.



"Real happiness requires less than you think." - Anonymous


4. Managing Your Expenses in Retirement: If you haven’t created a detailed retirement budget, now may be the time. Upon completion, you may find that your estimated retirement income will not cover your retirement expenses. If that happens, you can try to increase your income, reduce your expenses, or do some combination of both. Expenses may be where you have the most control.


Because housing costs are a major budget item for most of us – that can be a good place to start. How would you feel about moving to an area with a lower cost of living? Or, what if you stayed in your current area, but moved to a smaller, less expensive home – also known as downsizing?


You may also be able to reduce your insurance costs. If your children are grown and self-supporting you may not need life insurance or not as much of it. If you have two cars, but could easily get by on one, you can save on auto insurance as well as maintenance and repair costs.


Beyond those major categories, it could be worth taking the time to go through your credit card and checking account statements to look for expenses you could trim. Most of us are not aware of where all our money goes unless we have the evidence right in front of our noses.


Write this down: Do not concentrate on how much money you make. Concentrate on how much money you spend.


5. If you want or must work: Be aware of how that can affect your Social Security Benefits. Specifically, if you have not reached full retirement age and earn more than a certain amount ($19,560 in 2022, $21, 240 in 2023), Social Security will reduce your monthly benefit by $1 for every $2 you earn other than that annual limit. In the year that you reach full retirement age, your benefits will be reduced by $1 for every $3 you earn over a different limit ($51,960 in 2022, $56,5620 in 2023). However, please know that this money is not permanently lost; when you reach full retirement age, Social Security will recalculate your benefit and increase it to make up for the money it withheld earlier.

6. Keep Planning: Retirement is not the end of the road for managing your money. It is not realistic to simply create a plan, retire and live happily ever after. Keep assessing your situation and adjusting your plans as your move through life. Maybe your priorities or personal situation changes, or your investments perform differently or perhaps you decide to go back to work. All of these can impact your overall financial well-being. Monthly financial reviews are a great way to stay on top of your financial wellness.

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