Retirement Income Strategies

Once you’ve decided to retire, there are some decisions to be made about how to manage your retirement income.

Making the leap from deciding to take retirement income to actually putting those decisions into action can be nerve-wracking. That’s because the choices you make can mean a major difference in the way you live — sometimes for 30 years or more. And putting off decisions often seems easier than making them. Deep down, lots of people hope that things will just work out.

Realistically, though, you get the best results when you determine the income you’ll need, weigh various strategies for providing it, and select the one that promises to best meet your needs.


To make strategic decisions about the best way to use the immediate annuity you have purchased or the assets in your deferred annuity to provide a secure retirement, you need to know:

Experience suggests that you may need more income early in your retirement than you will later on. And you may be more comfortable spending money on travel, for example, if you’ve deliberately created a stream of income designed to pay for it.

To be sure you have the money you want when you want it, you might ask your annuity provider about personalized payout plans or innovative programs for allocating your income. One strategy is to split your variable annuity payout into two streams, one to be paid out over your and your spouse’s lifetimes and the other to be paid over five or ten years. For example, suppose you had a $300,000 annuity and allocated 75% ($225,000) to life income and 25% ($75,000) to a ten-year payout.

The amount you receive each year of the ten-year payout could pay for extended travel or other things you’ve wanted to do. And since you’d planned the income specifically to have it available for those possibilities, you could spend it with a clear conscience.

At the same time, you’d be guaranteed income for life, based on the balance of the contract value.


In choosing a payout strategy, the way you intend to use the income makes a big impact on your decision.

If you own a deferred annuity and plan to make a large, one-time investment, a lump sum can provide that money.

If you own a deferred annuity and want extra income to supplement your budget or cover extraordinary expenses before you retire, periodic or systematic withdrawals can provide it while giving your assets more time to grow.

If you’re counting on lifetime income to be a part of your regular living-expense budget, pay for the extras that make life fun, or provide a source of cash you can use to create an emergency fund, annuity payments from your immediate annuity or annuitized deferred annuity are designed to provide it.

If your deferred annuity is part of a qualified plan or an IRA, you generally have to make your choice by the time you reach age 70½. With nonqualified annuities, you’ve usually got another fifteen years or more before you must make a decision. While there are advantages in that flexibility, the drawback can be a tendency to procrastinate.

You can make an argument for postponing taking income until the last minute, especially if you seem to be managing without it. Then, when you do start, the amount you get will be larger. For example, in some circumstances a person who begins taking income at age 85 might receive almost twice the amount in the initial payment as someone who began at age 62.

But there are often reasons for timing annuity payouts to begin when you retire, or even somewhat earlier. Since juggling various streams of income can be a major challenge, having a period of time to get accustomed to allocating your resources can be smart.

If you take a lump sum or periodic payments, you pay tax at your regular tax rate on the full amount of your earnings, which the tax law assumes are withdrawn first. That could reduce the amount you actually have to spend by up to 45% (in the highest federal and state brackets). In contrast, if you annuitize a nonqualified annuity contract, part of each payment is a tax-free return of principal.

In addition, you’ll want to remember that the assets in annuities and other retirement plans are put to better use providing you with income during your lifetime than serving as a way to benefit your heirs. One reason is that your beneficiaries also pay income tax on money they receive from the annuity contract to the extent that it exceeds the premiums.


If you decide that the promise of income for life and the advantages of a regular return of nontaxable premiums as part of each income payment make sense for you, it’s time for the next round of choices. The order in which you deal with them may vary, but these are the things you have to consider:



Since there’s no way to be sure how long you’ll live and need income, you might want to try making plans for five-year segments. That’s long enough to see the effect of taking income from various sources during changing economic cycles. But it’s short enough to catch potential problems and make adjustments in your spending style. This approach works well if you have the security of lifetime income for your basic needs.