9 Ways to Get Income in Retirement

Taking the leap from paid employment can be daunting. But you may have more sources of income than you think.

Written by Mike Powers CFP® / June 8, 2022

Quick Bites

  • Whether voluntarily or involuntarily, transitioning to retirement can be both exciting and nerve wracking at the same time.
  • Before worrying about how to create an income, first try to estimate your expected monthly expenses in retirement.
  • You may have more financial resources than just your retirement savings. Perform a thorough review of your options and create a strategy to fully utilize each one.
  • Once your retirement income covers your projected expenses, you are considered “financially independent.”


To some, this word is everything they dream of. For others, it may be nerve-wracking or seem completely unobtainable.

However you personally feel about retirement, at some point in your life, you may find yourself taking the leap from paid employment (whether voluntarily or involuntarily). And once you’ve reached that point, a question you may have is, “I have some savings, but how do I generate income to help cover my living expenses if I’m no longer working?”

And whether we’re currently experiencing a roaring stock market or a recession, high inflation or low inflation, you’ll want to have a plan that can hopefully weather whatever challenges life throws at you. In this article, we’ll focus on exactly that.

What are your monthly expenses?

I know, I know, this is supposed to be an article about creating income. But before we worry about generating income, it’s important to understand how much you’ll actually need. Because if you need $10,000 per month and you’re only able to generate $6,000, something has to give.

The best way to estimate your monthly retirement expenses is to look at what you’re spending now and then think about what categories may change. For example, if you’re commuting 30 miles each way to the office 5 days per week, your transportation expense will likely decrease once you are no longer required to make that daily trip. And if you don’t currently have the time to travel and plan to do more in retirement, that should be included. Other typical changes include:

  • Clothing (no more office attire!)

  • Dry-cleaning

  • Dining out (more time to cook, if desired)

  • Health and dental insurance

  • Life and disability insurance (especially if they’re no longer needed)

  • Hobbies (more free time!)

Possible sources of income in retirement

When you were earning a regular paycheck, especially if you were a W2 employee, income and tax planning were likely fairly straightforward. But once you’re retired, planning for income takes more thoughtful planning.

Not only do you need to determine which sources to use at various points in your retirement to help ensure you don’t outlive your financial resources, but you also need to understand their tax consequences, including any “hidden” taxes, such as phasing out of premium tax credits on the healthcare exchange or falling into one of the Medicare Income-Related Monthly Adjustment Amount brackets (IRMAA). You need to watch out for any early withdrawal penalties, too.

Hopefully you have a number of financial resources to utilize during your retirement. Examples can include:

1. Social Security

Social Security benefits are available for eligible retirees between the ages of 62 and 70. Up to 85% of benefits are taxable at the federal level, depending on any other income you may have in retirement. Delaying Social Security benefits, if possible, is one of the best ways you can hedge against outliving your assets. And note that Social Security benefits adjusts for inflation each year, which is a huge help as costs increase.

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Is Social Security Taxable?

Understanding the tax rules for this bedrock retirement income can help you plan better for your golden years.

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2. Pension(s)

If you’re one of the lucky few people who are still eligible for an employer-sponsored or government pension, this can be a great source of income in retirement. Be sure to check your benefit details at various ages, as delaying benefits to a certain age (usually 65) can make a big difference in your monthly payment.

Also be sure to fully consider what amount to elect as a survivor benefit, if any. This is the amount a surviving spouse would receive if you predecease them, and your options may be anywhere from zero to 100% of your current benefit. Typically, the higher percentage survivor benefit you elect, the lower your own monthly pension payment will be due to the potential longer payout over two lifetimes instead of just one. Selecting a survivor benefit is incredibly important if your spouse will not have many other resources in retirement outside of your pension.

Tip: check whether your pension has a cost-of-living adjustment (COLA). If not, it will gradually lose its purchasing power over time and you may need to supplement with some other form of income.

3. IRAs

Individual Retirement Accounts (IRAs) come in two flavors: traditional or Roth. Traditional IRAs are funded with pre-tax dollars, grow tax-deferred, and are fully taxable when you take distributions in retirement.[1] They also carry required minimum distributions (RMDs), which is a percentage based on your age you are required to take out each year. RMDs currently begin at age 72 and may be delayed further if the Secure Act 2.0 passes the Senate and becomes law.

Roth IRAs are funded with after-tax dollars, meaning you do not get a tax deduction when you contribute to them. They also grow tax-deferred, and are fully tax-free upon distribution assuming certain rules are met, such as reaching age 59.5 and having the account open and funded for at least 5 years. Unlike traditional IRAs, Roth IRAs do not have RMDs unless they were inherited.

4. Employer retirement accounts [(401(k), 403(b), 457, Thrift Savings Plan (TSP), etc.]

Most employer retirement accounts allow for both a pre-tax or Roth option. Each of these accounts have their own special rules you need to follow. For example, for most of them you need to wait until at least age 59.5 to access the funds or you’ll be subject to a 10% early withdrawal penalty plus federal and state taxes based on your applicable tax brackets. However, you can access a 401(k), 403(b), or TSP at age 55 if you are retired and qualified public safety workers can even start at age 50. If you have a 457(b) plan, no early withdrawal penalties apply.

5. Taxable brokerage accounts

If you have investments outside of the accounts above, chances are they are in a taxable brokerage account. These accounts can have a tremendous amount of flexibility since you don’t need to worry about any penalties for accessing them early. For some people, simply using the dividends and interest from their brokerage accounts is sufficient to fund the shortfall in retirement. Dividends and interest are generally taxable, as are realized capital gains.

For your investment accounts, a general rule of thumb to start with is 4%, increasing that amount with inflation each year, based on the Trinity Study.[2] Some retirees prefer to be more conservative and withdraw a smaller amount, such as 3%, while others are more aggressive and withdraw 5%, knowing they may need to make adjustments if investment returns are lower than expected.

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To do this, you can set up a systematic withdrawal from your investment accounts into your checking account on a regular basis. Whether that’s annually, quarterly, monthly, biweekly, or even weekly is personal preference. Use whatever frequency you feel most comfortable with based on the discipline of your own spending habits. If you spend money too easily, go with a more frequent withdrawal to help you limit the damage from shopping sprees.

6. Annuities

I could write a whole article on annuities, but I’ll save that for another day. For this exercise, if you have an annuity, find out what type of annuity you own and the payout options. The four main types are immediate fixed, immediate variable, deferred fixed, and deferred variable. Typically, if you delay payment for an annuity, your benefit will increase since it will be paid out over a shorter time period.

7. Cash savings (checking, savings, CDs)

Cash can be a very valuable resource in retirement. Some people keep as little as a month or two of living expenses for emergencies, while others keep a very large amount in cash to weather any economic downturn and help them sleep at night. The general rule of thumb is to maintain three to six months of living expenses, although this guideline greatly varies from person to person based on the stability of their income, overall liquidity, and other factors. Be sure to evaluate how much cash is appropriate for your own financial situation and consider using any excess to help fund your living expenses in retirement.

8. Real estate

Rental property

Do you have any rental properties with positive cash flow? If so, be sure to include these as a potential income source during retirement, net of expenses.

Home equity

Having equity in your home can be a very powerful tool in retirement. You may be able to downsize to a smaller or less expensive home or obtain a reverse mortgage, if needed.

9. Part-time income

No one said you can’t work in retirement! Working part-time is becoming more and more common, as people who retire in good health are likely to eventually get bored unless they have something else to retire to, such as caring for grandchildren, volunteering or starting a passion project. And being willing to work part-time may also help give you the flexibility to retire earlier, as there will be less pressure on your investments if you’re still earning some kind of income.

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Whatever financial resources you have available to help fund retirement, be sure to account for the tax impact of each of them based on your estimated income each year. The IRS has a tax withholding estimator to help with this.

Do you have enough?

Once you have tallied up all of your estimated retirement income, compare it to your estimated expenses. Are you short? If so, you have a number of options:

  • Review your expenses to see if anything can be eliminated or reduced, especially items where the cost exceeds the value you personally derive from it.

  • Consider delaying your retirement, if possible. This can have the benefits of allowing your investments to grow, saving more, increasing Social Security and/or pension benefits, and potentially even increasing the percentage you can withdraw from your investment accounts given a shorter time horizon.


When you feel comfortable knowing your income will at least cover your expenses in retirement, you no longer have a financial need to continue working. This is called “financial independence.” For most people, this is an incredibly liberating feeling. Some still choose to work on their own terms because of their love for their careers, but most find there are other things they would rather do with whatever time they have left in life. Let the fun begin!

This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment or tax advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

Article Sources
  1. If you happen to have “basis” in your IRA from making IRA contributions during your working career in which you did NOT receive a tax deduction because your income was too high, then you’ll need to calculate how much of each IRA distribution is taxable using the pro-rata rule and use Form 8606 to report the non-taxable portion of any IRA distributions, if applicable.
  2. “Retirement Savings: Choosing a Withdrawal Rate That is Sustainable,” AAII, https://www.aaii.com/journal/article/retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable

About the Author

Mike Powers

Mike Powers CFP®

Mike Powers is a Certified Public Accountant (CPA), Personal Financial Specialist (PFS), and CERTIFIED FINANCIAL PLANNER ™ (CFP®) who founded his own financial planning firm, Manuka Financial, focusing on helping clients retire before the traditional retirement age of 65.

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