Engineering Reliable Retirement Income in 2025

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In today's high-rate environment — where 5%-plus interest rates feel more like the norm than the exception — the retirement income playbook is being rewritten.

Gone are the days when the 60/40 portfolio and the trusty 4% rule provided enough confidence to sleep soundly at night.

Instead, retirees and near retirees are turning to more engineered strategies for dependable income — ones that blend structure, flexibility and peace of mind.

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The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Two key tools leading the charge in 2025: the modern bucket strategy and — brace yourself — the much-debated A word, annuities.

Let's talk about the A word

Annuities tend to stir strong opinions, kind of like pineapple on pizza or which way to hang the toilet paper. Some folks swear by the predictability they provide, while others grimace, often due to outdated advice or poor past experiences.

But annuities have evolved. When used as part of a personalized plan — not as a standalone product — they can help address some of retirement's trickiest problems: longevity risk, market volatility and the ever-creeping cost of living.

The challenge? Sorting through the noise to figure out where they fit.

That's where we come in.

Three reasons to use the A word

Turning assets into a paycheck. Retirement isn't just about growing a portfolio — it's about turning it into income.

If a retiree gets $5,000 a month from Social Security but needs $8,000 to cover expenses, that $3,000 gap could be filled with an annuity providing guaranteed lifetime income.

At today's rates, a 67-year-old might need about $480,000 in IRA assets to generate that income for life. That's retirement income engineering in action.

Building inflation resilience. Today's fixed indexed annuities often offer market-linked growth options that can adjust your income upward over time.

That means your paycheck has a shot at keeping pace with rising costs, which is especially important in a retirement that could span 30 years or more.

Reducing emotional risk. Markets go up and down, but bills don't wait. Annuities provide a steady stream of income that can reduce the urge to panic-sell during downturns.

For risk-averse retirees, knowing a portion of their income is guaranteed can help them stay invested (and sane).

Reasons to be cautious using the A word

As powerful as annuities can be, they're not magic. Here are a few caveats:

Overconcentration limits flexibility. While many annuities allow for limited penalty-free withdrawals (usually 5% to 10% annually), they aren't nearly as liquid as brokerage accounts. Putting too much into annuities can leave you cash-strapped when flexibility matters most.

Misplaced in a Roth IRA. Roth IRA accounts shine when used for high-growth investments. Using them for slow-growing annuities can water down their tax-free potential.

Misaligned expectations. If you want stock market-level returns without risk, you might be disappointed. Most income annuities offer moderate returns (think 3% to 5%) in exchange for guaranteed income.

Buying without a plan. Annuities should never be bought in isolation. They work best when integrated into a broader financial strategy that accounts for taxes, withdrawal sequencing and long-term income needs.

Modernizing the bucket strategy in 2025

Think of bucket strategies as the plumbing of your retirement plan — efficiently delivering water (income) where and when you need it.

In 2025, bucket planning has grown up. The basic framework still stands — dividing assets based on when you'll need them — but the tools and tactics have gotten smarter.

Here's a breakdown:

Bucket one: Immediate needs (years zero to three)
This is your faucet. Think cash, money market funds or short-term CDs. It covers the bills without forcing you to sell investments during market dips.
Bucket two: Near-term growth (years three to seven)
Picture this as your refill tank. It might hold short-term bond ETFs, TIPS or balanced funds — assets with moderate risk designed to replenish bucket one as needed.
Bucket three: Long-term growth (years seven-plus)
This is your reservoir — slow to fill, but critical during dry spells. Stocks, real estate and diversified ETFs live here. They're designed to grow and refill the other buckets over time.

Visualize your retirement plan as a three-chamber water tank. Chamber one feeds your daily faucet. Chamber two flows into chamber one during dry periods. Chamber three fills slowly but keeps the entire system running long term. That's the magic of a well-engineered bucket plan.

Where buckets and annuities work together

This isn't an either-or situation. Some of the best retirement income plans use both annuities and buckets in tandem.

Annuities can serve as a reliable foundation, ensuring essential expenses are covered no matter what the markets do.

Meanwhile, the bucket strategy provides structure, flexibility and growth potential to handle everything else.

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Used wisely, annuities can fund the first bucket (income now), while the rest of the portfolio focuses on growth and future needs.

It's a "belt and suspenders" approach — redundant by design but comforting when times get rough.

What you can do now

If you're nearing or already in retirement, here are three steps to help engineer more reliable income in today's interest rate environment:

Quantify your income gap. Add up guaranteed income (such as Social Security or pensions) and compare it with your monthly needs. Knowing your gap helps determine whether you need an annuity or just a smarter withdrawal plan.

Reassess your buckets. Are your short-term needs covered with safe, liquid assets? Are your long-term assets still positioned for growth? Review your allocation based on your spending timeline and today's higher yields.

Stress-test your strategy with a fiduciary. Work with an adviser to model different outcomes for market crashes, inflation spikes and longevity. A fiduciary can help integrate annuities, buckets and tax strategies into a cohesive plan — not just sell you products.

Final thoughts

Retirement planning in 2025 isn't about chasing returns or clinging to old rules. It's about building a system — an income engine — that balances predictability, flexibility, and peace of mind.

Annuities and bucket strategies can be two powerful tools in that system. Used together, they help answer the question every retiree faces: "Will I have enough — and will it last?"

With the right plan in place, you won't just retire, you'll retire with confidence.

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Billy Voyles is the founder of Fundamental Wealth Designs. He has been in the financial and insurance business for 17 years and is incredibly knowledgeable, having obtained both his BBA in marketing and an MBA in finance from Eastern Michigan University. Billy is licensed as a fiduciary and has passed securities examinations 6, 26, 63 and 65. He has also earned the Retirement Income Certified Professional, RICP designation from the American College.