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Lifetime Income: Retirees Need It, and Here's How to Get It

By Selena Maranjian – Jan 2, 2018 at 12:03PM

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Think of your retirement savings as a future income stream, not as a big lump sum. Here are several ways to get the income you need.

More than half of still-working Americans (56%) say the most important goal for a retirement plan is to guarantee money every month to cover living expenses, according to a 2017 TIAA survey. Yet if they're offered the ability to receive a $500,000 lump sum at retirement or $2,700 per month for life, only 62% favor the monthly income.

That's worrisome, since what we really need in retirement is not a big lump sum, but income for the rest of our lives. Our savings really represent future income, and we need to think of them that way as we aim to build sufficient lifetime income streams Here's a look at the kind of income you'll need and how you might get it.

pink piggy bank with a stack of hundred dollar bills resting on top of it

Image source: Getty Images.

How much lifetime income do you need?

Your retirement planning should involve more than just socking away what seems like a lot of money. For best results, take some time to estimate just how much retirement income you will need. There's no one-size-fits-all number, but some experts suggest aiming for 80% of your income at the time you retire. So if you retire earning $75,000, you'll want to aim for $60,000.

That would be your total needed income. Some of it will likely be Social Security benefits, and much will likely come from your savings. One help when you're trying to figure out how much you need to save is to invert the 4% rule and multiply your desired annual income from your nest egg by 25. (The 4% rule is a very rough guide to how much money you can withdraw from your nest egg in retirement in order to make it last.) So, for example, if you want to be able to draw $30,000 from your nest egg in your first year of retirement, you'd multiply that by 25, getting $750,000. You'd need to retire with $750,000 saved.

Be sure to include healthcare costs into your retirement planning and saving. A 65-year-old couple retiring today will spend, on average, a total of $275,000 out of pocket on healthcare, according to Fidelity Investments.

Can you really end up with a nest egg of $750,000? For many of us, it's quite possible. The table below shows how much you might amass over various periods, if you regularly sock away various sums and they average annual growth of 8%:

Growing at 8% For:

$10,000 Invested Annually

$15,000 Invested Annually

$20,000 Invested Annually

5 years




10 years




15 years




20 years




25 years


$1.2 million

$1.6 million

30 years

$1.2 million

$1.8 million

$2.4 million

Data source: Calculations by author.

Dividends as a source of lifetime income

One great source of income in retirement is dividends. If you have, for example, $400,000 invested in healthy, stable, dividend-paying stocks with an overall dividend yield of 3%, you can look forward to $12,000 annually, or $1,000 per month, while expecting the dividends and the stock prices to rise over time, too.

Here are a few well-regarded stocks with significant dividend yields that you might want to research further:


Recent Dividend Yield

W.P. Carey 






National Grid


Total S.A.


General Motors




Procter & Gamble 


Data source: Yahoo! Financial.

clock face with the words time to retire on it

Image source: Getty Images.

Annuities as a source of lifetime income

Another great source of lifetime income is an immediate or deferred fixed annuity, which is kind of like buying yourself a pension. (Variable or indexed annuities can be very problematic, but fixed annuities are simpler, typically with fewer restrictions and fees.)

With a fixed annuity, you pay an insurance company a large sum of money and in exchange they promise to cut you monthly checks for a set period or for the rest of your life. (Other terms are available, too.) Check out the kind of fixed annuity income you might buy at recent interest rates:



Monthly Income

Annual Income Equivalent

65-year-old man




70-year-old man




70-year-old woman




65-year-old couple




70-year-old couple




75-year-old couple




Data source:

Social Security as a source of lifetime income

Finally, remember good old Social Security. It's important to have an idea of how much money you can expect to get from it, to factor that into your planning. Know that the average monthly retirement benefit was recently $1,375, which totals $16,500 per year. If your earnings have been above average, though, you'll collect more than that -- up to the maximum monthly Social Security benefit for those retiring at their full retirement age, which was recently $2,639. (That's about $32,000 for the whole year.) There are ways to increase your checks, such as delaying when you start collecting, so look into such strategies if they're of interest.

Most of us will have to rely on our own savings for much of our retirement income, so take the time to plan well and execute an effective plan.

Selena Maranjian owns shares of National Grid, Procter & Gamble, and W. P. Carey. The Motley Fool owns shares of and recommends National Grid. The Motley Fool has a disclosure policy.

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