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Create Your Paycheck in Retirement

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Get retirement help

Call us at 888-213-4695 or visit your local branch.


Use these steps as a guide for turning your retirement savings into retirement income.

1. Assess Income Needs

How much income will you need from your investments each year? To answer that question, start by developing a realistic retirement budget.

Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Housing, taxes, food, utilities, health care, insurance, emergencies, entertainment, travel, gifts, hobbies, memberships
Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Social Security, pensions, salary from part-time work, rental income
Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Annual income your portfolio must provide
  1. Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Housing, taxes, food, utilities, health care, insurance, emergencies, entertainment, travel, gifts, hobbies, memberships
    Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Social Security, pensions, salary from part-time work, rental income
    Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Annual income your portfolio must provide

    Estimate your living expenses for a year.

    • Create a detailed estimate with our Monthly Budget Planner.
    • For a quick estimate, use our rule of thumb.
    • Divide expenses into two categories: essential and discretionary. Essential expenses are things you can’t do without, such as food, housing, taxes, health care, insurance, and a buffer for emergencies. Discretionary expenses, like travel and hobbies, are things you could cut in a pinch. Why this is important.

      Take a good look at how your expenses might change in retirement. While some expenses may decrease or go away altogether, you’re likely to incur some new expenses.

  2. Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Housing, taxes, food, utilities, health care, insurance, emergencies, entertainment, travel, gifts, hobbies, memberships
    Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Social Security, pensions, salary from part-time work, rental income
    Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Annual income your portfolio must provide

    Subtract any income from predictable sources.

    Predictable income sources may include:

    • Social Security
    • Pensions
    • Salary from part-time work
    • Rental income

    Need help estimating Social Security? Calculate your benefits using the Social Security Administration’s benefits calculator.

  3. Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Housing, taxes, food, utilities, health care, insurance, emergencies, entertainment, travel, gifts, hobbies, memberships
    Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Social Security, pensions, salary from part-time work, rental income
    Estimated expenses minus predictable income equals what you'll need from your retirement portfolio. Annual income your portfolio must provide

    The result is an estimate of what you’ll need from your retirement portfolio.

    With this target amount in mind, you can now set up your portfolio to help generate the income you need.

    Use our Retirement Calculator to see whether your savings can generate the income you need—and explore options for what to do next.

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2. Allocate Your Money

Consider using a strategy that helps cushion your income from market and interest rate fluctuations.

Help cushion income from market and interest rate fluctuations.
Bank Account
Help cushion income from market and interest rate fluctuations.
Main Portfolio
Help cushion income from market and interest rate fluctuations.
Short-term Reserves
  1. Help cushion income from market and interest rate fluctuations.
    Bank Account
    Help cushion income from market and interest rate fluctuations.
    Main Portfolio
    Help cushion income from market and interest rate fluctuations.
    Short-Term Reserves

    Set aside a year’s worth of cash.

    • In a relatively safe, accessible account (such as a checking or savings account), deposit an amount of cash equal to a year’s expenses.
    • This is the money you’ll use—along with your sources of predictable income—to cover all expenses throughout the year.
    • Get more details on estimating your needs.
  2. Help cushion income from market and interest rate fluctuations.
    Bank Account
    Help cushion income from market and interest rate fluctuations.
    Main Portfolio
    Help cushion income from market and interest rate fluctuations.
    Main Portfolio

    Build your main portfolio.

      You can invest in a mix of stock, bond, and cash investments according to an asset allocation plan that’s appropriate for your age, income needs, financial goals, time horizon, and comfort with risk. The Schwab Center for Financial Research recommends a progressively more conservative asset allocation plan as you move through retirement.


      Asset allocation for retirees

      The allocation to stocks, fixed income, and cash that’s best for you will depend on your circumstances and tolerance for risk. You may consider starting retirement at no more than a moderate level of risk and gradually shifting your portfolio toward more fixed income investments as your retirement time horizon becomes shorter, your risk tolerance declines, and your need for long-term growth lessens.

      Here’s an example of how you might adjust your asset allocation through retirement.

      Ages 60–69 Ages 70–79 Ages 80+
      Moderate Moderately Conservative Conservative
      5% cash
      35% fixed income
      60% stocks
      10% cash
      50% fixed income
      40% stocks
      30% cash
      50% fixed income
      20% stocks
      Return (1970–2013) Return (1970–2013) Return (1970–2013)
      Average annual return: 9.8%
      Best year: 30.9%
      Worst year: −20.9%
      Average annual return: 9.1%
      Best year: 27.0%
      Worst year: −12.5%
      Average annual return: 7.9%
      Best year: 22.8%
      Worst year: −4.6%

      Review your investment choices.

  3. Help cushion income from market and interest rate fluctuations.
    Bank Account
    Help cushion income from market and interest rate fluctuations.
    Main Portfolio
    Help cushion income from market and interest rate fluctuations.
    Short-Term Reserves

    Within your main portfolio, create a short-term reserve.

    • Sometimes the unexpected happens, and the year of cash you’ve set aside for living expenses may not be enough to cover a needed purchase or emergency expense. We suggest you create a short-term reserve in the cash and cash investments allocation portion of your retirement portfolio, enough to cover up to four years of your retirement portfolio withdrawals.

      By investing this cash in liquid investments such as money market funds and short-term CDs, your goal is to have your cash reserve ready if you need it and avoid the possibility of having to sell your investments in a bear market.

    • You may also consider placing this money in a short-term ladder or, if you don’t want to manage individual investments in a ladder, consider short-term bond funds.

      Short-term ladders

      A short-term ladder can consist of CDs, Treasuries, or the highest-rated municipal bonds with staggered maturities of one to four years. Here’s an example of a short-term ladder:

      Amount invested Maturity (years from today) Type Other considerations
      Two to four years’ worth of expenditures after accounting for other income sources • 6 months
      • 1 year
      • 1 year 6 months
      • 2 years
      • 2 years 6 months
      • 3 years
      • 3 years 6 months
      • 4 years
      Mix of FDIC-insured CDs as well as Treasury bills and notes, and municipal bonds. A ladder can include multiple CD or bond types, depending on interest rates. Also consider municipal bonds rated AA or higher by Moody’s and Standard & Poor’s, but only in taxable accounts.

      paper iconWhat you can do now:

      • Get more details about bond ladders by watching our video, “Should a bond ladder be part of your plan?,” or calling a Fixed Income Specialist at 800-626-4600.
      • Learn more about Schwab CD OneSource®.
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3. Plan Your Withdrawals

Consider this withdrawal strategy to help keep your annual income steady.

  1. Pay expenses from your bank account.

    • Withdraw money as you need it for retirement expenses.
    • You’ll replenish this account with money from your retirement portfolio and any income you receive from predictable income sources like Social Security.
    • From Schwab Bank

      Open an FDIC-insured Schwab Bank High Yield Investor Checking® or Schwab Bank High Yield Investor Savings® account. With unlimited ATM Fee Rebates, these accounts can help you save.

  2. Withdraw interest and dividends from your retirement portfolio.

    • If you’ve previously elected to have dividends and interest automatically reinvested, turn off this feature and direct the income to your bank account instead.
    • If dividend and interest income is not sufficient to cover your retirement expenses, you may also need to withdraw a portion of your principal. Continue reading for suggestions about how to do this.
    • If you’re interested in a dividend growth strategy that seeks to deliver monthly income, annual income growth, and competitive total returns over time, learn more about the ThomasPartners® Dividend Growth Strategy.
  3. Withdraw principal first from your short-term reserve.

    • Consider withdrawing proceeds from maturing bonds or maturing CDs in your short-term reserve.
    • Replenish your short-term reserve with returns generated from your retirement portfolio.
    • If this is not enough to maintain your short-term reserve at the necessary levels, see the next step: Rebalancing.
  4. Use proceeds netted from rebalancing your retirement portfolio.

    • Use the proceeds from investments you sell as you rebalance your portfolio back to your target asset allocation each year. Which investments should you sell first?
    • Rebalancing helps keep your portfolio in line with your income objectives, other goals, time horizon, and comfort with risk.
    • Here’s a year-end rebalancing example, in which you might withdraw $40,000 as you rebalance:

      Portfolio rebalancing example

      Withdrawing $40,000 cash as you rebalance your portfolio.

      Here’s a hypothetical example of a typical year-end portfolio rebalancing exercise. Let’s assume you’re a retiree with a moderately conservative asset allocation. You have enough cash set aside for the next 12 months, but at the end of the year you plan to take $40,000 out of your portfolio. Your portfolio looks like this at the beginning of the year:

      Beginning of year

      Investments Taxable account IRA Total portfolio Allocation
      Large-cap stocks $250,000 $0 $250,000 25%
      Mid-/small-cap stocks $50,000 $0 $50,000 5%
      International stocks $100,000 $0 $100,000 10%
      Taxable bonds $0 $500,000 $500,000 50%
      Money market fund $100,000 $0 $100,000 10%
      Total $500,000 $500,000 $1,000,000 100%

      End of year

      This hypothetical portfolio could grow until it looks like this at the end of the year (assumes dividends and interest on stocks and bonds are swept into the money market fund in the taxable account, but then are automatically reinvested in the IRA).1

      Investments Taxable account IRA Total portfolio Allocation
      Large-cap stocks $263,500 $0 $263,500 25.10%
      Mid-/small-cap stocks $54,300 $0 $54,300 5.17%
      International stocks $105,400 $0 $105,400 10.04%
      Taxable bonds $0 $518,000 $518,000 49.33%
      Money market fund $108,8001 $0 $108,800 10.36%
      Total $532,000 $518,000 $1,050,000 100%

      Here’s how you might withdraw $40,000 and at the same time rebalance this hypothetical portfolio back to your target asset allocation. Keep in mind that selling investments can have tax implications and you may want to consult with a tax advisor before you proceed.

      Investments Taxable account Cash out IRA Cash out Total portfolio Allocation
      Large-cap stocks $263,500 ($11,000) $0 $0 $252,500 25%
      Mid-/small-cap stocks $54,300 ($3,800) $0 $0 $50,500 5%
      International stocks $105,400 ($4,400) $0 $0 $101,000 10%
      Taxable bonds $0 $0 $518,000 ($13,000) $505,000 50%
      Money market fund $108,800 ($7,800) $0 $0 $101,000 10%
      Total $532,000 ($27,000) $518,000 ($13,000) $1,010,000 100%
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Print Your Checklist

Now that you have a better understanding of how to set up your retirement income stream, use this checklist to help you take your next steps. We’re here to help.

  1. Assess your income needs.
    • Estimate your living expenses for a year.
    • Subtract any income from predictable sources.
    • The result is an estimate of the income you need from your portfolio.
      • If you’re a Schwab client, you can schedule a personal retirement consultation to discuss your situation. Call 877-673-7970.
  2. Allocate your money.
    • Set aside a year’s worth of cash.
      • Use a checking or savings account.
      • Arrange to have Social Security checks and other income automatically deposited into a bank account.
    • From Schwab Bank

      Open an FDIC-insured Schwab Bank High Yield Investor Checking® or Schwab Bank High Yield Investor Savings® account. With unlimited ATM fee rebates, these accounts can help you save. Call 888-403-9000 for more details.

    • Build your portfolio.
      • Choose investments for your portfolio that are suitable for your income needs and your risk profile.
    • Within your retirement portfolio, create a short-term reserve.
  3. Plan your withdrawals.
    • Pay expenses from your paycheck account.
    • Withdraw interest and dividends from your main portfolio.
      • Ask us to turn off automatic reinvestment of your interest and dividends. Call 800-435-4000.
    • Withdraw principal from your short-term reserve.
    • Replenish your reserve first with principal from maturing bonds.
    • Then, replenish your reserve with proceeds from rebalancing.
      • Consolidate your retirement savings at Schwab to make managing retirement income easier. Call an Account Transfer Specialist at 866-232-9890.
      • Ask a Rollover Consultant to help you move a 401(k) to Schwab. Call 866-855-9095.

        NOTE: Before initiating a rollover, carefully consider all of your available options, which may include, but not be limited to, keeping your assets in your former employer’s plan, rolling over assets to a new employer’s plan, or taking a cash distribution (taxes and possible withdrawal penalties may apply). Prior to a decision, be sure to understand the benefits and limitations of your available options and consider factors such as differences in investment-related expenses, plan or account fees, available investment options, distribution options, legal and creditor protections, the availability of loan provisions, tax treatment, and other concerns specific to your individual circumstances.

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