Six Sources of Retirement Income: Where Will Your Money Come From?

As a Financial Advisor, I understand that the ideal retirement is different for everyone. As you approach this exciting phase of life, it’s crucial to consider what sources of income you will have after you retire. What most people anticipate their financial situation to be in retirement may differ considerably from what they actually experience.

Here are six of the primary income sources for retirees:

1. Social Security

Social Security is a government-administered retirement income program in which individuals become eligible for after paying Social Security taxes for at least 10 years.

For many, Social Security income serves as a cornerstone of their retirement plans, but it’s essential to understand its role within your larger financial picture. Benefits are based on your 35 highest earning years employed and provide an average monthly amount estimated at $1,855 as of February 2024.¹

2. Personal Savings and Investment Portfolios

Personal savings and investments are a significant component of many retirement plans, providing stable income that can help accommodate your desired lifestyle into your golden years. Retirees often prefer to structure their investments to provide reliable monthly guaranteed income rather than potential returns.

3. Individual Retirement Accounts (IRA)

Since their inception in 1974, traditional IRAs have become a robust framework for retirement savings. Contributions that you make to a traditional IRA may be fully or partially deductible, and in most circumstances, once you reach age 73, you must begin taking required minimum distributions that are taxed as regular income. Should you opt for early withdrawals before age 59½, you may be subject to a 10% federal income tax penalty. It’s important to note that you may continue to contribute to a traditional IRA beyond the age of 70½ as long as you meet the earned income requirement.²

Contributions to a Roth IRA, on the other hand, cannot be made by taxpayers with high incomes. To qualify for the tax-free and penalty-free withdrawals that a Roth IRA offers, distributions must meet a five-year holding requirement and occur after age 59½.

4. Defined Contribution Plans

Defined contribution plans like 401(k), 403(b), and 457 plans offer the ability for eligible employees to set aside a portion of their pre-tax income which accumulates as tax deferred. In most circumstances, you must begin taking the required minimum distributions from your defined contribution plan the year you turn 73. Withdrawals from these types of plans are taxed as ordinary income and may be subject to a 10% federal income tax penalty if taken before age 59 1/2.³

5. Defined Benefit Plans

Defined benefit plans, or “traditional” pensions, are employer–sponsored plans under which benefits, rather than contributions, are defined. These types of plans have become significantly less common over the last 30 years, most likely because the benefits are guaranteed by employers and often calculated using factors such as salary history and duration of employment.

6. Continued Employment

In a recent survey, 73% of workers stated that they planned to keep working in retirement. While many people consider ongoing work as a financial strategy in retirement, only 23% of retirees reported that continued employment was a source of retirement income.⁴

Expected vs. Actual Sources of Retirement Income

Remember that what most people anticipate their retirement income sources to be may differ considerably from what they actually experience, so it’s important to take a pragmatic approach and focus on realistic income streams.

Working with a financial advisor can help you better understand the complexities of retirement planning and provide a more accurate depiction of what your retirement could look like.

Reach out today if you have concerns about where your money will come from once you retire, or if you’re just beginning your retirement planning journey. I am here to help.

¹SSA.gov, 2024
²IRS.gov, 2023
³IRS.gov, 2023
⁴EBRI.org, 2023