Retirement Income Case Studies
Abstract retirement planning advice becomes clearer through specific examples. These three case studies show how retirees at different savings levels can structure their income. Each case includes income sources, withdrawal strategies, and key adjustments to consider.
These are simplified examples for educational purposes. Individual situations vary based on health, location, risk tolerance, and goals.
Case 1: Moderate Savers - The Hendersons
Profile:
- Ages: Both 65, retiring simultaneously
- Portfolio: $800,000 (60% traditional IRA, 40% taxable)
- Social Security: $2,500 each at Full Retirement Age ($5,000 combined monthly)
- Pension: None
- Home: Owned, no mortgage
- Desired annual spending: $72,000
Income Structure:
| Source | Monthly | Annual | Notes |
|---|---|---|---|
| Social Security (both claiming at 65) | $4,580 | $54,960 | Reduced for early claiming |
| Portfolio withdrawals | $1,420 | $17,040 | 2.1% withdrawal rate |
| Total Income | $6,000 | $72,000 |
Why they claim Social Security at 65: Claiming at 65 (rather than waiting until 67 for full benefits) provides $4,580/month combined instead of $5,000 at 67. They accept the 13.3% reduction because:
- It reduces portfolio withdrawals during early retirement
- They value certainty of income now
- Break-even point is around age 80
Portfolio allocation:
| Asset Class | Allocation | Value |
|---|---|---|
| U.S. Stocks | 45% | $360,000 |
| International Stocks | 15% | $120,000 |
| Bonds | 35% | $280,000 |
| Cash | 5% | $40,000 |
Tax considerations: With $54,960 from Social Security and $17,040 from portfolio, their tax situation requires attention:
- Up to 85% of Social Security may be taxable
- Traditional IRA withdrawals are fully taxable
- They should consider Roth conversions to reduce future RMDs
- Drawing from taxable accounts first preserves tax-deferred growth
Key metrics:
| Metric | Value |
|---|---|
| Withdrawal rate | 2.1% |
| Portfolio income dependency | 24% of spending |
| Social Security replacement | 76% of spending |
Lessons from the Hendersons:
- Social Security is the foundation of their income
- Low withdrawal rate provides margin for market downturns
- Moderate portfolio can support comfortable retirement with Social Security
- RMDs at age 73 will increase taxable income; plan ahead
Adjustments they might consider:
- If spending increases, they could raise withdrawal rate to 3-4%
- Roth conversions in low-income years before RMDs begin
- One spouse could delay Social Security to maximize survivor benefit
Case 2: High Savers - The Patels
Profile:
- Ages: 62 and 60, retiring now
- Portfolio: $2,000,000 (50% traditional 401k/IRA, 30% Roth, 20% taxable)
- Social Security: $3,000 each at FRA ($6,000 combined monthly at 67)
- Pension: $2,500/month starting at 65 (Mr. Patel)
- Home: Owned, no mortgage
- Desired annual spending: $120,000
Phase 1: Ages 62-64 (Before pension starts)
| Source | Monthly | Annual | Notes |
|---|---|---|---|
| Portfolio withdrawals | $10,000 | $120,000 | 6.0% rate during bridge years |
| Total Income | $10,000 | $120,000 |
Phase 2: Ages 65-67 (Pension starts, before Social Security)
| Source | Monthly | Annual | Notes |
|---|---|---|---|
| Pension | $2,500 | $30,000 | Fixed income begins |
| Portfolio withdrawals | $7,500 | $90,000 | 4.7% rate |
| Total Income | $10,000 | $120,000 |
Phase 3: Age 67+ (All income sources active)
| Source | Monthly | Annual | Notes |
|---|---|---|---|
| Social Security (both at 67) | $6,000 | $72,000 | Full retirement age benefits |
| Pension | $2,500 | $30,000 | Fixed income |
| Portfolio withdrawals | $1,500 | $18,000 | 1.1% rate |
| Total Income | $10,000 | $120,000 |
Portfolio allocation:
| Asset Class | Allocation | Value |
|---|---|---|
| U.S. Stocks | 50% | $1,000,000 |
| International Stocks | 20% | $400,000 |
| Bonds | 25% | $500,000 |
| Cash | 5% | $100,000 |
Withdrawal sequence strategy: The Patels use their three account types strategically:
- Ages 62-64: Draw primarily from taxable accounts
- Ages 65-67: Begin Roth conversions while still in lower brackets
- Ages 67-72: Mix of taxable and traditional IRA, continue conversions
- Age 73+: RMDs from traditional, Roth remains for flexibility
Key metrics by phase:
| Phase | Age | Withdrawal Rate | Portfolio Dependency |
|---|---|---|---|
| 1 | 62-64 | 6.0% | 100% |
| 2 | 65-66 | 4.7% | 75% |
| 3 | 67+ | 1.1% | 15% |
Lessons from the Patels:
- High early withdrawal rates are sustainable when future income streams are guaranteed
- The portfolio is a bridge to Social Security and pension
- Roth assets provide tax-free income flexibility
- Delaying Social Security to 67 was possible because portfolio can support early years
Adjustments they might consider:
- One spouse could delay Social Security to 70 for maximum survivor benefit
- Increase spending since withdrawal rate drops dramatically at 67
- Accelerate Roth conversions in the low-income bridge years
- Consider charitable giving strategies with excess assets
Case 3: Late Savers - The Garcias
Profile:
- Ages: Both 65, retiring now
- Portfolio: $400,000 (80% traditional IRA, 20% taxable)
- Social Security: $2,000 each at FRA ($4,000 combined monthly at 67)
- Pension: None
- Home: Owned, small mortgage ($650/month remaining)
- Desired annual spending: $54,000
Challenge: With a smaller portfolio, the Garcias must carefully balance income sources to avoid depleting savings.
Option A: Claim Social Security at 65
| Source | Monthly | Annual | Notes |
|---|---|---|---|
| Social Security (both at 65) | $3,680 | $44,160 | 86.7% of FRA benefit |
| Portfolio withdrawals | $820 | $9,840 | 2.5% withdrawal rate |
| Total Income | $4,500 | $54,000 |
Option B: Delay Social Security to 67 (Full Retirement Age)
Ages 65-66:
| Source | Monthly | Annual | Notes |
|---|---|---|---|
| Portfolio withdrawals | $4,500 | $54,000 | 13.5% rate (bridge period) |
Age 67+:
| Source | Monthly | Annual | Notes |
|---|---|---|---|
| Social Security (both at 67) | $4,000 | $48,000 | Full FRA benefit |
| Portfolio withdrawals | $500 | $6,000 | 1.9% rate |
| Total Income | $4,500 | $54,000 |
Comparison analysis:
| Scenario | Portfolio at Age 65 | Spent During Delay | Portfolio at Age 67 | Monthly SS |
|---|---|---|---|---|
| Claim at 65 | $400,000 | N/A | $380,000* | $3,680 |
| Delay to 67 | $400,000 | $108,000 | $315,000* | $4,000 |
*Assumes 5% average return minus withdrawals
Which option is better for the Garcias? Delaying provides $320 more per month in guaranteed lifetime income ($3,840/year). The break-even point is approximately 12 years from age 65 (age 77). Given average life expectancy, delaying likely provides more lifetime income—but it requires spending down the portfolio during the delay period.
The Garcias choose Option A (claim at 65) because:
- They want to preserve their portfolio as a safety reserve
- Both have health concerns that may reduce life expectancy
- They value the certainty of income now
- The smaller portfolio can last longer at 2.5% withdrawal rate
Portfolio allocation (conservative given smaller balance):
| Asset Class | Allocation | Value |
|---|---|---|
| U.S. Stocks | 35% | $140,000 |
| International Stocks | 10% | $40,000 |
| Bonds | 45% | $180,000 |
| Cash | 10% | $40,000 |
Key metrics:
| Metric | Value |
|---|---|
| Withdrawal rate | 2.5% |
| Portfolio income dependency | 18% of spending |
| Social Security replacement | 82% of spending |
| Monthly spending | $4,500 |
Lessons from the Garcias:
- Social Security is critical when portfolio is smaller
- Conservative asset allocation protects limited savings
- Low withdrawal rate (under 3%) provides sustainability
- Part-time work could supplement income if needed
- Mortgage payoff could reduce monthly needs by $650
Adjustments they might consider:
- Pay off mortgage with $78,000 from portfolio to reduce monthly needs to $3,850
- One spouse work part-time for 2-3 years ($12,000-$15,000/year)
- Reduce discretionary spending to lower the $54,000 need
- Consider downsizing home to increase liquid assets
Summary: Key Lessons Across All Cases
Income structure patterns:
| Saver Type | Portfolio Role | SS Role | Key Risk |
|---|---|---|---|
| Moderate ($800K) | Supplement (24%) | Foundation (76%) | Healthcare costs, longevity |
| High ($2M) | Bridge then cushion | Income floor | Sequence risk in early years |
| Late ($400K) | Safety reserve (18%) | Critical (82%) | Any unexpected expense |
Universal principles:
- Social Security becomes more important with smaller portfolios
- Withdrawal rates should decrease as guaranteed income increases
- The early retirement years (before SS/pension) carry the most portfolio risk
- Flexibility in spending is the most powerful adjustment tool
- Understanding your specific income timeline is essential
Case Study Review Checklist
- Calculate your total retirement income need (monthly and annual)
- List all income sources and when each becomes available
- Calculate your withdrawal rate for each retirement phase
- Determine what percentage of spending comes from guaranteed sources
- Model early claiming vs. delayed claiming for Social Security
- Assess whether you can bridge the gap before Social Security begins
- Consider your health and longevity expectations in timing decisions
- Identify which expenses could be reduced if adjustments are needed
- Review your asset allocation relative to your portfolio's role
- Create your own income timeline chart for the first 10 years of retirement