Young retirees are the ones most likely to need investment income. After age 70-1/2, minimum distributions from IRAs are required, which will provide a source of income. However, many people prefer not to tap their IRAs before that age, even if they are retired.
One solution is to buy an immediate annuity to fill that period. If you retire at age 60-1/2, for example, you might buy a 10-year immediate annuity. With such an immediate annuity you’d receive a stream of income, perhaps every month, to replace a paycheck. Over the course of the 10 years you’d get back your investment plus a return on that investment.
Say you take $100,000 and buy a 10-year annuity. You might receive about $1,000 a month. Of that $1,000 a month, only $200 might be taxable income while the remainder would be a tax-free return of your investment.