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Airline Pilot Insights

Planning your retirement spending? Take a layered approach

3 minute read time

You've reached your goal: after years of flying, you are ready to retire. Your retirement party is looming, friends and colleagues are wishing you well. And then the uncertainty hits you. You're off the payroll.

I often am asked about the best strategy to generate income from retirement savings and other sources in retirement. In addition, many retirees, even those who have planned well, worry about where their income will come from after they stop working. Although a 2018 survey by the Employee Benefit Research Institute showed that 3 in 4 retirees remain confident concerning their ability to be comfortable in retirement, many still are worried about outliving their savings.1

A 2018 Wells Fargo/Gallup survey revealed that 36% of retirees fear running out of money. This concern likely is, in part, because people are living long into retirement. The most recent figures for life expectancy from Social Security show that women age 65 have a life expectancy of 21.6 years; for men age 65, it's 19 years.

Income Layering

Using a strategy of income layering—matching a retiree's various assets with income needs at different stages of life—can provide adequate income along with a little peace of mind.

Potential benefits of income layering include:

  • Focus on principal preservation while drawing income
  • By timing withdrawals, the overall portfolio has the opportunity to grow
  • Opportunity to preserve assets for inheritance

To get started on an income layering strategy, first determine basic annual expenses. Be sure to include taxes on withdrawals from retirement accounts, capital gains and health care expenses. Then, identify each individual source of income available (retirement accounts, social security, income from part-time work) and consider when to tap each—layering income as needed through retirement.

Income Layering Examples

A couple retires at the same time, when both spouses are age 65. Each potentially can draw Social Security income and they have investments in 401(k) accounts, municipal bonds, IRAs, Roth IRAs and mutual funds.

  1. They could withdraw money from IRAs and 401(k) accounts up to the highest level of a moderate tax bracket, e.g., 12%, and then tap after-tax accounts for any additional income needed.
  2. At 66, or Social Security Full Retirement Age (FRA), the husband could file and suspend his benefit and allow his wife to receive her spousal benefit. This would then allow the husband and wife's benefits to grow to their maximum benefit at age 70.
  3. In succeeding years, when they add the wife's Social Security, and required minimum distributions that begin at age 70 ½ for IRA and 401(k) accounts, they could supplement income by tapping tax favorable accounts such as mutual funds, Roth IRAs and municipal bonds to manage their tax burden.

In another scenario, a couple of different ages retires at different times. They each have Social Security and pensions, in addition to IRAs, Roth IRAs and 401(k) accounts.

  1. The husband retires at age 62 and draws income from his pension but defers Social Security. The wife, at age 58, continues working and contributing to a 401(k) account; and they continue other savings.
  2. When the wife retires at age 66, she starts taking her pension and her husband, at age 70, starts taking Social Security, drawing the maximum benefit.
  3. The husband begins minimum distribution of his retirement accounts at age 70 1/2.
  4. The wife defers Social Security as long as possible up to age 70, and then follows suit with minimum distributions when she reaches age 70 1/2.
  5. Finally they tap their Roth IRAs at age 75.

By carefully timing when to tap each source of income, retirees can maximize the value and earning potential of their portfolios. This gives them flexibility in covering basic living expenses along with the unexpected such as health needs.


1 2018 Retirement Confidence Survey, Employee Benefit Research Institute, April 24, 2018.

Johnson Financial Group and its subsidiaries do not provide tax advice. Please consult your tax advisor with respect to your personal situation. Wealth management services are provided through Johnson Bank and Johnson Wealth Inc., Johnson Financial Group companies. Additional information about Johnson Wealth Inc., a registered investment adviser, and its investment adviser representatives is available at NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE