3 Ways to Convert Retirement Savings Into Income

So, what are three ways to convert your retirement savings into income? Hi there. I'm Stan The Annuity Man, America's annuity agent license in all 50 states. Today, we're going to break down those three ways.

We're looking at your retirement savings and the three ways to convert that into retirement-type income and lifetime income. And I know what you're saying. You're saying, "Stan, you're just going to be a homer, and you're just going to talk about annuities because you just talk about annuities because you don't have a last name and your name Stan The Annuity Man, and your wife is known as Mrs. The Annuity Man."

The 4% Rule

I understand all that, but no, we're going to talk about some non-annuity stuff about how to create that income. The first is a method that's been used forever. It's the 4% rule. It doesn't involve annuities at all. And what the 4% rule is, you have a portfolio of stocks and bonds and all that stuff, and the financial advisor says, "Well, we don't need to lock anything up. We can take off 4% of the portfolio and the growth from the portfolio. We'll make up for anything that we take out." And historically, that seems to have worked out pretty well. Recently, on my Fun With Annuities podcast, which comes out on all major platforms every other Tuesday, I had the very smart guy Wade Pfau on, and Wade has completely destroyed the 4% rule.

I'd encourage you to listen to that episode. But many people don't want to buy an annuity for whatever reason, or their advisors don't want to buy it for whatever reason. And I always tell people, "If you don't need to lock up the money, then don't. Or if you don't need to transfer the risk to the annuity company to pay a lifetime income stream, then don't. And if you can manage the money yourself and peel off that amount needed for income, or you have someone you trust who is very good at doing that for you, then great. That's super." The 4% rule.

Bonds, CDs, and Stocks

The second way is still non-annuity. It's looking at bonds, CDs, dividend stocks, preferred stocks, REITs, and those types of things that kick off a coupon, money, and interest rate. That's a way to create retirement income. I don't sell any of that. I used to a long time ago, when I worked for Dean Witter PaineWebber, Morgan Stanley, and UBS. So, that's a way to do it as well, is to find dividend stocks, corporate bonds, municipal bonds, treasury bonds, or whatever to create that income stream and those coupons so that you can get your retirement income.

Those are two ways to take retirement savings or that retirement portfolio and convert it into income, not using annuities. You're saying, "Wait a minute, that's pretty cool, Stan. You're not being a homer. You're not just yelling at us about annuities." First of all, I don't yell because that'd hurt my voice, but second of all, annuities aren't for everyone. They're for people that want to transfer risk and get contractual guarantees and they want to own things for what they will do, not what they might do.

The first two, the 4% rule, all the corporate bonds, and all that stuff that I just mentioned, those valuations underlying can fluctuate. If you're okay with that, that's fine. If you can manage it, that's fine. If you have someone who has really good management skills, that's fine.

Annuities

‌The third way, spoiler alert, is about annuities. Annuities are the only category, the only product type, that will provide a lifetime income stream for as long as you're breathing, period. It's a guaranteed pension payment, for lack of a better phrase. In a pension-less world where less than 10% of private companies even offer pensions anymore, I think a number seven or 8% at the time of this blog, if you work for the government or if you work for a good labor union or whatever, you got a pension, that's great. Fantastic. Kudos to you because you worked hard for that, and that's a lifetime income stream. But the third way is to say, "You know what? We need X amount of money per month for me and the spouse, me and the wife, me and the partner, and this is how much income we need." We do a reverse engineer quote and get the highest contractual guarantee for your situation.

‌You already own an annuity. I know you're like, "No, I don't. Stan The Annuity Man, there's no way I'd buy an annuity ever." Well, you own Social Security. That's an annuity. If you have a pension, that's the second annuity. If you have an IRA and you're going to start taking RMDs from that, that's, in essence, a third annuity because you have to take money out of it every year. So, annuity guarantees are in your portfolio.

‌Now the question is from taking your retirement savings and creating lifetime income, do you need another? You might not. You might like the first two that I told you about, the 4% rule or the bonds, muni bonds, corporate bonds, dividend stocks, REITs, preferred stocks, whatever. You might like this better than a guaranteed income stream annuity. Go for it. Knock yourself out.

‌Annuities Are Customizable

‌The other thing, too, is that when people talk about annuities for lifetime income, they're always thinking of immediate annuities or an annuitized product. That doesn't have to be the case. At the time of this blog, current interest rates are at a level where a lot of people are saying, "All right, let's just buy a fixed-rate annuity, and I'll just peel off the interest and never touch the principle." You can do that as well. That's the income as well.

So, just put it in the back of your mind. Annuities aren't for everybody, but they are customizable from the standpoint of a strategy putting together for you. If you visit The Annuity Man, you can schedule a call with us, and we'll ask you those two questions. What do you want the money to contractually do? When do you want those contractual guarantees to start? Then, we will align you with the highest contractual guarantee for the specific product that fits those two questions and answers.

‌You know what? It might be a combination of all three of those. It might be a combination of a specific percentage. It might not be 4% of your portfolio; it might be 2, and you might pepper that in with some corporates or some munis or some dividend stocks, etc. We don't give that type of advice, but I've been on that side of the ledger, so I do understand that. And then you might fill in that other gap, transfer of risk with an annuity, whether it's a Fixed Annuity and peel off interest or if it's a lifetime income stream annuity like a Single Premium Immediate Annuity.

‌The bottom line is chapter two of your life: you're taking retirement savings and putting in that income floor you need to live your life. And you probably want to set it up to where if something happens to you, your spouse is taken care of for the rest of their life as well, and you want to make sure that something's left over for the kiddies and the grand kiddies, then we can certainly help with you. We can work side by side with your advisor who doesn't handle the annuity part if they have their egos in check and don't think that we're a threat, which we're not. We do that all the time. We work with many fee-only planners to put this kind of combination plan together. It works.

‌You need experts. We are experts in the Fixed Annuity space. We're the thought leader in the Fixed Annuity space. We're the sales leader in the Fixed Annuity space. We're licensed in all 50 states. So, don't hesitate to schedule a call with us. Don't hesitate to get my books, don't hesitate to use my calculators. Don't hesitate to get educated at The Annuity Man, because that's what we want you to be. Before you make a decision, that decision is going to be on your terms and on your timeframe, we're going to give you all the information you need, period. Then, we will leave you alone and treat you like a professional. Just remember with annuities, there's never an urgency to buy an annuity. The urgency is for you to fully understand it, and that's our job.

‌Client Example

‌I got a call the other day, and the gentleman was verklempt, as they say. Pull that up. That's Southern for, "I'm not feeling too good right now." And the reason he wasn't feeling too good right now is he had a multimillion-dollar portfolio, and he had lost a million dollars in this kind of upheaval in the markets. At the time of this blog, it just was volatile, and he was vomiting because he'd lost his money. Now, I had to remind him that he had made money until this point, so it's all relative, but it's hard to watch that go down. I told him that because they were using the 4% rule, he and his advisor, and I don't blame his advisor, advisors don't know when markets are going up and down. They do the best they can and try to limit the risk. But he said, "I'm just done with it all. I don't want to do the 4% rule anymore." So, now we were down to those other two categories: CDs, REITs, preferred, munis, etc. The third one is either MYGAs or Immediate Annuities. Well, he had enough money where he didn't have to annuitize anything. He could just buy a Fixed Rate Annuity, a Multi-Year Guarantee Annuity, and peel off the interest. And I asked him, "Are you going to be okay with that million-dollar loss, and you're going to be able to make it up in four to five years from the standpoint of just the interest on the MYGA if you went in that direction? Are you okay with the fear of missing out? Are you okay going to the cocktail party and not bragging about your stock wins and all that stuff?" His wife, in the background, said, "Yes, he can do that." And I said, "I understand that, Susan. I understand." And she was such a nice lady. But I said, "I need to hear from him because it's hard." This guy was an entrepreneur. He was a go-getter. He was an ass-kicker, as I say. And I said, "Can you do that? Can you pivot to just guarantees at this point and leave the volatility behind?" And he said, "Yeah, I think I can do that." I told him, "Think about it. Give us some time. Let's revisit in a week or two weeks or so," because I want to know that he's okay with not being in the markets anymore or not capturing that potential upside.

‌So, that's one of the other things you need to think about in your head too. Are you willing to shoulder some of that risk? Maybe. Or do you want to transfer all that risk and just live off the interest or the guarantees? It's that simple. There's no perfect answer, just bad sales pitches. You have to be honest, tell us the truth, and we'll tell you the truth back. We look forward to working with you. I'll see you on the next Stan The Annuity Man blog.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.