So, you've been socking it away for years in an IRA or 401(k), and now you're getting ready to take the plunge and kick-it. But exactly what are you going to do with that hunk of change, and how do you know it will last, and how do you know how much you can afford to pull out? I've been daydreaming over these questions for a long time, and here are some ideas that I've come up with.

First, I've identified several distinct retirement income sources. These are A) taxable savings and investments; B) tax-deferred investments; C) Social Security; D) Home value. The basic idea here is that we will begin to consume these wealth pools in this sequence. This is to allow the tax-deferred money to keep growing tax-deferred as long as possible. It will put off tapping Social Security as long as possible, which helps increase the benefit level, and finally, we'll leverage the value of our house for a guaranteed lifetime income stream.

STAGE-1
Age 59-1/2 through 64; By the beginning of this period we will have transferred most of our standard taxable investments and savings into a conservative income-generating vehicle, but keep the tax-deferred stuff in growth investments. Right now, I like short-term US Treasury Notes for current income. These are now paying about 5%, and this is federal (but not state) tax-free. Using a finance calculator at www.tcalc.com I figure we can generate a comfortable income of 75-100% of our final working gross over this period with only a modest drawdown from the principal. We will try to stay at or below this targeted income budget over this 5-year period, especially in the first years.

STAGE-2
Age 65 through 69; Raise the disposable income target by 5%. Although still living off the original taxable bucket, in this period we will begin to slowly transfer money out of tax-deferred funds and into a combination of growth and income-generating T-Notes. We need to be out of the tax-deferred stuff by age 70, but we probably want to spread out the withdrawals from there over a few years to help minimize taxes on the 401(k) money (that's only tax-deferred, not tax-free).

STAGE-3
Age 70 through 75; Raise the disposable income target by another 5%. At age 70 we have reached the point of maximum Social Security benefit, so we can apply for and begin to withdraw SS now. As we begin to draw SS for the first time, we should be able to ratchet back our drawdown of personal money to stay within our targeted income budget. One of the reasons to sacrifice personal money early and postpone SS withdrawal is that the SS is a lifetime stream, and no matter how much personal money we have, we always risk outliving it. We can also slowly move investments from growth-type to more conservative income-type through this period.

STAGE-4
Age 75 through 80; Raise the disposable income level by another 5%. Since SS has probably stayed the same, we may need to increase our personal portfolio drawdown again. By this time most of our personal money is probably in conservative income investments.

STAGE-5
Age 80+ ; Raise the disposable income target by another 5%. Assuming that we are finally ready to leave our house behind, we sell our property, and with these proceeds we buy an Immediate Fixed Annuity. At age 80 we should be able to get a good income level from this (the rates are based on age and life expectancy), and the major advantage of the IFA is that although it is usually a permanently fixed dollar amount, this is now income guaranteed for life, so we don't need to worry about "outliving" our money. With an IFA and the max SS benefit both being a lifetime stream, we may be able to afford to get wild and crazy with the cash left over in the investments. Or maybe just keep it around for future "raises".

OK, so that is the outline. With the finance calculators I mentioned I am able to do detailed number projections, amortization tables on the drawdowns and what-ifs on interest rates and income targets. The real key to this plan, however, will be regular checkpoints and re-evaluations. I figure we'll probably need a complete recalculation of the figures at least once every 12 months to be comfortable that we are on-plan. Having more money than targeted is nice, but if anything happens that makes us fall below target, then a fix must be found quickly because when it comes to retirement money, an early problem is a SERIOUS problem.