3 steps to help create a retirement income plan

Photo of a man who has created an income plan for retirement.

You’ve spent your career saving for retirement. When you retire, you shift from saving to spending—using that money you’ve set aside as a source of income during your retirement years. Here are 3 steps to help you think through your needs and create a plan.

Step 1. Identify what you’ll need to spend each month in retirement.

Make sure you cover your basic needs—food, housing, medical expenses, insurance and transportation. You may also want to spend some money on fun activities like travel or hobbies. If you’re not sure what your expenses will be, track what you spend today to get a feel for where your money goes.

Also think about how long your retirement might last. Hoping to retire early? You’ll need income to cover those additional years. Do people in your family tend to live a long time? The longer you live, the more money you’ll likely need.

Step 2. Identify how much money you’ll have coming in, and from where.

It can be helpful to look at this in 2 buckets:

Graphic of a guaranteed income bucket.

Guaranteed income

Guaranteed (or fixed) income sources—like Social Security, an annuity or a company pension plan.

Graphic of a variable income bucket.

Variable income

Variable income sources—like a 401(k) or 403(b) account, IRA, other investment accounts or funds, rental income, or income from a part-time job.

Use this guide to map out your retirement budget.

Graphic of the variable and guaranteed income buckets.

Step 3. Match up your “money coming in” to your estimated expenses in retirement.

One approach is to use your guaranteed income to cover your basic needs. If your guaranteed income won’t cover all of those essential expenses, use your variable income sources to fill in the gap, plus cover the fun stuff—travel, hobbies and other bucket list items.

Get help

Building a retirement income strategy can be complicated, so you may want to work with a financial professional. He or she can help you plan out how best to use your income sources to cover your expenses and fill any income gaps.

Ready to get started?

  • Looking for estimates? Start visualizing retirement with your own info by visiting our planning tools and calculators.
  • Have a Principal retirement account from your employer? Log in to principal.com to access personalized planning, sign up for our quarterly newsletter and more. First time logging in? Get started here.
  • Interested in starting an individual retirement account (IRA) or consolidating other accounts into your existing one? Call 800-247-8000, ext. 2503 between 7 a.m. and 9 p.m. CT. Not familiar with IRAs? Here’s a refresher.
  • Got a financial professional? They can help you figure out your next steps. If you’d like to meet with one face-to-face, we’ll help you find one.

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 advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

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