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How less savings can still generate more retirement income

If you have saved money for retirement, you’re definitely on the right track for helping to create a financially secure future. But the reality is that this is only half the battle, because it is necessary to generate income in order to maintain your lifestyle – and what might be surprising to many is that more money doesn’t necessarily mean that you will receive a higher amount of incoming cash flow.

A Tale of Two Retirement Income Generators

Building up a large net worth is far better than not saving any money at all for retirement. But it is absolutely essential to turn some – or possibly even all – of your savings into an ongoing source of income in the future.

As an example, let’s say that you have $1 million to put towards generating a retirement income stream. You want to make sure that your principal remains safe so that cash flow will continue and that you keep your income generation “base” safe.

Therefore, one of the options that you consider is placing the $1 million into a 10-year CD (because longer maturities will typically provide you with a higher interest rate). In this case, the best 10-year CD rate that you find is 0.70% (accessed on August 19, 2021).

Based on this rate, the investment will generate a monthly income of $583.33, which equates to $7,000 per year.

$1 million X 0.70% = $7,000

You then compare this with income that you could generate from an annuity. Using the same contribution amount of $1 million, you determine the amount of monthly income you could receive from several different fixed annuities.

These include a(n):

  •  Single life only that generates $5,034 per month ($60,408 per year) for the remainder of your lifetime
  •  Single life with 10 year certain that generates $4,965 per month ($59,580 per year) for the remainder of your life
  •  Single life with 20 year certain that gives you $4,499 per month ($53,988 per year) for life
  •  Single life with a cash refund that generates $4,539 per month ($54,468 per year) for the rest of your lifetime

(Disclosure: Income based on $1,000,000 contribution for a male born on January 1, 1957, and an income start date of January 1, 2022. Source: Income Annuity Estimator Accessed on August 19, 2021)

Annuity Income with $1 million contribution

Monthly IncomeMinimum PayoutIncome Annuity Options
$5,034$0Single Life Only. You will receive this income for life. However, your beneficiaries do not receive a death benefit once you pass away.
$4,965$595,800Single Life with 10 year certain. You will receive this income for life. If you pass away within the first ten years, your beneficiaries will receive the remaining income payments until the end of the ten year period (a lump sum death benefit may be available).
$4,499$1,079,760Single Life with 20 year certain. You will receive this income for life. If you pass away within the first twenty years, your beneficiaries will receive the remaining income payments until the end of the 20th year.
$4,539$1,000,000Single Life with cash refund. You will receive this income for life. Your beneficiaries will receive a lump sum payment of the original investment less income payments made to date.

Source: Income Annuity Estimator (Accessed August 19, 2021)

The amount of income that is generated from the annuity differs substantially from what you would receive from the CD. In addition, when the CD matures, you would need to reinvest the money in order to continue the income generation – and if future interest rates are lower than what they currently are, you could face a reduction in your incoming cash flow.

If you would like to know more about how you can generate a lifetime income in retirement – even if you do not have a substantial net worth, contact Annuity Gator. We teach people how to attain – and maintain – income for life.

You can reach us directly by calling (888) 440-2468 or by sending us an email with any questions that you may have. We look forward to assisting you.

How less savings can still generate more retirement income

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