How To Convert Your Savings and Investments Into a Steady Stream of Retirement Income

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The accumulation phase of your life — otherwise known as your working career — is the time that you should be maximizing contributions to your retirement accounts.

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The larger the nest egg you can build by the time you retire, the more options you’ll have when you reach your distribution phase. At that point, it’s generally prudent to swap the bulk of your growth-oriented investments, such as stocks, for more stable, income-generating ones.

But, because there are many variables involved in this process, it pays to plan ahead and have a strategy to best accomplish this. It’s also a good idea to sit down with a financial planner and discuss how to achieve your goals as you enter retirement. 

See how you can convert savings and investments into retirement income.

Evaluate How Much You Have and How Much You’ll Need

As you approach retirement, it’s the perfect time to assess where you are and where you want to go. Knowing how much you have in all of your available retirement accounts, from 401(k) plans to IRAs and others, is an important first step, as it will be the baseline for your calculations about how much income you can generate in retirement. The earlier you can do this before you retire, the easier it will be to make up for any shortfalls. 

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For example, imagine you want to generate $30,000 in annual income from your retirement accounts, but you anticipate a nest egg of just $300,000. In this instance, the math simply won’t compute, as you’d need to generate 10% in income annually to meet your goals.

But, if you anticipate this shortfall in advance, you might have enough time to boost that account value to $500,000, in which case a much more reasonable — although still high — 6% return would be required. 

Bear in mind that you’re likely to have additional sources of income in retirement besides your 401(k) plan or IRA. Social Security, other pensions or even part-time work can help you get to where you need. But strictly in terms of your retirement accounts, the earlier you can plan, the more likely you are to reach your goal.

Plan Your Withdrawals From Taxable and Tax-Free Accounts

An important thing to remember in planning for your retirement income is that some of your accounts may be taxable. Withdrawals from traditional IRAs and 401(k) plans, for example, are generally fully taxable as ordinary income. This not only reduces the amount of income you can draw from those types of accounts, it also may be enough to push you into a higher tax bracket. This is why the taxability of your retirement accounts, both on the contribution and on the distribution end, can be so important. 

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With a Roth account, for example, qualifying retirement distributions are completely tax-free. Even better, you don’t have to take any mandatory withdrawals at age 72 from a Roth, as you would with a 401(k) or traditional IRA. Balancing your distributions across these accounts can help you manage both your tax burden and your overall net income.

Converting Investments Within Your Retirement Accounts

There are two big decisions you’ll have to make with your investments as you near retirement age: (1) how much to convert from growth to income and (2) which investments, if any, to put your distributions into. Here are a few of the ways you can use your savings to fund your retirement.


Common wisdom used to be that once you retired, you should immediately shift all of your growth investments, like stocks, into income-generating ones, like bonds. But as longevity has increased, so too has financial advice. Nowadays, if you retire at age 60, for example, you may very well have 30 years or more of retirement ahead of you. It can be hard to fund your expenses for such a long time solely with income-generating investments, which is why most advisors now recommend that even retirees keep significant allocations in growth investments. 

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Fixed Annuities

Another option to ensure you don’t outlive your retirement income is to use your withdrawals to fund a fixed-rate annuity. This type of investment guarantees the same payment to you every month no matter how long you live. One of the drawbacks of a fixed annuity is that inflation will eat away the value of the fixed payment over time. However, most insurers offer a rider that will increase your payment to match the inflation rate — it will just cost you more.

Living Off Withdrawals

Some investors have enough in their retirement accounts to simply live off the withdrawals. In this case, you can invest your money in ultra-safe investments like Treasury bills and just withdraw enough for your needs. But be sure to factor in changing circumstances, like the effects of ongoing inflation and your desire for a more extravagant lifestyle in retirement, if applicable.

Buying a Bond Ladder

A bond ladder is one way to earn income on your retirement investments without locking all of your money into current interest rates. A typical bond ladder distributes money in equal amounts among bonds with different maturities, such as one to 10 years. As each bond matures, it gets reinvested at the then-current rate at the long end of the ladder — or the 10-year maturity in this example. You can use the income that the bond ladder generates to fund your retirement.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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