You Don't Get A Paycheck, So How Do You Get Paid In Retirement?

Step By Step Financial |

When you’re in the workforce, the concept of payday seems relatively straightforward. Whether bi-weekly or monthly, you'll receive a notification of a direct deposit from your employer into your bank account. Simple. 

In retirement, that looks different. You might not have an employer pulling the payment purse strings, so how do you get "paid" as a retiree? Here, we’ll explore just that and how to strategize to make the most of your finances in this new chapter of your life. 

Navigating The Transition From Saving To Spending

The transition from saving for retirement to spending in retirement is a big one, both

financially and emotionally. After working and saving for so many years, it seems odd to suddenly have much more free time and a different income source. 

While this transition might look different initially, navigating it requires a strong plan. Perhaps you’ve already set a plan into motion using a Certified Financial Planner(R), the benefits of which are many. If you haven’t, there is no need to fear, you can still plan for the future now and map out your retirement finances by taking into account a few key steps.

Start With Your Fixed Income Resources

For years, you've built your nest egg. Now it's time to draw it down, but how do you receive the money from your accounts? Let's review.

When it comes to a paycheck in retirement, it may come from multiple sources instead of one employer like you're used to. This is why a good launching point is making sure you understand your fixed-income channels. Let’s review several of these potential channels:

  • Social Security. You will have paid taxes into Social Security in the years you worked. As a reminder, Social Security is based on a credit system. So long as you’ve earned the 40 credits required to earn benefits, once you are retired, the Social Security Administration will send you your monthly benefit (this can be via direct deposit). 
    • You can also have them withhold taxes and Medicare premiums. One way to keep track of your earnings and other information regarding your Social Security is via your Social Security Statement. To do so, simply open a my Social Security account, where you’ll find helpful graphics of where you’re at and summaries of your earnings, benefits, taxes paid, and more.   
  • Pension. When you retire, you decide how you'd like to receive payments; this can be a lump sum at the time of retirement or monthly payments, annuity-style. While it’s easy to rely on a system, the Department of Labor encourages recipients to calculate their pension correctly and that they’re not missing out on any funds. As with Social Security, you can opt for a direct deposit to receive your pension payments.
  • Annuity. If you purchased an annuity, you decide when payments begin. These payments will likewise be delivered via direct deposit, and you can usually elect to have taxes withheld.

Turning Your Nest Egg Into Regular Payments

Your nest egg will be crucial to getting “paid” in retirement. This starts with building a retirement withdrawal strategy that suits you. This strategy is essential because the time money is left in or drawn out of accounts can impact taxes (something you may not have thought about in detail while in your saving years, which is OK!) 

You should also consult your "bucket strategy." We mention this strategy often because it is one of the most valuable systems for organizing money. As a quick refresher, the bucket system involves dividing your money into 3 “buckets” that help you in the now, later, and long term. It’s an intelligent way to allocate your money strategically and succumb to less market volatility.

Regarding paydays, if you're working with a financial advisor, they can mimic the traditional "payday" and deposit the agreed amount into your bank account. If you need $5,000 a month after building a strategy, your advisor may break that up into two $2,500 bi-weekly deposits. This is a helpful way to keep track of exactly how much money is coming out of your nest egg, and the familiar structure is a bonus, encouraging you to keep spending a reasonable amount.  

Don't Leave Taxes To Chance

When retiring, the most significant shift you'll need to consider is taxes and how you pay them. Since your income comes from multiple sources, you must ensure you're withholding enough throughout the year or making estimated quarterly payments to remain compliant.

You’ll also want to keep the following in mind regarding the aforementioned forms of income.


The taxable portion of the benefits included in your income and used to calculate your income tax liability depends on the total amount of your income and benefits for the taxable year. You can use the following rough guide from the IRS to calculate a general percentage of how much of your benefits are taxable. 


Your pension is most likely subject to Federal income tax withholding. Federal income taxes are due upon retirement when the account holder starts withdrawing funds from a qualified pension plan. Some states will tax the money, too.


Tax-deferred annuities allow taxpayers to reduce their taxable income by using pre-tax funds to purchase an annuity contract. Annuities are taxed at the time of withdrawal, regardless of the type of annuity purchased. The amount of taxation varies depending on whether you purchased an annuity with pre-tax or after-tax dollars.

As you can see, there is a bit of nuance with taxes regarding how you’re getting paid in retirement. Do not ignore your taxes or leave them until the last minute. Your advisor and CPA can work together to create a coordinated plan for your taxes, regardless of your income resource. 

Regarding retirement, there are many ways to help keep you on track with your financial retirement goals.  Working with a professional, managing spending, strategizing payouts, and staying on top of taxes will all be critical components in this new era of your life. 

Curious about how on track you are? Schedule an introductory phone call with our office.