A good retirement income plan starts with a question most people skip. Instead of asking only "how much do I need to save for retirement?", ask how much income you will have each year, where it will come from, and whether it will last as long as you do.

Answering that does not take a complicated model. It takes an organized inventory and some honest arithmetic. This retirement planning worksheet guide walks through the five steps financial professionals commonly use to build a retirement income strategy, with a simple worked example you can adapt. Grab a pen or open a spreadsheet and fill in your own numbers as you go.

Retirement income planning vs. saving for retirement

Saving for retirement and living off your savings are two different jobs, and they ask different questions:

  • The saving stage. Your goal is to have enough money to retire. Your time horizon is known, because you can pick a target retirement date, and your investments are organized around growing the balance.
  • The transition. You move from building to using. This is when you decide which accounts to draw from, which sources of income to turn on, and how to reposition your assets to match what you will need.
  • The income stage. Your goal shifts to not outliving your money. Your time horizon is now unknown, because nobody knows how long retirement will last, and you are withdrawing from your portfolio instead of adding to it.

That shift, from a known timeline to an unknown one, is why a plan that worked for years of saving can feel unfamiliar in the first year of retirement. The five steps below are built for the transition.

Step 1: List your essential expenses in retirement

Start with what you must pay no matter what, regardless of how the market is doing. These are the expenses that need stable, dependable income behind them. Go through each category and write down a monthly amount, then multiply by 12. For things that only come up once a year, such as property tax or an insurance premium, use the annual amount.

  • Taxes: federal, state, local, and Social Security and Medicare taxes if you are still working
  • Shelter: mortgage or rent, property taxes, utilities, phone, furnishings, repairs and maintenance
  • Daily essentials: food, clothing, medical and dental care, medications, childcare if it applies
  • Transportation: vehicle payments, fuel, repairs and maintenance
  • Insurance: life, long-term care, health, auto and umbrella, homeowners or renters, disability
  • Debt: credit card payments, loans
  • Other: anything else you cannot skip

Add it all up. That is your total essential expenses. Many people are surprised by this number, in both directions. Some find it is higher than they assumed. Others discover that without a commute, a mortgage, or kids at home, it is lower.

Step 2: List your discretionary retirement expenses

Discretionary expenses are the things that are not strictly necessary but make retirement the life you actually want. Do the same exercise:

  • Entertainment: concerts, movies, sports, dining out, streaming and subscriptions
  • Hobbies: the things you want more time for
  • Travel and vacations: be specific about how often and where
  • Other: gifts for holidays and birthdays, charitable giving

Keep this list of retirement expenses separate from the essentials, because the two are treated differently in a plan. Essentials need reliable income. Discretionary spending can flex up in good years and down in lean ones, and knowing that gives you real options later.

Step 3: Define your legacy and estate planning goals

Legacy is what you do not need and wish to pass on. For some people it is a number, and for others it is a set of wishes. Write down both:

  • Special assets: your home, other property, financial assets, and specific items of value
  • Family care: support you want to provide to children, parents, or other family members
  • Education: funds for children or grandchildren
  • Charities: causes you want to support, and how much

Then consider the part that has no dollar figure: the values and life lessons you want to share, family stories and traditions, your health directives and final wishes, and the belongings with emotional value, such as photos, journals, and household items. These are easy to put off, and they are exactly the things families struggle with when no one has written them down. (Our guide to the Great Wealth Transfer and the family conversation goes deeper on this.)

Step 4: Inventory your retirement income sources and assets

Now look at what you have to work with. List each source, the account or employer behind it, the amount, and what it produces on an annual basis:

  1. Employment: current income for you and your spouse or partner
  2. Personal savings and investments: brokerage accounts, savings, CDs, and other non-retirement assets
  3. Roth IRA: balances in Roth accounts
  4. Traditional IRA, SEP, and similar: pre-tax individual accounts
  5. Workplace plans: 401(k), 403(b), 457, pensions, and any other employer plan
  6. Social Security: your expected benefit and your spouse's, at different claiming ages

It also helps to note which of these sources are taxable. Employment income and withdrawals from traditional accounts are generally taxable, Roth withdrawals generally are not if the rules are met, and up to 85 percent of Social Security benefits can be taxable depending on your total income. The mix matters, not just the total.

Retirement withdrawal order: which accounts to use first

Once you know what you have, the next question is your retirement withdrawal order: which source to use first. A common starting point looks like this, though the right order depends on your tax situation and is worth reviewing with a tax professional:

  • First: employment income and money in regular, non-retirement accounts
  • Second: traditional IRAs and workplace plans, which must start paying out minimum distributions at age 73, or age 75 if you were born in 1960 or later
  • Last: Roth accounts, which have no required minimum distributions for the original owner and can be left to grow
  • When it makes sense: Social Security, which can start as early as 62, reaches full benefit at your full retirement age, and grows if you wait until as late as 70

This is a starting point to discuss, not a rule. In some years it makes sense to draw from a traditional account earlier to manage future taxes, or to claim Social Security at a different time.

Step 5: Calculate your retirement income gap

This is the step that turns a list into a plan. The math is simple:

Projected annual income minus annual retirement expenses equals your surplus or gap.

If your income is higher than your expenses, you have a surplus. If it is lower, you have a gap, and finding it early is the whole point. A gap discovered at 55 can be fixed in many ways. A gap discovered at 70 has far fewer answers.

A worked example (hypothetical)

Here is how it looks for a made-up couple. These numbers are for illustration only. They are not a projection, a recommendation, or a prediction of anyone's results.

  • Essential expenses: $84,000 a year
  • Discretionary expenses: $30,000 a year (travel, dining out, gifts, hobbies)
  • Total retirement expenses: $114,000 a year

Their projected income:

  • Social Security (combined): $46,000
  • A small pension: $18,000
  • Planned withdrawals from savings and retirement accounts: $30,000
  • Total projected income: $94,000 a year

The gap: $94,000 minus $114,000 is negative $20,000 a year.

There is a second, quieter finding in the same numbers. Their dependable income, the Social Security and pension, is $64,000. Their essential expenses are $84,000. So $20,000 of the bills they cannot skip depends on withdrawals from accounts that move with the market. That is a different kind of risk from a travel budget that runs short, and it is the part many people never see until they lay the two numbers side by side.

6 ways to close a retirement income gap

If you find a retirement income gap, there is no single right answer. There are six levers, and most people use a combination. Using the example above:

  • Spend less and save more now. If they are still working, directing more money to savings in the final years before retirement shrinks the gap. Trimming discretionary spending by $8,000 closes part of it on its own.
  • Work longer. Even a couple of extra years adds savings, delays withdrawals, and can raise Social Security benefits. It is one of the most powerful levers, and not always an option for health or career reasons.
  • Take on more investment risk. A more aggressive portfolio might reduce a gap on paper, but it can also make the plan worse if markets fall early in retirement. This is the lever to be most careful with.
  • Lower your retirement income expectations. This is not giving up. For some people, a slightly simpler retirement is the best answer.
  • Find an additional source of dependable income. Options might include part-time work, a pension or annuity-type income, rental income, or timing Social Security differently. Each has costs and trade-offs, and insurance-based options in particular deserve a close look at fees, guarantees, and liquidity. (Our article on using life insurance in retirement planning covers one version of this, including what can go wrong.)
  • A combination of all of the above. In the hypothetical couple's case, a smaller discretionary budget, two extra working years, and a different Social Security claiming age could together close the gap without any single extreme move.

Retirement income planning checklist

  • Fill in your essential and discretionary expense lists this week, using a few months of real statements, not memory.
  • Write down what you want to leave behind, including the parts with no dollar figure.
  • List every source of income and every account, with balances and whether each is taxable.
  • Look up your Social Security estimates for different claiming ages at ssa.gov.
  • Calculate your gap, and then compare your dependable income with your essential expenses.
  • Write down which of the six options appeals to you and which does not.
  • Bring everything to a professional to pressure-test it. Your own numbers will tell you far more than any rule of thumb.

Retirement income plan FAQs

How much income do I need in retirement?

There is no single percentage that fits everyone. Start by adding up your essential expenses and your discretionary expenses, then subtract the dependable income you expect, such as Social Security and any pension. What remains is what your savings must supply each year. Your own spending is a better guide than any rule of thumb.

What is a retirement income gap?

A retirement income gap is the shortfall between your projected annual income in retirement and your projected annual expenses. If income is $94,000 and expenses are $114,000, the gap is $20,000 a year. Finding it early gives you more ways to close it, including saving more, working longer, or adjusting spending.

What is the difference between essential and discretionary expenses in retirement?

Essential expenses are the bills you must pay regardless of the market, such as housing, food, healthcare, insurance, taxes, and debt payments. Discretionary expenses, such as travel, dining out, and hobbies, make retirement enjoyable but can be adjusted. Essential expenses need dependable income behind them, while discretionary spending can flex.

In what order should you withdraw from retirement accounts?

A common starting point is non-retirement accounts first, then traditional IRAs and workplace plans, and Roth accounts last. The best order depends on your tax bracket, required minimum distributions, and goals, and it often changes year to year. Review your withdrawal order with a tax professional before you start.

When should I start taking Social Security?

You can claim Social Security as early as age 62, receive your full benefit at your full retirement age, or wait until age 70 for a larger monthly amount. The right claiming age depends on your health, other income, marital status, and how long you expect to need the benefit. You can see your estimates at ssa.gov.

When do required minimum distributions (RMDs) start?

Under current law, required minimum distributions from traditional IRAs and most workplace plans begin at age 73, or age 75 if you were born in 1960 or later. Roth IRAs have no required minimum distributions for the original owner. Missing an RMD can trigger a penalty, so keep track of the deadlines.

You do not need to have it all figured out before you start. The point of the worksheet is to turn a vague worry into numbers you can act on. If you would like help working through yours, our complimentary Financial Plan Check-Up is built for exactly this. As a financial advisor serving professionals, business owners, and families in Newport Beach, California, we help people turn a retirement income plan from a worry into a written strategy. You can build your financial plan here. For this year's savings limits, see our 2026 IRA contribution limits guide.

Important information: This article is for general education only and is not tax, legal, or investment advice. The example uses hypothetical numbers for illustration only; it is not a projection or a guarantee of any result, and your own situation will differ. Tax rules, ages, and limits are general descriptions that may change, so consult your own tax advisor or attorney before making decisions. Insurance products, when recommended and chosen, are compensated by the insurance carrier. Guarantees associated with insurance products are backed by the claims-paying ability of the issuing carrier.