How to Build a Monthly Paycheck From Multiple Retirement Accounts

It's sad but true that for most of us, Social Security benefits will provide far less income in retirement than we'll need or want. Indeed, as of August, the average Social Security retirement benefit was only $2,008 per month, or about $24,000 per year. Even if you collect twice that, $4,016, that will still be only around $48,000 per year.

So what should you do? Well, several things. Read on to learn how to set yourself up for a more financially secure and more comfortable retirement.

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What's your retirement plan?

Each of us needs to take some time coming up with a solid retirement plan. To do that, we need to think about how much income we'll likely need -- and how we'll get it. As you consider what your retirement expenses will be, think about categories such as:

• Housing -- whether it's rent or mortgage payments
• Food -- both groceries and dining out
• Clothing
• Travel
• Utilities
• Taxes
• Insurance (for your life, home, vehicles, pets, long-term care, etc.)
• Entertainment
• Transportation
• Healthcare
• Repairs and upkeep
• Memberships
• Fuel
• Pets
• Debt repayments
• Gifts
• Donations
• Emergencies

Total up how much you expect to spend on each per year and then add it all up. You might want to do this on a spreadsheet, because the totals will likely change each year due to inflation.

For example, to keep things simple, let's assume that you want to retire with $100,000 in retirement income in your first year. If inflation is around 3% as it often has been, you'll need something like $103,000 in your second year and $106,090 in your second. (To do this math, multiply each year's income needed by 1.03 to adjust it for 3% inflation for the next year.)

To be more conservative, you might plan for bigger annual increases. And to be as accurate as possible, you might consider certain categories and how much each might grow over time. For example, between early 2020 and mid-2024, transportation costs (including gas) rose 27%, per the U.S. Bureau of Statistics, while medical care grew by 10% and apparel grew by 7%.

Your spending on different categories will change over time, too. For example, you might not spend that much on healthcare in your early years of retirement, but that expense could become a major one in later years. Similarly, your spending on travel and transportation might shrink over time.

Don't be afraid to consult a financial advisor, either -- they can help you figure these complicated matters out.

Multiple revenue streams

So since Social Security isn't going to provide all you need, you'll ideally want to set up some other income streams for your future years. Here are some ideas:

• Dividend income: Income from dividend-paying stocks can be wonderful in retirement, in part because healthy and growing dividend payers tend to increase their payouts over time, which can help you keep up with or even beat inflation. If you have a portfolio of stocks worth $400,000, with an overall average dividend yield of, say, 3%, you could expect to receive about $12,000 annually, or $1,000 per month. (And perhaps $15,000 some years later!)
• Interest income: Interest-paying investments are another potentially good income generator, as long as interest rates aren't too low. These days, you can find certificates of deposit (CDs), high-yield savings accounts, and money market accounts yielding 4% or more -- with some near 5%. On a $10,000 investment, that's $400 to nearly $500 per year.
• Rental income: If you're comfortable owning real estate property and being a landlord, you might also generate retirement income from your tenants' rent checks. Remember that it's not all gravy, though -- you'll be on the hook for taxes, insurance, and upkeep for your properties.
• Pension income: If you've worked for an employer that offered a pension -- perhaps you were a teacher or a government worker -- you can include pension income as part of your retirement income.
• Annuity income: Spending a meaningful sum on one or more annuities can get you fairly reliable and regular income.
• Retirement accounts: You've probably been investing in IRAs and 401(k)s throughout your working life. Retirement is when you'll start making withdrawals from them.

There are, of course, many other ways to generate retirement income -- such as via reverse mortgages, part-time jobs, and so on. Think about what will work best for you. Here's how your multiple streams could look:

Of course, your particular arrangement might look quite different. But this is an example of how one might combine different income sources to meet a total income goal.

Building a monthly paycheck

Note, though, that these different income sources will pay you at different times and in different ways. A pension and an annuity will likely pay you each month, as will Social Security. Dividends tend to be paid quarterly, though some companies pay monthly. You may need to let some income payments pile up and then withdraw from them from month to month.

With retirement accounts, you might take money out each month, or perhaps be more strategic about it, taking three or six months' worth of retirement income installments when the market is high and less when the market swoons.

As you do your retirement planning, think through which withdrawal strateg(ies) will work best for you. The more thoroughly you plan for your retirement, saving and investing over many years, the happier your future years may be.