Older adults often have access to several income streams, from Social Security to 401(k)s.
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Key Takeaways
It’s preferable to fund your retirement via multiple income streams, rather than just one. This makes your finances more stable.
Guaranteed sources like Social Security and pensions can fund predictable expenses. Part-time work and investments can fill in the gaps.
Other options include annuities and reverse mortgages, though both come with major downsides.
Retirement stability isn’t just about how much you’ve saved up, but how that wealth will generate income throughout retirement.
Identifying where your cash flow will come from can simplify retirement planning and reduce anxiety later on.
Social Security Benefits
The average retired worker receives about $2,071 per month from Social Security in 2026, or about $24,850 per year. It often forms the basis of retirees’ income plans and may be the only income source that will keep up with inflation for life.
When you claim benefits matters: starting as early as 62 permanently reduces your monthly payout, while waiting until age 70 maximizes it via delayed retirement credits.
Employer Pensions
The median defined-benefit pension paid about $11,040 per year as of 2022, though only about one-third of older adults still received income from a defined-benefit plan. Government pensions pay significantly more—around $25,000 annually for state and local workers—partly because many public employees aren’t covered by Social Security.
Monthly payments generally continue for the life of the retiree (and often their spouse), and so are attractive for their stability, providing regular income without requiring retirees to sell investments to cover basic expenses.
401(k)s, 403(b)s, IRAs
Defined-contribution retirement plans such as 401(k)s and IRAs often make up the largest source of retirement income. The median retirement account balance for households aged 65–74 is $200,000, according to the last Federal Reserve Survey of Consumer Finances. For those 75 and older, it’s $130,000. At a 4% withdrawal rate, that translates to $8,000 and $5,200 per year, respectively.
Tax treatment and withdrawal order are important to consider. Withdrawals from traditional 401(k)s, 403(b)s, and traditional IRAs are taxed as ordinary income, while qualified withdrawals from Roth accounts can be taken tax-free.
You typically want to first pull from your taxable accounts and then withdraw from your tax-deferred retirement accounts. That way, you can leave your tax-free Roth accounts intact for as long as possible. This keeps you in a lower tax bracket, preserving tax-free earnings for later (or for heirs).
Though recommendations vary, consider withdrawing around 3.9% to 4% of investable assets during the first year of retirement, then adjust that dollar amount for inflation each year.
Required Minimum Distributions (RMDs)
You’ll need to take required minimum distributions from most retirement accounts starting at age 73. If you have a 401(k) or similar plan and are still working at age 73, you can delay RMDs until the year you retire. Withdrawal amounts are based on life expectancy tables published by the IRS.
Important
You don’t need to take RMDs from your Roth IRA or your Roth 401(k).
Taxable Investments
Income from taxable investments can also fund retirement: dividends and interest from stocks, bonds, and CDs; rental income from real estate (either rental properties or REITs); and capital gains realized through tax-efficient asset management can all supplement spending.
Work Income
Many older adults continue to work part-time during retirement, either by choice or necessity.
Consulting, freelancing, teaching, tutoring, and flexible hourly work can fill gaps with extra cash when traditional retirement income streams falls short.
Insurance and Annuity Products
Purchasing an annuity essentially transforms a chunk of savings into guaranteed lifetime income, much like a pension. But they can be costly up-front and prevent those funds from seeing potentially higher returns elsewhere.
Withdrawals from permanent life insurance policies can also serve as retirement income, along with tax-advantaged policy loans or viatical settlements if emergency cash is needed in a pinch.
Reverse Mortgages
Reverse mortgages allow you to borrow against your home equity without making monthly mortgage payments. You (or your heirs) don’t need to pay the money back until you sell or permanently leave the home.
However, reverse mortgages can be complex and carry their own risks, including high upfront costs, interest that compounds over time, and the potential for default if taxes, insurance, HOA fees, and home maintenance aren’t kept up.
How These Sources Work Together
To make the most of your retirement assets, maximize sequencing. Begin drawing down taxable savings while delaying tax-advantaged and Social Security income to secure a higher inflation-adjusted benefit later.
During early retirement, spend cash and taxable investments first.
Delay Social Security if you can, ideally until age 70.
Consider working if you still need part-time income to make ends meet.
After Social Security starts, cover the gap with traditional IRA/401(k) withdrawals.
When RMDs begin, take RMDs first, then pull more from traditional IRAs/401(k)s if needed.
Tap your Roth IRA/Roth 401(k) later, mainly for tax control and big one-time expenses.
Tap other sources: annuities, insurance policies, and home equity can be used to make up shortfalls or generate discretionary income.
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