Retirement Modeling: Spending, Income and Taxes Working Together
The Foundation for Pre-Retiree and Retiree Decision Making
Most initial conversations with pre-retirees start with one of two questions.
The first: When can I retire if I want to spend a certain amount each year?
The second: If I retire at a specific date, how much can I actually spend?
Both are almost always followed by a third:
What should I be doing now to prepare and maximize my position before I get there?
That third question is where our Pre-Retiree Financial Planning Guide picks up.
For retirees, the questions look different. Am I drawing income in a way that is sustainable and tax-efficient? Am I leaving money on the table? Are there things I should be doing or considering that I have not even thought about? Those questions lead to our Retiree Financial Planning Guide.
What all of these questions have in common is that none of them can be answered well without first understanding how your spending, income and taxes will interact. These do not exist independently. They interact across the phases of retirement in ways that shape every decision that follows: when to claim Social Security, how to sequence withdrawals, whether a Roth conversion window exists, how much pressure your portfolio is actually under. Planning for this in the pre-retirement window can provide a tremendous amount of flexibility and opportunity.
This guide is built around that interaction. It walks through the foundational questions you need to answer before any modeling can be meaningful:
How to build a realistic retirement spending baseline
How to map your retirement resources including:
Expected retirement income sources and
Your overall asset picture and how these assets can be used to supplement your income.
How to understand the gap between your expected expenses and income in retirement (if any) and which planning levers might be most impactful to your situation
Bonus: How the tax picture changes across phases of retirement.
Getting this foundation right is what makes the decisions in the other two guides actually useful for your specific situation.
A note on taxes: Taxes are woven through every section of this guide. The spending baseline, the income picture, and the gap between them all carry tax implications that can meaningfully change the answer. Up to 85% of your Social Security benefit can become taxable depending on your other income. Roth withdrawals are tax-free while traditional IRA withdrawals are ordinary income. IRMAA surcharges raise your Medicare premiums based on income from two years prior. The way your income sources stack on top of each other across different phases of retirement often produces a tax picture very different from any single year in isolation. We flag the most important tax interactions throughout. And don’t forget about state taxes, for example some states don’t tax Social Security or retirement distributions among many others.
Building Your Retirement Plan Baseline
Whether you came to this guide asking, “When can I retire at a specific spending level?”, or “How much can I spend if I retire on a specific date?”, the answer requires stepping back from both questions first. Neither can be answered honestly without working through the inputs that shape the model: what you will actually spend in retirement, what your income sources look like and when they turn on, what your asset picture is and how it is taxed, and what success actually means to you beyond simply not running out of money.
What catches most people off guard is how many of these inputs are nuanced and interconnected. A decision about Social Security timing affects the tax picture. The tax picture affects which accounts to draw from first. The withdrawal sequence affects RMDs a decade later. Building the Retirement Plan Baseline is the work of making sure all of these inputs are honest before any modeling begins. No matter what question brought you here, this is where the answer starts.
This first part is all about determining what you are solving for and making sure you have thoroughly evaluated the nuances and changes that can come with retirement.
Retirement Expenses
Shifting Expenses
The total amount you spend in retirement may or may not change dramatically from what you spend now, but one thing is certain: the categories shift significantly. Some expenses disappear. Others grow. Understanding those shifts before you build your number helps you build a more accurate one.
Retirement contributions typically stop: both those that were deducted from your paycheck and any additional contributions you chose to make to other accounts such as an IRA/Roth IRA or non-qualified account, are gone. For households maximizing contributions including catch-up or super catch-up provisions, this could be $70,000 or more per year.
Healthcare becomes your full responsibility: until Medicare begins at 65, you are covering the full cost of health insurance unless you qualify for ACA Premium Tax Credits, which you can read more about here. Even after 65, Medicare premiums, supplemental coverage, and out-of-pocket costs replace employer-provided coverage and can be substantial.
Payroll deductions disappear: FICA taxes, retirement contributions, and other paycheck deductions stop. For many people this is a meaningful reduction in what they actually need to replace. Your gross income and your take-home pay are very different numbers, and it is the take-home equivalent that matters most for comparison.
Work-related expenses drop: commuting, professional clothing, lunches out, and other costs tied to being employed often shrink or disappear entirely.
Travel and leisure tend to increase, at least in early retirement, as time opens up what the work schedule previously limited. This is often the most underestimated increase in the spending picture.
Housing costs may shift: no mortgage for some, downsizing decisions for others, or potentially higher maintenance costs on an aging home with more time spent in it.
The net effect of all these shifts is that retirement spending often looks quite different from current spending even if the total is similar. A line-by-line comparison, not a top-level comparison, is the only way to build an accurate baseline.
Spending Elasticity
Spending elasticity is how flexible your spending actually is: how much of your planned retirement spending can you genuinely reduce if you needed to, and for how long could you sustain that reduction?
This matters enormously for the model. A retiree who can reduce spending by $20,000 a year during a market downturn without real hardship can absorb more portfolio volatility, delay certain income sources, and recover from adverse scenarios much more gracefully than one whose spending is largely fixed. Elasticity is not just a comfort concept. It is a structural feature of the plan that affects almost every decision that follows.
A few things worth being honest about before you move on to building the actual number:
Elasticity is only real if you will actually exercise it. If you say you could cut $20,000 from travel but you know you genuinely would not, that is not real elasticity. A plan built on flexibility you will not use is not a resilient plan.
Elasticity tends to be higher in early retirement when more spending is discretionary, and lower in late retirement when more of the spending picture is healthcare-driven and genuinely non-negotiable.
Some people have structural spending commitments that limit elasticity regardless of intention: supporting family members, ongoing medical obligations, or debt payments that cannot simply be reduced in a difficult year.
The “Two Categories” exercise that follows is where you build the actual number. Your spending elasticity is essentially the discretionary portion that you are genuinely willing and able to reduce if needed. Be honest about how large that portion actually is.
Two Categories of Expenses
With all of that context in mind, building your spending baseline starts with an honest accounting of two categories.
The first is essential spending: housing, utilities, food, insurance, healthcare, transportation, and any other obligations that exist regardless of what markets do or how you feel in a given month. These are the expenses you will carry no matter what. If you need a substantial guaranteed income floor, these are the expenses that floor needs to cover.
The second is discretionary spending: travel, dining, entertainment, hobbies, gifts, and everything else that represents how you want to live rather than what you are obligated to cover. This is your financial elasticity in practice. A retirement plan built around someone who can reduce discretionary spending during a difficult market stretch is fundamentally more resilient than one built around fixed obligations. Knowing how much of your spending is flexible is as important as knowing the total.
One important note on this distinction: some people are simply not willing to cut certain discretionary expenses, whether that is the annual trip or a cherished hobby. If you are genuinely not willing to reduce it in a downturn, it belongs in the essentials bucket, not the discretionary one.
Inflation: The Silent Erosion
Inflation matters more in retirement than most people think. Even a modest 3% annual rate cuts purchasing power roughly in half over 25 years. Healthcare inflation has historically run higher than general inflation. Build an inflation assumption into your baseline rather than treating today's dollars as a fixed target. A spending level that feels comfortable at 65 may feel meaningfully tighter at 80 if it has not been indexed for inflation in the model.
Most People Underestimate What They Spend
Most people underestimate what they spend. This is not a character flaw. Irregular expenses, semi-annual bills, and the tendency to mentally exclude one-time items all add up. If you have not tracked spending carefully, pull 12 months of actual bank and credit card data before building a retirement budget from scratch. The number that comes out will almost certainly surprise you. There are many well-known programs and apps available that can help with this process.
One more thing worth naming directly: underspending is one of the most common and least discussed retirement planning failures. People save diligently for decades, arrive at retirement, and then find they cannot psychologically bring themselves to spend what they built. The money sits there growing while they skip the trip or the experience they could have easily afforded. A well-built spending baseline gives you permission to spend intentionally, not just a framework to guard against running out.
How Do You Want Your Spending to Look Over Time?
At a high level, there are two ways to structure your planned spending over your retirement:
A “flat” spending approach: where you set a target standard of living and then maintain that same standard of living throughout retirement by making inflation adjustments as required.
A spending approach that changes during different phases of retirement: The early years of retirement tend to be the most active and expensive. Travel is on the list, the impulse to enjoy what you worked for is real, and energy levels support it. Spending often dips in the middle years as pace naturally slows. Late retirement frequently brings lower discretionary costs but higher healthcare expenses that can more than offset the savings elsewhere. This pattern is sometimes called the retirement spending smile, and building it into the model rather than assuming a flat line often produces a more realistic picture of what you will likely actually need and when.
The degree to which the planned spending changes over time can be different for everyone. Some people prefer to heavily front-load experiences and travel while health and energy allow, while others prefer to only plan for small adjustments.
Still others prefer the predictability and generally more conservative nature of a flat spending plan. There is no universally right answer, but there is a right answer for you, and it should be an intentional choice rather than a default assumption.
The shape you choose also affects which withdrawal approach makes the most sense, which we cover in the bringing it together section of this guide.
How Long Are You Planning For?
Most people underestimate how long their retirement will last. Planning to age 85 when you live to 95 is not a minor miscalculation. It is a 10-year funding gap that arrives at the worst possible time.
A couple retiring at 65 today has a meaningful probability that at least one of them will live into their 90s. Building a retirement model that only works to age 85 because that feels like a reasonable life expectancy is taking on longevity risk that deserves to be named and addressed rather than quietly assumed away. Additionally, with the rapid advancements of medicine and medical technologies, longevity planning becomes more important every year.
Ultimately your own unique circumstances, including things like family history and current health, should be factored in when determining an age that you feel most comfortable modeling your plan to. As with many things, there is no universally right answer.
There are many resources to dive into this topic in more depth, including the Social Security Administration’s actuarial life tables published annually, or other private life expectancy calculators.
Do You Want to Leave Something Behind?
For some people the answer is simple: heirs get what they get, and that is completely legitimate. For others, leaving a meaningful amount to family members or causes they care about is a real goal that deserves to be built into the model rather than treated as whatever happens to remain.
If inheritance matters to you, include it explicitly. It changes the withdrawal strategy, the sequencing decisions, and potentially the account mix. An estate goal of leaving $500,000 to children produces a different optimal withdrawal sequence than a plan with no inheritance objective. Neither is wrong. What is wrong is having the goal and not modeling it.
Everything up to this point is what we are solving for. Without assessing and answering these items honestly, the numbers you put into the model will not reflect reality, and a model built on incomplete inputs produces a false sense of confidence rather than a useful plan.
The Income Picture
Once you have a realistic retirement spending baseline, and we know what we are solving for, the natural question is where the money comes from. Retirement income typically arrives from a combination of:
Guaranteed sources that pay regardless of market conditions and
Portfolio sources that depend on investment returns and withdrawal decisions.
Understanding both, and how they interact across the phases of your retirement, is the second half of the foundational model. One of the most overlooked aspects of retirement income is how it shifts throughout retirement, typically until RMDs begin and things become a little more steady.
The Income Floor: Guaranteed Sources
The income floor is the guaranteed income you cannot outlive. Social Security, pensions, and income annuities all qualify. The higher and more reliable your floor, the less pressure your portfolio is under and the more flexibility you have in how you draw from it.
These sources also come with timing decisions that carry significant financial consequences, and most of them are largely irreversible. When you claim Social Security, whether you take a pension as a lump sum or an annuity, and whether you purchase an income annuity are all decisions worth modeling carefully before acting. However, there is meaningful flexibility in when you turn these sources on, and understanding that flexibility before you make any of these elections is part of the modeling exercise.
Social Security
Social Security is one of the few sources of retirement income that is guaranteed, inflation-adjusted, and lasts for life. The difference between claiming at 62 and 70 can be tens of thousands of dollars per year, and the optimal claiming decision depends on your health, your spouse's situation, your other income sources, and your tax picture.
Claiming early (ages 62 to 67): a permanent reduction in monthly benefit. If you are still working when you claim before Full Retirement Age, an earnings test may temporarily reduce your benefit based on how much you earn above a certain threshold.
Full Retirement Age (FRA): currently 67 for those born in 1960 or later. Benefits claimed at FRA are unreduced.
Delayed claiming (up to 70): benefits increase approximately 8% per year past FRA. For those in good health with longevity in their family, this is one of the highest guaranteed returns available.
Spousal benefits: a non-working or lower-earning spouse may be entitled to up to 50% of the higher earner's benefit at FRA. The coordination of spousal and individual claiming decisions matters significantly for the household.
Survivor benefits: the surviving spouse keeps the higher of the two benefits. Delaying the higher earner's benefit is often the single most important decision for the surviving spouse's long-term financial security.
Claiming Social Security is not a math problem with one right answer.
It is a household decision that requires modeling your specific situation: income needs, account balances, health, life expectancy, spousal considerations, and tax implications of different claiming ages. The math of which date produces the highest lifetime benefit only proves itself once you know the age at which you are going to die. What you can control is making a thoughtful decision with the information available to you now.
Pensions
If you have a pension, the claiming decision deserves the same care as Social Security. Most elections are permanent.
Single life vs. joint and survivor options: a single life payout produces higher monthly income but ends at your death. A joint and survivor option pays less monthly but continues for your spouse to varying degrees following your death depending on your initial election. The right choice depends on your spouse's health, other income sources, and life expectancy.
Lump sum vs. annuity: some plans offer a lump sum option. The math depends on the discount rate the plan uses, your life expectancy, and your confidence in managing the money yourself. This decision benefits from a careful projection before choosing.
Income Annuities
An income annuity converts a lump sum into a guaranteed income stream for life or a set period. For some people, adding an annuity to the income floor reduces pressure on the investment portfolio and provides peace of mind that basic expenses are covered regardless of market performance.
Single premium immediate annuities (SPIAs): begin paying income within a year. Straightforward and predictable.
Deferred income annuities: purchased now, income begins at a future date, often used to protect against longevity risk in later retirement.
Fixed annuities with income riders: a hybrid structure that provides a guaranteed minimum income benefit while keeping the underlying account value accessible. The income rider guarantees a withdrawal rate against a benefit base that may grow over time, without requiring full annuitization of the contract. More flexible than a SPIA but comes with fees that can meaningfully reduce net returns. Worth understanding the distinction between the account value and the income base before purchasing.
Annuities are not right for everyone, and the features, costs, terms and compensation structure for the salesperson vary widely. With such a wide variety in both the products themselves and the financial strength of the insurance companies that issue them, they deserve careful comparison and are worth discussing with an independent advisor that can help you compare options across different providers before purchasing.
The Asset Picture: What You Have and How It Is Taxed
Once you’ve established your guaranteed income floor, the next step is to inventory the assets that will fill the remaining gap. It’s not just about the final number, but the composition of those assets. The types of accounts you hold dictate how flexibly and tax-efficiently you can draw from your portfolio. For instance, two people with identical portfolio balances but different account mixes can face dramatically different after-tax outcomes in retirement.
Fortunately, you have control over this. For pre-retirees, your asset mix can be heavily influenced by your contribution strategy today. For current retirees, smart distribution strategies and tactical Roth conversions can still make an impact.
To learn more about options that may be available to you, explore our dedicated Pre-Retiree Guide and Retiree Guide. Thoughtfully constructing your asset blueprint is one of the most impactful planning decisions you will ever make.
Three buckets matter (read our detailed article here on account types):
Pre-tax accounts (Traditional IRA, 401(k), 403(b)): every dollar withdrawn is taxed as ordinary income. These accounts are also subject to required minimum distributions starting at age 73 (or age 75 for those born in 1960 and later). They are often the largest bucket for most people but also the most tax-costly to draw from in the wrong year. Large pre-tax balances can mean forced distributions later that push income into brackets you did not plan for and potentially make more of your Social Security taxable.
Roth accounts (Roth IRA, Roth 401(k)): tax-free withdrawals and no RMDs during your lifetime. These are the most flexible assets in retirement because you can draw from them without affecting your tax bracket, your Social Security taxation, or your IRMAA exposure. They are often the most underutilized bucket, which is one reason the pre-retiree guide spends time on building Roth balances before retirement.
Taxable brokerage accounts: gains may qualify for long-term capital gains rates, and in lower-income years you may be able to harvest capital gains at 0%. More flexible than pre-tax accounts from a tax perspective, though interest and dividends are taxable in the year earned.
The ratio of assets across these three buckets can be more important than the total. Someone with $2 million entirely in pre-tax accounts has significantly less flexibility than someone with the same amount spread across all three. This is one of the clearest reasons why the asset picture needs to be part of the model from the beginning, not an afterthought. This is also the area that can be influenced most by a pre-retiree, and for specific examples we recommend going to our “Pre-Retiree” guide.
Also relevant to the asset inventory: real estate equity, business interests, deferred compensation, and any other assets outside retirement accounts. These affect the overall picture and the sequencing decisions even if they are not directly part of the investment portfolio.
The Gap: What the Portfolio Needs to Cover
Once you map your guaranteed income across time and understand your asset picture, the planning question sharpens: how large is the gap between your guaranteed income and your spending baseline, and for how long does the portfolio need to fill it?
For each phase of retirement, the math is straightforward: spending baseline minus guaranteed income equals the gap your portfolio needs to fill. Early in retirement, before Social Security begins, that gap is often at its widest. Once Social Security kicks in, the gap narrows. Once required minimum distributions begin, the question sometimes shifts from whether you are drawing enough to whether forced distributions are pushing income higher than you want.
Map these phases explicitly. The gap in year one of retirement may look very different from the gap in year ten, and the portfolio strategy needs to account for that shape, not just the average.
The Tax Picture
The income picture tells you how much you need from the portfolio. The tax picture tells you what it costs to get it and where the landmines are. These two angles need to be worked through together to produce a complete model.
How Different Income Sources Are Taxed and How This Impacts Your Tax Picture Over Time
When planning for retirement, looking at your taxes through a single-year lens misses the big picture. Your total tax liability is a dynamic puzzle, shaped by where your income comes from and which phase of retirement you are currently navigating.
How Different Income Sources Are Taxed
At the federal level, not all retirement dollars are treated equally. Your current tax bracket, and where you sit within it, dictates which bucket is the most efficient to draw from in any given year:
Traditional IRAs, Pensions, Annuities & Traditional 401(k)s: Withdrawals are taxed as ordinary income, just like a standard paycheck.
Roth IRAs & Roth 401(k)s: Withdrawals are entirely tax-free, provided you meet the standard holding rules.
Taxable Brokerage Accounts: Gains on investments held for over a year qualify for lower long-term capital gains rates (which can be as low as 0%).
The Hidden Tax Triggers
As you layer on other retirement income sources, two major stealth taxes can significantly disrupt your plan if you aren't careful:
The Social Security "Tax Torpedo": Up to 85% of your Social Security benefit can become taxable depending on your "combined income." Pulling too much from a traditional IRA can inadvertently push more of your Social Security into the taxable column, effectively spiking the true tax cost of that IRA withdrawal far beyond your standard bracket.
Medicare IRMAA Surcharges: Income thresholds for Medicare Part B and Part D premiums are closer than you think, and they are calculated using your income from two years prior. A single large withdrawal or Roth conversion today could trigger significantly higher Medicare premiums two years from now.
The Timeline: How the Tax Picture Shifts Across Phases
Because these income sources activate at different times, a retiree typically moves through distinct tax phases. A lifestyle that appears highly tax-efficient in year one might become incredibly expensive a decade later.
Phase 1 - Stop Working to Age 65: This is often the lowest-taxable income phase of your life. With no paycheck, no Social Security, and no required distributions, your ordinary income may be minimal, long-term capital gains can drop to 0%, and Medicare IRMAA surcharges may not yet be a factor (though IRMAA is based on your income from 2 years prior). However, other “non-tax” costs that are influenced by your taxable income, like ACA Premium Tax Credits, are important to keep in mind.
Phase 2 - Age 65 to Start of Social Security: You have transitioned to Medicare, meaning ACA credits are no longer a concern. Income can still remain low during this stretch, though you now need to keep an eye on IRMAA thresholds (which allow for much higher income limits than ACA credits before phase-outs begin).
Phase 3 - From Social Security to RMDs: Social Security benefits begin, introducing the potential for the "tax torpedo." Your baseline income rises, narrowing the window of low tax brackets.
Phase 4 - Post-Required Minimum Distributions (RMDs): The final phase occurs when you are legally forced to take distributions from pre-tax accounts.
When Social Security, RMDs, and regular portfolio withdrawals all hit your tax return simultaneously, they stack on top of one another. The exact same lifestyle that potentially cost you very little in taxes during Phase 1 can suddenly cost significantly more here.
Consider a hypothetical couple who retires at age 62 with a $2 million portfolio, a large portion of which is in traditional pre-tax IRAs. In their early 60s, with no paycheck and no Social Security, they might sit in a comfortable 10% or 12% tax bracket.
Fast forward to age 75. Now, they are forced to take Required Minimum Distributions (RMDs) on that account, which has grown. When you stack those large forced distributions on top of their newly activated Social Security benefits, their taxable income could surge. Suddenly, the "Tax Torpedo" fires: an extra withdrawal doesn't just face their standard tax bracket; it simultaneously forces 85% of their Social Security to become taxable, spiking their effective marginal tax rate past 25% or 30% on those dollars. The exact same lifestyle just became vastly more expensive.
This predictable shift in your tax timeline highlights why long-term planning is so vital. The low-income years between your retirement date and the arrival of Social Security and RMDs should not be treated as a period of passive waiting. Instead, they represent a finite window to strategically evaluate your overall distribution framework.
An effective strategy during these gap years carefully considers multiple strategies, including:
Strategic Roth Conversions: By intentionally moving money from traditional pre-tax accounts into a Roth IRA during low-income years, you choose to pay taxes early at a potential discount. The goal is to convert those dollars at rates that are likely lower than what forced RMDs will eventually cost you.
Tax-Gain Harvesting: Because your ordinary income is low, you may have a unique opportunity to intentionally realize long-term capital gains in your taxable brokerage accounts. Doing so could even allow you to lock in investment gains at a 0% federal tax rate, effectively resetting your cost basis for free.
Deliberate Withdrawal Sequencing: Rather than drawing randomly from your accounts, you must carefully sequence where your lifestyle funding comes from each year. Balancing withdrawals between taxable, pre-tax, and Roth buckets allows you to micro-manage your tax bracket, keep IRMAA surcharges at bay, and potentially extend the lifespan of your portfolio.
This planning window is finite. Once Social Security and RMDs arrive together and permanently raise your baseline income, the opportunity to execute these strategies at a discount often becomes smaller or closes entirely.
Rethinking the Traditional "Rule of Thumb"
This reality is exactly why waiting until retirement to map out a distribution plan is a mistake. The classic working-years rule of thumb says: "If you are in a high tax bracket now, choose traditional pre-tax contributions." While that sounds logical, blindly following it can backfire. If you accumulate too much pre-tax wealth, you may eventually be forced into massive RMDs that push you into an even higher tax bracket during retirement. Furthermore, tax laws change; a 32% bracket today might seem high, but future policy changes could make it look like a bargain.
Note: The exact execution steps—how to size your yearly Roth conversions, harvest gains, sequence withdrawals across your various accounts, and precisely navigate IRMAA thresholds—are mapped out in our Retiree Financial Planning Guide. The holistic planning model built here is what helps guide the evaluation of the strategies.
A Note on Surviving Spouse Planning
No retirement income model is complete without explicitly accounting for what happens when one spouse dies. This is much more nuanced than most people realize, and the financial consequences can be significant and arrive quickly.
The survivor's income picture changes immediately. Social Security drops to a single benefit, the higher of the two. Pension income may be reduced or eliminated depending on the election made at the start. Tax filing status shifts from married filing jointly to single, which means the same income is taxed at higher rates. IRMAA thresholds that applied to a couple may now be exceeded by a single person with the same income. These changes often arrive at a moment of grief, when the surviving spouse is least positioned to navigate them.
Building the surviving spouse scenario into the model now, while both of you have clarity and time, is one of the most important things a couple can do. It does not require precise predictions. It requires an honest look at what the income and spending picture looks like for one person, and whether the plan holds up under that scenario. If it does not, adjustments made now are far less painful than adjustments forced by circumstance later.
Bringing It Together: What the Model Actually Looks Like
With a spending baseline and an income picture mapped across phases, the model can answer both original questions. Here is what the synthesis looks like in practice. This is also where the magic happens. This is where you get to test any number of different variables and actions to see the results. And the further from retirement you are, the more likely these are to shift over time, but they still provide a general trajectory and direction.
The idea here is to gain an understanding of the implications of your actions. If you continue with traditional 401(k) contributions, will there be a window later for Roth conversions? If not, are RMDs going to cause issues down the line? If you are retiring before 65, how does your current asset mix allow you to fund your spending without incurring additional costs if possible? Can you make moves that ensure you pay as little tax as possible over your lifetime and enjoy your money the most?
Everything up to this point has been relatively straightforward, but this is where things become more complex. There is retirement income and planning software dedicated to delivering these answers and quickly showing the results of different actions. The inputs you have built in this guide are exactly what that software needs. Bringing it to life in a way that accounts for your specific situation, tests the interactions over time, and models the impact of the strategies in the companion guides is where working with a professional planner adds the most value.
Withdrawal Approaches: Picking a Framework
Before you can model sustainable withdrawals, you need to decide what framework you are using. This connects directly back to the spending elasticity question. Different approaches suit different levels of flexibility.
Fixed spending: you draw a set amount each year adjusted for inflation. Simple to model and execute, but offers no flexibility when markets are down. Works best for those with a large guaranteed income floor that covers most essential spending, so the portfolio withdrawals are primarily funding discretionary expenses.
Dynamic withdrawal strategies: you vary the withdrawal amount based on portfolio performance. Draw more in good years, less in bad ones. Requires discipline and genuine spending flexibility, but significantly extends portfolio longevity in adverse scenarios. The ratcheting down concept, taking more early and pulling back when markets struggle, is one version of this.
Income flooring paired with discretionary spending: you use guaranteed income to cover essential spending and draw from the portfolio only for discretionary needs. Reduces the psychological pressure of market volatility because basic needs are covered regardless. Works best when the guaranteed income floor is substantial enough to cover true essentials.
There is no universally right framework. The right fit depends on your spending elasticity, your personality, your income sources, and your tolerance for uncertainty. What matters most is picking an approach, modeling it, and stress-testing it before committing to it.
Stress Testing: What Happens When Things Do Not Go as Planned
A model that only works under favorable assumptions is not a reliable plan. The most valuable thing you can do after building the baseline model is stress-test it across scenarios that matter to you.
What happens if you retire two years earlier than planned? Does the portfolio hold up through a longer drawdown period?
What if returns are lower for the first decade of retirement? Sequence of return risk is real, and a down market early in retirement has a permanently larger impact than the same decline later.
What if healthcare costs run 20% higher than projected or there’s a need for long-term care? For many households, healthcare is the largest variable in the retirement spending picture.
What if one spouse dies early? The survivor's income picture, tax situation, and spending needs can all change dramatically. Model this scenario explicitly rather than leaving it as an acknowledged but unexamined risk.
What if you live to 95? Most retirement models are built around a life expectancy that may be shorter than the actual outcome. Running the model to a later age tests whether the plan is truly sustainable.
The goal of stress testing is not to find a scenario that breaks the plan and cause alarm. It is to understand where the vulnerabilities are, what decisions provide the most protection, and what flexibility you have if things change. A plan that survives a reasonable range of stress scenarios is a durable one.
Where to Go From Here
This guide is the foundation. The model you build here, your spending baseline, your income picture, the gap between them, and how they interact across the phases of retirement, is what makes every other decision meaningful. Without it, the strategies in the companion guides are answers to questions you have not yet fully formed.
If you are approaching retirement and still have time to act, the Pre-Retiree Financial Planning Guide covers the advanced strategies available while you still have levers to pull. This includes maximizing catch-up contributions, executing "backdoor" Roth strategies to bypass income limits, utilizing Net Unrealized Appreciation (NUA) to potentially save taxes on highly appreciated company stock inside a 401(k), navigating deferred compensation payout schedules, setting up your future Roth conversion window, and building the healthcare bridge to carry you to age 65 before Medicare begins. These are time-sensitive opportunities that require action before you stop working.
If you are already in retirement and focused on execution, the Retiree Financial Planning Guide covers the ongoing decisions: Social Security and pension claiming, sizing Roth conversions each year, withdrawal sequencing as an annual active exercise, Medicare and IRMAA management, legacy and charitable planning, and incapacity protection. These are the maintenance and management decisions that keep the plan working over time.
The model you build here is not a one-time exercise. Revisit it when something significant changes: a market downturn, a health event, a change in income, a death in the family. The assumptions will shift. The plan should shift with them.
A Note on Working with an Advisor
The modeling framework in this guide is something you can work through on your own. The concepts are accessible, and the questions are ones you are capable of answering with honest reflection and careful data gathering. Many people do this well without professional help.
Where a planner tends to add the most value in this process is in running the actual model and in the tax picture and stress testing. The interaction between Social Security taxation, IRMAA, Roth conversions, and withdrawal sequencing is genuinely complex, and the decisions compound across years in ways that are easy to underestimate in isolation. And in the moments when markets are down or a major life change arrives, having someone whose job it is to think clearly about the financial picture, not someone who benefits from you making a move, is worth something real.
We are not going to walk you through a sales process or tell you that you need us. What we will do is have an honest conversation about your specific situation and tell you plainly what we think, including if we think you are in good shape on your own. If that sounds like the kind of conversation you would find useful, we are easy to reach.
Questions We Get Asked
The following are among the most common questions we hear on retirement income and spending planning.
How much money do I need to retire?
There is no universal answer, and anyone who gives you one without knowing your specific situation is guessing. The honest answer requires knowing your spending baseline, your guaranteed income sources and when they begin, and how long your portfolio needs to fill the gap. A commonly cited starting point is the 4% rule, which holds that withdrawing 4% of your portfolio annually has historically been sustainable for 30 years. But this is a rough reference point, not a plan. Your actual number depends on your expenses, Social Security income, pension income, healthcare costs, expected longevity, spending flexibility, and risk tolerance.
When can I retire if I want to spend a certain amount each year?
The answer requires building the model. Start with your spending baseline, then map your guaranteed income sources and when they turn on, then calculate the gap your portfolio needs to cover in each phase. If the gap is too large for your portfolio to sustain at your desired spending level, the levers are: retire later, spend less, save more now, work part-time in early retirement, or some combination. There is no shortcut to this analysis, but it is not as daunting as it sounds once you have honest numbers to work with.
What is the spending smile and does it apply to me?
The spending smile describes a pattern observed in many retirees where spending is higher in early retirement when activity and energy are high, dips in the middle years as pace slows, and rises again in late retirement as healthcare costs increase. Not every retiree follows this exact pattern, but the concept challenges the common assumption of flat spending across a 25-to-30-year retirement. If you plan for flat spending, you may be over-saving in the middle years and under-planning for late-retirement healthcare costs. Worth considering as an input to your model even if your situation varies from the pattern.
What is the Social Security tax torpedo?
The Social Security tax torpedo refers to the situation where additional income from withdrawals or conversions causes more of your Social Security benefit to become taxable, creating an effective tax rate on that additional income that is higher than your stated bracket. Up to 85% of your Social Security benefit can be taxable depending on your combined income from all sources. When you are in the income range where additional dollars are simultaneously increasing your taxable income and pulling more of your Social Security into taxation, the effective marginal rate can spike significantly. This is one reason that withdrawal sequencing and Roth conversion sizing need to be done with the full income picture in view, not just the stated bracket.
What is the Roth conversion window and why does it matter for planning?
The Roth conversion window is the period between when you retire and when Social Security and required minimum distributions begin arriving together. In those years, your taxable income is often lower than at any other point in your adult life, which creates an opportunity to convert pre-tax IRA or 401(k) dollars to Roth at a lower rate than you would face later. Every dollar converted now is a dollar that will not be forced out as a taxable RMD later, and Roth assets grow tax-free with no RMD obligation during your lifetime. The window closes once Social Security and RMDs stack together and push income higher. Identifying whether this window exists for you, and how large it is, is one of the most important outputs of the modeling exercise in this guide.
How do I account for a surviving spouse in the retirement model?
Build it as an explicit scenario rather than an assumption. Map what the income picture looks like for one person: Social Security drops to the higher of the two benefits, pension income may be reduced or eliminated, and filing status shifts from married to single which means higher taxes on the same income. Then test whether the spending baseline is sustainable under that scenario. If it is not, the adjustments are easier to make now than after a loss.
Important: This guide is provided for informational and educational purposes only and does not constitute financial, tax, or legal advice. Every individual's situation is unique. Please consult your financial advisor, CPA, and/or estate attorney before implementing any strategy discussed here.