Income in retirement: How much will you have to spend?

When you think about income in retirement, there are a number of sources you might be able to use. When and how you use these different income streams can have a big impact on your retirement budget; they’re a key part of a holistic retirement plan. Let’s go over some of the most common sources of income in retirement.

Social Security

Social Security is designed to supplement your income in retirement. Benefits cover about 37% of working income for the average American (assuming you work 40+ years and retire at 65). Of course, many factors affect the amount of Social Security benefits you’re entitled to. In general, the Social Security Administration bases your benefits on the 35 years of your career when you earned the most. The exact details are complex and vary based on your income bracket and the age at which you retire. Waiting until you turn 70 to begin collecting benefits usually increases the amount of your monthly payments for life. However, Social Security is only one part of your financial picture. If you plan to retire early—say between 55 and 62—waiting until 70 may not make sense, as you’ll need to lean heavily on other assets and investments. Deciding when to start taking Social Security should be part of a comprehensive retirement plan that looks at other potential sources of income, your goals and expectations for retirement, and the overall outlook for the economy.


Pensions, known more formally as defined benefit plans, provide retirement benefits defined by your years of service working for an employer. The amount of the benefit usually depends on length of employment and final average salary, and you may be able to choose whether to receive it as a lump sum payment or as installments over a period of time. At Reason Financial, we ask clients to share the lump sum payout amount along with plan details—including the benefit multiplier, terms, potential for spousal benefits, and more—so we can run the numbers and help you maximize the benefit. There can be an emotional component to pensions, as well. If you’re concerned about your former employer’s ability to make pension payments a decade from now, or if you simply want a clean break, a lump sum can provide peace of mind.


Annuities are a contract between you and an insurance company where you agree to a defined benefit in retirement, usually a monthly payment. The details depend on the product, but in general, you purchase an annuity up front with a lump sum. Payouts may begin immediately or at a set future date. The amount of those payouts—including whether they adjust for inflation or increase over time—varies by annuity. It’s important to understand the details of these products, as they can be complex. Still, when used strategically, set annuity payments may be a good tool for the “must-haves” in your retirement budget.

Retirement Accounts

The best way to use a retirement account for income in retirement varies based on both market conditions and your personal circumstances. Once you reach age 73, the IRS requires you start taking distributions from any traditional retirement accounts, such as a 401(k) or IRA. A financial advisor can help you calculate these required minimum distributions (RMDs) and use them strategically. Of course, RMDs are just one part of a comprehensive withdrawal strategy, and withdrawals are just one piece of the puzzle. We’ll also look at how the money in your retirement accounts is invested. The goal is to look for income-generating investments while also protecting, and potentially growing, your nest egg to ensure your money lasts. We can also consider your legacy goals: Do you want to preserve assets to pass on to family or your favorite charities? We look at your big picture financial goals to help figure out the best strategy for both withdrawing and investing in retirement.


Many Reason Financial clients elect to work in retirement for reasons other than money. In fact, studies show choosing to work in retirement may improve both the mental and physical health of retirees, particularly in men. While electing to work in retirement has a financial benefit as well, the mental and physical benefits decrease or disappear entirely when the work is a financial necessity, versus voluntary. Ideally, working in retirement should be a “nice to have” option as a way to stay engaged and active.

Home equity

For many Americans, their home is their greatest asset. If necessary, you may be able to use products, like reverse mortgages, cash-out refinances, and home equity loans, to access the value of your home. However, this should be a last resort, as this process involves risk with your home as collateral. For instance, if you have a reverse mortgage and fall behind on property taxes or home insurance, you could lose your home. The terms may also require you to remain living in the house, which can be problematic if you need to move to an assisted living facility down the road. An advisor can help you evaluate the risk.

Like many areas of financial planning, creating an income plan in retirement involves numerous puzzle pieces. At Reason Financial, we look at all of your potential income sources and your personal circumstances. We also consider the overall market and use models to test how your income strategy may perform in a variety of economic scenarios. Ultimately, our goal is to create a plan that funds both your life and legacy.

Sources: Center on Budget and Politics Priorities, PsyPost

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