Become a founding investor and get lifetime benefits – plus a free look for two years.

How to create your own pension

Most of us can't count on a defined benefit plan from our employers, but you can still find a way to generate enough income to support you through a comfortable retirement.

A generation ago, if you worked for a large employer, you could retire after 30 or 40 years with a nice pension that paid you every month until your last day.  Unfortunately, that’s no longer the reality for most of us today. Unless you work for the government or a company that hasn’t shed its defined benefit pension plan yet, most of us have no traditional pension we can rely on. The fact is, the vast majority of us will move into retirement without the security of a guaranteed monthly income.

So, how do you create your own pension when no one else will provide you with one? Here are five ways to create financial security in retirement:

1. Purchase an immediate annuity for guaranteed income

An annuity acts much like a pension. You hand over a cash investment to an insurance company in exchange for a monthly payment you cannot outlive. Even if you live 120 years, the insurance company continues to pay you a check each month. Annuities provide high protection but also contain high costs and offer low yields. Insurance companies have to live in the same investment market as the rest of us and their returns aren’t what they were in the past  — so the yields paid on their annuities are much lower than several years ago. Still, for those requiring guaranteed income, they can do the trick even if they’re not great investments.

2. Build a portfolio based on dividends and interest payments

This requires quite a bit of retirement savings. But if you have a large nest egg and you don’t need a high return, building a portfolio of income-paying stocks, exchange-traded funds and bonds isn’t a bad way to go. You’ll get a lower monthly return in the short run, but over time, this strategy could produce a large amount of wealth, particularly if the majority of the portfolio is in equities.

3. Get a reverse mortgage on your home

This may not be a conventional method of replacing a monthly pension, but, for the right situation, it can be a perfect solution. With a reverse mortgage, you don’t give up control of your home. Instead, you take a loan against it that doesn’t need to be repaid until you either sell the home or move. If your home is currently paid off, and you are over age 62, you can use a reverse mortgage to pay you a monthly check until your dying day, similar to an immediate annuity. If you die young, your loan balance will be relatively small, and your heirs will inherit your home with a modest mortgage balance. And if you live past the century mark, the reverse mortgage will continue to provide you a monthly income, provided you are still living in your home.

4. Build a diversified portfolio and set up a monthly withdrawal

This approach doesn’t provide the same sort of guarantees that a government pension provides, but it’s a strategy employed by many that is similar to how company pension plans manage their own portfolios. With this strategy, you simply put together a broadly diversified portfolio of stocks, bonds and perhaps some alternatives, and set up a systematic withdrawal each month. Some months your portfolio will gain much more than you withdraw, and other months it will decline, but the idea here is to have a withdrawal amount that will be sustainable over the long-term. The 4% rule has been historically applied, but the withdrawal can vary depending on market trends and incurred life expenses. The danger here is that if you take out too high of a withdrawal, or your portfolio doesn’t generate enough of a return, you could have trouble maintaining your monthly income into your golden years.

5. Invest in Savvly, a self-funded “pension” product that provides late-life payouts with a longevity bonus.

Savvly is a unique retirement fund that provides lump-sum payouts for late-life financial security. Unlike traditional investments and annuities, Savvly combines market returns, cost efficiency, and long-life bonuses  — multiplying the returns over time and reducing the risk of running out of money during retirement.

The lump sums received at predefined ages can be used to generate immediate income and help hedge against late-life unexpected expenses (such as nursing home or healthcare costs) or preserve your estate. Savvly can help provide peace of mind in retirement at a fraction of the cost of the alternatives.

The bottom line 

The simple reality is that it’s tougher to retire without the help of a monthly pension. Many of us will qualify for Social Security, which will provide a monthly income, but it certainly won’t be enough in most cases.

These five ways are not mutually exclusive. They can be combined and work together to create the best outcome for your unique needs. We’re here to help you learn more about Savvly and how it can potentially work to fit your retirement needs.