Skip To Content

How Will You Replace Your Salary
When You Retire?

The answer becomes more urgent for those who retire early. Use these 3 steps to create a ‘retirement paycheck’ that can potentially last 30 years or more.


WHETHER BY CHOICE OR CHANCE—an illness or layoff, for example—nearly 50% of us retire sooner than we’d planned.1 And retiring earlier means living in retirement longer: The assets you’ve saved over your career will need to stretch farther, even as you stop contributing to your 401(k) or other retirement accounts.


“Retiring at 55 can have meaningfully different implications versus retiring at 65,” says David H. Koh, managing director and senior Investment strategist for the Chief Investment Office, Merrill and Bank of America Private Bank. “Fifty-somethings will likely need to make their retirement savings last an extra decade or more.” In addition, early retirees often have higher expenses than those retiring later in life; for instance, you may still be paying a mortgage or college tuition bills. And you might have to cover the full cost of health insurance until you’re eligible for Medicare. (For insights on covering health-care premiums before age 65, read “Staying Covered Until Medicare Kicks In.”)


As a result, the strategies early retirees use to create their “retirement paycheck” can take on heightened importance. Will I still be able to pay all of my bills and live the life I want in retirement? How much will I be able to withdraw monthly without jeopardizing my long-term financial security? What are the tax implications—and tradeoffs? Your financial and tax advisors can help answer those and other questions, as you work together to create an income stream designed to support you throughout your life.




A close-up of an older couple sitting on a porch, with trees in the background. He is holding a coffee cup.

First, sit down with your spouse or partner and financial advisor and calculate your regular expenses, which generally include housing, food, transportation and insurance, as well as possibly charitable donations, education costs, travel and gifts.

“If you can afford to delay tapping your Social Security benefits, you’ll likely have greater funds available later, when you may need them most.”

—David H. Koh, managing director and senior investment strategist, Chief Investment Office, Merrill and Bank of America Private Bank

Next, you’ll want to identify the income sources you can draw from to create a monthly “paycheck.” Your list may include a severance package, a pension, retirement accounts, such as a traditional or Roth 401(k) or 403(b), and traditional and Roth IRAs, in addition to Social Security and possibly even rental income and disability benefits.


Once you have a clear picture of your finances, your financial and tax advisors can help you determine an appropriate overall withdrawal strategy, based on your assets, age, income sources, tax considerations and other factors. If you’re currently spending more than your projected monthly retirement income, your financial advisor may suggest ways to help you adjust your finances—by delaying retirement or taking on part-time consulting work, perhaps, or moving the date at which one or both of you begin claiming Social Security. You might also begin to look for ways to trim expenses in one area or another. 


The left side is an illustration of a faucet with water running. The text to the right reads: “Create a plan for tapping your assets.

It isn’t enough to know how much you can afford to draw from your income sources each month. You’ll need to think through the tax and investment implications of withdrawing money from each source, among other factors. Again, that’s where your advisors can help you understand your choices.


“As you create your drawdown plan, you’ll want to try to avoid landing in a higher tax bracket or derailing your preferred asset allocation.”

—Merrill Financial Advisor Lisa Kent

Social Security. Though you can begin collecting Social Security at age 62, your benefits will increase each year you wait, up to age 70. “If you can afford to delay tapping your Social Security benefits, you’ll likely have greater funds available later, when you may need them most,” says Koh. Still, sometimes it might make sense to consider claiming benefits sooner.  For one, doing so might allow you to delay withdrawing money from your retirement savings accounts to give them more time to grow.  (For more tips and insights, read “Social Security: Aiming for Smarter Payments.”)


Lump sum or monthly payments?  Pensions and some retirement packages may offer you a choice: take a lump sum payout or begin monthly payments immediately, or, if you retire early, delay those regular payments until the normal retirement age under the plan or later. It’s a good idea to consult your tax advisor on the implications of each option.


Taxes and your retirement accounts. When it comes to withdrawals from your retirement accounts, the rules can be complex:  If, for instance, you leave your job during or after the year you turn 55, the “Rule of 55” generally allows you to tap your account under your employer’s retirement plan, such as a 401(k), without owing the 10% early withdrawal tax.


From a tax perspective, in general, it’s wise to withdraw from your taxable accounts first, then tax-deferred, then tax-free. That’s because the money you take from a taxable account (such as a brokerage account) may be taxed as capital gains at a lower rate than what you’d owe on distributions from traditional 401(k)s, traditional IRAs and certain other tax-deferred savings, which are taxable as ordinary income. (For more insights, read “Do You Have a Retirement Spending Plan?”)


“Your financial advisor can help you determine the best mix of withdrawals,” says Merrill Financial Advisor Lisa Kent. “As you create your drawdown plan, you’ll want to try to avoid landing in a higher tax bracket or derailing your preferred asset allocation,” she notes, adding, “When clients convert their retirement assets into cash, we generally help transfer them someplace liquid and secure until they need them.”


The left side is an illustration of a circle divided into colored sections. The sections increase in size, clockwise around the circle. The text to the right reads: “Continue to pursue investment growth.

After you’ve addressed your short-term income needs, it’s time to review your portfolio to see whether it has the potential to last 30 or more years. In the current low interest-rate environment, an overly conservative portfolio is unlikely to provide the growth you may need for a longer than expected retirement, says Koh—especially if inflation increases down the line. So you may want to consult with your financial advisor on the appropriate asset allocation mix.


“The biggest mistake I see among retirees is a portfolio overly concentrated in the stock of a former employer or in one sector, usually the sector the client worked in.”

—Merrill Financial Advisor Mary Jo Harper

While bonds provide diversification and potentially offer a degree of stability during volatile markets, “for purposes of growth, you should consider a focus on the highest quality investments you can make to provide retirement income,” suggests Koh. Quality investments may include dividend-paying equities, REITs (Real Estate Investment Trusts) and other income-producing investments, including potentially guaranteed income from annuities—all within a thoughtful diversification framework.


Diversification is vital, adds Merrill Financial Advisor Mary Jo Harper. “The biggest mistake I see among retirees is a portfolio overly concentrated in the stock of a former employer or in one sector, usually the sector the client worked in,” she explains.


Finally, it’s a good idea to review your plan with your financial advisor regularly so that you can make adjustments, depending on market conditions, inflation, personal goals and other factors. That way, you can take comfort in knowing you’re managing the retirement assets you’ve saved over your career in the most thoughtful way possible.


New to Merrill? Connect with a Merrill Advisor

[{"fieldname":"firstname","isRequired":true,"maxlength":10,"uilabel":"First Name*","errmsg":"Please enter a valid First Name!","customcss":"","ruletype":"freetext","custreg":"","fieldoption":"","analyticclass":"","fieldtype":"textbox","isgroup":false,"groupname":"","groupheadvalue":"","grouphead":false,"hidethisfield":false},{"fieldname":"lastname","isRequired":true,"maxlength":19,"uilabel":"Last Name*","errmsg":"Please enter a valid Last Name!","customcss":"","ruletype":"freetext","custreg":"","fieldoption":"","analyticclass":"","fieldtype":"textbox","isgroup":false,"groupname":"","groupheadvalue":"","grouphead":false,"hidethisfield":false},{"fieldname":"emailaddress","isRequired":true,"maxlength":50,"uilabel":"Email address*","errmsg":"Please enter a valid Email Address!","customcss":"","ruletype":"email","custreg":"","fieldoption":"","analyticclass":"","fieldtype":"","isgroup":false,"groupname":"","groupheadvalue":"","grouphead":false,"hidethisfield":false},{"fieldname":"confirmemailaddress","isRequired":false,"maxlength":50,"uilabel":"Confirm Email*","errmsg":"E-mail does not match","customcss":"","ruletype":"email","custreg":"","fieldoption":"","analyticclass":"","fieldtype":"textbox","isgroup":false,"groupname":"","groupheadvalue":"","grouphead":false,"hidethisfield":false},{"fieldname":"businessphone","isRequired":true,"maxlength":10,"uilabel":"Phone Number*","errmsg":"Not a valid 10-digit phone number (No spaces or special characters)","customcss":"form__field","ruletype":"phone","custreg":"","fieldoption":"","analyticclass":"","fieldtype":"textbox","isgroup":false,"groupname":"","groupheadvalue":"","grouphead":false,"hidethisfield":false},{"fieldname":"zipcode","isRequired":true,"maxlength":5,"uilabel":"U.S. Zip Code*","errmsg":"Please enter valid Zip Code!","customcss":"","ruletype":"zip5","custreg":"","fieldoption":"","analyticclass":"","fieldtype":"textbox","isgroup":false,"groupname":"","groupheadvalue":"","grouphead":false,"hidethisfield":false},{"fieldname":"comment","isRequired":false,"maxlength":8000,"uilabel":"Comment or Email Message","errmsg":"Please enter comment!","customcss":"","ruletype":"freetext","custreg":"","fieldoption":"","analyticclass":"","fieldtype":"hidden","isgroup":false,"groupname":"","groupheadvalue":"","grouphead":false,"hidethisfield":true}] comment
By providing your contact information above, you agree that a representative of Merrill, the Brokerage affiliate of Bank of America Corporation, may contact you via telephone and/or email to discuss and/or offer investment products and services that may be appropriate for you. You agree that you are providing to us your consent for us to contact you regardless of any Do Not Call or Do Not Email privacy choices you may have previously expressed until you revoke this consent, or up to 90 days. You may revoke your consent at any time by notifying the Merrill representative.

1Employee Benefit Research Institute, “2020 Retirement Confidence Survey,” April 2020


Important Disclosures


Opinions are as of 02/12/2021 and are subject to change.


Investing involves risk including possible loss of principal.


The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”). 


Diversification does not ensure a profit or protect against loss in declining markets.


Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad.


Real Estate Investment Trusts (“REITS”) involve a significant degree of risk and should be regarded as speculative. They are only made available to qualified investors under the terms of a private offering memorandum. Holdings in a REIT may be highly leveraged and, therefore, more sensitive to adverse business or financial developments. REITS are long term and unlikely to produce a realized return for investors for a number of years. Interests in a REIT are not transferable. The holdings may be illiquid--very thinly traded or assets for which no market exists. A REIT may use leverage, which even on a short-term basis can magnify increases or decreases in the value of the private equity investment. The business of identifying REIT opportunities is competitive, and there is no assurance that the REIT will be able to complete attractive investments or fully commit its capital. In addition, a REIT’s high fees and expenses may offset the fund's profits.


Dividend payments are not guaranteed, and are paid only when declared by an issuer’s board of directors. The amount of a dividend payment, if any, can vary over time.


Case studies are intended to illustrate brokerage products and services available at Merrill and banking products and services available at Bank of America. You should not consider these as an endorsement of Merrill as an investment advisor or as a testimonial about a client’s experiences with us as an investment advisor. Case studies do not necessarily represent the experiences of other clients, nor do they indicate future performance. Investment results may vary. The investment strategies discussed are not appropriate for every investor and should be considered given a person’s investment objectives, financial situation and particular needs.


You need to answer some questions first

Then we can provide you with relevant answers.

Get started