PHILADELPHIA (WPVI) — As economic uncertainty continues to weigh on many Americans, concerns about having enough money in retirement remain top of mind.
Personal finance expert, author, and HerMoney host Jean Chatzky says retirees can reduce that worry by creating what she calls a “Forever Paycheck,” a strategy she outlines in her new book, The Forever Paycheck.
“A big fear for many Americans is running out of money in retirement,” Chatzky said.
She argues that retirees can create a lasting source of income through either insurance products or investments, often funded with a portion of money from a 401(k) or IRA.
“You can set yourself up by building or buying a paycheck that will last forever,” Chatzky said.
According to Chatzky, most people should consider allocating about one-quarter to one-third of their retirement savings toward such an approach.
One option is an annuity, which Chatzky described as an insurance-based solution for generating lifelong income.
“You can buy an annuity, which is a form of insurance that will give you an income stream forever,” she said.
Annuities are contracts with insurance companies in which a person exchanges a lump sum of money for a guaranteed stream of income over a specified period or for life.
Payments can begin immediately or at a future date selected by the purchaser.
“The insurance approach is for people who are a little more risk intolerant. They want more guarantees,” Chatzky said.
For those willing to take on more risk in exchange for potential market gains, Chatzky said an investment-based strategy may be a better fit.
“So we’re looking at things like CD ladders. When they mature, they produce income,” she said.
Other options include Treasury ladders and Treasury Inflation-Protected Securities, or TIPS, ladders, which use multiple U.S. government-backed bonds or bills that mature at different times.
As each investment matures, the investor receives principal and interest, creating a stream of cash flow.
Chatzky also pointed to “dividend-paying stocks where the dividends produce income.”
When asked when people should begin planning for a retirement income strategy, Chatzky said preparation should start well before retirement.
“I think you start thinking about these things in your 40s and then in your early 50s you start really doing the research to figure out what kind of paycheck is right for you and how do you put it in place,” she said.
Despite challenging economic conditions, Chatzky emphasized the importance of saving consistently.
Even modest savings can have a significant impact over time, particularly when investment growth has years to compound.
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