Photo of a couple who have created their paycheck in retirement.

4 steps to creating retirement income

You’ve been building your financial foundation for decades. So when it’s finally time to retire, replacing your work paycheck with a retirement income paycheck—and maintaining a sense of security—requires a solid strategy. “One that works for you and what you want,” says Jenny Smith, a financial professional at Principal®, in Des Moines, Iowa.

You likely have your own vision for retirement—you may want to golf every day, or visit family once a month, or sign up for ballroom dancing lessons. “Identifying your priorities and personalizing your strategy is a key part to turning years of contributions into retirement income,” Smith says.

A few thought starters may help as you put those plans and priorities to paper. Here are four of them, as you begin building a solid retirement income plan.

Step 1: Define what retirement means for you.

What do you envision doing during your retirement—traveling, staycationing, working part-time? Those first, active years of retirement may look a lot like the last years of work, in terms of spending. So it may be a good idea to customize your budget for the go-go years, the slow-go years, and the no-go years.

If you have a spouse or partner, consider whether you plan to retire at the same time and whether your retirement goals align.

Step 2: Analyze your financial situation.

Review your current asset allocation and how it’s working for you in your investment portfolio and retirement accounts. Switching from saving to spending may mean you still need some growth potential to keep up with inflation, or you may want to curb the amount of risk you’re taking to protect your assets.

Also consider your expected income during retirement. Include both guaranteed income (like Social Security, pensions, and annuities) and variable income (like retirement accounts, a part-time job, and rental income). Make note of debts you’ll have in retirement.

Then estimate how long your savings may last—accounting for expected and unexpected lifestyle changes over the years.


Photo of a woman writing in a notebook.

To learn more about creating your income plan, read “Map out your retirement budget.”


Step 3: Evaluate your options and adjust.

If you’ve done the math and your analysis shows you may not achieve your retirement goals, don’t worry. You can make changes to manage expenses and boost savings, especially if you’re still in your working years:

Step 4: Choose retirement income solutions.

After you’ve evaluated your current situation and retirement goals, a financial professional can suggest retirement income solutions that make sense for you.

Your income plan could include:

Pay attention to the details.

Smith says when evaluating your choices for retirement income, consider the differences in fees and expenses, as well as tax and legal implications (creditor protections and required minimum distributions), for each option. Also consider your risk tolerance and the length of time before you retire.


To learn more about tax implications, watch “It’s simpler than it sounds: How retirement accounts are taxed.”



“By taking a planned approach to creating a retirement income paycheck, you help reduce your chances of outliving your savings. Because no one wants that, right?” Smith says. “Plus, when you know you can’t outlive it, you’re not afraid to spend your money and enjoy your life more.”

What to do next?

Asset allocation and diversification do not ensure a profit or protect against a loss.

Increasing your contribution does not guarantee you put yourself in a better spot.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other financial professional on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

The Retirement Wellness Planner information and Retirement Wellness Score are limited only to the inputs and other financial assumptions and is not intended to be a financial plan or investment advice from any company of the Principal Financial Group® or plan sponsor. This calculator only provides education which may be helpful in making personal financial decisions. Responsibility for those decisions is assumed by the participant, not the plan sponsor and not by any member of Principal®. Individual results will vary. Participants should regularly review their savings progress and post-retirement needs.

Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Co. Plan administrative services offered by Principal Life. Securities and advisory products offered through Principal Securities, Inc., 800-247-1737, Member SIPC and/or independent broker/dealers. Principal National, Principal Life, and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392. Jenny Smith, Principal National and Principal Life Financial Representative, Principal Securities Registered Representative, Financial Advisor.