Retirement Income

WHERE WILL YOUR retirement income come from? You will likely rely on some combination of six key sources, each of which will be discussed in the sections that follow:

Savings. You will want to think carefully about how you’ll extract income from your portfolio—and how much you can safely withdraw each year. To get a quick check on your plan, try Vanguard Group’s retirement income calculator.

Social Security. When should you claim Social Security? Many folks opt for benefits at the earliest possible age. But relying solely on savings during your initial retirement years, while delaying Social Security to get a larger monthly check, is often the smarter strategy.

Pension plans. Not many people have traditional defined benefit pension plans anymore. Consider yourself lucky if you do. But also give some thought to the threat from rising living costs, because your pension is probably fixed rather than growing along with inflation.

Income annuities. Don’t have a pension plan but like the idea of predictable monthly income? In addition to delaying Social Security, you might look into buying an income annuity.

Part-time work. Working a few days each week could greatly ease any financial strain, while adding richness to your retirement.

Home equity. Tapping your home’s value to pay for retirement can be as simple as trading down to a less expensive place, or it could involve the hefty cost of a reverse mortgage.

This list isn’t exhaustive: You might also receive income from rental properties, installment payments from the sale of a business and perhaps even an inheritance. You’ll want to consider what role each of the above six income sources will play, and how their role may evolve over time. For instance, part-time work might be important early in retirement, while home equity could be your financial backstop if you live longer than you planned for.

Next: Portfolio Withdrawals

Previous: Market Declines

Article: Seven Reasons to Work