5 Strategies to Convert Retirement Assets Into Income

Saving for retirement is only half the battle. Once you leave the workforce, you’ll need a plan for turning your assets into a reliable income stream. Managing how you draw down your nest egg can be just as important as building it. For many retirees, creating sustainable, tax-efficient income is a challenge. Especially while adapting to future needs like healthcare expenses or inflation. Fortunately, there are several strategies you can consider to convert your savings into steady retirement income. 

You can also consider working with a financial advisor to create a customized retirement income plan.

Generating income from your retirement assets is key when it comes to maintaining financial security throughout your retirement years. A well-thought-out retirement income strategy helps you minimize the risk of outliving your money. The following are several common approaches to convert retirement assets into income:

One of the most straightforward strategies to convert retirement assets into income is through systematic withdrawals. These can include a variety of assets from your retirement portfolio, like a 401(k), IRA or taxable brokerage account. The 4% rule suggests withdrawing 4% of your portfolio’s value in the first year of retirement, then adjusting for inflation.

Many retirees adjust this rate depending on market conditions and personal spending needs. Some retirees prefer setting a slightly lower initial rate, such as 3% to 3.5%, for added safety if they expect a longer retirement horizon. Regular monitoring helps you adjust withdrawals based on investment returns and market volatility.

• Flexibility to adjust withdrawals based on market performance or changing lifestyle needs.
• Full control over how your money is invested, spent and allocated.

• Risk of depleting your assets too quickly during prolonged market downturns.
• Requires disciplined management to avoid overspending or investing too conservatively.

Ideally, your investment portfolio will blend stability with growth potential, creating a reliable and inflation-sensitive income stream. This may include selecting blue-chip dividend stocks, investment-grade corporate or municipal bonds, and real estate investment trusts (REITs). Each offers a relatively steady income stream through interest and dividend payments, thus saving you from selling your principal investments.

• Provides regular cash flow without needing to liquidate investments.
• Offers some inflation protection, particularly if dividends increase over time.

• Dividend payments and bond yields are not guaranteed and can fluctuate based on market or economic conditions.
• Your principal investment remains exposed to market risk, which can affect both income and asset value.

Managed payout funds are a hands-off investment option designed to provide predictable monthly income. These funds invest in a diversified portfolio and distribute a set percentage of the fund’s value to shareholders. You can invest in a managed payout fund through a brokerage or mutual fund provider.

The fund managers handle the asset allocation, balancing stocks, bonds, and other assets, and automatically calculate and distribute monthly payments. Typically, you can choose from funds offering different payout rates depending on your income needs and risk tolerance.

• Minimal effort required from the retiree, as fund managers handle portfolio rebalancing and payout schedules.
• Income is predictable, consistent and automatically adjusted based on fund performance.

• Over time, withdrawals may gradually erode the principal value of the fund.
• Limited customization, as the fund’s investment strategy may not perfectly align with your personal risk profile or goals.

Annuities offer a contractual promise from an insurance company to provide guaranteed income. You purchase an annuity either with a lump sum or through a series of payments. This means choosing between immediate annuities, which start payments right away or deferred annuities, which begin payments at a future date.

You can also select between fixed annuities (which offer guaranteed payouts), variable annuities (which fluctuate with investments), or indexed annuities (which tie returns to a market index). It’s important to read the fine print carefully, particularly regarding fees, surrender periods and optional riders like inflation protection.

• Provides guaranteed, predictable income for life, helping to cover essential expenses.
• Reduces longevity risk by ensuring you won’t outlive your income.

• High fees and limited liquidity can make annuities less flexible than other investment options.
• Additional features like inflation protection often require extra costs and complex contract terms.

Investing in income-producing real estate can provide a reliable and potentially inflation-resistant stream of retirement income. Properties such as residential rentals, commercial real estate or vacation homes can generate monthly rental income. They may also appreciate over time. You can also invest more passively through REITs. Direct ownership involves managing tenants, maintenance and property taxes, while REITs offer real estate exposure without hands-on involvement.

• Rental income tends to rise with inflation, helping to protect purchasing power.
• Property ownership provides the potential for long-term appreciation and wealth growth.

• Direct real estate management can be time-consuming, costly and complex, especially if vacancies or unexpected repairs arise.
• Property values and rental income can fluctuate based on local economic conditions, creating income instability.