Optimize Your 403(b) for Guaranteed Retirement Income
Scenario
You’ve spent your career in public education, healthcare, or a nonprofit, diligently contributing to your 403(b). Now you’re retiring, and the paycheck stops—but your 403(b) doesn’t. What should you do with it? Here’s how each option works, the pros and cons, who should use them, and how annuities or insurance can strengthen your plan.
1. Stop Contributions Automatically at Retirement
Key Stat: You can no longer contribute once you leave your employer.
Your 403(b) doesn’t vanish when you retire—it just stops receiving new contributions. Your money remains invested and continues growing tax-deferred until you take distributions.
- ✔ Preserves tax-deferred growth
- ✔ No action needed to maintain account
- ✘ You may still pay high administrative fees
- ✘ No employer match or new contributions
Who Needs It: Retirees unsure of next steps and want time to evaluate
Who Doesn’t: Retirees who want lower fees or guaranteed income
Helpful Add-on: Review your plan’s fees and compare with rollover options
2. Leave It in Your 403(b) Account
Key Stat: You aren’t required to take distributions until age 73
You can let your money sit in the 403(b) and continue tax-deferred growth. This is the default if you don’t take action.
- ✔ Easy, requires no movement of funds
- ✔ Still tax-deferred
- ✘ Investment choices may be limited or poor
- ✘ Fees can be high, especially if you’re no longer employed there
Who Needs It: Retirees happy with current investment performance and fees
Who Doesn’t: Anyone seeking lower-cost investments or more control
Also Consider: If fees are more than 0.50%, it’s often smarter to move your money elsewhere
3. Roll It Over to an IRA or Annuity
Key Stat: Direct rollovers are tax-free and avoid penalties
A rollover IRA or annuity lets you control your investments, lower costs, and open the door to guaranteed income strategies like annuities.
- ✔ No taxes if done directly
- ✔ More investment or income choices
- ✔ Use part or all to buy an annuity for lifetime income
- ✘ Must complete rollover paperwork
- ✘ Risk of taxes if improperly handled
Who Needs It: Anyone wanting control, lower fees, or guaranteed income
Who Doesn’t: People with small balances or those satisfied with their current plan
Helpful Add-on: Use a fixed index annuity with a GLWB for income flexibility and market protection
While reviewing 403(b) options at retirement, annuity options for teachers can complement a pension or school retirement plan by filling income gaps, protecting rollover assets, and coordinating survivor income.
4. Start Taking Withdrawals as Income
Key Stat: You can withdraw penalty-free after 59½
You can begin taking regular withdrawals to supplement Social Security and other income. Just know that every dollar is taxed as ordinary income.
- ✔ Simple and flexible
- ✔ Withdraw what you need, when you need it
- ✘ No guarantee you won’t run out of money
- ✘ Income is taxed and could raise your tax bracket
Who Needs It: Retirees who want control and flexible access
Who Doesn’t: People worried about outliving their savings
Helpful Add-on: Pair with Roth conversions to manage future taxes
5. Take Required Minimum Distributions (RMDs)
Key Stat: RMDs begin at age 73 and increase every year
Once you hit 73 (or 75 if born in 1960+), the IRS requires you to begin taking taxable distributions. These RMDs increase over time and can force you to withdraw more than you need.
- ✔ Helps manage income in retirement
- ✔ Required by law
- ✘ Can push you into a higher tax bracket
- ✘ Can impact Medicare premiums
Who Needs It: Everyone (it’s mandatory)
Who Doesn’t: N/A
Helpful Add-on: Use a QLAC (Qualified Longevity Annuity Contract) to delay part of your RMDs until age 85
6. Convert It to a Roth IRA
Key Stat: Roth IRA withdrawals are tax-free in retirement
You can convert all or part of your 403(b) into a Roth IRA. You’ll pay taxes now, but once in the Roth, your money grows tax-free and isn’t subject to RMDs.
- ✔ Eliminates future taxes
- ✔ No RMDs from Roth IRAs
- ✘ Triggers income tax today
- ✘ Could raise your Medicare costs or bump you into a higher bracket
Who Needs It: Retirees in low tax years or early retirees before Social Security starts
Who Doesn’t: People close to RMD age or already in high tax brackets
Helpful Add-on: Spread conversions over several years to stay in lower tax brackets
7. Move to a Fixed Index Annuity With a GLWB
Key Stat: GLWB riders guarantee lifetime income—starting now or later
Instead of guessing how much to withdraw, transfer your 403(b) into a fixed index annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB). You can start income right away or let it grow for a future date. The GLWB pays income for life—even after the account runs out—and adjusts to inflation better than a 4% withdrawal strategy.
- ✔ Income guaranteed for life
- ✔ Still participates in market growth (with protection from losses)
- ✔ Leave remaining funds to a beneficiary
- ✘ No access to full principal
- ✘ Fees apply for GLWB rider
Who Needs It: Anyone worried about running out of money, wants predictable income, or dislikes market volatility
Who Doesn’t: Those who need full liquidity or want to manage investments themselves
Also Consider: GLWB annuities often provide the highest lifetime withdrawal income—up to 8% annually depending on age
Insurance That Complements Your 403(b)
- Long-Term Care Insurance: Protects income from being wiped out by nursing care costs
- Permanent Life Insurance: Offers tax-free legacy planning or an emergency fund through cash value
- Disability Insurance (pre-retirement): Protects your 403(b) contributions if you become unable to work
Our Advice on What To Do With Your 403(b)
When you retire with a 403(b), you’re at a crossroads.
You’ve spent 20, 30, maybe 40 years putting money into this account. The accumulation phase is basically over. Now the question changes from “How do I grow my retirement savings?” to “How do I actually use this money for the rest of my life without running out?”
There are several ways you can handle it.
Option 1: Leave the Money in Your 403(b)
The first option is the simplest: do nothing.
You can generally leave your money in your former employer’s 403(b), assuming the plan allows it. Your money stays invested and continues to receive the tax-deferred treatment of the retirement plan.
That isn’t necessarily a bad decision, but you need to know why you’re leaving it there.
What is the investment strategy? What are the fees? How much risk are you taking? How are you eventually going to generate income from it?
Simply leaving a 403(b) alone because you don’t know what else to do isn’t a retirement strategy.
There is also an important exception. If you retire or separate from your employer during or after the year you turn 55, distributions from that employer-sponsored retirement plan may qualify for an exception to the 10% early-withdrawal penalty. That particular exception generally doesn’t apply once the money has been rolled into an IRA.
So if you’re retiring before 59½, don’t automatically roll everything into an IRA without looking at this first.
Option 2: Roll the 403(b) Into an IRA
For many retirees, this is the direction we prefer.
Instead of leaving the money inside your former employer’s retirement plan, you can generally complete a direct rollover from the 403(b) into a traditional IRA without creating a current taxable distribution when handled correctly.
Now you’ve separated the money from your former employer and can build your retirement strategy around what you need.
Maybe that’s continued growth.
Maybe it’s conservative investments.
Maybe it’s generating retirement income.
Maybe it’s eventually converting portions to a Roth IRA.
Maybe it’s a combination of all of them.
The point is that retirement changes the job of your money, and your investment strategy should probably change with it.
Option 3: Roll It Into an IRA Annuity for Guaranteed Lifetime Income
This is where things get especially interesting for retirees who are worried about running out of money.
You can roll some or all of a 403(b) into an IRA annuity and use a guaranteed lifetime withdrawal benefit to essentially create your own pension.
Think about what you’re trying to accomplish.
You’re probably going to take money out of the 403(b) anyway to pay your mortgage, utilities, groceries, vacations, healthcare, and everything else in retirement.
You could simply take withdrawals from an investment account.
But now you’re responsible for figuring out:
- How much can I safely withdraw?
- What investments should I own?
- What happens when the market drops?
- How do I adjust my income for inflation?
- What happens if I live to 90, 95, or 100?
That’s a lot of moving pieces.
With the right income annuity, you can transfer a large portion of that longevity risk to an insurance company.
Instead of deciding every month how much money to withdraw, the annuity can contractually guarantee a specific amount of lifetime income.
You can have that money automatically deposited into your bank account just like a paycheck.
And here’s the important difference:
If the annuity’s account value eventually reaches zero through covered lifetime withdrawals, the contractual lifetime income benefit can continue paying for the rest of your life, subject to the terms of the contract and the insurer’s claims-paying ability.
That’s the insurance component.
You’re not buying it because you can’t withdraw money yourself.
You’re buying it because you don’t know how long you’re going to live.
Some products can even tell you today what your guaranteed lifetime income could be if you don’t start taking it for 5, 10, 15, or even 20 years.
That gives you something extremely valuable when building a retirement plan: a known future income floor.
Option 4: Take Withdrawals Directly From the Account
You can also treat your 403(b) or IRA like a savings account and simply take money out as you need it.
There’s nothing inherently wrong with doing that.
Our concern is that you’re now trying to manage an investment portfolio and a retirement distribution strategy simultaneously.
You have to determine how much you can withdraw without depleting the account too quickly.
If the market falls significantly shortly after you retire and you’re simultaneously withdrawing money, that’s very different from experiencing a market decline while you’re still working and contributing.
That’s why we generally like separating retirement money into different jobs.
Keep money invested for growth if you don’t need it.
Keep liquid money available for emergencies and short-term expenses.
And consider using a portion of the retirement account to create guaranteed lifetime income for expenses that need to be paid every month regardless of what the stock market is doing.
Option 5: Plan for Your Required Minimum Distributions
Eventually, the IRS is going to require most retirees with traditional tax-deferred retirement accounts to start withdrawing money.
That’s your required minimum distribution, or RMD.
The basic idea is pretty simple:
The government allowed you to defer income taxes while you were accumulating the money. Eventually, it wants you to start distributing that money and paying the applicable income taxes.
But here’s where planning matters.
What if you reach RMD age and don’t need the money to support your lifestyle?
Don’t automatically spend it.
You might use those distributions to pay long-term care insurance premiums.
You might use them to help fund life insurance for your spouse or children.
You might reinvest the after-tax money in a taxable account.
Or you might structure your retirement assets so the RMD itself becomes part of your retirement income strategy.
The point is that an RMD is a tax requirement. It doesn’t mean you have to waste the money.
Option 6: Consider a QLAC if You Want to Delay Some RMDs
Another option is a Qualified Longevity Annuity Contract, or QLAC.
A properly structured QLAC can allow you to use a portion of your qualified retirement savings to create guaranteed income later in retirement while delaying RMDs on the amount used to purchase the QLAC until income begins.
Payments can be delayed until later in retirement, making this primarily a longevity-planning tool rather than an immediate-income strategy.
This isn’t something everybody needs.
If you need income today, a QLAC probably isn’t what you’re trying to accomplish.
But if you’re saying, “I don’t need all this retirement income right now, I’m worried about RMDs, and I’d rather create guaranteed income for later in life,” that’s when a QLAC becomes worth looking at.
Option 7: Convert Some of the 403(b) to a Roth IRA
Finally, you can look at Roth conversions.
Instead of waiting until later in retirement when RMDs may force taxable distributions, you can intentionally convert portions of your traditional retirement savings to a Roth IRA and pay the applicable income taxes today.
We generally like investigating this during the lower-income years after retirement and before RMDs begin.
But this isn’t something you should do automatically just because you’re in your 60s.
It depends on your tax bracket, future RMDs, Social Security income, Medicare costs, other retirement income, available cash to pay the conversion taxes, and what you’re trying to leave your beneficiaries.
A Roth conversion is ultimately a tax-planning decision, not simply an investment decision.
Our Advice for Your 403(b) in Retirement
We would start by asking one question:
What does this money need to do for you?
If you don’t need it for income, you may want to continue investing a portion for growth and work on a longer-term tax strategy.
If you need occasional access, maintain enough liquid money for emergencies and short-term expenses.
If you’re worried about running out of money, we would strongly consider using an IRA annuity with a guaranteed lifetime withdrawal benefit to create a contractual retirement income floor.
Instead of constantly wondering how much you can safely withdraw, you’re essentially putting that portion of retirement on autopilot.
The payment comes in every month.
If the covered account value eventually runs down to zero, the guaranteed lifetime income can continue under the terms of the rider.
And depending on the annuity you choose and what happens during your lifetime, any remaining contract value at death can generally pass to your designated beneficiary according to the contract.
That’s why we don’t think retirees should look at their 403(b) simply as a pile of savings anymore.
You’ve already done the saving.
Now you need to decide how much should continue growing, how much needs to stay liquid, how much should be converted for tax purposes, and how much needs to become a paycheck you can’t outlive.
At The Annuity Expert, we’re an independent annuity broker and insurance agency. We can compare your 403(b) rollover options, IRA annuities, and guaranteed lifetime income options from multiple insurance companies.
Contact us for free quotes and we’ll show you how much guaranteed retirement income your 403(b) could potentially generate.
Take the Next Step
Your 403(b) is just one piece of your retirement strategy. Secure guaranteed income, reduce taxes, and maximize control. Contact The Annuity Expert to compare 403(b) rollover annuities, GLWB options, and retirement income strategies—free quotes, no obligation.
Book A Free Consultation
Get help from a licensed financial professional. This service is free of charge.
Let Us Answer Your Questions
Not quite ready for a meeting, but you have a question that needs answering? We’re happy to help. Leave an inquiry below, and one of our staff will respond via email.
Questions From Our Readers
How does a 403(b) work when you retire?
When you retire, your 403(b) can provide income through withdrawals, rollovers, or annuitization. You can leave the money in the plan, roll it into an IRA or annuity for more flexibility, or take systematic withdrawals. Withdrawals from a traditional 403(b) are taxed as ordinary income, while qualified Roth 403(b) withdrawals are tax-free. At age 73, required minimum distributions (RMDs) must begin unless the money is in a Roth 403(b). This makes it a flexible tool to fund retirement income.