The Best Ways to Maximize Your Retirement Income in 2025

Key Takeaways

• Flexible in-retirement portfolio spending strategies result in the highest lifetime withdrawals.
• Static withdrawal systems do a good job of leaving a high amount of assets left over at the end of a 30-year period.
• Everyone should at least explore delaying filing for Social Security to lift the lifetime guaranteed income.
• Full retirement age, around 67 to 70, is the period to delay Social Security if you can, but it depends on where you’re going for cash in that interim to determine if this is the right strategy for you.
• Annuities do enlarge lifetime income, but they tend to shrink the amount that’s left over for bequests, and there are risk factors like inflation and the company you invested in.

Susan Dziubinski: Hi, I’m Susan Dziubinski with Morningstar. Most retirees want to spend as much as they can without having to worry about running out of money.

Joining me to share some ideas for how to do just that is Christine Benz. Christine is Morningstar’s director of personal finance and retirement planning, host of The Long View podcast, and author of the bestselling book, How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement. And Christine and a few of her colleagues recently published new research about retirement income; viewers can find a link to that research beneath this video.

Good to see you, Christine.

Christine Benz: Good to see you too, Susan.

Top Retirement Portfolio Spending Strategies

Dziubinski: All right. Let’s dig into it. In this research, you look at the in-retirement portfolio spending strategies that result in the highest lifetime withdrawals. What comes out on top?

Benz: In general, strategies that are dynamic or flexible, where you’re homing in on what your portfolio has done and adjusting upward and downward. So, in a really good year, like 2024, you are giving yourself a raise oftentimes. Then, importantly, in a down year, you have to give yourself a little bit of a haircut. But those strategies, especially the adjustments to the upside tend to enlarge lifetime income. So, I think they are really attractive for people who want to make sure that they are maximizing their lifetime consumption. They’re a little less worried about having a lot of assets left over in the end.

How Fixed Withdrawal Strategies Will Help Leave a Large Balance Left Over

Dziubinski: Now, you say in the research that these flexible spending strategies will tend to be most appropriate for those investors who kind of want to really live it up …

Benz: Exactly.

Dziubinski: … and aren’t really as concerned about bequests. But what about for those retirees who are concerned about bequests? What sort of strategy is perhaps best for them?

Benz: When we look at the strategies that do a good job of leaving a high amount of assets left over at the end of a 30-year period, what we see is that kind of the static withdrawal systems, where someone’s taking, say, in our research, 3.7% initially, then inflation adjusting that dollar amount thereafter, well, that’s kind of built for a worst-case scenario. So, the net effect of that is that people are underspending on an ongoing basis, and that tends to leave a large balance left over at the end.

In fact, in this year’s research, Susan, we developed this little metric called spending/ending ratio, which helps people look at different strategies and get their arms around, “OK, does this one try to maximize my lifetime consumption and leave less at the end or does it kind of balance those two goals.” People have different priorities on this front, and that was the goal in giving them that little bit of a guidepost to help identify the right spending strategy.

How Social Securities and Annuities Take Pressure Off Your Retirement Portfolio

Dziubinski: Also new this year in your research is that you looked at retirement income holistically, taking into account guaranteed income sources like Social Securities and annuities. What did you find there?

Benz: This was Jason Kephart’s section of the paper, and he really did some fantastic research with help from one of our co-researchers, Tao Guo. The idea is that if you add and enlarge those nonportfolio sources of income to the equation, what you can see quite intuitively is it takes pressure off the portfolio withdrawals, right? If you can get those Social Security payments or a pension payment or perhaps consider an annuity and enlarge your nonportfolio cash flows, it does take pressure off the portfolio. It can give a boost to lifetime income.

So, our advice is that everyone should at least explore delaying Social Security filing in an effort to lift the lifetime guaranteed income. It’s not the right strategy for everyone, certainly for people who think that they might have shortened life expectancies or they really need the money from Social Security. But if you think you have average or longer-than-average life expectancy or your spouse does and he or she would be reliant on your Social Security paycheck if you were to predecease that partner, then it does make sense to consider delaying Social Security if you possibly can.

How the Source of Your Retirement Income Before Social Security Impacts Your Spending Strategy

Dziubinski: We’ve heard a lot about that. Over the past few years, that is sort of the standard advice. But you do talk a little bit in the paper about this idea of that’s a great strategy for a lot of people, but it’s also contingent on where you’re getting your income before you take Social Security. Talk a little bit about that.

Benz: I thought this was one of the most fascinating aspects of the paper, and it really makes sense when you think about it. But if you think about kind of that 67 full retirement age to 70, which is often the period when people say delay if you can, it really depends on where you’re going for cash in that interim period.

So, if you have a three-year period, where all you are doing is going to your portfolio and tapping your portfolio at quite a high level during those years, well, that strategy is a little less advantageous to you. On the other hand, if you have working income in that 67 to 70 period or your spouse does or maybe you have like rental properties or some other things that are paying the bills besides your portfolio, that’s the ideal strategy. If you can afford to do that, that really does enlarge lifetime income without taking that big chunk out of the portfolio early on.

People need to explore that. It’s still often advantageous, even if the only thing that you have is your portfolio income in those years while you wait for Social Security to come online. It still looks like a pretty decent strategy, but a little less advantageous or maybe a lot less than if you have other sources of cash flow in those years until Social Security begins.

Key Considerations for Annuities for Income-Centric Retirees

Dziubinski: Makes sense. Then what about annuities? Can you discuss some of the key considerations there that income-centric retirees should be bearing in mind?

Benz: Jason explored a lot of different annuity buys as a percentage allocation of the portfolio. He found that, in general, they do a good job of enlarging lifetime income. But the concept is kind of similar to delaying Social Security and having to pull from the portfolio, you’re taking a chunk out of the portfolio to put into this annuity purchase. And in his studies, he looked mainly at the very vanilla annuity types. So, an immediate annuity or a deferred-income annuity were the two key types that he explored.

What he found is that they do enlarge lifetime income, but they tend to shrink the amount that’s left over for bequests. Another set of considerations is that you can’t currently buy an annuity that is linked to the CPI. So, you can’t get any sort of perfect inflation hedging there. That’s a risk factor for sure for annuities. You’re also really casting your lot with this insurance company, so they better be on pretty solid financial footing. That’s another key consideration.

And, then with an annuity, and certainly, one where you don’t have any sort of survivor benefit, if you don’t live a good long life, you’ll get less from having made that allocation. So, a lot to consider there, which is why I always say people should get some kind of objective advice, not from a person selling annuities, but from some total third party who can help you size up whether that’s a worthwhile allocation for you. But Social Security is the best annuity that money can buy. Do everything you can to try to enlarge your benefits there first.

Dziubinski: Well, Christine, thanks for your time today. And really, once again, this is great research that you and the team do every year. I hope all of our viewers who are watching this right now click on that link below and read it. It’s terrific. Thanks for your time.

Benz: Thank you so much, Susan.

Dziubinski: I’m Susan Dziubinski with Morningstar. Thanks for tuning in.

Watch 5 Ways to Be a Savvy Investor in 2025 for more Christine Benz.