What To Do If You’re Already In Retirement But Without Enough Income


My newest book, Redeeming Retirement: A Practical Guide to Catch Up, is targeted mainly at those aged 35 to 65 who are behind in saving for retirement (or think they might be). But I don’t ignore those who are already retired and discover (a little too late in some cases) that they didn’t save enough.

That’s not something you want to realize after you’ve retired. (Which is one reason why I devote two chapters in the book to some of the ways you can do a retirement “check-up” based on how far you are from retirement.) The hard truth is that there isn’t much you can do in such a situation apart from reducing expenses or going back to work for pay (which kind of defeats the whole idea of retirement, right?). And some aren’t able to return to work even if they want to. As I wrote in chapter 9:

But what if you’re already retired and have found that I < E [income is less than expenses]? In that case, you’ll need to find ways to reduce expenses, especially if you’re unable to work, have already started receiving Social Security, and have no resources other than savings to tap for additional income.

But what if you’ve already cut your expenses to the bone and still find yourself coming up short or will be in the future. If so, there are some other “levers” you can pull (a phrase I often use in the book). Whether they will work for you depends on your specific situation, but they are still worth considering.

Running low (or even out) of money before you run out of life is a significant risk that many retirees face, especially baby boomers (like me) and subsequent generations without guaranteed pensions. Without enough savings, a prudent lifestyle, and regular financial assessments, running low (or out) in retirement will be more than a remote possibility for many.

Younger people have more options to reduce expenses and increase income to help them save more (and the sooner they do that, the better). But current retirees who have already cut expenses may not be able to make any more reductions to discretionary spending. And while they could return to full or part-time, they may not want (or be able) to. Downsizing their home if they haven’t already may be the last major lever they can pull on the expenses side to reduce them significantly.

For some, even downsizing may not be enough. If that’s the case, what can you do? 

Most retirees have more conservative investments, mostly cash, CDs, and bonds, with smaller amounts in stocks. If you have investments, you may be tempted to “swing for the fence” by taking on more risk for higher returns. You could allocate more of your assets to stocks or go after that “once in a lifetime” single stock opportunity. But that’s a perilous strategy for retirees as protecting what they have is more important than increased gains, which may not materialize anyway.

It would seem that you have few other options, but that’s not the case. You can still access a couple of income-based strategies that are practical and relatively safe approaches to increasing retirement income. They are to 1) annuitize and 2) take out a reverse mortgage. There’s a critical prerequisite for both: you need the assets—either investments or a home with equity or both—to do so.

In this article, we’ll look at annuities, which is probably the most desirable and impactful option of the two.

Annuitize Some of Your Savings

Ahhh, the dreaded “A” word. Annuities have a bad rap (for some good reasons) and are generally eschewed by retirees (much to the dismay of most economists and many financial advisors). However, in some cases, they can be just what the retirement income doctor ordered.

I’m referring to ”fixed income annuities,” which are also sometimes called ”single-premium immediate annuities” (SPIAs).

Unlike many of its more complex cousins, a fixed annuity is relatively simple: You pay an insurance company a lump sum, and they pay you a monthly income for as long as you (and perhaps a survivor) live. Whether you get back your lump-sum purchase amount or more depends mainly on how long you live and other factors like long-term interest rates. It really is just that simple.

Here’s the value proposition: If you die young, the insurance company “wins,” which they count on in some cases. (It’s not personal—it’s how their business works.) If you live beyond your “actuarial average” (your average life expectancy), you “win,” at least in terms of getting back all you paid for the annuity and then some in guaranteed monthly income. If you live a long, long time, you win big!

An SPIA isn’t an investment. Consequently, there’s no upside or downside (growth or loss of principal) since it isn’t tied to the stock market’s performance. (This is in contrast with more expensive and costly variable and indexed annuities that are. We’ll take a closer look at them in the next article.)

The benefits are easy to analyze; you know what you’ll pay upfront exactly and what you’ll get back each and when. So, to get $700 in guaranteed income each month ($8,400/year) for you and a survivor, it might cost you about $200,000 of your “investable” assets. That calculation is based on a payout rate of 4.2%, which is more than the going rate on any fixed-income investment you can get currently without taking a lot of risk.

Annuities can significantly increase your investment income beyond what you can do with stocks or bonds with less risk. But they’re not without some risk—there’s always the risk of insurance company insolvency, however small it may be. Annuities can accomplish this because the insurance company invests the money you give them (typically, in bonds—hence the sensitivity to interest rates) and then returns your principal to you with interest.

That doesn’t sound much different than what you could do for yourself by investing, so what’s the difference? The insurance company guarantees those payments. Stocks and bonds don’t, and your capital is always at risk.

Income annuities also give you “mortality credits,” a technical term for the benefit you get by putting your money in a big pot (called a “risk pool”) with many other people. (That water doesn’t sound very inviting, does it? But it has its purpose.) Of those in this “pot,” some live longer than others (and insurance companies can determine the statistical lifetimes of a large group quite accurately using “actuarial science“). The “mortality credit” is the premium that the insurance company can pay those who live longer based on the assets left by those who die earlier than average.

The net result is a powerful one: With an income annuity, you may be able to increase your retirement income by several percentage points, depending on your age and the terms of the annuity contract. Or, if you were already withdrawing an uncomfortably large percentage from your investments, you may be able to sustain that amount as an annuity payout without the fear of exhausting your savings. Let me offer an example.

I currently own the iShares 0–5 Year Investment Grade Bond ETF (SLQD) in the fixed income part of my portfolio. It’s a low-cost, high-quality, short-to-intermediate-term bond fund. The current annualized yield based on the 30 Day SEC Yield as of 6/4/2021 is 1.95% (historically low interest rates are tough on retirees).

Moreover, although this fund is short-term and high-quality, it’s still subject to interest rate risk and other economic risks. Let’s make it simple and say I have $100,000 invested in that fund. Based on current yield, I would receive $1,950 in income per year ($100,000 x .00195 = $1,950).

But what if I use that same $100,000 to purchase an immediate income annuity. According to immediateannuities.com, a 67-year-old couple would receive $427 per month, or $5,124 per year, for as long as one or both of them are alive. That’s an annual payout of 5.12%. Compare that to my iShares bond fund earning 1.95%—it’s more than 3 percentage points higher! (To be fair, the income from SLQD could rise if interest rates go up, but they would have to go up a LOT to get to 5%. Plus, the share price for the ETF would fall with rising interest rates.)

Objections, Questions, Concerns

There are several common and legitimate objections to life income annuities. But you can mostly mitigate them if the purchase is well integrated into an overall retirement income plan and appropriately timed.

Why not go for higher returns in stocks? Granted, I could also take that $100,000 and invest it more aggressively in the stock market, and over a long time, I might average returns of much more than 5.12%. The problem is that I have to risk it all to do that. (Not a good idea when someone is already low on savings.) In contrast, an income annuity is relatively safe and “guaranteed” (up to certain limits) by state guarantee associations. But, to reiterate, an income annuity isn’t an investment; it doesn’t have the potential “upside” of stock market investments.

(As I write this, the DJIA is up 13.56%, and the S&P 500 is up 12.61%, year-to-date. But we don’t have to think back too far to remember March 8, 2020, when the DJIA lost almost 8% in a single day.)

Income annuities don’t keep up with inflation. This is a legitimate concern. Unfortunately, the last company to offer CPI-linked annuities, The Principal, no longer offers the product. However, annuities are not the only way to get inflation protection. Furthermore, the main goal of an income annuity isn’t inflation protection; it’s to help ensure we have sufficient retirement income. A risk-based investment portfolio, used in conjunction with a “nominal” income annuity, can help mitigate inflation to some extent.

(That said, I should note that many insurers offer graduated-payment options or “Cost of Living Adjustments,” if you will, but they are not tied to actual inflation. The purchaser decides how much they want their payout to increase each year. This can reduce the beginning amount but provide some inflation protection down the road.)

I have to give up access to my principal whenever I want it. This is true—an annuity isn’t like your other investments; you don’t have access to your principal like you did when it was in a retirement savings account. If you put a sizable portion of your assets into an annuity, you’ll have fewer liquid assets. However, you may have more flexibility and liquidity with your remaining investment portfolio. Plus, without an annuity, you have to conserve more of your liquid assets for future spending, so your portfolio may be less liquid than you think.

There’s no residual value after death for bequests. Another objection to life annuities is that they have no residual value after death. On its face, this is true; the terminal value of an SPIA will typically be zero. However, using a combination of income annuities and an investment portfolio may give you the confidence to invest more aggressively (by reducing sequence-of-returns risk, which may increase terminal wealth). That could result in a larger bequest to heirs. Also, consider this: Your heirs would probably prefer that you be self-supporting and able to “retire with dignity,” even if it means they have less of an inheritance.

I could lose everything if the insurance company fails. Many retirees have strong reservations about the risk of an insurer failing. This is possible but highly improbable. Very few insurance companies have failed. Bonds back insurance contracts, and there is no macroeconomic scenario in which an even worse impact on stocks wouldn’t have preceded a massive failure of the bond market. If you purchase an annuity from a highly-rated insurance company, you are very unlikely to have problems with insurer insolvency.

Buying Annuities

Where to buy?

Insurance companies sell income annuities. So, unless your financial advisor (or retirement account custodian) sells insurance, they aren’t paid to sell annuities. Some advisors may be disincentivized as an annuity reduces investable assets, which reduces the fees paid to some types of advisors. That said, an advisor who truly cares for your financial well-being may be willing to help you purchase one anyway. The trick is to find one who has a good understanding of annuities and will provide unbiased recommendations.

Another alternative is to ”buy direct,” without going through a salesperson. I mentioned immediateannuities.com earlier. You can get several quotes from them online and choose one that suits you best. There are other similar websites out there, such as blueprintincome.com and annuities.com. Also, large financial firms such as Fidelity, Vanguard, Schwab, and USAA sell income annuities; they act as brokers in most cases as their insurance partners underwrite the annuity contracts.

What to buy?

By commercial standards, the ultimate lifetime annuity is Social Security. You can optimize your benefits by deferring receiving Social Security benefits for as long as possible. If that income, along with modest withdrawals from savings, doesn’t provide you with adequate retirement income, then you might consider filling the gap with an annuity. I recommend a single-premium immediate annuity (SPIA), also called an income or life annuity. Other more costly and complex annuity products may make sense in some cases. But for most retirees who are looking for reliable income from a simple insurance product, SPIAs fit the bill.

When to buy?

If you decide to purchase one, the next big question is “when?” Remember, an annuity is a bond portfolio in an insurance risk pool that provides mortality credits. And those credits accrue to annuitants who live a long time and are paid by those who don’t. They increase over time but are minimal for younger annuitants.

Therefore, purchasing too large an annuity too soon may be suboptimal. This is because mortality credits are minimal at lower ages. Annuity purchases are irreversible, and many retirees will already have significant “annuity-like” income from Social Security benefits, and annuity payments are subject to inflation. Therefore, you may be better off waiting a while to pull the trigger. Your payouts will be larger (because the insurance company assumes you won’t live as long).

In addition to life expectancies, income annuity payouts are also tied to current interest rates. During times of higher rates, annuity payouts will be higher. Since we have been in an extended time of historically low (near zero) rates, it may make sense to wait for higher rates. Of course, bond yields would go up as well.

Should I buy?

To be clear, I don’t think that every retiree who is running low on income should rush out and purchase an annuity. I’d rather you look at all your other options first, except for getting a reverse mortgage. You will probably already have significant annuitized income from Social Security. Those worried about running out of money or who fear the stock market and have a strong preference for a reliable “paycheck” each month may want to consider an income annuity.

Having Enough

I titled the last chapter in Redeeming Retirement “When You Have Enough.” In it, I discussed what I called “the disappointment of enough”:

“If you get to retirement with just enough, you may have hoped for more. It’s possible you’ll feel disappointed. You may think that having just enough isn’t how you originally envisioned retirement. Perhaps you were hoping to have more than enough so you could do things beyond just paying the bills. What about the fun and relaxation, travel, spoiling the grandchildren, and generosity to others? What kind of retirement is just getting by day-to-day?”

I understand these sentiments, but it may be helpful to step back and get some perspective. Financial behaviorists tell us that the pain of financial loss is felt more intensely than the joy from financial gain. The same holds here. The challenges and difficulties of retiring with less than enough may be much greater than the incremental pleasure and enjoyment that comes from having a lot more.

The things I discussed in this article are the two best options for generating an adequate amount of safe, reliable income in retirement; in other words, ”enough.” They are delaying Social Security and purchasing an immediate income annuity.

I discuss both of these in the book, but the basics of the latter are pretty simple: You spend some (hopefully, not all) of your principal in exchange for a higher cash flow. But that also means you lose some flexibility — for handling emergency expenses, gifting, or inheritance. But, in return, you get the peace of mind of sufficient income for life.

As Christians, we know that we will face trials and tribulations in this life, and running low in retirement would undoubtedly be one. As with all challenges in life, we have to do two things: 1) Pray and put our faith and trust in God to provide for us, and 2) pursue legitimate solutions (such as annuities) that could help us, recognizing that they come from God’s gracious hand as part of his common grace.

Our goal is financial peace, and having enough is part of that. But I like this quote from Dave Ramsey: ”Remember, there’s ultimately only one way to financial peace, and that’s to walk daily with the Prince of Peace, Christ Jesus.” Amen.


👋 Hi, I’m Chris Cagle, the founder of Retirement Stewardship, a blog that focuses on the various aspects of retirement from a Christian stewardship perspective (1 Peter 4:10).

I write as a retiree who is dealing with the things I write about. I base most of the articles on my research and experience applying it to my situation and how it might apply to yours.

If you’re new here, check out the site introduction for an overview. You can also learn more about me.


My Books

Redeeming Retirement: A Practical Guide to Catch Up (2021)
The Minister’s Retirement (2020)
Reimagine Retirement: Planning and Living for the Glory of God (2019)