10 Essential Sources of Retirement Income

Many career professionals dream of hanging up their lanyards and kicking back with a cold beverage on the beach. Yet too many people approach retirement without the one thing they need to prosper: cash.

According to a recent study by the Alliance for Lifetime Income, 52.5% of Americans nearing age 65 have accumulated less than $250,000 for retirement. Another 14.6% have less than $500,000 saved for retirement.

Given the massive lack of income generated by many Americans nearing their golden years, U.S. retirees will need to get creative about generating more income in their post-working years.

The good news is there are multiple ways to do so. Below are the best and most realistic ways to gather passive income in retirement.

— Social Security.

— Company or government pension.

— Annuities.

— 401(k) or independent retirement accounts.

— Life insurance.

— Short-term cash investments.

— Stocks.

— Bonds.

— Part-time work in retirement.

— A paid-off house.

Social Security

A favorite source of retirement income is Social Security, and for good reason.

“Someone who has worked at a decent paying job for 35 years can probably expect about $4,000 monthly income at age 70,” said Arvind Ven, CEO at Capital V Group in Cupertino, California, in an email. “Additionally, a nonworking spouse can still qualify for half that amount at their full retirement age.”

Over two-thirds of retired Americans depend on Social Security as their primary retirement income source. “Consequently, understanding how it works is important,” Ven said. Even though Social Security income can be turned on at age 62, it does not mean it should be. Retirees receive a 8% bump up for every year they wait to collect, up until age 70.

There is some concern over the long-term stability of the Social Security fund, but some financial experts trust Congress will resolve those issues.

“Despite the headlines about Social Security insolvency, the government will eventually do what it needs to do to keep its promises to those already in retirement and close to retirement,” said Anne Lester, author of “Your Best Financial Life” and education fellow for the Alliance for Lifetime Income. “Social Security is an annuity. It will last for your lifetime and is adjusted for inflation. Those are both incredibly important as we look at advances in medicine potentially increasing the time we will spend in retirement and the return of inflation after 30 years of meager inflation.”

[What Is the Average Retirement Savings Balance by Age?]

Company or Government Pensions

Only a small fraction of workers receive pensions in retirement although some occupations still offer them.

According to the Pension Rights Center, 19% of state and local government and private sector workers are currently participating in a pension plan. If you’re among them, know that a pension is one of the best ways to maintain a steady income stream in retirement.

“A pension assures you’ll have a reliable monthly check for the rest of your life, and any money left over after your death can be directed to your family,” said Mark Henry, founder and chief executive officer of Alloy Wealth Management in Greenville, South Carolina, in an email.

Private-sector pensions are guaranteed by the Pension Benefit Guaranty Corp., a government agency that insures pensions, even if your employer goes out of business. Some people can create their own pensions by using savings by purchasing an immediate annuity.


People who want to mitigate the risks of market ups and downs, whether before or after retirement, may benefit from dedicating a portion of their assets to an annuity.

“Annuities come in different forms, all of which can help meet your specific needs and increase the likelihood of achieving your financial goals,” said Jason Handal, vice president of risk products at Milwaukee-based Northwestern Mutual, in an email. “For example, income annuities provide a guaranteed, steady stream of income in retirement that lasts for your entire life. Fixed and variable annuities can help you grow your savings for retirement in a tax-deferred way.”

Having an annuity-fueled guaranteed stream of income makes it easier for retirees to ride out market blips confidently. “That may actually help them embrace a higher-returning investment strategy as well,” Lester said.

[17 Things You Need to Know About Annuities]

401(k) Plans and Roth IRAs

For retirees, Roth IRAs can be an excellent source of tax-free income.

“You’ve worked hard for your money, so you don’t want to give a chunk to Uncle Sam in retirement when you need it most,” said Gary Knode, president at Safe Harbor Financial in Summerville, South Carolina, in an email. “A properly structured, low-fee, fixed-indexed annuity can also be an excellent source of lifetime income.”

Life Insurance

Life insurance, while not its primary purpose, can also provide a supplemental retirement income stream.

“These policies allow you to accumulate a cash value that is insulated from market volatility. They are guaranteed to grow each year, so you can use the cash value in a market downturn rather than liquidating an investment portfolio,” Handal said. “You can also tap that cash value tax-free so long as you don’t exceed the premiums you’ve paid in.”

Short-Term Cash Investments

It’s important to create a plan for your money based on the different time frames in which you will spend it.

“You should have several buckets of money in different accounts to help you organize this strategy,” said Shinobu Hindert, author of “Investing Is Your Superpower” and certified financial planner in San Diego, in an email. “The best place to start is to understand your cash flow needs for the next three to five years.”

That money should be set aside in stable assets like money markets, high-yield savings accounts or short-term certificates of deposit. “CD rates look fantastic compared to the average yields we have seen over the last 15-plus years,” said Lawrence Sprung, certified financial planner and founder of Mitlin Financial in Hauppauge, New York, in an email. “CD rates are higher relative to what they were from 2008 through 2021. Those who remember what interest rates were in the late 70s might say today’s rates are very low compared to where they were then, so high is relative.”

CDs can be offered at 4.5% to 5% from places such as Discover Bank and Ally Bank. Money market funds such as Fidelity Government Money Market Fund (ticker: SPAXX) pay around 5%. “These are great low-risk investment options that shield you from market volatility,” Hindert said.

Allocating a portion of your assets, ideally 30% or less, into a secure income stream will help provide consistent, stable income. “For money you won’t touch for five to 10 years, you need to introduce asset classes such as stocks in addition to bonds that have growth potential,” Hindert added. “You want to continue to grow this money and outpace inflation.”

[Read: Best CD Rates.]

Edge Into Stocks

Stocks are a leading income producer for retirees, especially dividend stocks, which pay shareholders cash income on a regular basis.

If you don’t have a lot of money to invest in stocks, don’t let that stop you. There are still good ways to get into the stock market.

Consider a brokerage firm with low-cost options as a place to start. “Each month, set a realistic budget that allows you to spend on essential items while also setting aside money to invest, even if it’s just a small amount,” said Maya Sudhakaran, head of growth and acquisition at New York-based Plynk, in an email. “If you treat investing like a monthly expense, you can put aside money regularly to help ensure your long-term financial health.”

Additionally, setting up automated investments ensures consistency in your monthly investing habits, even if your budget is tight, Sudhakaran noted.

Find Safety and Income in Bonds

Fixed-income investment vehicles are a relatively safe and reliable income source in retirement, especially now as high interest rates push bond returns upward.

“Consider that three- to five-year maturity investment grade corporate bonds now yield about 5%, with some as high as 5.75%,” said Steven Wieting, chief economist at Citi Global Wealth in New York, in an email. “That’s nearly twice as high as the Federal Reserve estimates its key policy rate will average over the same timetable.”

Holding bonds to maturity allows retirees to lock in higher rates for longer, which further aids income needs. “Additionally, for many U.S. investors, municipal bonds will offer a higher effective yield once taxes are taken into account,” Wieting added.

Part-Time Work in Retirement

There’s no reason healthy retirees can’t take a part-time job to generate even more cash in retirement.

After all, you won’t be alone in driving for Uber, working at Home Depot or Walmart, or starting a dog-walking service, among other jobs. Currently, approximately 20% of all American adults 65 or older are either working or looking for work according to the Administration for Community Living.

Working part-time in retirement gives you more income, which puts less pressure on having to drain investment and savings accounts to pay for household bills.

Additionally, a retired American’s part-time wage income doesn’t impact Social Security benefits once that retiree reaches full retirement age. Even younger retirees won’t have an issue as long as they don’t make more than $21,240 annually working in retirement. They can still collect their full Social Security payout and make some extra money while remaining active.

[See: 19 Part-Time Retirement Jobs That Pay Well]

A Paid-Off House

Owning a home mortgage-free means eliminating one of your biggest monthly expenses. While you will still need to pay taxes and insurance on the property, that will likely be a small fraction of the mortgage payments or rent cost.

If an emergency crops up later, you may be able to tap the equity in your home using a loan or a reverse mortgage. You could also downsize to a less expensive home and add the difference in price to your retirement savings.

More from U.S. News

Where the Presidential Candidates Stand on Retirement

Deciding Between a Roth vs. Traditional IRA

How to Save for Retirement After Age 50

10 Essential Sources of Retirement Income originally appeared on usnews.com

Update 04/25/24: This story was published at an earlier date and has been updated with new information.

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