Building a Retirement Income Plan That Survives a Bad Market

Accumulating assets is a single problem: save more, keep costs low, stay invested. Spending them down is several problems at once — sequence of returns, taxes, Social Security timing, health care and the fact that nobody knows how long the money has to last.

Start with the spending number

Before any portfolio decision, separate essential spending from discretionary spending. Essentials are what you cover with reliable income: Social Security, a pension, an annuity if you own one. Discretionary spending is what flexes when markets fall, and that flexibility is worth more than any clever asset allocation.

Withdrawal order matters

• Taxable accounts first often preserves tax-deferred compounding, but not always.
• Roth conversions in the low-income years between retirement and required minimum distributions can lower lifetime taxes.
• Watch the cliffs — IRMAA surcharges on Medicare premiums and capital gains brackets can be triggered by a single large withdrawal.

Social Security is a longevity decision

Delaying benefits raises the payment for life and, for married couples, raises the survivor benefit too. That makes claiming age as much an insurance decision as an investment one.

Plan for health care explicitly

Medicare premiums, supplemental coverage and out-of-pocket costs rise faster than general inflation, and long-term care is the largest single unbudgeted risk most retirees carry. Put a number on it in the plan rather than hoping the portfolio absorbs it.

A written income plan does not remove uncertainty. It tells you, in advance, what you will do when markets fall — which is the only decision that ever really matters.