Replacing Your Paycheck in Retirement. What You Need to Know About Retirement Income Planning.

Maura Schauss |

By Todd Youngdahl, CFP® at Washington Wealth Advisors

If you’re like many of our clients, you’ve spent years or even decades planning for your unique retirement, having a disciplined savings approach, and working your plan with your advisor. Now that you’ve finally reached financial independence and accumulated enough funds to retire, what’s next? Does the planning stop? Nope! The next step is to understand how to generate ongoing cash flows from your savings so you can replace your paycheck in retirement.

Sources of Retirement Income

The first step in retirement income planning is understanding the different sources of retirement income and how they fit into your unique plan. Each person will have their own individualized combination of resources to consider, including:

  1. Fixed income: These include assets that pay a relatively fixed amount, either on a monthly or annual basis. The amounts may fluctuate based on inflation, but they will not swing massively over time like assets exposed to the market. Pensions, Social Security, rental income, and annuities are all examples of fixed income.
  1. Interest & dividends: This cash flow comes from assets like stocks and bonds. Since these assets are subject to market fluctuations, the income they produce is not always guaranteed.
  1. Capital gains: Capital gains occur when an asset is sold for more than it was originally purchased. Deciding when to liquidate an asset is an important aspect of creating cash flow in retirement.
  1. Portfolio principal: This consists of the original contributions made to your investment accounts. Tapping into this portion of your nest egg can be useful in certain situations.
  1. Real estate equity: For many clients, their primary residences or vacation homes make up a significant portion of their overall net worth. Recognizing when these assets can be tapped to generate income in retirement is a key part of maintaining financial independence.

Use the Bucket Approach when Planning Your Retirement Income

Generating cash flow in retirement is an ongoing process. Market conditions, sources of income, and expenses will all change over time—which means your retirement income plan must adapt.

An easy way to monitor and keep track of your cash flow is to use the bucket approach. This strategy groups your retirement portfolio into time-specific categories, each with a different asset or risk level tailored for that time horizon. 

Short-Term Needs

These are everyday living expenses and other short-term goals that will be accomplished within two years. These funds should be in easily accessible accounts like high-yield savings accounts or money market funds. You won’t get the highest return, but your money will be there when you need it, which is the most important part.

Intermediate Needs

Once your basic needs have been met, your other assets can be invested to continue generating income in the future. If you have goals that you would like to accomplish between three to seven years (like a dream vacation, or major home upgrades), consider certificates of deposit or short- to intermediate-term bond funds. These assets will offer a greater return, but they are not as liquid and should only be used for goals you will not need to fund right away.

Long-Term Needs

This bucket is for funds that won’t be needed for at least seven or so years, or if you have excess assets that can be invested as an inheritance for your heirs. The best way to invest for the long-term is to focus on growth-oriented assets, which generally include a larger allocation toward stocks. Since the stock market can be volatile, it’s important to make sure the money you invest will not be needed anytime soon.

Depending on how your needs change over time, funds can be shifted from one bucket to another by adjusting your asset allocation and risk tolerance. If you need more cash on hand, assets can be liquidated in a tax-efficient way. Conversely, if you have too much idle cash, it can be invested based on your time horizon, so you can continue to generate income in the future.

What About RMDs - Required Minimum Distributions?

Once you reach age 72, you’ll have to factor in the required minimum distributions, or RMDs, from any qualified retirement accounts you may own. Depending on your account balances, these distributions may cover all or most of your everyday living expenses. If that’s the case, you could then redirect other excess income streams back into the bucket system.

No matter what sources of income you have, or when they come into play, the bucket system can be utilized to ensure that you are always positioning yourself to generate income in the future and extend the useful longevity of your portfolio.

How Are You Going to Replace Your Paycheck in Retirement?

Are you nearing retirement and wondering what to do once you no longer have a steady paycheck? You are not alone. Our Washington Wealth Advisors team is here to help.

Planning doesn’t stop when you achieve financial independence, it just looks a little different. To learn more about how we can help you replace your paycheck in retirement, call our office at 703.584.2700, email, or schedule a meeting with Todd.


Todd and Maura Talk Retirement in Terms of Your 'Financial Independence' 

We believe Your Retirement - or Your Financial Independence - begins with a plan that will guide your best financial decision-making between now and retirement.  An experienced, trusted financial partner by your side can help you navigate your way towards your own financial independence.

Our Managing Partners Maura Schauss, CFP® and Todd Youngdahl, CFP® talk Financial Independence in this playlist of 3 short videos. Tune in to learn more about Financial Independence.

  1. What is Financial Independence?
  2. How do I achieve Financial Independence?
  3. Success!  Generating cash flow now that I am Financially Independent?





Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our fiduciary approach, independent advice, and proactive investment management help to support our clients’ overall financial peace of mind.