Creating income for life

How to make the most of what you already own

How will you pay yourself when you’re no longer working? Creating a dependable income in retirement begins with understanding where your money will come from and how to optimize the assets you may already own to provide a tax-efficient income stream that you can’t outlive.

Creating your retirement paycheck

Most people will derive income in retirement from several different sources. These typically include Social Security; workplace retirement benefits such as a 401(k) or 403(b) plan and/or a pension; personal savings; real estate income; and, in some cases, work. How you draw income from these various sources can make the difference between meeting your expectations for life in retirement or falling short of your goals. 

For example, the Social Security Administration estimates that most Americans will need about 70% of their working income in retirement to meet their needs. Social Security retirement benefits are estimated to replace only about 40% of preretirement income for medium earners, and about 27% for high-wage earners.1 That means you will need to rely on other savings or assets to fill the gap between what Social Security provides and what you need to support your lifestyle in retirement. Remember, your income needs to last as long as you do, which may be 20 or 30 years or more.

Income in retirement is used to pay for your:

  • Needs, which are your non-negotiable expenses. These are the things that make you feel secure and are essential to maintaining your lifestyle, including housing, taxes, transportation, food, clothing and healthcare.
  • Wants are your more flexible expenses. These are the things that make you happy, but you can cut back on or eliminate them if needed.
  • Wishes are the things that make you feel complete and encompass your vision for your ideal retirement and legacy. These are the things you’d like to experience or accomplish during retirement as long as they don’t undermine your basic lifestyle wants and needs.

What is lifetime income?

“When we talk about lifetime income, we’re talking about structuring a dependable income stream that you can’t outlive using your various income-generating assets in retirement,” said TIAA Chief Planning Strategist Dan Keady, CFP®.

What is lifetime income

Using guaranteed income sources to build an income floor is an effective strategy for ensuring that your essential needs will be covered in retirement. 

“Since we know that Social Security and pensions both offer guaranteed lifetime income, Social Security can provide some of the foundation for your income floor," Keady said. "If you have a defined benefit pension, you can include that income, as well." 

But what if you don’t have a pension? According to Keady, there are other ways to supplement the amount of guaranteed income you will receive from Social Security. 

“Through our Life Goals Analysis planning process, we’re able to analyze all of your potential income sources in retirement and make recommendations that are aligned with your income needs and goals.” 

That begins with evaluating how much Social Security will provide and how to maximize this important benefit for you and your spouse if you’re married. 

“If there’s a gap, you may want to consider a fixed, guaranteed annuity, which can provide regular income, similar to a pension,” he said. “For many people, this is an effective strategy for ensuring your essential needs will be covered in retirement.”

Why ‘income proof’ your portfolio

According to TIAA annuity expert and actuary Benny Goodman, a growing number of investors have expressed concerns in recent months about ongoing uncertainty and volatility in the financial markets, and what that means for those taking income from their portfolios. 

“A lot of people who weren’t really focused on guaranteed income over the course of the recent 10-year bull market are thinking about it now,” Goodman said. One reason is due to “sequence of returns risk.” 

“Most people are not concerned about sequence of returns risk until the market experiences a downturn,” he said. “A sudden or prolonged drop in market values reveals how withdrawing funds each year can quickly erode the value of your portfolio and the ability to accomplish your long-term goals.”

“Fixed annuities aren’t impacted by the ups
and downs of the financial markets.”

Many people have heard of the “4% rule,” which assumes a starting income based on 4% of your investment portfolio balance, adjusted for inflation. However, market volatility and inflation can have an adverse impact. For example, if your strategy is to start withdrawals at 4%, in a declining market you may need to reduce that planned withdrawal rate—based on your updated Life Goals Analysis plan—to prevent depleting your portfolio sooner than expected. However, reducing the amount of income you take may not be enough to cover your essential expenses. 

“So, in effect, you’re left with two choices,” Goodman said. “Either reduce your expenses and spending, or risk running out of money during your lifetime.” 

While Goodman acknowledges that neither choice is acceptable, he does offer an alternative. 

“Fixed annuities aren’t impacted by the ups and downs of the financial markets. You receive the same amount every month, regardless of what the stock market is doing. That helps to ‘market proof’ your retirement with guaranteed growth during the accumulation phase, and guaranteed income during retirement.”

What is an annuity?

An annuity is a contract between you and an insurance company. You make payments either in a lump sum or a series and, in return, you receive regular disbursements, beginning either immediately or at some point in the future. Annuity assets can typically be withdrawn without penalty after age 59½. While annuities may be available in your employer retirement plan or IRA, you can also purchase an annuity contract outside of a retirement plan.

To better understand annuities, it is important to understand how they work during different life stages. During your working years, when you’re saving for retirement, annuity earnings accumulate on a tax-deferred basis. During the accumulation phase, you receive regular returns at either a fixed or variable rate. However, once you retire, the focus turns to generating income to help meet your expenses in retirement.

While fixed annuities offer a guaranteed growth rate and income payments, returns and income payments of variable annuities will “vary” or fluctuate as market conditions change over time. Both types of annuities have their advantages and disadvantages. Also note that some products limit liquidity and the ability to make withdrawals once you have annuitized. Keep in mind that all guarantees are subject to the claims-paying ability of the issuer.

Is an annuity right for you?

For those concerned about market risk, fixed annuities offer steady, reliable income regardless of market performance. That makes fixed annuities an appropriate choice for many people seeking to build an income floor to help cover their essential expenses in retirement. 

Variable annuities, on the other hand, are designed to help capture market gains, which can help you keep pace with inflation. While they can play a role as part of a diversified income stream in retirement, they are generally not recommended as part of an income floor. Since returns will rise and fall with the market, variable annuities won't provide a guaranteed amount of income.

Lifetime income sources help

“For most people, an optimal diversified income plan consists of covering about two-thirds of your retirement income needs with lifetime income sources,” Keady said. 

That can be achieved through a combination of Social Security and any pension plans you may have. While 30% to 40% income replacement by Social Security is a rule of thumb, your advisor can calculate your actual coverage in the Retirement Income Review. If there’s a gap, consider fixed and variable lifetime income products. 

“You also want to maintain a sizeable investment portfolio for flexibility and potential growth,” Keady said. 

This strategy may enable retirees to draw less money from their remaining investment portfolio over time, leaving more money available to meet legacy goals. Both Keady and Goodman emphasize the importance of meeting with a financial advisor to determine an optimal income strategy for your individual needs, risk tolerance and circumstances.

Know what you already own

Taking the time to understand what’s available to you through your retirement plans and how those products work is also important. Annuities available within workplace retirement plans may have lower costs associated with them than those you could buy on your own. However, annuities available outside of your plan may offer additional features and benefits. Income options may also vary by issuer and contract, and (for in-plan annuities) may be subject to plan restrictions. So it’s important to do your homework and carefully consider your options before making a decision.

Goodman encourages investors to compare the costs for fixed annuities by estimating how much guaranteed monthly lifetime income you could potentially receive. For variable annuities, be sure to take the annual fees into consideration, along with the sales loads and surrender fees. But keep in mind, pricing alone may not tell the full story. For example, variable annuities provide other benefits or riders. For any investment or account, take time to read the product literature, including the prospectus, to understand the features and investment objectives, risks, charges and expenses.

Next step to creating income for life

Whether you’re looking for additional sources of guaranteed income in retirement or need help evaluating your retirement income needs, consider scheduling time to meet with your financial advisor to discuss:

  • How you will derive income in retirement from sources including Social Security, a pension and other lifetime income options.
  • Ways to build a dependable income floor.
  • How a combination of fixed and variable annuities can help create a tax-efficient income stream that you can’t outlive.

To learn more, contact your TIAA advisor to schedule time to talk about your financial planning and your individual needs and goals.

Discover More

Financial planning
Perspectives for uncertain times

Get insights from TIAA experts.

From here to recovery: What will it take?

Learn how different economic scenarios may play out and impact your planning.

Take Action

Call us

We're here to answer your questions and guide you towards the right solution.​


Weekdays, 8 A.M. to 10 P.M. (ET)

Schedule an appointment​

You can schedule a time convenient for you to meet with a financial professional.​

Read more in Perspectives​

Get financial and investment insights from TIAA experts​.


Any guarantees under annuities issued by TIAA are subject to TIAA’s claims-paying ability.

Annuity account options are available through contracts issued by TIAA or CREF. These contracts are designed for retirement or other long-term goals, and offer a variety of income options, including lifetime income. Payments from the variable annuity accounts are not guaranteed and will rise or fall based on investment performance.

This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.

Please consult your financial or tax professional before taking any action.

Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.