3 Different Ways You Can Create $10k/mo in Retirement

Retirement planning is something many of us have on our minds. Our goal is to create a steady income stream that supports our desired lifestyle for the rest of our lives. But how do we get there? There are several ways to achieve this, and each method has its pros and cons. Today, I'm sharing three strategies you can use to create $10,000 per month in retirement income.

💰 Purchasing an Annuity
An annuity is a contract you enter into with an insurance company. You give them a lump sum, and in exchange, they provide you with a steady income stream for the rest of your life or a predetermined period of time.

On the one hand, you have guaranteed income. As long as the insurance company is solvent, you can count on receiving your monthly payments. You don't have to worry about market fluctuations or managing your portfolio. On the other hand, you don’t get to adjust for inflation which can erode your purchasing power. There’s also a lack of flexibility, which may not align with your changing needs.

The cost to purchase an annuity that generates $10,000 per month in retirement varies depending on whether you're single or married. For a single person, it can cost around $1.35 million, and for a married couple, around $1.2 million.

📈 Maximizing Social Security
Social Security can be a powerful source of retirement income, especially if you maximize your benefits. You can receive a significant monthly benefit by working until age 70 and maximizing your earnings record for 35 years. This offers tax advantages, as Social Security benefits often face less taxation at the state and federal levels. Social Security benefits also increase with a cost-of-living adjustment (COLA), helping maintain your purchasing power.

However, it means working longer and being dependent on dual benefits. For a married couple to reach nearly $10,000 per month, both spouses need to maximize their benefits.

⚖️ Investing in a Diversified Portfolio
A diversified investment portfolio can provide you with the income you need, especially when you use the right withdrawal strategy. This approach involves investing your savings and withdrawing a percentage each year to support your lifestyle. This strategy does offer inflation protection: your withdrawals can increase over time to account for inflation. A diversified portfolio also offers more spending flexibility than annuities.

Yet, you’re still at risk of market volatility, and there's no guarantee that your portfolio will grow steadily.

To generate the desired income, a single person might need around $1.96 million in a portfolio, and a married couple, around $1.5 million.

🏠 Honorable Mention: Real Estate
Real estate can also be an effective way to generate retirement income. However, the specifics can vary greatly depending on the type of real estate, location, and other factors.

Each of these strategies offers unique benefits and challenges. The best approach depends on your individual circumstances and goals. You might even choose to combine methods to create a well-rounded retirement income strategy. Whatever you choose, planning ahead and understanding your options can help ensure a comfortable and financially secure retirement.

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⏱Timestamps:⏱
0:00 - Purchase an annuity
3:52 - Annuity pros and cons
5:03 - Maximize Social Security
8:22 - Honorable mention: real estate
9:50 - Invest in a diversified portfolio
12:44 - Portfolio pros
15:10 - Portfolio cons

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Worried about retirement?

[MResearch]

Comparing the annuity to investment portfolio - it isn’t just that the annuity is does not inflation adjust… there is a high likelihood you’ll die with a good sized portfolio for your heirs or charities.

The key to reducing sequence of returns (up and down markets) risk with a portfolio investment funding retirement - the bucket strategy - funding a bucket with 2-5 years current/near term spending in cash/near-cash when the market is good… so you do not have to do withdrawals when the market is down.

[JohnSimpson-rd]

AT&T and Verizon both have decent dividends (6% and 5.4%). EG. $500k = $2, 400/month approx).

[scottc]

It helps if you are a high wage earner to begin with. This has little to do with the average earner.

[alk]

I don't really understand how it is that being invested in a single stock is crazy risky, but being dependent on a single insurance company remaining afloat for the next 30 years to pay you annuity gives you piece of mind. Unless there's some kind of insurance I'm not aware of.

[SicilyJo]

Thank you for weaving those that are single into your excellent presentation. For simplification, I realize you were addressing gross numbers. It is the tax bite situation that makes this so complicated — and different impact for everyone — since we have to live off the net vs gross.

[reflective]

Great video James. Surprised though that you didn't mention that annuities CAN include an adjustment for inflation. Sure, to get the same starting income would require more $ up front. But it is an option.

[jytalk]

7:10 marker - if I stop working at 61 but wait til 70 to get social security benefits, does the benefit amount decrease due to last 9 years of no salary (I already have 35 years of work).

[MResearch]

Interesting discussion. The social security option was a handy exercise, but how many folks started their 35 years of SS-taxed wages at the 35 year ago equivalent of today $168K per year… and earned at least that for all 35 years? A very rare scenario. And a fair number of folks with that kind of wealth, had their own businesses and were smart enough to shift W2 income to profit distributions, reducing their SS taxable wages… and their benefit.

[giuliom]

How did you get so smart in this retirement and be so young? I wish I knew that much when I was your age. thank you for the info!

[lifethroughalens]

Are will still pushing these...thought we'd moved on from these investment vehicles. To stake your future on the life of an insurance company, high fees, lose out on inflation adjustments and short-change your heirs...I fail to see any positives other than for the person selling them and the insurance company.

[voyagerprobe]

James. I like your videos. The way to deal with annunities that don't adjust for inflation is to do what Tom Hegna recommends - get an additional annunity(ies) that kick in at specific points in one's like life. Say at age 70 and another at age 75. Also, as another person mentioned, transfer of risk to the insurance company is what its all about.
Also, you didn't mention what is considered perhaps the most incredible financial instrument that most people don't know about - the IUL ( Indexed Universal Life policy) The IUL- the pros : monies are "borrowed" not withdrawn and therfore avoid taxes, living benefits, plus no taxes when passing it on to the heirs. I could go on and on.
Yes. A health screening is required but for the younger crowd here, its easier and they can contribute to it with less amounts than the order crowd.
Also, James.... i never or almost never see you respond to people's comments ..?

[drtonpop]

Instead of using an annuity, I am using a TIPS treasury ladder in my pre-tax IRA to provide inflation adjusted annual income, flexibility (withdraw as needed) and is guaranteed by uncle sam (assuming you trust uncle sam).

[floydross]

3:56 “As long as that insurance company is solvent…” <== A huge con in the middle of a supposed pro

[Markrtsoon]

We will have about $7k a month from SS and pensions. With me keep buying dividend stocks, we will have at least $3k a month qualified dividends. So we will have easily $10k a month with zero tax, without touching our multi million investments. Will pull the trigger in a couple of years.

[lowridinpacker]

Good video. The realkty is that the optimum is a combination of all 3, optimize SS, an annuity to protect against longevity and sequence of returns, and a portfolio to protect against inflation and possibly grow wealth. Sorry but relying on a portfolio alone is a bit scary. If you dont think so ask those who retired in 1989 in Japan.

[xxxx-tbde]

Good points except on annuity. Do not do the annuity part.

[joefong]

Thanks for showing us these options. I usually favor rental properties, but hate property management aspect. I think I’d rather go with annuity and set aside money to accommodate the inflation.

[FriskyDingo]

My wife and I will already be at 10k+ a month in retirement. I receive my military retirement pension, and she will have her retirement from the county school system. At 55 we will be set.

[Geromino.]

I love the part of as long as they solvent. No guarantees in anything. What are the annuity providers profiting off you?

[mohanimaharaj]

This provided me with lots of info. Thanks.