Five ways to generate a dependable monthly income in retirement

From doling out dividends to maximising interest income – here’s how you can keep the cash coming in.

Esther Shaw

06 November 2025

While many of us spend much of our working lives looking forward to retirement, working out how to make our finances stretch for the rest of our life – perhaps until 100 – can be stressful.

“For many people, moving from a world of receiving a regular monthly income to one where you are managing a finite retirement pot can feel very unsettling,” said Harry Donoghue, chartered wealth manager at Tideway Wealth.

The good news is, there are ways to maintain a monthly income – beyond any four-weekly state pension payments, which we know don’t go very far. Recreating your own payday can help make regular bills more manageable and reduce the chances of overspending from your pot. Here, Telegraph Money outlines some of your options.

Investing in dividend-paying shares or funds can provide a steady stream of income, often paid quarterly or biannually.

“These payments can help mimic a salary, especially if you build a diversified portfolio across sectors and geographies which pay dividends on different months,” said David Little, chartered financial planner at Evelyn Partners. “It’s important to balance yield with quality. You need to look for companies with strong cashflow and a history of consistent payouts.”

Just remember, dividend payouts can be cut and are never guaranteed – so diversification is key.

You’ll also need to consider tax when drawing income from your investments. Dividend income is tax-free up to £500, and is then taxed at your marginal tax rate – 8.75pc for basic-rate taxpayers, 33.75pc for the higher rate, and 39.35pc if you pay additional-rate tax.

However, if your investments are held in an Isa, you won’t need to pay tax on these returns.

Mr Little added: “Investment Isas offer a tax-free income stream and should be utilised as fully as possible during your working years – helping to build a strong foundation for retirement income.”

These products, which convert a pension fund into a guaranteed income for life, or for a fixed term, can offer both simplicity and peace of mind.

Becky O’Connor, director of public affairs at PensionBee, said: “Annuities are the traditional income option and involve ‘buying’ an income that will last for a set period – or until you die – with some or all of your pension fund. The stability they give is practically unparalleled.”

If this sounds appealing, you’ll be pleased to know that with interest rates rising, annuities are making a comeback.

According to the latest figures from Standard Life, average rates reached 7.65pc in September this year, a year-on-year increase of nearly 10pc.

Pete Cowell, head of annuities at Standard Life, said: “Rates remain strong and continue to offer valuable income certainty for retirees.”

For those worrying about losing the rhythm of a monthly salary when they retire, he added that annuities can offer a really practical solution.

“They provide a guaranteed income stream that can feel just like payday, long after your working life ends,” he said. “This income can be monthly, quarterly, or annually, and once set up, the payments land in your bank account automatically, just like a salary.”
While much of this may sound appealing, annuities won’t be right for everyone.

“One big trade-off with opting to purchase an annuity is that you might not get as high an income as might be possible through continuing to leave your pot invested,” said Ms O’Connor.

The key, as with any retirement planning decision, is to research your options carefully. Take the time to seek professional advice where necessary, to help you make an informed choice.

Consider rental income
In the past, investing in buy-to-let has been a popular option with retirees, as it can provide reliable monthly income through rental payments. Better still, this often keeps pace with inflation.

If you are fortunate enough to already own a buy-to-let house or flat, this can potentially provide a natural retirement income stream.

The problem is, in recent years, buy-to-let has fallen out of favour somewhat as a result of changes to tax treatment (such as the reduction of mortgage interest relief) as well as a tougher regulatory regime for landlords on housing standards. This will get even tougher when the Renters’ Rights Act comes into force.

“While rental income can be a powerful tool, it may be less passive than it sounds on the face of it, depending on the quality of tenants and maintenance costs. The benefits also depend on whether your rental property is mortgaged and if it is, what happens to interest rates,” said Ms O’Connor.

As a landlord, you need to be prepared to build in a sufficient (and realistic) buffer for ongoing costs from maintenance, void periods, letting agency fees and tax when calculating the likely return.

Given all of this, experts suggest that for some retirees, selling an existing portfolio and using property equity elsewhere might actually be a better route than active letting.

Mr Little said: “From a taxation point of view, buy-to-let offers very little in the way of tax efficiency – it’s arguably one of the most tax-inefficient asset classes to hold.”

Once again, you need to research carefully, and consider speaking to a tax specialist to work out what’s best for you.

Give yourself ‘fixed paydays’ from pension drawdown
Rather than ad-hoc withdrawals, you can, as a retiree, set up regular monthly or quarterly payments from your pension drawdown pot. By doing this, you can effectively create a personal, flexible payday.

While arriving at a figure that covers the spending you need can help keep a handle on how quickly your account reduces, this arrangement still offers retirees the flexibility to alter the income amounts when they need to – after all, there will always be the odd “out of budget” item that crops up.

“But to the best of your ability, try to stick to these regular and set withdrawals,” added Ms O’Connor. “This will give you a sense of control and peace that you are on track for a sustainable income.”

It may take a little trial and error to find the right amount for you; our pension drawdown calculator can help you make sure you don’t go in too high.

Organise regular savings interest
If you’re searching for a modest but predictable income stream, you might want to seek out one of the savings accounts which offer the option to pay out savings interest – as opposed to compounding it.

NS&I’s Guaranteed Income Bonds are an example of accounts that offer this, with interest paid monthly at 3.97pc on savings between £500-£1m. Based on a savings balance of £100,000, you could expect a regular interest payment of around £330 a month.

However, you’ll need to tread carefully if you rely on this for retirement income. Firstly, you’re relying on savings providers offering an interest rate you can live off.

Mr Little said: “While interest rates have had a resurgence in recent years, they’re still unlikely to meet full income needs – or keep pace with longer-term inflation.”

You’ll also need to factor in the issue that your initial lump sum of savings won’t grow at all while you’re spending the interest, meaning its value will be eroded by inflation over time.

Make sure you have a plan
The key to managing your finances successfully during your later years is having a plan.

Mr Donoghue said: “Rather than jumping straight into products or deciding withdrawals on the fly, take a step back and work out what you actually need to spend to enjoy the retirement you want.”

Expenditure does not necessarily have to stay consistent throughout retirement. It is very common for people to spend more in the early years on things like travel and hobbies, before naturally slowing down later on.

Mr Little said: “The key to successful retirement planning lies in blending income sources to match your lifestyle, tax position, and risk tolerance. By combining multiple, small, income sources, retirees can structure a single, tax-efficient, monthly income that closely mirrors the consistency of a salary – without the full punitive impact of income tax.”