One of the biggest hurdles that people face when they transition from saving for retirement to living in retirement is how to convert their investments and savings into income. After all, once you retire, you lose that regular paycheck. So you’ll need to adapt accordingly, depending on other sources of steady income.
Following conventional wisdom, you could put your money into the safest investments possible once you retire. But as retirements last longer, it may be necessary to think about how to produce even more income. Those who reach age 65 today can expect to live about 20 more years, on average.1
"Longevity is a really big issue," says Dan Keady, CFP ®, Chief Planning Strategist at TIAA. "It's easy for people to underestimate how long they might live. And retirees face increased healthcare costs and long-term-care costs that have the potential to really deplete their portfolios."
Traditional 'safe' spots offer little yield
The safest types of income sources include federally insured savings accounts. But they aren't going to produce much income, notes John Canally, CFA®, Chief Portfolio Strategist at TIAA. "Interest rates are at essentially zero. You're probably not going to see a significant increase in interest rates on savings accounts until at least the end of 2022 or even into 2023 or 2024 because the Federal Reserve wants to keep interest rates low to make sure everyone can participate in the economic recovery."