Jean Chatzky outlines ways to create regular retirement income in the US
In the United States, a new book by financial author Jean Chatzky, “The Forever Paycheck,” describes several approaches to generating regular income after retirement without relying entirely on annuities. As MarketWatch reports, Chatzky suggests allocating about 25% of a retirement portfolio to create monthly payments while keeping the remaining funds invested.
An annuity involves a lump-sum payment to an insurance company in exchange for monthly income for the rest of one’s life. According to the publication, about 18% of Americans are currently in retirement plans, while fewer than 15% of US residents have purchased annuities. Chatzky does not advise putting all savings into an annuity: for example, with a $400,000 portfolio, $100,000 could be used for such a contract and $300,000 could remain invested.
Concerns about spending
Chatzky cited a Corebridge Financial study in which 60% of retirees said they have more money than when they stopped working, while another 14% said they have about the same amount. According to her, fear of running out of money may prevent people from spending their savings on their own needs.
In the author’s view, regular inflows from one’s own savings can change the perception of spending: instead of watching the balance in an account decline, a person focuses on the monthly payment. Chatzky believes this approach can give retirees more confidence in using the funds accumulated for life after work ends.
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Portfolio and bucket system
One proposed approach is a total-return portfolio. An investor determines an allocation between stocks and fixed-income instruments, rebalances annually, and can use proceeds from selling assets that have risen in value to fund payments in the following year. Chatzky noted that during periods of falling markets, rising inflation, or global instability, this method may require cutting spending.
Another model involves dividing savings into three “buckets”: a long-term one with stocks, a medium-term one for five to eight years with bonds, certificates of deposit, and TIPS, as well as a cash reserve covering several years of expenses. Current expenses are covered from the cash reserve, which is replenished with income from fixed-income instruments.
Chatzky also drew attention to target-date funds. For current and future retirees, annuitizing part of their savings in such funds is not yet automatic: they usually need to choose the relevant option themselves or set up regular withdrawals.
