The average retirement lasts about 20 years. One way to look at that is through the lens of time: how many good years of life you might have left and how to make the most of them.
But financially, it means something even more concrete. You’ve got 240 paychecks to spend.
The math is simple. Retire at 65, live to around 85, and that’s 20 years × 12 months = 240 monthly retirement paychecks.
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Yet turning a lifetime of savings into a steady stream of income for retirement planning is no small feat. According to the 2024 Schroders U.S. Retirement Income Survey, 88% of non-retirees said they’re at least slightly concerned about how to generate income in retirement. And among retirees, more than half (53%) admit they don’t follow a specific strategy; they simply take money when they need it.
That’s a lot of pressure, especially when you’re the one signing your own checks now. And like any good boss, you need to pay yourself wisely.
But financial experts say the goal isn’t just to make those 240 paychecks last, but also to make them count.
Writer Annie Dillard famously wrote, “How we spend our days is, of course, how we spend our lives.” In retirement, how you spend those retirement dollars each month can shape what those years feel like.
The rule of 240 paychecks: where will they come from?
Most retirees rely on a mix of income sources. A Gallup poll found that 58% of retirees cite Social Security as their primary source of income, followed by workplace pensions, personal retirement savings, home equity and more.
At a minimum, most people retire with a combination of Social Security and savings. The average monthly Social Security benefit is $1,997, which is a meaningful base but unlikely to cover all expenses.
A good starting point is to list all your guaranteed sources of income alongside variable sources. “We typically layer guaranteed income sources like Social Security, pensions and annuities with systematic portfolio withdrawals tailored to risk tolerance and longevity,” says Nathan Sebesta, CFP® and founder of Access Wealth Strategies.
Just as important: estimating your expenses. As David Rosenstrock, director of financial planning and investments at Wharton Wealth Planning, advises: “How much you want to spend in retirement is one of the biggest factors driving how much you need for a secure retirement.”
A common rule of thumb suggests retirees need about 80% of their pre-retirement income to maintain their lifestyle. But that number can shift based on your spending habits, healthcare needs and goals for retirement.
How to create your retirement paycheck
Turning your retirement assets into a paycheck is more chess than checkers. The key variable is the withdrawal amount.
Many retirees begin with the 4% rule: withdraw 4% of their retirement portfolio in the first year and adjust for inflation in subsequent years. While this is a useful starting point, it’s not a one-size-fits-all solution or static rule.
As Sebesta points out: “Success comes from balancing reliability with adaptability across a 20-plus-year retirement horizon and being able to live within your means.”
The order in which you tap your accounts also matters. A common strategy is to start with taxable brokerage accounts, as these distributions will not be taxed as ordinary income. After that, you might move to tax-deferred accounts like traditional IRAs or 401(k)s, and finally to tax-free accounts like Roth IRAs.
But that order isn’t always ideal. “It’s important to understand the details of your own situation,” Rosenstrock explains. “The conventional wisdom of withdrawing funds from taxable brokerage accounts first, then tax-deferred accounts, followed by tax-exempt accounts, may not be best for everyone.”
Another strategy is to delay Social Security until age 70 — boosting benefits by up to 8% per year plus inflation adjustments — says Easton Price, CFP® and financial planner at Apella Wealth. “If you retire at 65 and elect to delay Social Security benefits until age 70, you may be a good candidate for Roth conversions depending on other sources of income and who your beneficiaries are,” he says.
Still, there’s a trade-off. The longer you delay Social Security, the more you may have to rely on your investment portfolio in the early years of retirement. Moreover, if Congress doesn’t fix Social Security in the next few years, you might need to save an extra $100,000 to compensate for the reduced benefits predicted to start in 2033.
Common retirement paycheck mistakes
Even the best-laid retirement income plans can run into trouble. Taxes, inflation, market downturns and unplanned expenses are some of the biggest threats.
One often overlooked opportunity is proactive tax planning. “Many retirees focus solely on generating income without considering the tax planning opportunities that come with lower income early in retirement,” says Patrick Fontana, CFP® and founder of Fontana Financial Planning. Strategic Roth conversions during those lower-tax years, he notes, can significantly reduce lifetime tax bills and leave more for heirs.
Another common misstep is withdrawing too aggressively in the early years. “Underestimating inflation or pulling too much too soon can put a plan at risk,” says Sebesta. “That’s why we stress flexibility and encourage clients to revisit their income strategy at least annually.”
Market volatility can also derail a paycheck plan if you’re not careful. Selling stocks during a downturn can lock in losses. Instead, advisors recommend using cash or bonds to cover income needs during rough markets and letting equities recover, preserving their role as an inflation hedge.
Finally, “without a clear spending plan, retirement lifestyle creep can lead to spending that is not sustainable over the long run,” Price says.
The psychology of spending your 240 paychecks
“Retirement is a difficult life transition,” Price adds. “Going from stable work, steady income and a fixed schedule to managing portfolio distributions, associated taxes and no set routine can be daunting.”
A BlackRock study found that five years into retirement, less than one in five retirees had clear goals for how much they wanted to have left at the end of life. Among those who did, most wanted their assets to grow, not be spent.
It underscores a common challenge. The habit of saving is hard to break. Many retirees hesitate to spend because of lingering fears of experiencing a financial or medical emergency.
That’s why Price encourages clients to revisit their values and aspirations heading into retirement. “When people get clear on what really matters, they’re more comfortable with spending.”
And what you spend your money on matters. Research from Merrill Lynch and Age Wave shows that retirees report the greatest satisfaction when they spend on experiences, especially those shared with loved ones, rather than material items.
As journalist Gloria Steinem once said: “It is more rewarding to watch money change the world than watch it accumulate.”
Which raises the real question: What will you do with your 240 paychecks?