What is Retirement Income?

Retirement income is the money you live on after you stop working—from Social Security, pensions, retirement accounts, and other sources. Unlike the single salary earned during working years, retirement income is typically structured as a 'paycheck' assembled from multiple sources. Managing these income streams requires careful coordination to maximize tax efficiency and ensure portfolio longevity.

Retirement income sources are categorized by their tax treatment and guarantee level. Guaranteed sources include Social Security benefits and defined benefit pensions, which provide steady, lifetime cash flows. Investment-based sources include traditional and Roth 401(k)s and IRAs, taxable brokerage accounts, annuities, and rental properties. Taxes on retirement income are complex: Social Security benefits are partially taxable based on provisional income, traditional retirement withdrawals are taxed as ordinary income, qualified Roth withdrawals are tax-free, and taxable brokerage accounts generate capital gains.

To manage retirement income effectively, retirees must coordinate their withdrawals to minimize their lifetime tax burden. This often involves withdrawing from taxable accounts first, followed by tax-deferred accounts, and preserving tax-free Roth accounts, while navigating Required Minimum Distributions (RMDs) starting at age 73.