Retirement income strategies

Once you stop earning a regular paycheck, your financial focus shifts from saving to using what you've built over the years. That’s where retirement income strategies come in. They can help you turn your savings, investments, and benefits into steady income you can count on.

There are several ways to create retirement income. Some people prioritize investment earnings, while others prefer the predictability of annuities or Social Security. The right mix depends on your personal goals, financial situation, and your personal risk tolerance.

In this guide, we’ll walk you through some of the most common strategies for managing and maximizing your retirement income. Keep in mind: there’s no universal answer because your best strategy for retirement income will depend on what works for you.

The 4% rule is one of the most common retirement income strategies. It may appeal to retirees who want a steady withdrawal plan with minimal complexity. It was developed in the 1990s by financial planner William Bengen, who analyzed historical market data to figure out how retirees could withdraw from their savings without running out of money over a 30-year period.

This is how the 4% rule works: In the first year of retirement, you withdraw 4% of your total retirement portfolio. Each year after that, you adjust the amount for inflation. For example, with $5,000,000 in savings, the first withdrawal would be $200,000. The next year, that number increases slightly based on cost-of-living changes.

Why many retirees consider the 4% rule

• Easy to follow: There is no need for ongoing calculations or constant adjustments.

• Helps plan for long-term income: It’s designed to make your savings last for about 30 years.

• Gives a clear starting point: It’s useful for estimating annual income from your portfolio.

What to keep in mind

• Markets don’t always follow the rules: The original concept assumes a balanced portfolio and average long-term returns, but real market conditions can vary.

• Inflation and taxes can impact your plan: Rising costs or unexpected tax changes may affect how long your money lasts.

• It’s not one-size-fits-all: Like any retirement income strategy, whether the 4% rule fits depends on your goals, lifestyle, and financial situation.

When you invest in bonds or certificates of deposit (CDs), you typically earn interest. When you hold shares in certain companies, they may pay out a portion of their profits to shareholders as dividends. These regular payments can be collected and used to cover your retirement expenses. Simply put: Using interest and dividends to generate retirement income means living off the earnings produced by your investment portfolio, without having to sell the investments themselves. 

This retirement income strategy focuses on holding income-generating assets such as bonds, dividend-paying stocks, certificates of deposit (CDs), and money market deposit accounts. It can work well for retirees who want regular income and prefer not to draw down their savings too quickly. However, it requires thoughtful investment selection and ongoing portfolio management to help keep income consistent over time.

Benefits of interest and dividend income:

• Preserves capital: If you only spend the income generated, your original investment stays intact.

• Predictable income: Interest and dividends often come on a set schedule, which can help with budgeting.

• Flexible investment choices: You can build a portfolio that matches your risk tolerance and income needs.

What to consider

• Yields can fluctuate: Interest rates and dividend payouts can change, which may affect your cash flow over time.

• Risk is still present: Dividend-paying stocks can lose value, and some companies may reduce or suspend dividends.

• Lower yields in some markets: In a low-interest-rate environment, it may be harder to generate enough income without taking on more risk.

The total return strategy takes a broader view of your investment portfolio. Instead of focusing only on the income generated from interest or dividends, it looks at the overall performance. This means it combines income with capital gains from selling investments that have grown in value. The goal is to create a sustainable, long-term income stream by carefully managing both growth and withdrawals, rather than relying solely on fixed payouts.

This approach is different from a pure income-focused strategy, which tries to generate enough cash flow without touching the capital. With total return, retirees typically withdraw a set percentage of their portfolio each year, which may come from a mix of interest, dividends, and investment gains.

Why some retirees may prefer the total return approach

• More flexibility: You’re not limited to income-generating assets, so you can build a diversified portfolio that aligns with your long-term goals.

• Potential for higher returns: By investing across a wider range of asset types, your portfolio may have more room to grow.

• Helps manage taxes: You may have more control over when and how gains are realized, which can offer tax planning opportunities.

What to consider

• You’ll need to sell investments: To generate income, you may have to sell assets, even in down markets, which can reduce the value of your portfolio over time.

• More planning required: This strategy often benefits from regular rebalancing and help from a financial advisor to ensure it stays on track.

• Market risk is a factor: Since part of your income depends on market performance, this strategy may involve more volatility than income-only approaches.

When it comes to retirement income strategies that provide guaranteed income, annuities and Social Security are two of the most well-known options. Both can offer a stable income stream in retirement, but they function differently and have unique benefits as well as limitations.

Social Security is a federal program based on your work history and earnings. The monthly benefit depends on your average lifetime earnings and the age you start claiming. While it provides consistent payments for life, it generally covers only a portion of your income needs. Delaying benefits until age 70 can increase your payout, but that also means waiting longer to receive any income at all.¹

Annuities are contracts you purchase through an insurance company. In return for an upfront payment, you receive regular income, either for a set period or for life. They come in many forms, for example immediate, deferred, fixed, or variable – each with different rules and cost structures.

What you need to know:

• Steady, predictable income: Both Social Security and annuities offer regular payments that can help cover basic living expenses.

• Not tied to the market: These income streams are typically unaffected by investment performance, adding financial stability to your plan.

• Longevity protection: Especially with lifetime annuities, these tools can reduce the risk of outliving your savings.

• Limited flexibility: Once you claim Social Security or buy an annuity, the terms are usually locked in. That means you have less room to adjust if your needs change.

• Inflation risk: Social Security includes annual cost-of-living adjustments, but most annuities don’t, unless you pay extra for inflation protection.

• Costs and complexity: Annuities often come with fees, surrender charges, or complex terms that can be hard to compare. They’re also only as reliable as the insurer issuing them.

The bucket approach is a well-known retirement income strategy that helps retirees manage risk while keeping income needs organized by time frame. It works by dividing your retirement savings into three buckets, each with a different purpose based on when the money will be needed.

By separating your savings this way, you’re less likely to panic during market downturns, since your short-term needs are already covered. However, this approach also requires regular oversight to ensure each bucket stays properly funded. Over time, you’ll need to move money from the long-term bucket into the others to keep the system working. And while the structure offers clarity, managing multiple accounts and investments may feel complex without professional help or a clear plan in place.

There’s no single formula for turning savings into reliable income in retirement. The right retirement income strategy depends on many personal factors, including your financial goals, income needs, lifestyle, and comfort with risk. What works well for one retiree may not be the best fit for you.

There are several options for generating income in retirement, and often, a combination of strategies works best. Some retirees prefer stable, predictable income through guaranteed sources, while others focus on growth through investments or a flexible mix of both. Blending different approaches can help balance steady income with long-term financial sustainability.

It’s also important to remember that your retirement plan isn’t static. As your needs, priorities, and the market change over time, your strategy may need to evolve as well. A thoughtful, flexible approach can help support a more confident and sustainable retirement. And if you're unsure where to start or how to build the right mix, speaking with a retirement-focused financial advisor can offer a helpful perspective. Asset allocation in retirement can also help you ensure your funds last throughout your retirement.

If you're looking to supplement your retirement income strategy with flexible, secure savings options, Raisin can help. Through a single, easy-to-use platform, you can access a range of high-yield savings accounts and CD accounts, ideal for covering short-term needs, building a cash reserve, or balancing out market-based investments. These products can complement your broader retirement plan by offering steady growth outside of traditional retirement accounts, all while keeping your finances organized in one place.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Sources

¹https://www.ssa.gov/benefits/retirement/planner/delayret.html