How to create a reliable paycheck after retirement

Planning for a reliable income in retirement that will cover your basic living expenses (and more) is crucial to a successful retirement, financial experts say.

In a time when fewer and fewer retirees have a defined-benefit pension that pays them a guaranteed amount each month, those who are planning for retirement or who are already retired can find ways to create a steady income — some of it guaranteed for life and some that may be temporary.

“You’re trying to create a paycheck,” said certified financial planner Brent Neiser, host of the YouTube program "What’s Next with Money," and former chair of the Consumer Advisory Board at the Consumer Financial Protection Bureau.

The best way to begin is to consider all the expenses and every source of guaranteed income you will have when you retire, such as Social Security benefits, annuity payments and defined-benefit pensions. You might not like what you see, with more expenses than guaranteed income.

There’s hope — there are ways to create reliable income, but you must have a plan.

“Every client and family situation is different,” said Robert Furst, a wealth management advisor with Merrill. “A plan is where it should all start. Planning for the next phase of life.”

Nobody knows how long that phase will last. Your health, family health history and actuarial projections provide estimates. For example, if you are 65 today, and in good health, you could live another 20 or even 30 more years.

Said Williams, “The more floor you have, the more flexibility you might have.”

For example, the widow used a pension and Social Security to cover her basic expenses — housing, food and transportation. Income from the pension and Social Security was fixed, making it serve as a kind of retirement “paycheck.” Beyond that, said Williams, “know what your budget is.”

The next layer is a liquid reserve — a year of cash kept in a high-yield savings account, for example.

Long-term resources of as much as two to four years of expenses can be kept in a wider range of liquid assets, such as cash, certificates of deposit, money market accounts, short-term bonds or Treasury bills. “They provide stability,” Williams said. “If the market is down you can draw from here. It’s a cushion to help you get through a bear market.”

The Federal Deposit Insurance Corp. or the National Credit Union Administration insure many such investments for up to $250,000 per depositor per institution.

The average peak-to-bottom in a downturn is 3½ years, Williams said, so the cushion of two to four years of expenses can protect retirees from spending down investments in the diversified portfolio that may have lost value.

Here are ways to increase your retirement “paycheck”:

Work longer. More than half (57%) of baby boomers expect to retire at age 70 or do not plan to retire, according to the Transamerica Institute’s latest retirement survey of workers, "An Uncertain Future: Retirement Prospects of 4 Generations."

Max out your 401(k) plan. And get the company match. While you are still working, contribute as much as the Internal Revenue Service permits. For 2025, the most you can contribute to a Roth 401(k), a traditional 401(k) or a combination of the two is $23,500. Those who are 50 or older can contribute an additional $7,500 in 2025.

Claim Social Security later. Rather than claim at the first opportunity, which is age 62, if you are in relatively good health, you are likely to be better off in the long run if you postpone applying for Social Security benefits. By waiting, you will receive a larger amount for the rest of your life. It serves as longevity insurance so you don’t completely outlive your money; you can delay filing to receive benefits as late as age 70. “The No. 1 thing is delaying Social Security,” said Michael Finke, a professor of wealth management and Frank M. Engle Distinguished Chair in Economic Security at the American College of Financial Services. Instead, use other assets you have such as your 401(k).

Once retired, consider part-time or consulting work. A Colorado woman who retired from a trade association began working in retail in her late 50s because she enjoyed apparel. This allowed her to claim her Social Security at 66 while her husband claimed his at 70.

Draw down a percentage of your assets. Whether you choose to spend 2%, 3%, 4%, 5% or more of your retirement savings each year will depend on your needs, lifestyle and legacy goals. Do you have family or philanthropic goals? “Nobody ever spends flat,” said financial analyst Stephen Kates of the personal finance website Bankrate.com.

The often-cited recommendation of spending 4% a year from your portfolio is “a starting point,” but not necessarily the amount a retiree will want to draw every year. The amount you’ll receive from spending down, of course, depends on your total assets; drawing 4% from a 401(k) of $100,000 would yield only $4,000 per year or approximately $333 a month.

Use or buy investment property. If you have a property that is not being used, consider converting it to an investment property. Alternatively, purchase property that you can use to generate enough rental income to make the effort worth it. You may have to hire a property manager.

Sell your business. If you own a business, consider if you might be able to sell the entire enterprise or its inventory or other assets. Professionals such as architects and dentists can sell their practices rather than just retire. Selling a business sometimes produces periodic payments over five years or requires you to work for a specified period of time for the company that acquires yours.

There are various types of annuities though advisors typically mention the single premium immediate annuity (SPIA). More popular is an annuity with a guaranteed lifetime withdrawal benefit (GLWB), a rider that provides guaranteed annual withdrawals regardless of the performance of investments within the annuity.

When buying an annuity, “details are extremely important,” said Bankrate’s Kates. “Buy from a rock-solid company,” he said. “You’ve got to look at the financial stability of the insurance company.” Annuities are backed by state guaranty associations, up to $250,000 or more, depending on the state.

If you decide to purchase an annuity, “you don’t have to put all your money in it,” Neiser said. An annuity can be purchased for $20,000 or $25,000. Keep in mind that if you want to keep control of your money, an annuity may not be for you. If you do buy one and want to get your money back, there are typically surrender fees.

Rent out your home. Even as a temporary strategy, receive rental income from your home while you move to a smaller space that you rent while you decide whether the new location is right for you. Another option is to move into an accessory dwelling unit (ADU), a self-contained home that shares a plot of land with a larger house, and rent out your long-term home.

Apply for a reverse mortgage. A reverse mortgage allows those 62 and older to tap the equity in their home. “It can be a last resort option,” Neiser said.