Retirement Income Sources
A complete guide to every source of income in retirement — how each works, how it's taxed, and when to use it.
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Social Security
TYPICAL AMOUNT
$1,200–$3,800/month
TAX TREATMENT
Up to 85% is federally taxable; many states exempt it
WHEN AVAILABLE
Age 62–70 (FRA is 67 for those born 1960+)
✅ PROS
- Inflation-adjusted (COLA) annually
- Guaranteed for life — no longevity risk
- Survivor benefit protects spouse
⚠️ CONS
- Reduced permanently if claimed early
- Uncertain long-term funding (trust fund projected to be depleted ~2035)
💡 Tip: Delaying from 62 to 70 increases your benefit by ~77%. For married couples, the higher earner should almost always delay to 70.
💼
401(k) / 403(b) / 457 Withdrawals
TYPICAL AMOUNT
Varies — 4% of balance per year is the guideline
TAX TREATMENT
Fully taxable as ordinary income (Traditional); tax-free (Roth)
WHEN AVAILABLE
Age 59½+ penalty-free; RMDs required at 73
✅ PROS
- Large potential balance from decades of growth
- Flexible withdrawal amounts
- Roth option provides tax-free income
⚠️ CONS
- Market-dependent — balance fluctuates
- RMDs can push you into higher tax brackets
- Sequence of returns risk in early retirement
💡 Tip: Draw from taxable accounts first, then tax-deferred, then Roth — this maximizes tax-free growth.
📈
IRA Withdrawals
TYPICAL AMOUNT
Varies — part of your overall portfolio withdrawal strategy
TAX TREATMENT
Traditional: fully taxable. Roth: tax-free after 59½ and 5-year rule.
WHEN AVAILABLE
Age 59½+ penalty-free; Traditional IRA RMDs at 73
✅ PROS
- More investment flexibility than 401(k)
- Roth IRA has no RMDs during your lifetime
- Can do Roth conversions in low-income years
⚠️ CONS
- Lower contribution limits than 401(k)
- Income limits for Roth IRA contributions
💡 Tip: Use low-income years in early retirement to do Roth conversions — pay tax now at a lower rate to reduce future RMDs.
🏢
Pension (Defined Benefit)
TYPICAL AMOUNT
$1,000–$5,000+/month depending on salary and years of service
TAX TREATMENT
Generally fully taxable as ordinary income
WHEN AVAILABLE
Typically at retirement age specified by the plan
✅ PROS
- Guaranteed income for life — no investment risk
- Often includes survivor benefit for spouse
- Predictable, stable income
⚠️ CONS
- Rare in private sector; mainly government/union jobs
- No inflation adjustment in many plans
- Lost if employer goes bankrupt (PBGC insures up to limits)
💡 Tip: If you have a pension, factor it in like Social Security — it reduces how much your portfolio needs to cover.
🏠
Rental Income
TYPICAL AMOUNT
$500–$3,000+/month per property after expenses
TAX TREATMENT
Taxable as ordinary income; depreciation deductions available
WHEN AVAILABLE
Ongoing — as long as you own the property
✅ PROS
- Inflation hedge — rents tend to rise over time
- Potential appreciation in property value
- Can be passed to heirs
⚠️ CONS
- Not passive — requires management or property manager fees
- Vacancy risk and maintenance costs
- Illiquid — can't easily access equity
💡 Tip: Rental income can significantly reduce portfolio withdrawal needs, but factor in vacancy (5–10%), maintenance (1% of value/year), and management fees (8–12%).
💰
Taxable Brokerage Account
TYPICAL AMOUNT
Varies — part of overall withdrawal strategy
TAX TREATMENT
Dividends and capital gains taxed at preferential rates (0%, 15%, or 20%)
WHEN AVAILABLE
Any time — no age restrictions or penalties
✅ PROS
- No contribution limits
- No RMDs
- Long-term capital gains taxed at lower rates than ordinary income
- Flexible access at any age
⚠️ CONS
- No upfront tax deduction
- Annual taxes on dividends and realized gains
- Less tax-efficient than retirement accounts
💡 Tip: Draw from taxable accounts first in retirement — this lets tax-advantaged accounts continue growing and delays RMDs.
🏥
HSA (Health Savings Account)
TYPICAL AMOUNT
Varies — used primarily for healthcare expenses
TAX TREATMENT
Tax-free for medical expenses; ordinary income tax for non-medical after 65
WHEN AVAILABLE
Any time for medical; age 65+ for any purpose
✅ PROS
- Triple tax advantage — best account available
- No RMDs
- After 65, works like a Traditional IRA for non-medical
⚠️ CONS
- Must have HDHP to contribute
- Primarily intended for healthcare costs
💡 Tip: Invest your HSA and pay medical expenses out-of-pocket now. Save receipts — you can reimburse yourself years later tax-free.
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Part-Time Work
TYPICAL AMOUNT
$10,000–$40,000/year
TAX TREATMENT
Ordinary income; may affect Social Security if claimed before FRA
WHEN AVAILABLE
Early retirement years — many retirees work part-time for 5–10 years
✅ PROS
- Dramatically reduces portfolio withdrawals
- Provides structure and social connection
- Delays Social Security for higher benefit
⚠️ CONS
- Earnings before FRA reduce Social Security benefit ($1 withheld per $2 earned over $22,320 in 2026)
- May not be available due to health or job market
💡 Tip: Even $20,000/year in part-time income reduces your portfolio withdrawal by $20,000 — extending your savings by years.
📋
Annuity
TYPICAL AMOUNT
$400–$800/month per $100,000 invested (varies widely)
TAX TREATMENT
Partially taxable — return of principal is tax-free; earnings are taxable
WHEN AVAILABLE
Immediate annuity: starts right away. Deferred: starts at a future date.
✅ PROS
- Guaranteed income for life — eliminates longevity risk
- Predictable, stable payments
- Can include inflation rider
⚠️ CONS
- High fees reduce returns
- Illiquid — hard to access principal
- Counterparty risk (insurance company)
💡 Tip: Consider a simple income annuity (not variable or indexed) for a portion of your income needs if you're worried about outliving your money. Avoid complex products with high surrender charges.
Model all your income sources together in one retirement plan