Financial educator Jean Chatzky's new book argues retirees can build a steady "forever paycheck" from their own savings without buying an annuity, recommending roughly 25 percent of a portfolio be set aside to generate guaranteed monthly income.
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3 ways retirees build a forever paycheck without an annuity
Fewer than 15 percent of Americans buy annuities, yet the fear of outliving savings keeps many retirees from spending what they have — a Corebridge Financial study found 60 percent of retirees held more money than when they stopped working, with 14 percent about the same. Financial educator Jean Chatzky, author of the new book "The Forever Paycheck," argues retirees can replicate a steady income stream from their own portfolios by setting aside roughly 25 percent of assets to generate guaranteed monthly payments, without handing a lump sum to an insurer.
"Building a paycheck gives you freedom to spend the money that you saved exactly for this purpose," Chatzky, financial ambassador for AARP and founder of the HerMoney media network, said in an interview with MarketWatch. "And if you don't do that, the chances are much greater that you're just going to hoard it."
The 25 percent target scales across wealth levels, Chatzky said. A retiree with $400,000 could put $100,000 into an annuity yielding about $600 a month — the figure she cited for a 61-year-old woman in Pennsylvania — while keeping $300,000 invested. A $4 million portfolio generates far more monthly income, and even $40,000 in savings can guarantee a portion to lift spending above Social Security. Only about 18 percent of workers currently belong to a pension plan, leaving most to convert savings into income on their own.
For those who avoid annuities, Chatzky outlines three portfolio-based routes. The total-return approach keeps a diversified mix — for example, starting retirement at 50 percent stocks and 50 percent fixed income, then trimming equity exposure with age — and funds each year's spending by rebalancing once annually, using proceeds from winners to pay the next year's "paycheck." She cautions against treating a fixed withdrawal formula such as the 4 percent rule as a hard number, though it can gauge whether money will last a lifetime. The weakness surfaced in 2022, when falling stocks and bonds forced many retirees using this method to spend less than planned.
The bucket method separates money by time horizon: a long-term growth bucket of stocks, a midterm bucket of bonds, certificates of deposit and Treasury inflation-protected securities for the five-to-eight-year range, and cash in a high-yield savings account covering several years of living expenses. Retirees draw spending from the cash bucket, refill it with fixed-income yields and buy new fixed-income products by selling stock. "This is the most behavioral-finance approach," Chatzky said, because a retiree can avoid touching stocks for up to 10 years during market turmoil.
The third path relies on target-date funds, which most younger workers hold automatically in workplace plans. Annuitization is not yet built into these funds, so today's retirees must opt in, but Chatzky expects custodians such as Fidelity and Vanguard to make guaranteed-income options easier to select by age 50 or 60. "We're on our own, but defaults are coming," she said. Custodians could help by displaying a projected monthly income figure on account pages — "You're on track — your savings could generate $5,000 a month" — a nudge Chatzky compares to credit-card statements showing how long minimum payments take to clear a balance.
The stakes are behavioral as much as financial. Retirees who structure income rather than watch a shrinking balance are more likely to spend the savings they accumulated, Chatzky argues, and the industry is only beginning to meet that need. "We didn't realize that we would need it," she said. "The audience has finally gotten there, and now we can formulate a plan."
This article is for informational purposes only and does not constitute investment advice. Figures and policy details cited reflect the source material and should be verified against the latest official announcements before acting.
