Cds In Retirement Without A Steady Income Stream?

SteveP | Feb 21, 2025 | 2 posts since 2025

I see alot of interesting discussion so I will ask what is the right move for someone who has an ok amount in Cds and index funds but won't receive enough in SS for retirement? Spend down Cds? Get an annuity?

Even if I wait 10 years until full SS, I'll need more than the lower SS + small pension to live on, and I'm hardly working anymore so I'll probably have to start invading my Cds or index funds to last until full SS.

One option is a delayed income annuity. For $215k today it will give $20k each year for life after waiting 5 years first, not adj for inflation. If I spend that 215 down instead I would get 10 to 11 years before interest or market swings, and we're at record high market now. That $20k each year would really help starting 5 years from now but I give up $215k for it. I know the ins cos usually win, but dont have a wife or kids so leaving money isn't so important.

If you had ok cd & index fund amounts but not enough in SS+pens for retirement, would you do an annuity or just take out from cds / index fund each year and hope the market keeps going up?

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MY2CENTSWORTH | Feb 21, 2025 | 440 posts since 2016

SteveP, I believe you answered your own question right here: (I know the ins cos usually win)

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GreenDream | Feb 21, 2025 | 358 posts since 2019

Part time work is an option that some retirees take if they still lack sufficient income. Though that's an option we'd all like to avoid in retirement if we can. So what you really need is multiple and diverse income streams.
It looks like SS and pension are two of your possible income streams, the interest on your CDs would be a third. An annuity would be another possible income stream, if that's how you decide to go.

Another possible option would be dividend paying stocks. I like Preferred stocks in strong companies (a little less risky than common shares, pays a fixed dividend on a set schedule, usually quarterly, that doesn't change, unlike interest rates at banks, it's not hard to find some good preferred stocks that pay 5%+ in dividends and even if the fed returns to ZIRP, your preferred stocks will still be kicking out the 5%+ at least until they get called (see below) whereas your bank accounts will be dropping towards 0%, When COVID hit and all the banks quickly dropped to next to nothing while the preferred stocks continued paying the same dividend without missing a beat, even as some common stocks stopped or drastically cut theirs). if interested, do some research first so you understand how they work and can find companies whose risk is low enough for your tastes. Or else look into dividend paying ETFs of preferred stocks if picking individual stocks yourself is too anxiety inducing.

Some terms to familiarize yourself with:
Cumulative (guaranteed) shares, non-cumulative shares, and convertible shares:
Cumulative means they're obligated to pay you all dividends, if for some reason they skip payments for whatever reason, they'll owe you those payments and once they start paying dividends again, they have to pay the owed dividends first.
Non-cumulative means if they skip a payment, there's no obligation to pay you for those missed dividends.
Convertible means your preferred shares can be converted to common shares (either at your request or after a specified date)

Another thing with preferred shares to be aware of, is they often have a par value (typically $25), which is how much the company will pay for the share if/when they call it (they also have a call date, which is usually the earliest that the company can call in the shares), so if you bought below par, (which is the only way I buy preferred shares) you'll make a profit when the shares are called (in addition to the steady dividend income you'd been collecting until then). For example, I once had a preferred stock that I bought at $20/share and a little over a year later it got called early due to a merger and I made a nice tidy 20% profit just on the share price. I only wish I'd purchased more of that stock when I bought it!

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SteveP | Feb 21, 2025 | 2 posts since 2025

If I got an annuity it would be using roth money so no taxes.

I would never consider an annuity on the taxable side because of irs rules where you are taxed about half from day one you start getting payments instead of what it should be, taxing only years later after you receive what you put in. So no taxes but still have to decide. Thanks for calculations. Annuity loses its appeal unless there's a 5y wait before payments so for it to be useful I need to decide this year. Dividend paying stocks also option too, thanks. Say I live until 82-85. I won't need money when I'm gone and don't have to leave it to anyone but who knows what kind of care expenses will be. The 215 would be about 80% of my roth savings but about 17% of overall saved, the rest taxable. Spending down from Cds each year means making sure that amount is avaiable each year with each year less and less interest. Annuity is 20k year after 5 year wait with entire 215 going away at once

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Ally6770 | Feb 21, 2025 | 4,308 posts since 2010

There is always the unexpected and inflation.
$20,000 20 years ago would need $32,531.59 to have the same purchasing power now.

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w00d00w | Feb 22, 2025 | 360 posts since 2012

one option would be to meet with an advice-only financial planner (someone who will not try to sell a financial product or manage assets) who can look at the entirety of the situation and provide a second opinion on the current version of the plan for cash flow during retirement.

i'd also recommend a recently published book, "How to Retire," by Christine Benz of Morningstar. In particular, her discussion with Wade Pfau, "Know Your Retirement Income Style," might be useful.

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Ally6770 | Feb 22, 2025 | 4,308 posts since 2010

Remember we only have opinions. If the people you pay to get information or selling you products were so informed they would be independently wealthy and why would they be working? But get all the information you can.
No one knows the unknown. You can get a lot of opinions and suggestions to make your decision, but it is up to you to make the final decisions. It can be a scary time and the choices are unsurmountable.

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milty | Feb 22, 2025 | 1,689 posts since 2018

Even if you continue to work it doesn't look you think you can wait till you reach your Full Retirement Age (FRA: between age 66 and 67) before you'll need to start collecting your SS retirement benefit. Correct? Is waiting longer than age 62 to collect your SS an option and if so will it help? Are the majority of your savings invested in some ROTH IRA? Will that IRA provide enough income (interest or dividend) to supplement your other income (SS+pension) without touching the principal?

(But to answer your question, for me I have avoided annuities (not trusting their intricacies and not wanting to tie up a large sum of my principal) and have instead relied on bank interest and stock dividends, if needed, to supplement my other retirement income.)

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