August 28, 2026
4:08 am

Turning Proceeds Into Monthly Income

Before you buy anything, spend a week making sure the lump sum does not cost you a benefit worth more than the income it will produce, because that is the mistake that cannot be undone. Supplemental Security Income counts resources against limits of 2,000 dollars for an individual and 3,000 dollars for a couple, figures unchanged for decades, and a household can lose Medicaid alongside it. Every step below assumes you have made that check first.

Once that is settled, the task is ordinary: convert a pile of money into a dependable monthly amount, without paying more than necessary for the privilege. The costs of doing that vary enormously, from literally nothing to several percent a year forever, and the expensive options are the ones with sales forces behind them.

This page climbs the ladder from free to most expensive and says exactly what each rung buys you. Every figure is stamped with the year it was current and named with the source to confirm it. Nothing here is investment, tax, or benefits advice, and no product is recommended; use your own CPA, a fiduciary adviser you pay directly, and the named agencies.

In This Article

Rung Zero: The Free Money Is What You Do Not Lose
Rung One: Free — Insured Cash, Ladders, and Treasury Bills
Rung Two: Nearly Free — Index Funds and a Withdrawal Rule
Rung Three: Commission Built In — Immediate Annuities
Rung Four: Ongoing Advice Fees, and How to Buy Advice by the Hour
Rung Five: The Expensive Rungs, and How to Recognize Them
Where the Policy Sale Itself Sits, and When It Is the Wrong Rung
Frequently Asked Questions

Rung Zero: The Free Money Is What You Do Not Lose

Three checks, all free, all worth more than any product decision that follows.

Benefit cliffs. Call the Social Security Administration if anyone in the household receives Supplemental Security Income, and your state Medicaid agency if anyone is on Medicaid or a waiver. Ask specifically how a lump sum is treated in the month received and in the months afterward, since resources and income are counted differently. Ask your Area Agency on Aging for a benefits screening covering the Medicare Savings Programs, Part D Extra Help, and SNAP, each of which has its own thresholds; households with an elderly or disabled member face different SNAP asset rules than others, and many states have waived the asset test entirely. Our pages on proceeds and SNAP and proceeds and SSI cover the mechanics.

Taxes. The tax treatment of a life settlement is not intuitive. Following the 2017 tax law change and the guidance the IRS issued in 2020 conforming its position, the general framework is that the amount received up to your investment in the contract is not taxable, the portion above that up to the cash surrender value is generally ordinary income, and anything above the cash surrender value is generally capital gain. Your actual numbers require your CPA and the carrier’s figures; see the tax overview and the state tax layer.

Social Security timing. If either spouse has not yet claimed and is under 70, delaying produces delayed retirement credits that increase the benefit by roughly 8 percent for each year of delay past full retirement age. Using a lump sum to bridge income while delaying is, for many households, the highest-value use of the money, because it buys inflation-adjusted, government-backed income for life at a rate no commercial product matches. Confirm your own figures with Social Security.

Rung One: Free — Insured Cash, Ladders, and Treasury Bills

The cheapest income vehicles have no ongoing fee at all, and for a household in its late seventies or eighties they are frequently sufficient.

Insured deposits. FDIC insurance covers 250,000 dollars per depositor, per insured bank, per ownership category, and the National Credit Union Administration provides equivalent share insurance at credit unions. A high-yield savings or money market deposit account costs nothing and can pay monthly interest into checking.

A certificate of deposit ladder. Split the money across maturities, for example six equal pieces maturing at six-month intervals over three years. One matures regularly, so you always have cash coming due without an early withdrawal penalty. No fee, and rates are quoted before you commit.

Treasury bills and notes. Purchased directly through the federal TreasuryDirect system without a commission, and interest on Treasury securities is exempt from state and local income tax, which is a real advantage in a high-tax state. A ladder works the same way as with certificates.

What this rung buys: complete principal safety within insurance limits, no fees, full liquidity at each maturity, and interest that fluctuates with rates. What it does not buy is protection against outliving the money, or a hedge against long inflation.

For a household with a shorter horizon, that is often the right trade. The Social Security Administration’s period life table shows average remaining life expectancy for a person in their mid-seventies of roughly a decade or more; check the current table for your age and sex, and remember an average is not a plan.

Rung Two: Nearly Free — Index Funds and a Withdrawal Rule

The next rung costs a fraction of a percent a year and adds growth potential and inflation resistance, at the price of visible fluctuation.

Broad-market index mutual funds and exchange-traded funds commonly carry expense ratios well under 0.10 percent a year as of 2026 at the largest providers, meaning under 10 dollars a year per 10,000 dollars invested. Compare that with the rungs below before assuming complexity is worth paying for.

The withdrawal question is where households go wrong. The commonly cited four percent guideline came from research published in the mid-1990s modelling a 30-year retirement beginning around age 65. A household beginning at 80 has a materially different horizon and can generally support a higher rate; a household beginning at 62 a lower one. Do not apply a rule of thumb built for someone else’s timeline.

Two structural points. First, keep two to three years of planned withdrawals in the rung-one vehicles so that a market decline never forces you to sell at a low. Second, understand what protection exists: SIPC coverage of up to 500,000 dollars in securities, including a 250,000 dollar cash sublimit, applies when a brokerage firm fails. It does not insure against investment losses, and anyone implying it does is describing it incorrectly.

If the household will not sleep through a 20 percent decline, this rung is not for it, and that is a legitimate answer rather than a failing.

Rung	Typical Ongoing Cost	What It Buys	Who It Suits
Benefit and tax checks first	Free	Not losing SSI, Medicaid or Extra Help	Every household, before anything else
Insured deposits, CD and Treasury ladders	No fee	Principal safety and predictable interest	Shorter horizons; low tolerance for fluctuation
Broad index funds with a withdrawal rule	Often under 0.10% a year	Growth and inflation resistance, with volatility	Households that can ride out a decline
Single premium immediate annuity	Commission embedded, commonly 1-4% of premium	Guaranteed income for life; irreversible	Those most afraid of outliving the money
Advice: hourly or flat fee	Roughly $200-$500/hr; $2,000-$7,500 per plan	A bounded, one-time professional review	Almost everyone with a six-figure sum
Advice: percentage of assets	Around 1% a year, every year	An ongoing managed relationship	Those who want delegation and will pay for it

Rung Two: Nearly Free — Index Funds and a Withdrawal Rule

Rung Three: Commission Built In — Immediate Annuities

Now the costs stop being visible, which is exactly why this rung needs the most scrutiny.

A single premium immediate annuity converts a lump sum into a guaranteed monthly payment for life, or for life with a period certain, or for two lives. It is the only common product that genuinely removes the risk of outliving the money, and for the right household it is a reasonable purchase.

Understand three things before buying one. First, the compensation is embedded. You will not see a fee; the commission, commonly in the range of one to four percent of premium for immediate annuities as of recent years, is built into the payout rate. Get quotes from at least three carriers on identical terms and compare monthly payments, because the payment is the price.

Second, it is generally irreversible. Once purchased, the principal is gone in exchange for the income stream. Never annuitize money you may need as a lump sum.

Third, the guarantee is the insurer’s. State guaranty associations provide a backstop if an insurer is placed in liquidation with a finding of insolvency, with annuity coverage caps that vary by state and are commonly stated in terms of present value. Those caps are a reason to split large purchases across carriers; they are not a selling point and cannot lawfully be used as one. See how state guaranty limits differ.

A related structure, a qualified longevity annuity contract held inside a retirement account, allows a limited amount to be excluded from required minimum distribution calculations; the SECURE 2.0 Act set that limit at 200,000 dollars, indexed, and it stood at 210,000 dollars for 2025. Confirm the current figure with the IRS or your CPA.

Rung Four: Ongoing Advice Fees, and How to Buy Advice by the Hour

Advice is worth paying for. The question is which pricing model, because the spread between them is enormous over a decade.

Hourly. Fee-only planners commonly charged in the range of roughly 200 to 500 dollars an hour in 2025 and 2026 markets. Four hours to build a withdrawal plan and check the benefit cliffs is a bounded, one-time cost.

Flat project fee. A comprehensive written plan commonly ran in the range of roughly 2,000 to 7,500 dollars over the same period.

Percentage of assets. The long-standing convention is around one percent a year. On 400,000 dollars that is roughly 4,000 dollars a year, every year, whether or not anything changes. Over fifteen years it is a very large number. For some households the ongoing relationship is worth it; the point is to price it honestly rather than accept it as standard.

Automated management commonly runs around a quarter of a percent a year.

Whichever you choose, ask two questions in writing: are you a fiduciary at all times with respect to my account, and how are you compensated, including any third-party payments. Verify credentials yourself through FINRA’s public broker records, the Securities and Exchange Commission’s adviser search, and your state insurance department for anyone selling an annuity. Membership directories for fee-only planners are public and free to search.

Rung Five: The Expensive Rungs, and How to Recognize Them

Some products cost several percent a year, carry long surrender schedules, and are sold hardest to people who have just received money. That combination is the pattern to watch for.

Long surrender periods. Any product with a surrender charge schedule running many years is illiquid by design. For a household in its eighties, a seven- or ten-year surrender schedule can outlast the reason the money was needed. Ask for the surrender charge table in writing and read it.

Layered internal costs. Products combining insurance charges, administrative charges, fund-level expenses and rider charges can total several percent a year. Ask for the total annual cost, as a dollar figure on your specific amount, in writing. A professional who will not put that on paper has answered the question.

Anything sold at a free lunch seminar, or by someone who found you after a transaction. Recent lump-sum recipients appear in public and commercial data, and they are marketed to. Take the material home, and take the no-same-day rule seriously.

Two protections that cost nothing: name a trusted contact on every account, which brokerages must attempt to collect under FINRA Rule 4512, and confirm the firm will use its temporary hold authority under FINRA Rule 2165 if something looks wrong. Our page on protecting proceeds from a future scam covers the rest of the perimeter.

Where the Policy Sale Itself Sits, and When It Is the Wrong Rung

All of the above assumes the proceeds exist. Working backwards, the sale should be evaluated as an income decision rather than a cash decision.

The right question is not what the offer is, it is what monthly income the net proceeds will actually produce after taxes and after any benefit consequences, compared with what the policy provides if kept. A 90,000 dollar net lump sum does not produce a large monthly cheque; it produces a modest one, and the household should see that number before deciding. Run it on the rung-one assumptions, which are the only ones that are guaranteed.

When selling is the wrong answer: when the death benefit is under roughly 100,000 dollars, below what the secondary market generally considers; when the policy is a small final expense policy the family expects to use for a funeral, which in benefits terms may already sit inside a burial exclusion; when the insured is in good health for their age, since a long projected life expectancy compresses offers; when a surviving spouse’s income would collapse without the death benefit, which makes the policy the income plan rather than a source of one; and when the household is close to a means-tested benefit whose loss would exceed the income the proceeds could generate.

When it is genuinely right, the sequence is: confirm benefits treatment, confirm the tax picture with your CPA, decide where the money will sit before it arrives, and only then evaluate offers. If a policy has become unaffordable and nobody needs it, a free, no-obligation policy review will tell you what it is worth; send the policy cover page or call (732) 978-9575, and expect a direct answer if keeping it is better. Gifting part of the money to children instead of keeping it as income has its own consequences, covered in gifting settlement proceeds, and marital agreements can affect ownership, covered in proceeds and a prenuptial agreement. Pine Lake Legacy provides education and policy reviews only and does not purchase policies or give investment advice.

Frequently Asked Questions

What should I do first with the money?

Nothing, for a week. Confirm how the lump sum affects any benefit in the household, since SSI counts resources against $2,000 for an individual and $3,000 for a couple and Medicaid follows state rules. Then confirm the tax picture with your CPA. Product decisions made before those two checks are the ones that cannot be reversed.

Is an immediate annuity a good idea?

It is the only common product that removes the risk of outliving the money, which for some households justifies it. Understand that the commission is embedded in the payout rather than charged separately, that the purchase is generally irreversible, and that state guaranty association caps vary. Get identical quotes from at least three carriers and compare monthly payments.

How much monthly income will my proceeds produce?

Far less than most people expect. Run the number on guaranteed vehicles first, before any product conversation, because that is the honest floor. Compare it against what the policy provides if kept. If the resulting monthly figure does not change the household’s situation, keeping the policy may be the better decision.

Do I have to pay tax on life settlement proceeds?

Often partly. The general framework after the 2017 tax law change and the IRS guidance issued in 2020 treats amounts up to your investment in the contract as not taxable, amounts above that up to the cash surrender value as ordinary income, and anything beyond as capital gain. Your specific numbers require the carrier’s figures and your CPA.

Should I pay someone one percent a year to manage this?

Only if you value the ongoing relationship at that price. On $400,000 it is roughly $4,000 every year regardless of activity. Many households do better buying a few hours of fee-only planning to build a withdrawal plan, then using no-fee ladders and low-cost index funds. Ask any professional in writing whether they are a fiduciary at all times.

How do I avoid being sold something I do not need?

Adopt a rule that nothing is purchased on the day it is presented, name a trusted contact on every account, and ask for the total annual cost as a dollar figure on your specific amount, in writing. Verify licenses through FINRA, the SEC adviser search, and your state insurance department before signing anything.

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