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7 Types of Retirement Income Sources


When people retire, they go from having one main source of income to having several. The exact number of income sources and how heavily you’ll rely on them depends on your level of retirement planning. While some people rely solely on Social Security, others have diversified income streams that include 401(k)s, annuities, pensions and more. Here are seven retirement income sources you may be able to tap when your golden years arrive. If you need help planning for retirement and building income streams, consider working with a financial advisor.

1. Social Security

Social Security is one of the most common income streams for retired folks. With it, you receive a percentage of pre-retirement earnings. Social Security’s purpose is to supplement your income in retirement and give you a baseline to retire successfully.

The amount you receive each month depends on the age at which you claim Social Security. The full retirement age – the point when you’re eligible for the full amount of benefits you’ve earned throughout your career – for people born in 1960 or later is 67. While you can start receiving Social Security benefits at early as age 62,  doing so locks in your benefit at a reduced rate. On the flip side, delaying your benefits until age 70 means you’ll receive more once they start paying out.

2. Working

While you may want to retire and never think about working again, the truth is that many retired people do maintain some type of employment. Whether it’s consulting, freelancing, working part-time or going back to work full-time, factors like poor stock market performance and inflation cause many retirees to continue to work.

The Pew Research Center found that retirees in the workforce increased by 3.5 million from 2019 to 2021. The same research found that nearly half of retirees work in some form or another. For many, it’s not just about income. It’s about socializing and staying mentally engaged. Work can keep you intellectually stimulated and plugged into a community – something that some people miss when they retire.

3. Retirement Accounts

7 Types of Retirement Income Sources

Hopefully, you were squirreling away money in a retirement account during your working years. For many, these accounts are essential retirement income sources. Without them, they wouldn’t be able to retire. Retirement accounts allow you to invest in a variety of assets, including mutual funds and ETFs. Once you hit age 59½ the IRS lets you withdraw from your 401(k), 403(b) and/or IRA without restriction or penalty. However, you’ll need to pay income taxes on withdrawals, unless they’re Roth accounts.

4. Annuities and CDs

Annuities are another option for guaranteed, regular income in your retirement. They are low-risk financial contracts you make with an insurance company. In exchange for your buying this insurance product, they pay out at regular intervals. You can have your payments start immediately after your investment or have them paid out at a later date.

Certificates of deposit (CDs) are another way you can have your money make you money in retirement. These low-risk accounts are offered by banks and credit unions, and they have a maturity date when they start to payout. Basically, you stash some of your money in a CD and that money gets paid out with interest at a certain date, usually anywhere from 28 months to 10 years in the future. If you do this with enough CDs, you can ensure that they payout one after another. That’s called a CD ladder.

5. Pension

Pensions are defined benefit plans that generate income for employees after they retire. How much of the pension is paid out depends on the employer and the amount of time you spent there. In general, pensions pay out 50% to 85% of your working income in retirement. While pensions were once a staple of the workplace, they have largely been replaced by defined contribution plans like 401(k)s and 403(b)s.

6. Bonds

7 Types of Retirement Income Sources

Bonds are another investment that could generate a regular income stream for you in retirement. Much like CDS, bonds are a low-risk, fixed investment. They’re effectively loans. With a bond, you’re loaning money (usually to the government or a corporation) in exchange for regular interest payments.

What makes them great for retirees is that they can depend on these interest payments. These payment dates, referred to as “coupon dates,” usually come twice a year. If you have $10,000 in a bond at a 5% rate, that means you’re getting $500 a year, or $250 every six months.

7. Your Home

If you own your home, it can become a source of income in two ways. When many people retire, they’re also looking to downsize. You can cash in this big asset, buy a smaller place and invest the profits for your longer-term retirement needs.

If you want to stay in your home, the other option is to take out a reverse mortgage. A reverse mortgage lets you tap into the equity in your home. You can receive a payment in a lump sum or receive regular installments. The reverse mortgage won’t need to be paid back while you currently reside in the home. However, it will need to be paid off when you die or move to another home.

Bottom Line

The shift from traditional employment to retirement income is a big change in how you get money for living. To successfully retire, you need to plan ahead to have multiple retirement income sources. No one wants to rely solely on Social Security. With assets like retirement accounts, your home and other investments, you can tap into them as a source of income when the time comes.

Tips for Preparing for Retirement

  • You’d hire a mechanic to fix your car, so it only makes sense to hire a professional to help you with your finances and retirement savings. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If your company offers a 401(k) match, max it out. The match is free money and an easy way to grow your nest egg. To figure out how much money you need in retirement, use our retirement calculator, which takes multiple factors into account, like taxes and inflation.

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