The Retirement Income Rule You Can’t Ignore

When it comes to retirement planning, there’s one rule you can’t ignore: Never touch the principal.

This simple but powerful strategy ensures your savings remain intact while you generate steady income through CDs, Treasuries, and Multi-Year Guaranteed Annuities (MYGAs). In today’s interest rate environment, this approach is more practical than ever.

Understanding the Tools

At the core, CDs, Treasuries, and MYGAs all offer contractual guarantees. That’s the key word, contractual. These are not projections or illustrations that may or may not happen.

The guarantees are written into the contract.

• Certificates of Deposit (CDs): Best suited for locking in shorter durations of three years or less.
• Treasuries: Another safe short-term option backed by the U.S. government.
• MYGAs: The annuity industry’s version of a CD, issued by life insurance companies. In non-IRA accounts, MYGA interest grows tax-deferred.

At the time of this writing, MYGAs and other fixed-rate products can offer 5% or more in guaranteed rates. That’s a level we haven’t seen in years, and it opens the door for retirees to structure plans around living off the interest alone.

Why This Strategy Works

The benefit of “never touch the principal” is twofold. First, it allows retirees to generate dependable income today without exposing savings to market volatility. Second, it ensures the principal is preserved for legacy purposes. Many families want to leave money behind for children or grandchildren. Protecting the original principal makes that possible.

This approach resonates with everyday Americans. The workers, savers, and builders who don’t want their lifetime of earnings subjected to risk. By peeling off interest instead of dipping into savings, they can live securely while maintaining financial independence.

Comparing Income Approaches

Lifetime income annuities such as Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), Qualified Longevity Annuity Contracts (QLACs), and Income Riders combine principal and interest to create guaranteed lifetime payments. These products can be excellent solutions, but they function differently from a pure “live off the interest” strategy.

With SPIAs and DIAs, income is a combination of interest and return of principal. Nothing is wrong with that model—you’re guaranteed income for as long as you live. But for those who want to avoid touching principal, the better approach right now may be combining MYGAs, CDs, and Treasuries.

What Happens If Rates Change?

The obvious question is, “What happens when interest rates go down?” If that occurs, you reassess. You look at the total asset base and determine if peeling off interest is still possible. If not, pivoting to a SPIA or another lifetime income solution may make sense.

If rates rise, even better. You can continue to renew, lock in higher rates, and maintain the same “never touch the principal” strategy.

The key is to adjust based on the environment. Don’t try to predict interest rates. Don’t rely on guesses. Simply take advantage of the contractual guarantees available at the time.

The Power of Simplicity

The financial industry often pushes complex products that even the agents struggle to explain. But the truth is, retirement income can be very simple:

• Live off the interest.
• Protect your savings.
• Avoid fees and unnecessary risks.

It doesn’t need to be more complicated than that.

At the time of this writing, even money market accounts are offering strong yields. These opportunities may not last forever, but while they’re here, they provide retirees with the chance to build solid income streams without exposing principal.

You’ve Already Won the Game

This strategy reminds me of a conversation with long-time clients in Alabama. They had reached the point where their interest income covered their lifestyle, and the principal remained untouched. My advice to them was simple: You’ve won the game—why keep playing? 

If you’ve accumulated enough wealth to live off interest, chasing the next market rally, crypto surge, or hot stock tip isn’t necessary. You can opt out of the volatility, stop worrying about market timing, and focus on enjoying life.

Final Thoughts

The retirement income rule you can’t ignore never touch the principal isn’t just a slogan. It’s a mindset. It’s about protecting the money you've worked so hard to earn, living off a reliable income, and preserving your legacy.

Imagine looking back in five or ten years. You’ve enjoyed steady income every year, and your principal remains untouched. That’s the power of this strategy.

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