Retirees generate income in two main ways: buy an annuity (guaranteed payments) or make systematic withdrawals from a portfolio. Each has trade-offs — and many plans blend both. Here is the guide.
Annuitization
Convert a lump sum into lifetime income. Pros: guaranteed payments, longevity protection. Cons: less flexibility, inflation risk (unless indexed), money committed.
Lifetime Withdrawals
Draw a sustainable percentage (e.g. 4% rule) from a diversified portfolio. Pros: flexible, grows in markets, inheritable. Cons: market and longevity risk; needs discipline.
How They Compare
- Guarantee: annuity wins.
- Flexibility: withdrawals win.
- Cost/fees: annuities often cost more.
- Legacy: withdrawals preserve capital better.
Combining Both
Many retirees 'annuitise the base' (cover essentials) and use withdrawals for the rest — blending certainty with flexibility.
FAQ
Are annuities worth it for retirement?
For income certainty, yes for a portion; compare fees and inflation protection.
What is a safe withdrawal rate?
Around 4% adjusted for inflation, for a balanced portfolio — personalise it.
Related: $1,000/Month Rule and Investing at 70.