3 Best Ways to Turn Retirement Savings Into Lifetime Income

When you’ve spent decades building your retirement nest egg, the real challenge begins: how do you turn those savings into reliable income you can count on for life? Retirement isn’t about accumulating the biggest pile of money — it’s about making that money last and ensuring it supports your lifestyle.

At The Annuity Man, I break it down into three core strategies. Two of them don’t involve annuities at all. One of them does. Together, these represent the primary ways retirees can structure their income in a world where pensions are rare and Social Security alone is insufficient.

Let’s dive into each approach, what they offer, and where they might fit into your plan.

The 4% Rule

The first method is the well-known 4% rule. This strategy suggests withdrawing 4% of your portfolio annually, assuming your investments will replenish themselves over time through market growth. For example, if you have $1 million, you’d withdraw $40,000 in the first year and adjust slightly for inflation each year after that.

Historically, this method has been effective in certain market environments. But today, financial experts like Wade Pfau have questioned its reliability. Longer life expectancies, low interest rates, and market volatility can put retirees at risk of outliving their money if they depend on the 4% rule alone.

Still, for retirees comfortable managing investments—or those with an advisor they trust—it remains a viable non-annuity option. The key is discipline. If you’re comfortable monitoring the markets and adjusting withdrawals as needed, this approach can be practical. However, you must accept the risk that your income is directly tied to market performance.

Bonds, CDs, and Dividend Investments

The second strategy is to build income using traditional investments like bonds, CDs dividend-paying stocks, REITs, or preferred shares. These tools provide interest, coupon payments, or dividends that you can use to fund your retirement needs.

This approach can feel more tangible than relying on market withdrawals because you’re living off the actual income those investments generate rather than selling assets. However, it still carries risk:

• Bonds can lose value if interest rates rise.
• Dividends are never guaranteed.
• REITs and preferred stocks fluctuate with the market.

The benefit is flexibility. You can sell or rebalance at any time, and you maintain control of your assets. For retirees who want to avoid annuities and still generate a stream of income, this can be an attractive solution. But again, there’s no contractual guarantee. Market changes will always influence how much income you receive.

Annuities: Guaranteed Lifetime Income

The third strategy—and the only one that provides guarantees—is through annuities. Unlike investments, annuities aren’t tied to market performance. They’re contracts backed by insurance companies that promise to pay you for life.

In essence, annuities act like a personal pension. You’ve already seen this structure in Social Security or employer pensions. Annuities let you recreate that dependable cash flow with your own savings.

Types of annuities used for income include:

• Single Premium Immediate Annuities (SPIAs): Income begins right after purchase.
• Deferred Income Annuities (DIAs): Payments begin at a later date, addressing future income needs.
• Fixed Annuities and MYGAs: Provide guaranteed interest. You can peel off the interest annually without touching the principal.

The appeal is certainty. With an annuity, you know the check is coming every month, no matter how long you live. That’s the definition of transferring risk—you shift longevity risk from yourself to the insurance company.

It’s also customizable. You can structure payments for your life only, or for joint lives, so that your spouse continues to receive income after you pass away. You can even ensure beneficiaries get any unused money back.

Finding the Right Mix

The truth is that most retirees don’t use just one of these strategies. The smartest approach is often a combination. For example:

• Use part of your portfolio under the 4% rule for flexibility.
• Hold some bonds, CDs, or dividend-paying stocks for income and liquidity.
• Allocate a portion to an annuity to lock in guaranteed lifetime income.

This balanced plan enables you to cover your basic expenses with a guaranteed income while maintaining flexibility and growth potential in other parts of your portfolio.

At The Annuity Man I emphasize that there’s never urgency when it comes to annuities. It’s about education, quotes from all carriers, and understanding exactly what the contract guarantees. That’s why I provide free Owner’s Manuals, calculators, and one-on-one calls to walk you through your options.

There are three primary ways to convert your retirement savings into income: the 4% rule, income-generating investments, and annuities. The right choice—or mix—depends on your risk tolerance, income needs, and long-term goals.