The joy of income: that’s what it’s all about in retirement. The day that you retire and step over that threshold, you no longer have earned income. Instead, you’re going into a spending phase of your life. Several recent studies have shown that retirees with a guaranteed income stream are actually happier than those without one. As the number one fear of retirees is running out of money before running out of life, it makes sense that people with guaranteed income for life are happier.

Most Americans looking to retire soon are counting on receiving a monthly Social Security check. Only 3 percent of senior Americans are not eligible for Social Security benefits, and among that number are ministers, railroad workers, state and federal employees, typically covered by different programs. Another guaranteed source of income common among retirees today is pensions. Approximately one in four Baby Boomers is counting on receiving a significant portion of income in retirement from an employer-sponsored pension. As a rule, retirees receiving a large pension are happier than those without a big pension or those who simply collect Social Security benefits.

What this tells me is that the ability to create dependable, increasing income in retirement increases happiness and allows retirees the confidence level to really live the way they want to in retirement. You want to have a high probability that you won’t outlive your income.

It’s not about the amount of assets you have, it’s not about your “retirement number” … it’s how much dependable, increasing income can you generate and how do you go about doing that.

In October, there was a lot of volatility in the stock market. At one point, we even reached correction status, meaning that the market was down over 10% from its previous high. Since the Great Recession of 2007-2009, we have seen that, in the short-term, markets move up and down more to macro-economic and political factors than actual market fundamentals. It’s impossible to predict what’s going to happen in the stock market. Over the next couple of months, I don’t think that it’s going to continue down. I could be wrong, though. The shorter term the forecast, the more it’s just an educated guess.

What this proves, though, is that you need an income plan where you’re not depending on risk assets for your income. Think about it: if the markets were down 20%, and you’re systematically selling off investments to generate income, you’re going to be spending your losses. By selling your investment and spending it for necessary income when markets are down, you’re compounding losses. It’s okay to reinvest losses – sell investments when they’re down and reinvest them – but you don’t ever want to sell investments at a loss and spend them. And, unfortunately, that’s what you’re doing if you’re forced to draw income from investment losses.

Instead, you should consider segmenting your money based on your income and the money you’re going to need. In my opinion, a minimum is five years’ worth of income in retirement should be protected. Consider guaranteed investments with a reputable company backing the guarantee or else very, very stable investments, so that when you need the money, you can depend on it being there. Money you need a year from now shouldn’t be invested in the stock market because we don’t know what the markets will be doing a year from now.

The income plan – not only how much income can you draw, but where do you draw it from – is the most overlooked area in retirement planning. You want stability of income, so you need to address it. Protect income that you’re going to need in the short term and money in risk investments, leave alone to grow for at least five years!

Maybe you’ve heard advice that you simply need to protect two years’ worth of income. That’s crazy! Markets can be down for more than two years. Statistically, yes, the peak of a bear market lasts less than two years, but you likely aren’t going to be able to recover your investments in two years! At the start of this decade, we went six and a half years with no growth in the US stock market, as measured by the S&P 500. Then, with the downturn in 2008-2009, we actually had a 12-year period (from January 1, 2000 to January 1, 2012) with zero total return in the US stock market. You need to protect income for longer than two years!

With an income plan, you plan for market volatility before it happens. Part of that is determining your risk tolerance, while the other part of it is determining your income need: how much money you’re going to need and when will you need it. Don’t overlook this critical component because more stability of income provides for a happier retirement.