Episode 85: 4 Retirement Income Strategies: Which one Wins in 2026?

Segment 1:

HELLO Lower Alabama! Hello Gulf Coast! Welcome in. Welcome to Coasting in Retirement! Thanks for joining us today, Josh Null here, alongside co-host Michelle Lee Melton-Null, Michelle how are you doing? We are back in Coastal College’s recording studio, beautiful downtown Fairhope, ready to put together another great show for those of you tuning in!

Listeners: Michelle and I are here today to discuss financial topics relevant to those of you in or near retirement, living your best life along our part of the Gulf Coast. Here’s what we’ve got in store for you: First segment – deep dive on our topic of the day. 2nd segment - at about 30 minutes past the hour - “Headlines of the Week”. Then at roughly 50 minutes past the hour, stick around for our 3rd segment, we call it” Josh’s Crystal Ball and Big Mouth”. Buckle up, we’ve got a lot to get to!

Quick background on me for those new to the show. Again, my name is Josh Null, I am a fee-based financial advisor, I hold my FINRA Series 65 securities license, and I am the owner of Gulf Coast Financial Advisors, that is a 100% locally owned, 100% independent investment management and financial planning firm with offices in Fairhope, Orange Beach, and Mobile! You can find more information on me and the team at Gulf Coast Financial Advisors by visiting our website gulfcoastfa.com, or feel free to give us a call at 251-327-2124. If you missed that contact info, get a pen and pad ready because we will repeat our contact info several times throughout the show!

For today’s episode were going to start with a trope that our industry uses over and over again, usually for good reason: you’ve climbed the financial mountain and reached the top and you are now ready to retire, but how do you get back down the mountain without falling off? You’ve spent 30, 40, maybe 50+ years focusing entirely on accumulation—growing the pie. But the day you retire, the game completely changes to distribution. And frankly, many investors – and honestly, many advisors – use outdated 1990s math to try and navigate a retirement income plan. For those of you used to a regular paycheck, the shift to a self-made paycheck is hands-down the most psychologically jarring part of retirement. And because people get scared, they tend to gravitate toward simple, all-or-nothing formulas they heard about on a podcast or read in a magazine ten years ago. Today we’re going to discuss 4 retirement income strategies and help you decide which one might be the best for your situation.

We’re going to keep things simple and based our calculations on a hypothetical million-dollar portfolio. We’re going to take that $1 million and look at the potential income produced from 4 different sources: purchasing an annuity, living entirely on dividends, the classic 4% withdrawal rule, and what some advisors call the “dynamic guardrails”. A quick note – some of the projections will be timing and market dependent, for example, insurance companies often change their payout percentages based on current interest rates, so take our projection as a general estimate. Alos before we dive into each individual scenario, I do want to give credit to a source we pulled some of this information from, James Conole over at Root Financial has an excellent catalog of videos and is an inspiration for some of the marketing things we have working. That said, let’s take a look at our different approaches:

Strategy 1: The Annuity (SPIA)

The Set Up: Putting the full $1 million into Michelle’s favorite annuity to say, the Single Premium Immediate Annuity, or SPIA. We based our numbers on a 65-year-old male.
The Math: It generates roughly $6,455 a month ($77,500/year), which looks like a staggering 7.75% initial payout rate.
The Pros: Total peace of mind, zero market risk, and a guaranteed paycheck for life.
The Cons: No inflation adjustments (purchasing power gets eaten away over 20–30 years), zero legacy value for heirs upon death, and zero liquidity if you need a lump sum for a major expense like a car or a medical bill. Josh – discuss potential survivor benefits and the trade off, and fixed index annuities.

A 7.75% payout looks incredible on Day One. But here is the catch: it is a fixed number. There is no inflation adjustment. If you retire at 65, that $6,450 a month feels great. By the time you're 75, after a decade of rising costs, that same check buys drastically less. By the time you're 85, you are functionally broke on a guaranteed income stream.

It’s also important to note that the moment you sign that contract, your liquidity goes to absolute zero. If you need $30,000 for a new car, or a medical emergency hits, you can’t call up the insurance company and ask for a piece of your million dollars back. It’s gone. Plus, if you pass away five years into retirement, the insurance company keeps the change. Your kids get zero. It trades absolute flexibility for certainty.

Strategy 2: Living on Dividends Only

The Set Up: Investing the $1 million into an S&P 500 index or a diversified stock portfolio and only spending the yield. The problem with using the S&P 500 is that it’s current dividend yield is very low, a little over 1%.
The Math: So were going to assume a 2% dividend yield for our calculation, but this still only generates $20,000 a year.
The Pros: You never have to sell down your underlying shares, giving you a massive psychological safety buffer. Dividends are historically resilient, even when the broader market tanks.
The Cons: $20,000 on a million-dollar nest egg is a very low lifestyle budget. If you try to force a higher yield (say 4% or 5%) by chasing dividend stocks, you create dangerous sector concentration, expose yourself to severe sequence-of-returns risk, and historically underperform the broader market because you don’t have enough allocation to growth and tech stocks.

The logic seems ironclad—leave the principal alone, let it grow, and just spend the "rent" the stocks pay you. In a balanced portfolio, that’s about a 2% yield, or $20,000 a year on our million-dollar example. The obvious downside is that $20,000 is a pretty lean lifestyle for a million-dollar nest egg. But what we see investors do next is the real danger: they try to force that 2% yield up to 5% or 6% by dumping their diversified index funds and buying heavy dividend-paying stocks or high-yield energy sectors.

Chasing dividends is a classic mental accounting trap. People look at a 5% dividend yield and think it’s "free money" that doesn't affect the stock price. It’s not. When a company pays a dividend, that cash leaves their balance sheet, and the stock price drops by that exact amount on the ex-dividend date. But the real threat to a retiree is concentration risk. If you filter the market only for companies paying massive dividend yields, you end up heavily concentrated in legacy utilities, old-school telecom, and capital-intensive sectors. You completely miss out on the innovation and growth sectors of the economy.

In fact, if you look at the top dividend payers over the last 15 years, they have massively underperformed the broader S&P 500. So by trying to "protect" your principal by only spending dividends, you actually end up dragging down your total return and exposing yourself to severe sequence-of-returns risk if one of those specific sectors takes a structural hit. You think you're being safe, but you're actually putting all your eggs in a very specific, slow-moving basket.

Strategy 3: The Traditional 4% Rule

The Set Up: The classic Bill Bengen 50/50 stock-and-bond allocation model from the 1990s.
The Math: Pulling $40,000 in Year 1 and adjusting that exact dollar amount for inflation every year thereafter.
The Pros: Simple, universally understood, and leaves your portfolio highly liquid for unexpected expenses.
The Cons: It’s a "worst-case scenario" rule designed to survive things like the Great Depression or 1970s stagflation. Because it is so rigid, the overwhelming majority of retirees end up radically underspending their wealth and dying with more money than they started with, leaving lifestyle optimization on the table.

This came out of Bill Bengen's research back in the '90s. You take your million dollars, you pull 4%—or $40,000—in Year One, and then you just adjust that dollar amount for inflation every year, regardless of what the market does. Conole points out the massive irony of this rule: because it was designed to survive the absolute worst economic disasters in history, like the Great Depression, it is so incredibly defensive that statistically, almost everyone who follows it rigidly ends up radically underspending their money. They die with more money than they started with, meaning they missed out on taking that extra family trip or buying the vacation home when they were healthy enough to enjoy it.

The 4% rule is great for an academic paper but can force you to live your entire retirement preparing for a financial meteor strike that has a 95% chance of never hitting you. Safe doesn't always mean optimal. Why sacrifice your "go-go" years of retirement living on a restricted budget just because you're terrified of a worst-case scenario?

Strategy 4: Dynamic Guardrails (The Winner)

The Set Up: The Guyton-Klinger framework, which leverages broader asset classes and modern portfolio rules.
The Math: Because you agree to make adjustments based on market performance, you can safely launch retirement with a 5.5% initial withdrawal rate, generating $55,000 in Year 1.
The Pros: A dramatically higher initial lifestyle budget. You use rules to sell asset classes that have performed well ("selling high") while leaving depressed assets alone.
The Cons: It requires active management and flexibility. If the market crosses a negative guardrail, you must be willing to temporarily freeze your inflation adjustment or cut your spending slightly. Conversely, if the market booms, the guardrails tell you exactly when you can give yourself a raise.

This is the modern, 2026 way to manage retirement income. Instead of picking a rigid number like 4% and sticking your head in the sand, you establish an agreement with your portfolio. Because we agree to be dynamic, we can safely launch a client's retirement at a 5.5% initial withdrawal rate. On a million dollars, that’s $55,000 in Year One instead of $40,000. That’s a life-changing difference in purchasing power.

It’s all about having a proactive rules-based playbook. Instead of panicking when the market drops, the guardrails tell you exactly what to do. For example, if the market has a bad year and your withdrawal rate climbs too high relative to your portfolio value, the guardrail rules might tell us to freeze your inflation adjustment for next year, or take a temporary 10% cut in your discretionary spending.

But it works both ways! If the market enters a massive bull run and your portfolio surges, your withdrawal rate drops. When it hits the upper guardrail, the rule tells us it's time to give you a permanent cost-of-living raise. And when we pull income, we don't just blindly sell everything. We pull from the asset classes that have performed the best—meaning we are systematically "selling high"—and we leave the depressed assets alone to recover. It gives our clients maximum lifestyle income when they are young and active but builds in a structural safety valve so they never have to worry about running out of money. Josh – be sure to talk about social security and all the work you do to do an income solve for clients.

Alright listeners, if you want to set up a follow-up conversation with the team at Gulf Coast Financial Advisors, it’s easy. You can catch us at 251-327-2124, or find us on our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. There are flexible meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, a 30-minute zoom, or my preference, an in-person meeting at any of our 3 office locations: Downtown Fairhope, Orange Beach just down the road from the Wharf, or in Mobile near the intersection of Dauphin St and I-65. Reach out to us - we would love to meet you!

Alright folks, coming up next - There’s always a lot going on in the world! Particularly the world of finance, investments and money. Every week we scour the internet for financial articles relevant to those of you in or near retirement, then give you our honest opinion about these headlines. So join us after the break to hear Michelle and I discuss this week’s relevant news in our “Headlines of the Week” segment. Stay tuned!

Segment 2 - News of the Week:

Welcome back to Coasting in Retirement, your host Josh Null here, alongside co-host Michelle Lee Melton-Null. As we discussed the break, every week we scour the internet for financial articles that pertain to those of you in or near retirement. Our job, or at least we tell ourselves it is, is to help you all understand how these headlines impact you, especially when it comes to your money! Note – if you want to read our referenced articles yourself, we also include the links in our show transcript, which you can find on our website gulfcoastfa.com under the podcast tab. Now without further adieu, here’s Michelle with the Headlines of the Week!

1. Michelle: Our first article is from Money Talks News, titled, 'The Pros and Cons of Taking Social Security at 62.' This article walks through the standard trade-offs we hear about all the time. On the pro side, it highlights claiming social security as soon as you can and getting immediate cash flow to fund an active early retirement while you're still healthy, preserving your investment portfolio so it can grow untouched, and minimizing the risk of leaving money on the table if you have a shorter life expectancy. On the con side, the big hitter is that permanent benefit reduction—up to 30% if your Full Retirement Age is 67—along with the earnings test penalty if you keep working and potentially lowering the survivor benefit for your spouse. From a real-world planning perspective, Josh how do you help clients look past the basic math of a break-even chart to figure out what actually makes sense for their specific retirement blueprint?

Josh: Every time I see an article frame this as a simple "break-even chart" math problem, I shake my head. It’s almost always presented as an individual race against the actuarial tables—meaning, if you live past age 78 or 80, delaying to age 70 "wins." But human beings don't live their lives on a spreadsheet, and they certainly don't retire in a vacuum.

First off, the article mentions the earnings test, but we need to emphasize just how brutal that is. If you take Social Security at 62 but keep working a part-time consulting gig or running a small business, the IRS will literally claw back $1 for every $2 you earn over the threshold. You aren't just taking a permanent 30% haircut on the benefit; you're actively giving it back to the government while paying ordinary income tax on your earnings.

But where the basic math completely fails is when we look at married couples. Social Security isn't just an individual stream of income; it’s the ultimate form of joint longevity insurance. If I’m the higher earner in our household and I claim at 62, I am not just shrinking my own paycheck—I am permanently capping the survivor benefit for you, Michelle, if I pass away first. Delaying the higher earner's benefit to age 70 guarantees that the surviving spouse steps into the absolute largest possible inflation-protected paycheck for the rest of their life.

Instead of treating Social Security as an isolated cash cow at 62, a modern 2026 blueprint looks at using pre-tax IRAs or 401(k)s as a "bridge" during those early years. By spending down pre-tax money between 62 and 70, you let your guaranteed Social Security benefit grow by 8% a year, you protect your surviving spouse, and you lower your future RMD liabilities all at the same time. Claiming at 62 feels good in the short term, but it usually ends up being an incredibly expensive way to buy peace of mind.

https://www.moneytalksnews.com/the-pros-and-cons-of-taking-social-security-at-and/

2. Michelle: Our second headline takes a step back from the typical news cycles and looks directly at an incredibly thorough public policy piece by the American Academy of Actuaries. It's an issue brief titled, 'What Are the Various Types of Insured Annuities?' Now, on the surface, a paper written by actuaries might sound like a cure for insomnia, but it hits on a vital problem: the word 'annuity' is thrown around as a single catch-all term, and it causes massive confusion for both consumers and financial professionals.

The brief breaks down the entire insurance landscape, specifically separating the vehicles meant purely for accumulation—like Variable Annuities or Fixed Indexed Annuities—from vehicles designed strictly for income generation, like Single Premium Immediate Annuities (SPIAs) and Deferred Income Annuities (DIAs). They dive deep into the math behind payout choices, illustrating how things like 'Life-Only' versus 'Period Certain' or 'Cash Refund' features fundamentally alter your monthly paycheck.

So Josh in our opening segment we used a SPIA as our annuity example, but can you walk listeners through how these different types of annuities might affect their hypothetical $1 million dollar portfolio?

Josh: We’re pretty tough on annuities on this show, or more specifically, we’re pretty tough on slick-rick annuity salesguy trying to cram as much of your money as he can into an annuity to increase his commission, but to be fair, a lot of people selling against annuities will simply state, “all annuities are bad”. That like trying to use a Porsche Boxster to haul a load of dirt then proclaiming, all “vehicles” are bad. It just depends on what type of annuity you bought, and more importantly, WHY you bought it.

If you take that million and go down the accumulation path—using a Fixed Indexed Annuity (FIA) or a Variable Annuity (VA)—you aren't actually turning on a permanent lifetime paycheck on Day One. Instead, you're looking for tax-deferred growth. With an FIA, the insurance company tracks an index like the S&P 500, capping your upside but guaranteeing you won't lose a dime if the market tanks. It sounds great, but the trade-off is that those caps can seriously limit your growth over time, and your money is tied up under strict surrender charges.

But if you flip to the income generation path—like the Single Premium Immediate Annuity (SPIA) we talked about earlier—you are strictly buying a pension-like income. You give up the million dollars permanently in exchange for maximum immediate cash flow. Now, if you're worried about passing away early and the insurance company keeping all your money, you can choose a "Cash Refund" feature instead of "Life-Only." That guarantees that if you die before getting your full million back, whatever is left goes to your heirs. The catch? The actuaries remind us that every time you add a guarantee like that, the insurance company drops your monthly payout.

The bottom line for our listeners is simple: if you buy an annuity for accumulation, don't expect it to give you the highest guaranteed income stream. And if you buy it for income, understand that you are permanently giving up control of that capital. They are single-purpose tools, and if you don't know exactly which one you own, it can completely derail your retirement distribution blueprint.

https://www.actuary.org/wp-content/uploads/2022/08/IB.Annuities.8.22.pdf

3. Michelle: Our last article today comes from Morningstar, it’s titled “How Retirement Income Guardrails Can Ease Clients’ Worries”. According to this article, for decades the financial industry has treated the "4% withdrawal rule" like it was carved in stone. But Morningstar points out a huge flaw with a fixed spending rule: it completely ignores what the market is actually doing. If the market crashes, you overspend and trigger severe sequence-of-returns risk—which is just a fancy way of saying you're forcing yourself to sell stocks while they're on a clearance sale. If the market skyrockets, a fixed rule forces you to needlessly underspend, meaning you miss out on taking that dream family trip while you still have the health and energy to enjoy it.

Now for those of you listeners that check out our show transcripts and read our referenced articles for yourself, I must warn you, this Morningstar article about Guardrail planning is dense. In fact, all of the articles I found about this method were pretty complicated. So with that said, Josh, how do you take into account all of these formulas and methods to help your clients formulate an income plan that they actually understand?

Josh: Yeah, if you go read the actual academic white papers on guardrails—like the Guyton-Klinger research—your eyes will cross within two minutes. It is filled with formulas, capital market assumptions, and probability math that makes it look like rocket science. But our job on the desk isn’t to hand clients a 50-page calculus textbook. Our job is to build a plan that makes sense and reduces financial stress in retirement.

When a client sits down with us, we talk some about probability coefficients and math probabilities. But then we apply a whole lot of life and professional experience combined with good old common sense. The real magic of this isn’t just that the math lets you safely start retirement with a higher lifestyle budget than the old 4% rule. The magic is psychological. When the media is screaming that the sky is falling, our clients don't panic or wonder if they need to cancel Christmas. Comprehensive financial planning takes the abstract fear of the unknown and replaces it with GPS coordinates for your financial journey in retirement.

https://www.morningstar.com/retirement/how-retirement-income-guardrails-can-ease-clients-worries

Listeners, if you want to set up a follow up conversation with the team at Gulf Coast Financial Advisors, it’s easy. You can call us at 251-327-2124, or find us on our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. There are flexible meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, a 30-minute zoom, or my preference, an in-person meeting at any of our 3 office locations: Downtown Fairhope, Orange Beach just down the road from the Wharf, or in Mobile near the intersection of Dauphin St and I-65. Reach out to us - we would love to meet you!

Alright folks, coming up next: Josh’s Crystal Ball and Big Mouth. What have been some of my predictions? Have I been right? Was I ever wrong? How wrong? What do I think is going to affect investors in the near future, or maybe the distant future? We talk about all of these things and poke a little fun at my big mouth. Stay tuned!

Segment 3 – Josh’s Crystal Ball and Big Mouth:

Welcome back! Your host Josh Null here, joined by co-host Michelle Lee Melton-Null. So, I am opinionated, I have strong opinions at times, you can just ask my relatives from our recent Table Rock late trip we took, and I would say a radio show host that isn’t probably wouldn’t be very interesting to listen to. And I am paid in my profession to offer professional guidance and opinions to my clients, so if I don’t have anything intelligent to say, just replace me with AI. I like making predictions, sometimes I hit the bullseye, sometimes I swing and I miss. Is there any crow to eat? Let’s get at with Josh’s Crystal Ball and Big Mouth and find out.

Michelle: Alright Josh, as I very well know, you don’t like standing in lines and are not much for being stuck in a crowd. So it was no surprise when you declined to have your clients jump on the recent SpaceX IPO. The stock debuted at $135 a share, valuing the company at a staggering $1.75 trillion—making it the biggest IPO ever. The stock surged 19% on day one, closing around $161 and pushing the valuation past $2 trillion. A few days later, on June 16th, it hit an intraday peak of $225.64.

Well, well, well. Right after hitting that peak, reality set in. Investors actually started reading the S-1 prospectus and looking at what SpaceX absorbed when they merged with xAI back in February. It turns out that while the Starlink satellite business is a beautiful, profitable cash cow, the AI side of the house is burning cash like rocket fuel—nearly $1 billion a month. Because of that, the momentum broke. The stock dropped three sessions in a row, and as of this recording, it has pulled back sharply to around $160 a share. Listeners – don’t get too attached to that number – this stock jumps around more than a Jack Russell searching for his ball.

So you nailed this one so far, but what’s you prediction for where this is heading? Should investors always steer clear of SpaceX?

Josh: Not necessarily, explain forward earnings, business moats, and tie in what’s going on with ChatGPT’s IPO.

Well, listeners, I hope you enjoyed a little peek into how we form our opinions and make predictions. We invite you one last time, if you would like to have a no-pressure, no-obligation conversation about your investing goals and retirement dreams, you can call us at 251-327-2124, or find us through our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. We have several meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, all the way to an in-person meeting at any of our 3 office locations. You can find GCFA offices in downtown Fairhope, or Orange Beach off Canal Road, or in Mobile near the intersection of Dauphin St and I-65. Reach out to us - we would love to meet you!

That’s our show for this week! I want to give a huge thank you to my co-host Michelle, thank you to the producer of the show, Payton Null, thank you to our show sponsor, Providence Partners and Jay Stubbs, thank you to our awesome radio station, FM Talk 106.5 out of Mobile, many thanks to the provider of our show music, local band Sloth Racer, and as always my sincere appreciation for all of your out there that have been listening and joining us on this journey. We would love to be a part of your journey as well! Until we talk again, have a wonderful and productive week. This has been Coasting in Retirement with Josh Null!

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