What Are Common Sources of Income During Retirement?

What are common sources of income during retirement, or what I call chapter two?

Chapter two is about you.

When you’re moving toward retirement, you need to look at what income is actually going to hit your bank account regardless of what happens in the markets, politics, global events, or whatever conspiracy theory is floating around that week.

A lot of people say they love lifetime income. They love their pension. They love Social Security. But they hate annuities.

Here’s the reality.

Social Security is an annuity.
A pension is an annuity.
Required Minimum Distributions pay annually until the money is exhausted.

The question is simple. What income is coming in, and is it enough?

Key Takeaways

• Social Security is a primary source of retirement income
• Pensions provide lifetime income for a small percentage of retirees
• Dividend income, rental income, and part-time work can supplement retirement income
• The goal is to determine your income floor
• Income planning should focus on lifestyle, not just accumulation

Social Security as a Source of Retirement Income

Social Security is the granddaddy for most retirees.

If you have a Social Security number, you’re going to receive a Social Security payment.

It is political, not actuarial. Politicians adjust the payments. There are ongoing debates about solvency. But the bottom line is that Social Security is a source of lifetime income.

And it functions like an annuity because it pays for as long as you are breathing.

Many people ask about the magic number for turning it on.

There is no universal magic number.

You can wait until 67 and receive more than at 62. That is because you are older and your life expectancy is shorter. But you also gave up five years of payments.

The decision ultimately comes down to when you need the money.

Pension Income

Roughly 9 percent of people have pensions.

That includes state employees, federal employees, and certain union workers.

The other 91 percent have to create their own pension.

A pension pays for as long as you are breathing.

That is lifetime income.

If you have it, it becomes part of your income floor.

Dividend Income and Inherited Stock

Dividend income is another potential source.

If you inherited stock that pays dividends, that dividend payment becomes income.

That might come from companies purchased decades ago that now produce consistent dividend payouts.

It is not guaranteed like a pension, but it is income.

Rental Income

Rental property is another source.

If you own rental houses and they produce cash flow, that becomes part of your retirement income.

That income can fluctuate, but it is still part of the calculation.

Income From Hobbies or Part-Time Work

Some retirees choose to work in retirement.

That might be woodworking, consulting, part-time employment, or other activities that generate income.

If you are producing goods or services and receiving payment, that income belongs in your retirement income plan.

It should be counted as part of your overall picture.

What Is Your Income Floor?

The key concept is your income floor.

What amount of money is hitting your bank account regardless of market performance?

Add up:

• Social Security
• Pension income
• Dividend income
• Rental income
• Any recurring payments

That total is your income floor.

Is it enough?

If it is not enough, then you have a gap.

If there is a gap, it can be filled.

An Immediate Annuity can be structured for the exact amount needed to fill that gap while using the least amount of principal possible.

The focus is precision.

Inflation and Personal Spending

Inflation does not affect everyone the same way.

Three percent inflation does not affect every retiree equally.

Spending patterns matter.

Some retirees have higher lifestyle expenses. Others have lower fixed expenses.

There is no product that adjusts perfectly for inflation.

Planning should reflect your personal spending realities.

Padding your income floor allows room for lifestyle expenses such as travel or discretionary spending.

Adequate Income and Lifestyle

If your income floor is substantial, inflation may not materially affect your lifestyle.

Some retirees have multiple income streams, including military retirement, federal pensions, and Social Security.

For them, the focus shifts to maintaining lifestyle rather than worrying about survival.

Retirement income planning is about lifestyle.

It is about you and your spouse.

It is not primarily about accumulation at that stage.

The Social Security Decision

Some people question whether they should take Social Security at all.

There is discussion about potential means testing in the future.

You have worked for it.

There is no universal formula that applies to everyone.

The decision is based on your need for income and your broader income plan.

Bottom Line

Common sources of retirement income include Social Security, pensions, dividend income, rental income, and income from continued work.

The central focus should be identifying your income floor.

Determine what is guaranteed, determine whether it is sufficient, and identify whether there is a gap.

If a gap exists, it can be filled with a lifetime income annuity structured for precision.

Retirement income planning is about chapter two. It is about you and your lifestyle.

FAQs

What is the most common source of retirement income?

For most retirees, Social Security is the primary source of retirement income.

Do most people have pensions?

No. Approximately 9 percent of people have pensions. Most must create their own pension.

What is an income floor?

An income floor is the total recurring income that hits your bank account regardless of market conditions.

Can hobbies count as retirement income?

Yes. Any consistent income from part-time work or hobbies should be included in your income calculation.