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People saving for retirement hope to one day act as their own payroll department when they retire. The key is figuring out how to turn those savings into a steady, reliable retirement paycheck.
“Plan for longevity, at least 25 to 30 years,” Ken Mahoney, CEO of Mahoney Asset Management, told Investopedia.
Despite persistent concerns about having enough saved for retirement, more than eight in 10 retirees said they were “doing okay” or “living comfortably” in 2024, according to the U.S. Federal Reserve’s annual report on Americans’ financial wellness.
Below, we take you through how you can start writing your own paychecks in retirement.
Key Takeaways
- Most retirees combine multiple income sources, including Social Security, pensions, and retirement accounts like 401(k)s.
- Replacing your working income in retirement is achievable. Through proper planning, Americans at age 72 typically replace 84% to 103% of their spending power in their mid- to late-50s.
- Experts recommend withdrawing 3% to 4% of your savings in your first year of retirement and staying flexible to adjust subsequent withdrawals as your needs change.
Assessing Your Retirement Income Needs
Building your retirement paycheck starts with understanding exactly how much you need each month. Track your spending for six to 12 months, separating expenses into fixed costs (housing, insurance, utilities) and discretionary spending (travel, dining, hobbies).
“Look at what you really spend—then adjust for inflation and new costs like health care, while subtracting work-related expenses like commuting,” Mahoney said.
Even modest inflation significantly increases expenses over a decades-long retirement. Health care costs often rise with age, making this planning crucial.
“Don’t shift everything into low-growth investments too soon,” Mahoney said. “Keeping some assets invested for growth helps your retirement paycheck maintain its purchasing power.”
Fast Fact
According to the Federal Reserve’s 2025 report, 81% of retirees now supplement Social Security with at least one other income source, such as a pension, investments, or part-time work.
Where Your Retirement Paycheck Will Come From
The most common and reliable sources of retirement income include Social Security, pensions, retirement accounts like 401(k)s and IRAs, part-time work, and rental income.
“If you have a pension, you’re ahead of the game—especially if it covers most of your fixed expenses,” Mahoney said. For those without a pension, long-term retirement accounts such as 401(k)s play a key role in supplementing Social Security income. While Social Security is a foundation for most retirees, it “usually won’t cover all your expenses,” Mahoney said, so it’s best used to help pay for essentials like housing and utilities.
Other income streams, like investment dividends or interest, can add flexibility and help fund travel and other discretionary spending. Part-time work is another option, offering both financial and personal benefits.
Rental income can also provide a steady cash flow, but Mahoney said that it may come with unexpected costs and ongoing responsibilities.
How to Make Your Retirement Savings Last
The classic “4% rule” suggests withdrawing 4% of your savings in year one, then adjusting for inflation annually—that’s $40,000 from a $1 million portfolio. However, experts now recommend a rate of around 3.7% for 2025 to account for market volatility and longer life expectancies.
“The right withdrawal rate depends on your personal situation,” Mahoney said. “Some people may need to stick to 3% to 4%, while others with strong income sources or higher investment returns might safely take out more, especially in the early, more active years of retirement.”
Adjust withdrawals as markets and needs change. Annual reviews can ensure you aren’t spending too quickly. As Mahoney suggests, use the 4% rule as a starting point, but stay flexible based on your goals and the performance of your investments.
Your withdrawal order also affects how long savings last. The tax-efficient approach is to tap taxable accounts first, then tax-deferred accounts (like traditional IRAs and 401(k)s), saving Roth accounts for last. This maximizes tax-advantaged growth and reduces overall taxes.
Consider Roth conversions in low-income years for tax-free income later, and tax-loss harvesting to offset gains. Don’t move all investments to low-risk assets too soon. Maintaining growth investments helps your savings outpace inflation for decades.
As Mahoney noted, balancing stability and growth gives your retirement paycheck the best chance to last until the end of your life.
Tip
Does all this seem too complicated? “Having a financial advisor, accountant, and estate planner working together can make a huge difference,” Mahoney said. “The benefits often outweigh the costs, especially when it comes to making the most of your retirement income and minimizing taxes.”
The Bottom Line
Creating your retirement paycheck requires turning savings and income into a reliable cash flow that lasts. Start by tracking your spending and projecting your needs, accounting for inflation and health care costs. Match stable income sources, such as Social Security and pensions, to essential expenses, and use investments or part-time work for extras.
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