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Don’t Overlook This Steady Source of Income in Retirement
Annuities can provide regular payments, but they’re often complicated
Video: Why Gen Xers Need to Rethink Retirement Planning
If you’ve been drawing a salary for most of your adult life, you may wonder how you’ll cope when those regular paydays stop and you have to start living off your retirement savings. It’s a worry for many: Eighty-four percent of Gen Xers are “concerned or terrified” about having no more paychecks in retirement, according to one survey.
But there’s research that points the way to alleviating that anxiety. Recently, a pair of noted retirement researchers, David Blanchett and Michael Finke, compared two groups of retirees with similar amounts of money — at least $100,000 in savings and investments. One group held their money in brokerage or retirement accounts. The second group had the mathematical equivalent of the first group’s wealth, with a key difference: It was annuitized — that is, spread out into payments they would receive on a regular basis as long as they lived. Their lifetime income annuity was a paycheck for life.
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The researchers then looked at how much money the two groups of retirees spent. At all levels of wealth, the ones with lifetime annuities spent more: about 80 percent of what the researchers calculated they could safely spend. People without an annuity spent roughly half.
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Your money can work for you long after the paycheck stops. For more strategies that can help you build a lasting income for the years ahead, visit aarp.org/foreverpaycheck.
The lifetime income group spent more, researchers hypothesized, because people feel better about spending income than they do about spending savings. They felt free to spend what they had to enjoy their lives in the moment. In other words, the paycheck-to-paycheck mentality that we work so hard to escape during the early stages of our careers can be the key to living more comfortably in retirement.
You can start thinking now about how to maximize a retirement paycheck that you can count on. First, using a calculator such as AARP’s, get a rough idea of your ability to fund your future life based on your earnings, savings and expected retirement age. If you’re behind, the time to dial down spending and amp up saving is now. Second, keep in mind that your best retirement-paycheck-building move is to delay claiming Social Security. Although you can claim it as early as age 62, this inflation-adjusted payment gets bigger each month you postpone until your 70th birthday.
For additional steady income, one choice is using some of the money in your nest egg to buy an annuity. This needs to be well-thought-out, since there are several different types you can buy, their terms can be complicated, and they’re not suitable for everyone’s retirement needs. Some of these financial vehicles launch monthly income immediately; others, yielding higher monthly payments, kick in years later. There’s not enough space here to cover everything you need to know, but keep these tips in mind:
Know why you want an annuity. Having more guaranteed income in retirement is not specific enough. Do you want it now or later? Do you want the possibility of leaving money in the annuity for heirs? These questions and others may steer you to different products.
Understand the terms. Over the years, I’ve heard from people who were sold an annuity but can’t figure out how they work — how payments are calculated, what they really cost, and sometimes not even how to get their money out.
Don’t go overboard. Aim for annuity income that, along with Social Security and other guaranteed income, is enough to cover fixed expenses. Once you’ve bought an annuity, getting a big lump sum from it can be very costly or even impossible, so you need to have money elsewhere for emergencies or other unforeseen needs.
Listen to Jean Chatzky’s HerMoney podcast
Check out the three-part series From First Paycheck to Forever Paycheck, produced in collaboration with AARP, exploring women’s financial lives across generations.
Adapted from The Forever Paycheck: The New Retirement Strategy to Spend More, Worry Less, and Never Run Out of Money, with permission of Avery, an imprint of Penguin Random House LLC. Copyright © Jean Chatzky, 2026. Coming September 8 in collaboration with AARP Books; aarp.org/foreverpaycheck. Chatzky’s company, HerMoney, has contracts with companies that sell annuities.
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