Step 3: Bridging the Gap – Creating Your “Paycheck”

Now we get to the heart of the matter: making sure your income (Step 2) meets or exceeds your expenses (Step 1). This is where you create your personal retirement “paycheck.” Let’s walk through a simple example.

Worked Mini-Example: Jane’s Income Plan

Let’s imagine a retiree named Jane. After mapping her expenses, she determined she needs $4,500 per month to live comfortably.

Next, she lists her income sources:

1. Social Security Benefit: $2,100 per month.

2. Husband’s Survivor Pension: $900 per month.

Her total guaranteed income is $2,100 + $900 = $3,000 per month.

Now, we find the gap. Her need is $4,500 and her guaranteed income is $3,000. So, the gap she needs to fill from her investments is $4,500 – $3,000 = $1,500 per month.

This means Jane needs to withdraw $1,500 each month from her IRA and 401(k) accounts. Annually, this comes to $1,500 x 12 = $18,000 per year. If Jane has a combined portfolio of $500,000, this $18,000 withdrawal represents a 3.6% withdrawal rate ($18,000 divided by $500,000), which is generally considered a sustainable starting point.

The goal is to cover as much of your essential, fixed expenses as possible with your guaranteed income sources. In Jane’s case, her $3,000 in guaranteed income covers her mortgage, taxes, and insurance, while the withdrawals from her portfolio cover the more flexible, variable costs like travel and groceries. This structure provides a strong sense of security. Even if the market has a bad year, her core bills are covered.

Your action step is to do this math for yourself. Calculate your income gap. This is the amount you will need to systematically withdraw from your savings. You can set up automatic monthly transfers from your retirement account to your checking account, just like a paycheck. This automation makes managing your money simple and predictable.