Retirement Income Strategies for 2025: Build a Sustainable Decumulation Plan
Transitioning from saving to spending requires a deliberate plan. Use this 2025 roadmap to manage sequence-of-returns risk, create income buckets, and coordinate taxes across accounts.
The first decade of retirement sets the tone for the rest of your financial life. Volatile markets, rising health-care costs, and evolving IRS rules mean it is not enough to rely on a single “safe withdrawal rate.” Combine multiple tactics to protect your portfolio and lifestyle. Run scenarios using the Retirement Calculator to see how different withdrawal sequences affect longevity.
Quick Start Checklist
- • Inventory accounts by tax status: taxable, tax-deferred, and tax-free.
- • Map essential vs discretionary expenses for the next 10 years.
- • Decide when to claim Social Security and coordinate spousal benefits.
- • Stress-test market downturns in the Retirement Calculator before finalizing your plan.
1. Segment Savings Into Time-Based Buckets
Bucket strategies blend the growth power of equities with the stability of fixed income. Assign each account to a time frame, then automate refills annually.
| Horizon | Assets | Purpose |
|---|---|---|
| 0–3 Years | Cash, high-yield savings, short-term Treasury bills, money market funds | Cover essential spending without selling volatile assets during down markets. |
| 3–10 Years | Short-to-intermediate bond ladders, fixed indexed annuities, balanced funds | Generate stable income and replenish the cash bucket every year. |
| 10+ Years | Equity ETFs, growth mutual funds, real estate investment trusts (REITs) | Outpace inflation and support long-term legacy or late-stage expenses. |
Annual Rebalancing Routine
- Set your yearly spending target inside the Retirement Calculator.
- Withdraw 12 months of cash needs from Bucket 2 (bonds) into Bucket 1 (cash).
- Rebalance equity gains from Bucket 3 down into Bucket 2.
- If markets fall, pause equity replenishment and spend from cash/bonds until recovery.
2. Choose a Flexible Withdrawal Rate
Rather than relying on a static 4% rule, consider dynamic adjustments tied to market performance and personal spending.
- Guardrail Strategy: Increase or decrease withdrawals when portfolio values change by more than 20% to avoid selling low.
- Inflation-Adjusted Spending: Raise withdrawals by CPI each year, but pause increases after negative market returns.
- Required Minimum Distribution (RMD) Approach: Use the IRS life expectancy tables to determine the percentage to withdraw annually, even before RMD age.
Run the Numbers
Enter a range of withdrawal rates into the Retirement Calculator to see how long your savings last under optimistic and conservative return assumptions.
3. Coordinate Timing With Social Security
Claiming Social Security at 62 locks in a reduced benefit, while waiting until age 70 boosts payments by 8% per year after full retirement age. Bridge the income gap strategically:
- Use Taxable Accounts First: Fund early retirement years with brokerage assets to keep income low and reap lower tax brackets.
- Delay Social Security for the Higher Earner: Guarantees a larger survivor benefit for the spouse who outlives the other.
- Run Break-Even Analyses: Compare lifetime benefits using the Social Security Administration's calculators and incorporate results into the Retirement Calculator.
4. Sequence Withdrawals for Lower Taxes
The order of withdrawals influences lifetime taxes. Consider this general hierarchy and adjust annually based on tax brackets:
- Taxable brokerage accounts (harvest capital gains up to the 0% bracket).
- Traditional IRAs and 401(k)s once required minimum distributions (RMDs) begin or when filling lower tax brackets.
- Roth IRAs and Roth 401(k)s for last-resort withdrawals or estate planning.
- Health Savings Accounts (HSAs) for qualified medical expenses to preserve tax-free growth.
Convert portions of your traditional IRA to a Roth during low-income years prior to RMDs. The Retirement Calculator's tax settings let you evaluate how conversions alter your future tax bills.
5. Protect Against Sequence-of-Returns Risk
Market downturns early in retirement can permanently damage your income potential. Mitigate the risk using:
- Cash Reserves for 24–36 Months: Gives equities time to recover before you must sell.
- Equity Glide Path: Start with 55–60% equities and gradually increase later in retirement as life expectancy shortens.
- Guaranteed Income Floor: Combine Social Security, pensions, and laddered annuities to cover essential expenses.
6. Incorporate Healthcare and Long-Term Care Costs
Fidelity estimates a 65-year-old couple retiring in 2024 will spend over $315,000 on health care during retirement. Add these line items to your budget and simulate the impact:
- Medicare Part B & D Premiums: Factor in Income-Related Monthly Adjustment Amount (IRMAA) surcharges when modified AGI crosses thresholds.
- Long-Term Care Insurance: Consider hybrid policies with cash value or use earmarked Roth assets for flexibility.
- HSA Reimbursements: Save receipts now and reimburse yourself tax-free later to supplement income.
Model Your Retirement Cash Flow
Plug your accounts, expected returns, and inflation assumptions into the Retirement Calculator to build a year-by-year projection. Save different scenarios (base, bear market, high inflation) for your advisor meetings.
Frequently Asked Questions
What is a safe withdrawal rate for 2025?
Many planners still reference 3.5–4%, but the right rate depends on your equity allocation, annuity income, and spending flexibility. Revisit the rate annually as inflation and markets shift.
Should I buy an annuity to replace bonds?
Fixed-indexed or immediate annuities can secure baseline income, but compare internal costs and payout rates to a Treasury ladder. Use annuities to cover essentials, not as your entire portfolio.
How do Roth conversions fit into this plan?
Convert during years when your marginal tax bracket is lower than expected future brackets. Model conversions in the Retirement Calculator by adjusting future tax rates and RMD impacts.
Continue learning with our retirement planning guide for your 30s to help adult children or late starters build the nest egg that powers this decumulation strategy.