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IRA and 401k Retirement Income Generators: A Guide to Evaluating Them

This post continues my series about using IRAs, 401k plans, and other retirement savings to generate a lifetime monthly paycheck. The kickoff post summarized three ways to generate retirement income:
  1. Invest your savings, and spend just the interest and dividends.
  2. Invest your savings, but draw down principal cautiously so you don't outlive your assets (the "managed payouts" form of generating income).
  3. Buy an immediate annuity from an insurance company.
Subsequent posts described each method in more detail, including the pros and cons of each. In these posts, I rated each method with respect to various goals that you might have. Remember, there's not one method that works best for everybody -- the method that works best for you depends on your unique circumstances and goals.

Here's a summary of those ratings to help you sort out which method, or combination of methods, might work best for you:

As you look at this chart, you'll notice that each method has its advantages and disadvantages. That's one reason why you might want to use a combination of methods and/or change methods as you age.


As you might expect, there are nuances and exceptions to the above ratings that don't fit neatly in a small box. Here are some footnotes:

  • With immediate annuities, you can have the potential for growth in income if you buy an inflation-adjusted annuity or a variable annuity. The "no" answer is for the most common variation, which is a fixed annuity.
  • Regarding the potential for investment risk, with interest and dividends and managed payouts, your potential risk depends on your asset allocation between stocks and bonds. And if you buy a variable annuity, you'll be subject to investment risk; the "high" answer shown above is for fixed annuities.
  • When it comes to protecting yourself against longevity risk -- the risk of outliving your assets -- your risk with managed payouts depends on how rapidly you're drawing down principal.
You can get details on the pros and cons for each method, and more details on the above ratings, in the articles linked below. Reading them will help make sure you're well on your way to becoming an informed consumer on one of the most important decisions you'll make regarding your retirement!

Image from iStockphoto contributor kycstudio
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IRA and 401k: 3 Ways to Generate Lifetime Retirement Income
IRA and 401k: Generate Retirement Income with Just Interest and Dividends
IRA and 401k: How to Generate Retirement Income with Managed Payouts
IRAs and 401ks: Maximize Retirement Income with Immediate Annuities
IRA and 401k Retirement Income: How You Can Get Both Predictability and Flexibility