Retirement Income Strategies
After you've spent so many years saving and investing for your retirement, it can be intimidating to figure out how to live off those funds. Start with a big-picture overview of what it takes to help generate retirement income that lasts.
Your best approach for generating income will depend on a number of factors: how much you’ve saved, how much income you’ll need, and how long you’ll need it.
APPROACHES TO CONSIDER:
What you can do now:
- Review common approaches for generating retirement income to help you decide which may be best for your situation.
- Learn how to create your own paycheck in retirement.
- Test your knowledge with our Retirement Income Quiz.
- Attend our Funding Your Paycheck in Retirement workshop at your local Schwab branch, or view it online.
As you transition from building your nest egg to living on it, your investment approach will likely need to become less growth-oriented and more income-focused. The investments you choose will depend largely on your goals.
- Compare investments that may work best for your income goals and investing preferences.
With a defined benefit pension plan, you'll likely face a choice at retirement on whether to take a qualified one-time lump-sum payout—which can be rolled over directly into a Traditional IRA—or to receive a monthly annuity payment for the rest of your life.
When considering your choices, life expectancy is an important factor. The longer you live beyond your actuarial life expectancy, the better the annuity deal becomes. A fixed annuity for life can provide a reliable nonvariable cash flow source that could help boost spending power while taking pressure off of a variable, traditional retirement portfolio.
However, there are many factors to consider, including annuity payout rate, life expectancy and your health, other income sources, portfolio size, inflation, your tax situation, and your willingness and ability to manage your own retirement portfolio for income. Keep in mind that it's not an all-or-nothing decision.
Also, keep in mind that annuity guarantees are subject to the financial health and claims-paying ability of the issuing insurance company.
What you can do now:
- Watch the short video: 2 ways to generate guaranteed retirement income for life.
- Consider your life expectancy to estimate how long you may need to live off of your retirement savings.
- Be sure you’re comfortable with the credit rating of the annuity provider1 or pension fund—the higher the rating, the better—by checking with A.M. Best or Standard & Poor's. Then consider the advantage of leaving the risk of investment performance to others rather than taking it on yourself.
- Consult your tax professional to understand the tax implications of your choice.
- Always factor your gift and estate planning goals into any lump-sum-versus-annuity decision. If you take a lump sum, there may be some assets left over for your heirs. Unless there’s a spousal continuation on the annuity you choose, the annuity will stop payments in the event of your death. Consider annuities available through Schwab or call a Schwab Annuity Specialist at 888-311-4889.
1. Ratings are subject to change. There is no guarantee that current ratings will be maintained.
2. The consultation is available only to clients with at least $25,000 in assets at Schwab or prospects with at least $25,000 in assets available to bring to Schwab. Individualized recommendations are available only to Schwab clients and are limited to assets held in a Schwab retail brokerage account. Information provided to prospects, or pertaining to assets held outside of Schwab, as part of the consultation are examples of the kinds of recommendations available on assets held at Schwab; these examples do not constitute recommendations, solicitations, or investment advice.
Brokerage and Insurance products:
•Are not deposits
•Are not FDIC-insured
•Are not insured by any federal government agency
•Are not guaranteed by the bank or affiliates of the bank
•May lose value
The information provided is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager.
Withdrawals from an IRA or qualified retirement plan prior to age 59½ may be subject to a 10% federal tax penalty on earnings.
Price and availability are subject to market conditions.
Interest and dividend income is subject to fluctuation and is not guaranteed. Principal is subject to market devaluation, and your investments could lose money.
Income from investments, withdrawals from investment accounts, and proceeds from investment sales may be taxable.
The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Examples provided are for illustrative (or informational) purposes only and are not intended to be reflective of results you can expect to achieve.
Charles Schwab & Co., Inc. and Charles Schwab Bank are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Brokerage products are offered by Charles Schwab & Co., Inc., member SIPC. Deposit and lending products and services are offered by Charles Schwab Bank, member FDIC and an Equal Housing Lender.