Most people spend decades saving for retirement without ever sitting down to answer the most important question of all: how much can I actually spend each month, after taxes, for the rest of my life? It sounds simple. It is anything but. And until you can answer it with confidence, you are not really ready to retire.

That is the question we set out to answer for Tom and Susan, a real couple retiring in October of 2026 with about $1.8 million saved and a combined Social Security benefit of just over $6,200 a month. They were not in bad shape. They had saved diligently, made reasonable investment decisions, and were coming into retirement with more than most people do. But “not bad” is not the same as “guaranteed,” and guaranteed is what they needed.

What Is a Retirement Income Plan and Why Do You Need One?

A retirement income plan is a detailed, written strategy that shows you exactly where your money will come from every month after you stop working. It accounts for Social Security, investments, annuities, taxes, inflation, and what happens to your income if your spouse passes away before you do. Without one, most retirees are simply guessing — and guessing with money you cannot afford to lose is a risk no one should take.

For a 65+ couple heading into retirement, a solid income plan answers three questions clearly. How much can you spend each month after taxes? Where is that money coming from? And how long will it last? Everything else in retirement planning flows from those three answers.

Building Your Retirement Income Plan From the Bottom Up

One of the most common mistakes people make when thinking about retirement income is starting from the top down. They pick a number — say, $100,000 a year — and then try to figure out how to make that work. The problem is that number is almost meaningless without context. Is that before or after tax? Does it account for inflation? Does it cover both spouses for the rest of their lives, even if one of them lives to 95?

When we sit down with clients, we do the opposite. We start at the bottom and work our way up. We ask two questions. First, how much do you need to live? We are talking about the basics — housing, food, transportation, healthcare, the non-negotiables. For Tom and Susan, that number landed somewhere around five to six thousand dollars a month. Second, how much do you want to spend? This is where retirement actually gets interesting. Travel, hobbies, helping the grandkids, maybe a second home. These are the things people work their whole lives toward, and they deserve a real place in the plan. When we added those two numbers together for Tom and Susan, we arrived at $10,500 a month.

But here is the part most people forget. That $10,500 is an after-tax number. You cannot spend tax money. So before we could plan for $10,500 a month in spending, we had to calculate how much gross income Tom and Susan would need to generate in order to net that amount after federal and state taxes. The answer was a gross income of just over $12,000 a month. That is the real target. And then we adjust that number upward by two and a half percent every year for inflation, because $10,500 a month at 68 is not the same as $10,500 a month at 85.

How Social Security Fits Into Your Retirement Income Plan

Social Security was going to cover a significant portion of Tom and Susan’s income need. Based on the decisions they made — filing right at retirement, which lined up with Susan’s full retirement age and gave her a spousal benefit based on Tom’s work history — they were going to receive $6,294 a month from Social Security. That is a strong foundation, but it still left a gap of about $6,000 a month that needed to come from somewhere else.

The most obvious solution is simply to withdraw that $6,000 a month from their investment accounts. And you could do that. Some of our clients do. But it comes with real risks that are easy to underestimate when the market is behaving itself. Investments go up and down. Any given year could be a bad one. And when you are pulling $6,000 a month out of an account that just lost fifteen percent of its value, you are compounding the damage in a way that is very difficult to recover from. This is what financial planners call sequence of returns risk — the idea that the timing of your bad years matters just as much as the size of them. A bad stretch early in retirement can permanently derail a plan that would have worked fine if the returns had come in a different order.

How Annuities Create Guaranteed Retirement Income for Life

To eliminate that risk for Tom and Susan, we recommended two annuities working in sequence to cover the $6,000 a month gap. An annuity is a contract with an insurance company that guarantees you a set monthly income, regardless of what the stock market does or how long you live. For retirees who want certainty over speculation, annuities are one of the most powerful tools available.

The first annuity is called a SPIA — a Single Premium Immediate Annuity. It was funded with $316,000 moved directly from their IRA. That transfer is not a taxable event. The money moves from one IRA to another, and taxes are only due as the income comes out, which we handle by withholding directly from the monthly payment. This annuity begins paying $6,000 a month in October of 2026, right when Tom retires, and it pays for five years. If both Tom and Susan were to pass away during that period, their beneficiaries would receive the remainder of the five-year payment. At the end of five years, this annuity stops.

That is where the second annuity takes over. Starting in year six, right as the first annuity ends, this one picks up and pays $6,000 a month — or $72,000 a year — guaranteed for the rest of both of their lives. This is the piece that truly removes longevity risk from the equation. Longevity risk is the very real danger of outliving your money. Even if the account balance of this annuity eventually reaches zero, the income continues. As long as either Tom or Susan is alive, that check arrives every month. That guarantee does not exist when you are simply making withdrawals from an investment account. When the account runs out, the income stops. With this annuity, it does not.

How Guaranteed Income Allows You to Invest More Confidently

Here is something that surprises a lot of people. Because we used annuities to lock in the income, we were actually able to invest the remaining money more aggressively than Tom and Susan had been investing it before. They came to us with roughly a 60/40 portfolio — sixty percent equities, forty percent fixed income — which is a perfectly reasonable allocation for someone heading into retirement. But because their income was now guaranteed and had nothing to do with market performance, there was no longer a reason to keep so much of their remaining money in conservative fixed income investments. The annuities were already doing that job.

With the income covered, we recommended moving the remaining investments to an 80/20 allocation — eighty percent equities, twenty percent fixed income. More growth potential, more volatility, but none of that volatility touches their monthly income. Over time, a higher equity allocation produces a higher expected return, which means more money growing in the background, more available for Roth conversions, and ultimately more to pass on to their children.

When we ran this through our planning software using a Monte Carlo simulation — a tool that tests your retirement plan against a thousand different market scenarios to see how many times you run out of money — Tom and Susan’s probability of success went from 98% under their original plan to 100% under the proposed plan. Their projected ending balance also increased. Neither of those outcomes is guaranteed, of course. Markets are unpredictable and life has a way of changing plans. But directionally, more is better, and 100% is better than 98%.

What Happens to Retirement Income When a Spouse Passes Away

No retirement income plan for a married couple is complete without thinking through what happens when one spouse passes away. It is an uncomfortable subject, but ignoring it is far more costly than facing it.

For Tom and Susan, the loss of one spouse would set off a chain of financial consequences. The smaller of their two Social Security checks would stop, reducing their combined benefit to roughly $4,298 a month. The IRMAA threshold — the income level at which Medicare premiums increase — would drop from $218,000 for a married couple to $109,000 for a single filer, effectively more than doubling their Medicare costs. Tax brackets would compress significantly, with the 24% bracket dropping from $403,000 for a married couple to around $200,000 for a single filer. If they were in the middle of a Roth conversion strategy, which they are, those conversions would suddenly become far more expensive.

Against all of that, the annuity income is unchanged. That $6,000 a month continues flowing to whoever is still living, for as long as they live. In a situation where so much else gets harder after losing a spouse, that guarantee is not just a financial tool. It is a form of protection for the person left behind.

Managing Taxes in Retirement

Underneath all of this sits the tax plan, which shapes every decision we make about income. Tom and Susan’s Roth conversion strategy is designed to keep their income just below the IRMAA threshold each year, converting as much as possible at lower tax rates before required minimum distributions force the issue later.

Their money sits in three buckets. The first is taxable accounts, where they are paying taxes now but have already paid tax on the principal. The second is tax-deferred accounts like their IRA, where taxes are due on withdrawal. The third is tax-free accounts like their Roth IRA, where the money grows and comes out without any further tax liability. Managing those three buckets year by year — deciding which one to draw from, how much to convert, and when — is where a significant amount of the long-term value in a retirement plan gets created or destroyed. It is not glamorous work, but it is some of the most important work we do.

A Retirement Income Plan Is a Starting Point, Not a Promise

One last thing worth saying is that a retirement income plan is not a promise. It is a snapshot of where things stand today and the best projection we can make of where they are headed. Life will intervene. Markets will do unexpected things. Health will change. Spending will shift. What makes a plan valuable is not that it predicts the future perfectly but that it gives you a clear framework to work from and a process for adjusting when things change.

We meet with clients multiple times while building the plan, and we stay with them through retirement, reviewing and adjusting every year so that the plan stays connected to reality. For Tom and Susan, the result of all this work is straightforward. They know exactly where their income is coming from every month. They know it will be there no matter what the market does. They know the surviving spouse will be protected. And they know the rest of their money is invested in a way that gives it the best chance to grow. That is what a good retirement income plan is supposed to do — not just answer the question of whether you have enough, but give you the confidence to enjoy the retirement you spent a lifetime building toward.

Frequently Asked Questions About Retirement Income Planning

What is a retirement income plan?

A retirement income plan is a written strategy that shows you exactly where your money will come from every month after you stop working. It accounts for Social Security, investments, annuities, taxes, inflation, and what happens to your income if your spouse passes away before you do. Without one, most retirees are left guessing about one of the most important financial decisions of their lives.

How much money do I need to retire comfortably?

The answer depends on how much you need to live and how much you want to spend in retirement. A good retirement income plan starts by calculating both of those numbers, then works backwards to figure out how much gross income you need to generate after taxes to cover them. For most couples, that number is higher than they expect once inflation and taxes are factored in.

What is a SPIA annuity and how does it work?

A SPIA, or Single Premium Immediate Annuity, is a contract with an insurance company that converts a lump sum of money into a guaranteed monthly income stream. You make a one-time payment and the annuity company begins sending you a check every month, either for a set period of time or for the rest of your life. It is one of the most straightforward ways to create guaranteed retirement income.

How do annuities protect retirement income in retirement?

Annuities remove two of the biggest risks retirees face — market risk and longevity risk. Because the income is guaranteed by an insurance company, it does not go down when the stock market does. And because certain annuities are designed to pay for life, you cannot outlive the income no matter how long you live.

What happens to retirement income when a spouse passes away?

When one spouse passes away, several things change at once. The smaller Social Security check stops. Medicare premium thresholds drop, potentially increasing costs. Tax brackets compress, making Roth conversions more expensive. A well-designed retirement income plan accounts for all of these changes in advance so the surviving spouse is protected and not left scrambling to adjust.

When should I start retirement income planning?

The best time to start is five to ten years before you plan to retire. That window gives you enough time to make meaningful decisions about Social Security timing, Roth conversions, annuity purchases, and investment allocation before those decisions are made for you by circumstance. The second best time is right now, regardless of where you are in the process.