Retirement Income Defined: Knowing What it is Helps You Achieve Your Goals
There are several types of income, but they're not all created equal. Some are more stable and reliable than others. The key to your retirement plan? You need the right income mix to make your money last.


Planning for retirement can never begin too soon, but whether you are 25 or 65, basic principles apply that should guide your decision-making.
The goal for investors should be this: Generate enough consistent and sustainable retirement income to cover basic living expenses after paying any federal, state or local taxes and allowing for any gifting for estate or charitable purposes.
How do you do that? Start by making sure you understand the language of investment and the meaning of retirement.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For our purposes, “retirement” is the start of the period when the money you earn from a job (household salaries, wages and bonuses, etc.) does not cover basic living expenses. One or both spouses might be working still full- or part-time, but for most investors, the way you manage your finances changes when a gap between earned income and expenses first appears.
So what’s “retirement income”? It’s income that’s required to fill the gap now and in the future. The most basic definition of income is an amount received by the individual without any other financial effect. It is clearly different from withdrawals of principal, which have the potential to run out someday.
Let me give you my list of the different types of retirement income generated from your savings and investments, exclusive of salary, wages and bonuses from employment. This latter form of income depends on your interest in and willingness to work, plus your continued good health.
Guaranteed and Lifetime Income
Here are three sources of retirement income that are (1) not dependent on market performance, (2) personal management or effort, and (3) won’t change in the future simply because you receive them. Payouts may either be fixed or, in some cases, adjusted to increase based on the consumer price index.
- Social Security Payments — Since it is lifetime income that is adjusted for inflation, Social Security is the best source of income. Certain reforms of the system may be required to maintain the current level of benefits, though. Possible reforms might be in extending the normal retirement age or changing the formula for inflation adjustment, both of which might result in a small reduction in payouts.
- Pension Plan Payments — Typically they are lifetime, but only a few provide inflation protection. Corporate pensions are supported by the Pension Benefit Guarantee Corp., however there are limits. The PBGC caps the amount it guarantees, releasing its figures for 2018 in October. Government pensions, of course, are guaranteed by the government, but because government financial stability has ups and downs, these pensions require continuous monitoring and review of political decisions that might affect payments.
- Income Annuity Payments — Unlike Social Security and pension plans, an individual can customize the form of annuity. While some may be paid for a temporary period, most are paid for the lifetime of the recipient. Relatively few individuals elect inflation protection. Income annuities are supported by insurance company reserves. In addition, they are protected by state guarantee funds.
Investment-Driven Income
Some sources of retirement income that retirees typically count on depend on market performance and, therefore, payments will fluctuate.
- Interest Payments on Bonds and Savings Accounts — Interest rates may fluctuate and cause these payments to rise and fall. In today’s low-interest rate market, you need a lot of savings to generate any serious amount of income. For example, in order to generate an annual income of $20,000, at today’s bond rates a person would have to have a nest egg of about $500,000 – even more if the bonds are U.S. Treasuries or municipal bonds. The values of these bonds may fluctuate, but except in the rare case of default, they will be worth their face amount if held to maturity.
- Dividends on a Portfolio of Stocks — The amount of your payments will be affected by the dividend payout rates set by the corporations that issue the stock. Also, the value of the stocks in your portfolio will fluctuate.
- Income on Rental Property — This income can be highly variable unless the portfolio is widely diversified. If you own only a couple of units and your tenants move out, you are left without income and probably will face maintenance costs.
Withdrawals Often Get Lumped in with Retirement Income
Here is a list of withdrawals, often mischaracterized as retirement income, that decrease the amount of money available to you in the future. Market performance also will affect your potential for future withdrawals. Importantly, retirement income is paid to you, while withdrawals typically need to be requested by you.
- Distributions from 401(k), Rollover IRA — Any amounts you withdraw will impact future distributions, just as market performance will.
- Withdrawals from Other Investment Accounts — Any amounts you withdraw will affect future distributions, just as will market performance, no matter what the withdrawal formula.
- Withdrawals from Fixed, Indexed and Variable Annuities — Any amounts you withdraw may affect future distributions. Make sure you understand what any Living Benefit Guarantee provides.
As you can see, you have plenty of options when planning for retirement, but understanding the differences between income and withdrawals is essential. I have been advising people that guaranteed and lifetime income should be part of every retirement portfolio. Income annuities can provide a safety net of income for life, customizable to your personal circumstance and independent of the vagaries of markets and politicians.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Jerry Golden is the founder and CEO of Golden Retirement Advisors Inc. He specializes in helping consumers create retirement plans that provide income that cannot be outlived. Find out more at Go2income.com, where consumers can explore all types of income annuity options, anonymously and at no cost.
-
I'm a Financial Planner: Here's How to Invest Like the Wealthy, Even if You Don't Have Millions
Private market investments, once exclusive to the ultra-wealthy and institutions, have become more accessible to individual investors, thanks to regulatory changes and new investment structures.
-
Four Ways a Massive Emergency Fund Can Hurt You More Than It Helps
Saving too much could mean you're missing opportunities to put your money to work. Redirect some of that money toward paying off debt, building retirement funds, fulfilling a dream or investing in higher-growth options.
-
I'm a Financial Planner: How to Dodge a Retirement Danger You May Not Have Heard About
Timing is everything, and sequence of returns risk can mean the difference between a retirement nest egg that's overflowing … or empty.
-
Caring for Aging Parents: An Expert Guide to Easing the Financial and Emotional Strain
Early conversations, financial planning and understanding the progression of care needs can help to mitigate stress and protect family relationships.
-
I'm a Financial Adviser: The OBBB Is a Reminder for Older People to Have a Long-Term Plan
The new tax bill presents a good opportunity for retirees to revisit tax plans, look into doing some Roth conversions and consider plans for long-term care.
-
I'm an Insurance Expert: This Is Exactly Why Your Insurance Rates Are Soaring (and What You Can Do)
A dramatic rise in the frequency and cost of severe weather and wildfires means you need to prepare, prepare, prepare — no matter where you live — for higher premiums.
-
Q3 2025 Post-Mortem From an Investment Adviser: Markets Continue to Climb, Gold Shines
The third quarter saw market gains driven by Fed rate cuts and strong earnings, despite high valuations and concerns about speculative trading and job growth. Gold and international stocks could be potential hedges.
-
Moving Abroad? You Might Need a Cross-Border Financial Adviser
If you want to live in another country long term, you could benefit from an expert's guidance. Here's how to find a good qualified adviser to help with residency requirements, documentation, financial laws and tax impacts.