By A.B. Ridgeway | The Ridgeway Report
One of the most common questions I hear in my office sounds like this:
“Mr. Ridgeway, I need an income stream from my investments.”
Sometimes it’s $10,000 per year.
Sometimes it’s $20,000.
Other times it’s $45,000 per year for the next seven or eight years—just until Social Security kicks in or another income source starts.
Whether someone retired early, rolled over an IRA, or is waiting on rental income or an inheritance, the question is always the same:
How much money do I need to invest to create a reliable paycheck from my portfolio?
Today, I’m going to walk you through a real-world example and show you how financial advisors think through this process.
The Scenario: Creating Retirement Income
Let’s say a client comes in and says:
- They need $45,000 at the beginning of each year
- They need that income for 8 years
- This income will bridge the gap until Social Security or another source begins
Our job is to figure out how much money needs to be set aside—or invested—to make that happen without guessing.
Why Assumptions Matter in Retirement Planning
This is where financial advice becomes extremely valuable.
Two assumptions matter most in retirement income planning:
1. Inflation (Purchasing Power Risk)
A dollar today is worth more than a dollar tomorrow.
Eggs that cost $3 today might cost $6 or $8 in a few years. That’s inflation, and it directly impacts your retirement income.
Ignoring inflation is one of the biggest mistakes people make when planning withdrawals.
2. Rate of Return (Not Linear)
Investment returns are not consistent:
- One year might be +12%
- Another year might be -4%
For planning purposes, we use an average annual return, understanding that real life will fluctuate.
In this example, we assume:
- 8% average annual return
- 4% inflation
But you cannot simply subtract 8% – 4%.
Calculating the Real (Net) Rate of Return
Here’s how advisors actually do it:
1.08 ÷ 1.04 – 1 = 3.84% real return
Using 4% instead of 3.84% may seem minor, but over time it creates a growing margin of error—and that can cause you to underfund your plan.
Precision matters.
Setting the Right Expectations
Another critical point:
This money is being distributed, not preserved.
That means:
- The account balance is expected to decline
- The goal is to reach zero at the end of the income period
- This avoids over-saving or misallocating assets
Many people incorrectly believe that even while taking withdrawals, their account should still grow year over year. That’s not how distribution planning works.
The Result: How Much Do You Need?
Using the assumptions:
- $45,000 per year
- 8 years
- 3.84% real return
- Ending balance = $0
The calculation shows you need approximately:
$316,696.71
That is the amount required to fund $45,000 per year for eight years with proper planning and realistic assumptions.
Simply “having a few million” does not automatically mean you can safely withdraw income without doing the math.
Why This Exercise Is So Important
This process:
- Aligns expectations between you and your advisor
- Prevents underfunding income needs
- Helps manage sequence-of-returns risk
- Allows just enough risk to meet the goal—no more, no less
And the same math can be applied whether you need:
- $5,000 per year
- $10,000 per year
- Or income for 20 years instead of 8
You Don’t Have to Do This Alone
If these calculations feel overwhelming, that’s normal.
Most people were never taught how to:
- Adjust for inflation
- Account for variable returns
- Plan withdrawals correctly
- Or translate goals into real numbers
That’s exactly where a financial advisor adds value.
Ready to Create Your Retirement Paycheck?
If you’re:
- Retiring early
- Waiting on Social Security
- Unsure how much you can safely withdraw
- Or want help running these numbers for your own situation
👉 Click the link below to schedule a consultation.
I’ll help you gather the facts, run the numbers, and determine how much you actually need to invest to support the life you want to live.
My name is A.B. Ridgeway, and this has been another edition of The Ridgeway Report.
About the Author
A.B. Ridgeway, CPWA® is the founder of A.B. Ridgeway Wealth Management and host of The Ridgeway Report. He specializes in helping retirees and pre-retirees create reliable income, invest with clarity, and make confident financial decisions.
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About The Ridgeway Report:
As Christians, we were taught to be good stewards over our tithing and giving to the less fortunate. But when it came to our personal finances and investing we were left clueless on what the Bible says. What does the Bible say about managing debt, leaving a legacy, investing, and planning for your retirement? Mr. Christian Finance answers these and many other questions because we want to teach you how to become rich and righteous!
Meet A.B. Ridgeway:
A.B. Ridgeway, MBA, CPWA®️ (info@abrwealthmanagement.com) is the owner and Christian Financial Advisor with A.B. Ridgeway Wealth Management. With a decade in the finance industry, his goal is to give believers clarity around the most confusing topic in the Bible, money, and tithing. A.B. Ridgeway helps tithing Christians become cheerful givers but unlocking their money-making potential, so they can prosper and be the great stewards of the wealth God has entrusted them with.
*Disclaimer: This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. This is strictly for information purposes. We recommend you speak with a professional financial advisor.
*Some elements in this blog was created, restructured, edited or summarized by AI and may have altered from the original content. Warning: There may be errors that were creating during this transition that were not in the original content. Please double check all information.
