As you plan for retirement, it’s a good idea to think about guaranteed income. If you know how much you’ll receive every month, it will be easier to set a budget, calculate the type of housing you can afford and determine how extras like travel might fit into the picture.
Guaranteed income may come from several sources that ideally add up to enough to cover your living expenses. You might get $100, $200 or $500 a month from each investment or account. Knowing how much you’ll need to have in savings to generate guaranteed income can be helpful as you set goals for retirement.
[Related:How to Retire at 55 on $1 Million]
Here’s How to Earn $100 per Month in Guaranteed Income in Retirement
Looking at your estimated Social Security benefits will give a starting point for what to expect in retirement. If you have earned income and paid taxes into the Social Security program, you will receive a check each month once your application has been approved. You might get $1,000 monthly from Social Security, or $2,000 or more, depending on how many years you worked and how much you earned.
In addition, you might look to bring in another $100 per month. Here are a few ways this could happen:
$100 in Guaranteed Income per Month From an Annuity
An annuity is a contract offered by a financial institution, often an insurance company, in which you contribute a certain amount and then receive income on a periodic basis. A fixed annuity typically provides a set rate of return over a determined time period. If you have a fixed annuity with a starting principal of $10,000 and a rate of 5%, you could expect to get around $100 a month for 10 years. A variable annuity may have a rate that fluctuates depending on market performance.
$100 in Guaranteed Income per Month From a Pension
A pension is a workplace benefit that promises regular income in retirement. However, “most workers today do not have access to a traditional pension through their employer like our parents and grandparents did,” says Mark Henry, founder and CEO of Alloy Wealth Management in South Carolina. “But it is possible to set one up on your own.”
This could be done through a retirement account like a 401(k) or individual retirement account, in which you can take required minimum distributions after age 72. “Some employers and 401(k) providers now have options to convert your account into a pension, but it’s best to speak with a financial professional to determine if this is the best option for you,” Henry says. The amount you receive would depend on how much you saved during your working years. If you have $15,000 saved with a rate of 8%, you might receive $100 in interest each month.
$100 in Guaranteed Income per Month From a High-Yield Savings Account
If you put money in a high-yield savings account, you can generate interest income. “With the record-high interest rates we are currently experiencing, some banks are offering up to 5% interest on high-yield accounts,” Henry says. If you have $25,000 in a high-yield savings account with a 5% annual percentage yield, or APY, that could amount to about $100 per month in income.
[See: Best High-Yield Savings Accounts]
Here’s How to Earn $200 per Month in Guaranteed Income in Retirement
To generate a higher amount of guaranteed income each month in retirement, you might need to have more accumulated or more income streams. Consider these calculations as you set your savings strategy:
$200 in Guaranteed Income per Month From an Annuity
You can opt for an immediate annuity, in which the income you receive begins right away. There are also deferred annuities that provide a stream of income beginning at a future date. The type of annuity you get could play a role in your guaranteed income amount. “If you purchase the annuity at age 65 and need the money for your retirement right away, you might need around $32,500 for a single lifetime income policy,” says Bradley Rosen, owner and president of Longevity Financial in Atlanta. “If you purchase an annuity at age 60 and wait until age 65 to turn on the income stream, you can deposit about $10,000 less” and still receive $200 a month, he says.
$200 in Guaranteed Income per Month From a Pension
If you have a pension from an employer or set up a retirement account that acts as one, you might receive $200 a month. Suppose you have $80,000 in an account and you decide to withdraw 3% each year. That equates to $2,400 annually, which comes out to $200 a month.
$200 in Guaranteed Income per Month From a High-Yield Savings Account
Those who are able to save a significant amount beyond their retirement account contributions may be able to generate $200 monthly in interest. “If you have $50,000 in a high-yield savings account offering 5% APY, that’s $200 a month right there,” Henry says.
Here’s How to Earn $500 per Month in Guaranteed Income in Retirement
With a larger nest egg, you could generate $500 a month after your working years. This could provide more cushion in your budget, help you support loved ones or allow you to contribute to a worthy cause.
$500 in Guaranteed Income per Month From an Annuity
If you put $75,000 into an annuity that pays a 7% interest rate right away, you might receive $500 a month for 30 years. Putting more into an annuity with a lower rate could yield a similar amount.
$500 in Guaranteed Income per Month From a Pension
Some experts recommend withdrawing 4% each year from your retirement accounts. To generate $500 a month, you might need to build your investments to $150,000. Taking out 4% each year would amount to $6,000, which comes to $500 a month.
$500 in Guaranteed Income per Month From a High-Yield Savings Account
For high earners, keeping a significant amount of funds in a high-yield savings account can provide a generous yield. At a 5% APY, “if you have $100,000, you’ll be closer to $500 a month,” Henry says.
Consider Your Overall Retirement Plan
You’ll likely receive income from several sources during retirement. While one source could provide $100 a month, others might bring in $200, $500 or more. The type of investments and the timing of your retirement will play a role as well.
Purchasing assets such as real estate could provide an opportunity to create additional income streams. “I now own 200-plus rental apartments after starting in 2014, and the cash flow is very consistent and reliable,” says Mathew Pezon, a real estate investor and CEO of Pezon Properties in Easton, Pennsylvania. “From my experience, owning just one well-selected rental property can provide $100 to $500 in monthly income after all expenses are paid.”
Whether you opt for an annuity, pension, high-yield savings account or real estate — or a mix of these — you’ll want to set up a plan for the long term. Sit down with your household members and take some time to talk about goals. You may find that by putting away extra cash now, you’ll be able to do more in your retirement years.
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How Can I Earn $100, $200 or $500 per Month in Guaranteed Income in Retirement? originally appeared on usnews.com
