Turning Your Retirement Savings Into Income

Are you concerned about not having enough money to live on throughout your retirement? If so, you are certainly not alone.


Many baby boomers are fast approaching retirement, and many are worried about not having enough money. Most of this worry stems from the fact that the average life expectancy for both men and women is higher now than it has been in the past.

As of 2016, the average life expectancy in the United States for a man was 76.1 years while the average life expectancy for a woman was approximately 81.1 years. This means that if you retire in your early to mid-sixties you will have at least 10 to 15 years that you can expect to be in retirement and live off retirement funds.

While living a long and healthy life is certainly a fantastic thing and something to strive for, it can put additional strain on your retirement savings. This makes it very important to have a good understanding of the best ways to make your nest egg last you as long as possible while also providing you with a comfortable and enjoyable retirement.

Preparing for Retirement

Before you explore the various strategies for utilizing your retirement money, you will need to do some analyzing first. Ensure that you take some time to look into the big picture so that you are well prepared for your retirement.

Estimate how long you can live off your savings: Before you actually draw from any of your retirement savings you need to have a good idea of approximately how much money you will need each month to cover your basic living expenses. The closer you are to actually retiring, the more accurate of an idea you will have about how much you will need from your Social Security income or other guaranteed income for day-to-day living. Then you will want to add in the non-essentials as well such as traveling, gifting, hobbies and more.

Plus, you will also need to make an estimate on how long you will live so that you will know how long your savings can reasonably support you. While you can look to the average life expectancy for a nice average, you may live much longer depending on your health, sex and other factors. There are online tools available that can help you to discover your approximate life expectancy, and you can also speak with your primary care physician to get an approximate age as well.

Estimate how much guaranteed income you will have: Social Security checks, annuities and pensions may all play a big part in your retirement. Once you have calculated your savings, you can begin to look at how much you may expect to receive from Social Security and any pensions. These types of income are considered guaranteed because you can count on them each month throughout your retirement. This is the type of income that you should try to use for all of the essentials like housing, transportation and food.

If you find that you cannot rely solely on Social Security income and pensions to cover your non-discretionary expenses, you may want to consider purchasing an annuity that can provide you with lifetime income. Whether or not an annuity is a good idea for you, there may be other options available that you can research that can help you to have enough stable income for your retirement.

Estimate how much other income you will have: In addition to you Social Security, annuities and pensions, you may have a 401(k) plan, IRA, investments or other forms of savings. Take a look at all of the money you have in each of your various accounts to get a better idea of what your retirement will look like.

Create a withdrawal plan: After you have analyzed the money you have in your accounts, you will need to actually come up with a plan for how you are going to access that money and turn it into income.

Retirement Strategies

You have likely spent most of your adult years saving money to put into your retirement, although it is possible to start saving for retirement later in life. But once you have reached retirement age and you have decided it is time to retire, you may not know exactly how to use the money you saved as your steady source of income. There are many different types of retirement strategies and each has pros and cons that must be considered. Before you start pulling out money, it is important to decide which strategy will work best for you in order to maximize the money that you put so much work into saving.

Here are a few of the best strategies for turning your retirement money into income:


  • Live off of investment income.

If you have a healthy amount of money invested, you may benefit from living off the dividend and interest that your investments accrue instead of pulling directly from the principal or pulling out the investment entirely. This prevents you from deleting your nest egg and allows it to continue to grow throughout your retirement. However, it should be noted that this may not yield a high income, and it is also subject to fluctuate frequently as the interest rates and dividend yields change.

  • Utilize annuities.

To purchase an income annuity, you would exchange in a lump sum of money for an income that is guaranteed by an insurance agency to last for as long as you live. Some annuities will also come with protection from inflation and may provide death benefits to survivors. This is often the strategy that provides the highest income to retirees, depending on the annuity purchased. There are downsides, however, including that you generally lose access to your principal and the ability to grow it and pass it on to your heirs.

  • Withdraw 4 percent.

The most traditional of all approaches is to withdraw around 4 percent of your retirement savings, with slight adjustments for inflation each year. This means that if you retire with a total of $1 million, you can withdraw $40,000 your first year of retirement. For each year after that, you can withdraw a slightly higher amount to account for inflation. A 4 percent withdraw rate is generally considered to be the safest rate for retirement funds.

  • Withdraw 7 percent.

Another option is to withdraw 7 percent of your retirement savings if you are more risk-tolerant. This is only recommended to those who are willing to use up their savings faster in return for having a higher income during the beginning of their retirement and should only be done if you have enough income from other sources such as Social Security and pensions to cover your expenses later in life.

Of course, there are many of other options for spending safely in retirement in order to turn your savings into a healthy income that can help you to have a comfortable retirement. It is very important to determine what kind of retirement you would like and assess how much money you have to spend before coming up with a plan. It is also a good idea to speak with a financial planner that specialized in retirement in order to ensure that your withdrawal plan is reasonable.


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