A 61-Year-Old Rolled Over a $745,000 403(b) and Skipped the Annuity. Now It Pays $4,550 a Month.

A 61-year-old retiree with a $745,000 403(b) had two choices. The first is to hand the money to an insurance company for a lifetime annuity; the other is to roll it into an IRA and build an income portfolio. This retiree chose the rollover, and the portfolio now pays $4,550 a month, or $54,600 a year.

That beats the maximum Social Security benefit at full retirement age, which will be $4,188 a month in 2027. It also runs about double the estimated $2,170 average retired-worker check after the 3.6% cost-of-living adjustment (COLA). Getting that income from $745,000 takes a yield of about 7.3%. That yield requires more risk than dividend growth stocks or Treasuries.

A Direct Rollover Keeps 20% Out of the IRS’s Hands

A direct, trustee-to-trustee rollover moves the money with no withholding. If you take a check instead, the plan has to withhold 20% of the taxable portion for federal tax. On this account, that’s $149,000, so you would have to cover that amount from other cash and finish the rollover within 60 days, or the shortfall becomes taxable.

Inside the IRA, the IRS taxes every withdrawal as ordinary income, whether the cash comes from qualified dividends, REIT payouts, or bond interest. Because the IRA removes the usual tax drag on high-yield assets, it’s a good place to hold them.

How Much Capital $54,600 Requires at Each Yield

Conservative Tier: Dividend Growth

Assume dividend growth stocks and broad dividend equity funds yield 3% to 4%. At a 3.5% yield, $54,600 divided by 0.035 equals $1,560,000. The $745,000 rollover would produce about $26,075 a year at that yield, or roughly $2,173 a month. The tradeoff is that you need about twice the capital, but in return, payouts usually rise every year, and the principal is the most likely to grow.

Moderate Tier: Covered Calls, REITs, Preferreds and Treasuries

Assume covered call equity funds, preferred shares, high-dividend equity funds, and REITs yield 5% to 7% in the moderate tier. A 6% yield means $54,600 divided by 0.06 equals $910,000. Treasuries also now compete at this level. The 10-year yield is roughly 5.1%, and the 20-year yield is 5.5%. At 5.1%, the full $745,000 would generate about $3,166 a month with no credit risk. For comparison, the average 12-month CD nationwide pays 1.7%, which works out to about $1,074 a month, so it’s a notable difference.

The tradeoff: dividend growth slows, covered calls cap your upside, and fixed coupons lose purchasing power over time.

Aggressive Tier: BDCs, Mortgage REITs and Leveraged Income Funds

Assume business development companies, mortgage REITs, funds that leverage covered calls, and high-yield bond funds yield 8% to 14%. A 10% yield means $54,600 divided by 0.10 equals $546,000. Put the whole $745,000 in this level, and it would pay about $6,208 a month.

The tradeoff is the highest risk of the three. Distributions get cut. Net asset value tends to decline, and you end up spending down the asset instead of living off its growth. The retiree’s 7.3% blend tops the moderate level. At that yield, $54,600 divided by 0.073 equals roughly $748,000. In practice, that means moderate holdings plus a piece of aggressive ones.

Flat Income Loses Ground Every Year

A flat 7.3% payout looks generous today, but if inflation runs at 3.6%, the same as the 2027 COLA, it will erode quickly. After 10 years, $54,600 would buy only about $38,335 worth of today’s goods.

Now take the conservative level. If the $26,075 starting income grows 8% a year, it reaches about $52,124 by year nine. The income doubles while the principal behind it most likely grows too. A 61-year-old could easily retire for 30 years, and the two approaches diverge further in the back half.

Skipping the annuity to chase yield means you get high income now but take on purchasing-power risk later, and no insurance company bears that risk for you. If you want to see how the mix, withdrawal order, and payout timing fit together, we laid out the full approach in a free guide here.

Three Moves Before Locking In a Yield

1. Measure the gap Social Security leaves. Subtract your expected Social Security benefit from your actual annual spending. The portfolio only has to cover what’s left, and a smaller gap may let you stay at the conservative level.
2. Check the aggressive piece for erosion. Compare the distribution history of every high-yield fund over the past decade with the change in its net asset value. If a fund paid 10% while its NAV fell steadily, it returned less than its yield and was partly handing back your own capital.
3. Use the current Treasury curve. With the 10-year near 5.1%, a Treasury ladder can cover several years of spending at moderate-tier yields with no credit risk. That gives dividend-growth holdings time to compound.

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