Simplifying Retirement Income Planning: A Basic Guide

Retirement Income Planning

Retirement income planning can often seem complex and overwhelming, with numerous factors to consider, such as Social Security benefits, investment portfolios, annuities, and more. However, the key to successful retirement income planning lies in simplifying the process and focusing on the fundamental aspects that matter most to you. In this article, we will break down retirement income planning into its basic components, using a case study to illustrate the process.

Understanding Social Security

Social Security is a crucial component of retirement income for many individuals. It’s essential to determine the best strategy for claiming Social Security benefits based on your unique circumstances. In the case study discussed here, a couple is deciding when to start collecting their Social Security benefits.

The husband in this case is 63 years old, and the wife is 65. They have already retired and are contemplating whether to start collecting Social Security benefits at their Full Retirement Age (FRA) or delay until age 70. The key decision revolves around optimizing their lifetime benefits while considering factors like life expectancy and the break-even point.

Social Security Break-Even Point:

To make an informed decision, it’s crucial to calculate the break-even point. This is the age at which the total benefits received by delaying Social Security start equal the benefits received by starting earlier. In this case, the break-even point for the husband is around age 84, while the wife’s break-even point is approximately 84 as well.

Delaying Social Security typically results in higher monthly benefits, but it takes several years to recoup the benefits lost by not starting earlier. It’s essential to weigh the long-term financial impact of this decision.

Basic Income Planning

Once the couple decides when to start collecting Social Security, the next step is basic income planning. To determine their income needs during retirement, they assess their essential expenses and discretionary spending.

In the case study, the couple has identified that they need $57,000 per year in gross income to maintain their desired standard of living, with the potential for discretionary spending beyond that amount.

Understanding the Gap

After accounting for any pensions or other income sources, the couple faces an income gap that needs to be filled by their retirement savings. In this scenario, the gap is calculated based on the difference between their Social Security benefits and their income needs.

The gap is crucial because it represents the amount they will need to withdraw from their retirement portfolio each year to cover their expenses. Proper planning involves considering how long this gap will persist, accounting for factors like inflation and unexpected expenses.

Balancing Risk and Return

One way to address the income gap is by investing in assets that provide a balance between safety and growth. In the case study, the couple has a risk-averse approach, which means they are hesitant to invest in assets exposed to market volatility.

However, they still need their savings to grow over time to keep pace with inflation and provide for future financial needs. Options like fixed annuities or low-risk investments can offer some yield without significant market risk.

Solving for the Gap

By using amortization software, you can determine the interest rate needed to close the income gap. This process helps you find an appropriate balance between risk and return while ensuring your income needs are met throughout retirement.

In the case study, it’s demonstrated that even conservative interest rates can allow the couple to sustain their income needs and still have money left over for potential emergencies or legacies.


Retirement income planning doesn’t have to be overly complex. By breaking it down into fundamental components, such as Social Security optimization, income needs assessment, and balancing risk and return, individuals and couples can make informed decisions about their retirement finances.

The key is to create a plan that addresses your unique circumstances, risk tolerance, and goals. Whether you choose to use annuities, investments, or a combination of strategies, the primary objective should be to secure a comfortable and worry-free retirement. It’s crucial to consult with a financial advisor to tailor a plan that suits your specific needs and preferences.

Check out the Podcast:

Learn More:

Maximize Social Security

Last Updated on November 10, 2023 by Bryan Anderson