What Is an Income Floor in Retirement?

Short Answer

An income floor is the reliable base level of retirement income used to cover living expenses in retirement.

What Is an Income Floor?

An income floor is the amount of dependable income required to:

• Pay bills
• Cover essential expenses
• Maintain basic lifestyle needs

It represents income that a retiree depends on consistently.

What Sources Can Make Up an Income Floor?

Income floor sources may include:

• Social Security
• Pension income
• Required Minimum Distributions
• Dividend or interest income
• Lifetime income annuities

How an Income Floor Works Under Current Conditions

Social Security functions as a lifetime annuity and pays as long as a person is breathing.

Required Minimum Distributions are required withdrawals from IRAs at a specified age.

Pensions provide annuity income.

Lifetime income annuities provide contractual income payments.

Common Misunderstandings About Retirement Income

A common misunderstanding is relying solely on market withdrawals such as the 4% rule without considering guaranteed income sources.

Market-based withdrawals depend on performance and are not contractual guarantees.

Key Considerations for Building an Income Floor

Key considerations include:

• Total income needed to live comfortably
• Whether income is guaranteed
• The stability of income sources
• The impact of required withdrawals

Bottom Line

An income floor is the dependable base of retirement income used to cover essential expenses. It may include Social Security, pensions, RMDs, and lifetime annuity payments.

FAQ

Is Social Security considered an annuity?

‍Yes. Social Security functions as a lifetime income annuity.

Are Required Minimum Distributions income?

‍Yes. RMDs are required withdrawals and function as retirement income.

Are annuities used for lifetime income?

‍Yes. Annuities are primarily used for lifetime income and principal protection.

Is the 4% rule a guarantee?

‍No. Market withdrawals are not contractual guarantees.