Retirement is a pleasant prospect to look forward to, but if you go into it carelessly, you may wind up miserable and cash-strapped rather than laid-back and content. To give yourself a better chance of landing in the latter scenario rather than the former, you'll want to follow these important rules.

1. Know how much income your nest egg will provide you

Ideally, you'll have amassed a sizable IRA or 401(k) balance, or both, over the course of your working years. But how much monthly or annual income will you actually be able to get on a sustainable basis from your retirement accounts?

If you don't establish a yearly withdrawal rate and see what it means in terms of your savings balance, you won't have a clear sense of the lifestyle you can afford once you stop working.

Many financial experts suggest starting your calculations with the 4% Rule, which advises people to withdraw 4% of their savings balance in their first year of retirement, with adjustments in subsequent years to account for inflation. Follow this guideline, and even if your retirement lasts for three decades, you shouldn't run out of money.

Still, some advisors think that withdrawal rate is too aggressive, especially for people who retire early or who have low-risk, bond-heavy asset allocations, in which case 2.5% or 3% may be more suitable. Others suggest that you could be cheating yourself by taking out too little at 4%. Starting off with a 5% rate can lead to success too, especially if you're willing and able to make adjustments to your lifestyle during down markets.

Either way, find a withdrawal rate you're comfortable with, apply it to your savings, and see how much income it gives you.

Older man and woman laughing, clinking wine glasses in front of a large tree


For example, a retirement account balance of $400,000 may seem like a lot of money, but 4% of that is just $16,000 in annual income. Keep that number in mind as you make key decisions such as where you're going to live during retirement, whether you'll work part-time, and what sort of expenses to commit yourself to.

2. Don't bank too heavily on Social Security

Though Social Security helps millions of seniors keep up with their living expenses, the benefits the program provides aren't enough to live on. They'll replace about 40% of your pre-retirement income if you're an average earner, but most seniors will need around twice that amount to live comfortably.

If you're nearing retirement without much savings, it could pay to extend your career a bit to boost your nest egg, and also, to allow you to hold off on claiming your benefits for as long as possible. For each year you delay filing for Social Security past your full retirement age (up until age 70), you'll boost the size of your monthly benefit payment by 8%.

3. Plan on paying taxes

Many seniors are shocked to learn the degree to which they're still on the hook for taxes in retirement. But if you've housed your investments in a Traditional IRA or 401(k), and not a Roth version of those accounts, then you'll pay taxes any time you take withdrawals from them. You'll also pay capital gains taxes on profits you take from stocks in traditional brokerage accounts, not to mention taxes on interest income, or earnings from any part-time job you take. And if you're a moderate earner or higher, expect to pay federal taxes on your Social Security benefits. State taxes may apply to those benefits, too, depending on where you live.

4. Know how you'll spend your days

Retirees are 40% more likely than the still-employed to fall victim to depression, and much of that comes down to being bored. Rather than risk that fate, long before you leave the workforce, start developing up with a plan for how you'll spend your days, and make sure it's a reasonable one given your anticipated retirement income. For example, if you're looking at about $20,000 a year in Social Security income and another $20,000 from your investments, you may have a reasonably easy time paying your bills, but you probably won't have enough money to travel every other month. Make sure your ideas align with your financial circumstances, and if they don't, think up lower-cost alternatives.

Retirement can be a rewarding but challenging period of life. Follow these rules when you're planning for it, and you'll be less likely to get caught off guard by your situation when your golden years roll around.