Retirement Income

Most retirees draw on several sources that behave differently: some pay for life and rise with prices, some pay a fixed amount, and some depend on markets and on how much you take out. Listing them side by side, with start dates, is where retirement planning turns savings into a paycheck.

Social Security is the base for most households: SSA estimates that about 87% of people aged 65 and over were receiving benefits at the end of 2025. The average retired-worker benefit is an estimated $2,071 a month for January 2026, and benefits rise each year with a cost-of-living adjustment, 2.8% for 2026.

Many planners split retirement income into a floor and upside. The floor is income that arrives whatever markets do: Social Security, pensions and annuities. The aim is to cover essential costs, such as housing, food, insurance and taxes, from the floor, and pay for travel, gifts and other flexible spending from the portfolio, where a bad year can be met by spending less.

The floor has costs. An annuity gives up liquidity and usually any legacy from that money, and fixed payments lose purchasing power unless they are indexed. Delaying Social Security raises an inflation-adjusted floor without buying a product: each year past full retirement age adds 8% until age 70. The floor also carries policy risk. The 2026 Trustees Report projects the retirement trust fund can pay full scheduled benefits until late 2032, then about 78% unless Congress acts, so some planners test a plan with a benefit cut.

Two households with the same gross income can keep very different amounts, because each source is taxed its own way. Withdrawals from traditional accounts are ordinary income; qualified Roth withdrawals are tax-free; long-term gains in a taxable account may be taxed at 0%. Social Security sits in between: how much of it is taxable depends on your provisional income, so an IRA withdrawal can make more of your benefit taxable too, the effect behind the tax torpedo.

The order in which you draw on accounts therefore changes your lifetime tax bill, which is the idea behind a tax-efficient withdrawal strategy. Income also drives other costs: Medicare Part B is $202.90 a month in 2026 for most people, and higher income adds IRMAA surcharges two years later. State taxes add another layer, and states differ widely in how they treat Social Security and pensions.

Savings do not arrive as income on their own. You decide how much to take each year and from which accounts, the work of Decumulation.

The tax code sets a minimum. Required minimum distributions start at 73 for most people born 1951–1959 and at 75 for those born in 1960 or later, so pre-tax accounts eventually pay out whether or not you need the money. Roth IRAs, and Roth 401(k)s from 2024, have no RMDs while the original owner is alive. Above that minimum, most retirees use one or more of these approaches.

Retirement income problems often come from counting the right sources in the wrong way. A plan can list every source correctly and still overstate what the household can spend, because it looks at gross rather than net income, at the first year rather than the thirtieth, or at two lives rather than one. Each mistake below can make a comfortable-looking income fall short, and most surface only in the later years of a projection, so read year 20 as closely as year one.