Retirement Income Strategies for 2026
Key Points – Retirement Income Strategies for 2026
- Having a Stress Tested Financial Plan
- Comparing Retirement Income Strategy in 2026 to 2016
- Understanding Bucket Strategies
- 6-Minute Read | 34-Minute Watch
This article highlights retirement income strategies that may help generating cash flow in retirement in 2026. We review how to implement a bucket approach that is designed to provide immediate income while also while maintaining long-term equity growth.
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How Can You Retire with Confidence in 2026?
If you wanted to retire tomorrow, could you? If so, how confident are you that you’ll have enough money to accomplish your objectives in retirement (and leave an inheritance to your loved ones, if that’s important to you)? According to a September 2025 Pew Research Center survey, 40% of U.S. adults aren’t confident that they’ll have enough money to get through retirement.1
At Modern Wealth, we strive to help people enjoy today with confidence for tomorrow, all while connecting people with the causes they care about most. What does that look like in 2026? It’s no secret that the market volatility stemming from the Iran war has shaken the confidence of many investors. For working individuals, having a regular paycheck can help lessen the blow from market downturns.
Why a Stress Tested Financial Plan Is Key
But what if you’re retired? Do you have low-risk, highly liquid assets that you can spend from in the short-term during times of market volatility? If you’ve recently retired or are planning to retire in 2026, we hope that you have a financial plan that’s been stress tested for the possibility of retiring during a prolonged market downturn.
It’s important to understand how your different sources of retirement income will work well before you retire and create a withdrawal strategy accordingly. Keep in mind that even if you’ve saved for retirement in a similar fashion as your best friend, your withdrawal strategy could be vastly different. There are many other factors that come into the equation, such as your goals, risk tolerance, family situation, life expectancy, etc. This is one of many reasons why it’s important to start planning for retirement anywhere from five to 10 (or even 15) years before you want to retire.
To help combat market volatility, consider utilizing the bucket strategy so you can assess when to spend from your different assets.
The Bucket Strategy
- The Short-Term Bucket: This bucket contains two to three years of necessary spending held in liquid accounts with a focus on capital preservation and accessibility. Examples of income in this bucket may include money market funds and short-term Treasury bills. If a bear market occurs, having this bucket may help reduce the likelihood of needing to sell investments at a loss to do things like paying your mortgage or health insurance.
- The Intermediate-Term Bucket: In years three through seven, the intermediate-term bucket is structured to be moderately conservative. Examples of income in this bucket might include dividend-paying stocks, longer-term bonds, and real estate. The goal of this bucket is to build up spending power to eventually replenish the short-term bucket.
- The Long-Term Bucket: This bucket is not intended for you to touch until 10-20~ years from now. It typically consists of equities, which are generally intended to provide long-term growth potential. With the short-term and intermediate-term buckets being comprised of more secure assets, you can afford to be patient with these long-term assets during times of market volatility.
FIGURE 1 – The Three Income Buckets
How Retirement Income Strategy Has Evolved in Recent Years
Whether you plan to retire in 2026 or several years from now, keep this bucket strategy in mind as you build out your retirement income strategy. Remember, we’re reviewing retirement income strategies for 2026. They may or may not be strategies that are worth considering 10-20 years from now. Let’s investigate some key differences between retirement income strategies from 2016 compared to 2026.
During a recent episode of America’s Wealth Management Show, Neal Falkenberry, CFA and Dean Barber reflected on the Federal Reserve’s federal funds effective rate was close to 0% from 2009-2016 following the Great Recession and 2020-2022 following the COVID crash.2 As of March 2026, it’s 3.64. How would that impact retirement income strategy?
FIGURE 2 – Federal Funds Rate – Board of Governors of the Federal Reserve System
Dean and Neal noted that while interest rates were around 0%, the bond market was an afterthought when considering retirement income strategy. They recalled how the 0% interest rate environment had investors gravitating toward the equity markets. However, tilting your portfolio significantly toward equities could leave yourself vulnerable when there is significant volatility.
Back in 2016, Dean and Neal noted that their conversation on retirement income strategy would’ve focused on total return investing.3 Due to interest rates being as low as they were, generating enough income solely from interest wasn’t feasible for many investors. Instead, capital appreciation was key during that period to fund living expenses.
Setting the Stage for Retirement Income Strategies in 2026
Here are three key takeaways of how retirement income strategy has shifted from 2016 to 2026.
- The bond market is back: The bond market environment has shifted, with interest rates currently higher than in recent years. As a result, certain taxable bonds may offer yields in the range of approximately 4.5% to 5%, while some tax-exempt bonds may offer yields around 3.5%, depending on factors such as credit quality, duration, and market conditions.4
- Dividend yields: Dividend-paying stocks may provide income through distributions, in addition to potential price appreciation, though payments may vary.
- Economic uncertainty: Elevated equity prices and geopolitical conflict (such as the Iran war) have led to a cautious environment that requires a more structured approach rather than buying-and-holding or other similar strategies.
What Is Sequence of Returns Risk?
Why would a prolonged market downturn at the beginning of your retirement likely be more detrimental than a prolonged market downturn later in retirement? That is due to sequence of returns risk. It refers to the order in which you earn returns on your portfolio. Let’s do another quick history lesson again to help explain.
FIGURE 3 – S&P 500 Annual Performance – MacroTrends5
Someone who retired in 1991 was able to enjoy mostly uninterrupted growth until the turn of the century when the Dot-Com Bubble burst.6 If they withdrew 5%~ throughout the 1990s, there was a chance they could have ended the 1990s with more money than when they began retirement.
But what if you retired when the Dot-Com Bubble began to burst in 2000? People who retired in 2000 were forced to withdraw money from a declining portfolio, which means they had less capital remaining to reinvest once the market finally began to recover in 2003. It was only five years later that the Great Recession made matters even worse.
So, if you retired at the onset of a multi-year market collapse, would you be able to recover from it? That is why we stress the importance of having a stress-tested financial plan.
The Role of Tax Planning in Retirement Income Strategy
While the financial markets tend to play a critical role in retirement income strategy, there’s another instrumental component that we don’t want people to overlook. Let’s talk about tax planning. It’s important to realize that two couples could have similar savings and Social Security claiming strategies, but still have vastly different investment strategies due to where their money is saved.
The Three Tax Buckets
Do you have a traditional 401(k) or Roth 401(k)? What about brokerage accounts? All three of those retirement income sources are taxed in a different manner. Let’s review the three tax buckets.
FIGURE 4 – The Three Tax Buckets
- Tax-Deferred: According to results from the Gallup Poll Social Series, nearly 60% of U.S. adults have a traditional 401(k), 403(b), or IRA.7,8 If you have money saved in a traditional 401(k), 403(b), or IRA, just keep in mind that that money is tax-deferred. That means that the money won’t be taxed until you take it out of the account. Upon withdrawal, it will be taxed as ordinary income.
- Tax-Free: This is the Roth bucket. When saving to a Roth IRA or Roth 401(k), you must pay ordinary income tax when making the contribution. But when you take the money out, it will come out tax-free under certain IRS conditions.
- Taxable: Then, there’s your taxable bucket, which consists of brokerage accounts. Remember that standard brokerage accounts that have already been taxed can still generate new taxes via capital gains and dividends.
Striving for Tax Diversification
So, do you have most of your retirement savings in the tax-deferred, tax-free, or taxable bucket? Or do you have your money spread across the three tax buckets (tax diversification)? Tax diversification may offer greater flexibility on a few different fronts, whether it’s with retirement account withdrawals, legacy planning, charitable giving, and planning for future tax law changes and Required Minimum Distributions.
For example, Dean and Neal pointed out that under the One Big Beautiful Bill Act, the new senior bonus deduction allows some married couples to have more than $140,000 in gross income and still have a 0% capital gains rate.
Methodical Roth Conversions
While the 2025 tax filing season is wrapping up, it’s not too early to start thinking about your taxes for 2026, 2027, and beyond. At Modern Wealth, our tax Advantage Offering goes beyond assisting our clients with tax compliance. We strive to identify tax planning opportunities that may help with reducing their long-term tax liability.
One potential tax planning opportunity to consider are Roth conversions, especially if you believe that you’ll be in a higher tax bracket in the future. The process of doing a Roth conversion involves moving money from a traditional IRA to a Roth IRA. The converted funds are taxed as ordinary income, but then they will grow tax-free and come out tax-free and penalty-free under certain IRS conditions.
However, Roth conversions aren’t for everyone. If you’re charitably inclined and over the age of 70½, you may want to consider keeping enough money in IRAs to utilize Qualified Charitable Distributions. Through QCDs, you can donate up to $111,000 in 2026 directly from your IRA without it showing up on your tax return.9
Additionally, Roth conversions can potentially trigger Medicare IRMAA surcharges.10 Keep in mind that your Medicare premiums are based upon your Modified Adjusted Gross Income from two years prior.
Do You Have Questions About These Retirement Income Strategies for 2026?
We’ll ask you again: if you wanted to retire tomorrow, could you? And if so, how confident are you that you’ll have enough money to accomplish your objectives in retirement (and leave an inheritance to your loved ones, if that’s important to you)?
Even if you’re heading into retirement in 2026 with a large savings account, hopefully this article has helped to explain there’s much more that goes into retirement income planning. It’s critical to have a cashflow strategy that incorporates your unique goals, tax planning, risk management, and much more.
Whether you’re retiring in 2026 or several years from now, we want you to be able to retire with a retirement income strategy that allows you to enjoy today with confidence for tomorrow. Start a conversation with our team below to begin outlining your goals for retirement and let’s look into how to structure your retirement income strategy accordingly.
Resources Mentioned in This Article
[2] https://fred.stlouisfed.org/series/FEDFUNDS
[3] https://www.schwab.com/learn/story/how-to-use-total-return-approach-retirement-income
[4] https://www.ustreasuryyieldcurve.com/
[5] https://www.macrotrends.net/2526/sp-500-historical-annual-returns#google_vignette
[6] https://www.investopedia.com/terms/d/dotcom-bubble.asp
[7] https://www.gallup.com/175307/gallup-poll-social-series-methodology.aspx
[8] https://news.gallup.com/poll/691202/percentage-americans-retirement-savings-account.aspx
[9] https://www.congress.gov/crs-product/IF11377
[10] https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles
Investment advisory services offered through Modern Wealth Management, LLC, a Registered Investment Adviser.
The views expressed represent the opinion of Modern Wealth Management a Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.