An older couple – man and woman – sit in their living room, smiling and looking down at something they are reading.
Planning for retirement

Retirement income sources and strategies

Educating investors on the various sources of income available to them in retirement.
13 minute read
December 20, 2021
Planning for retirement
Save for retirement

At a glance: 

  • Retirement income sources and strategies can be used to help you reach your goals and mitigate risks in retirement.
  • Start thinking about your retirement today.

For many, retirement comes with a big sigh of relief—after many years of hard work, you finally get to relax and reap the rewards of your labor. One of the biggest changes you’ll experience is in your budget. You’ll transition from the accumulation phase—when you’re saving for retirement—to the decumulation phase, when you’ll be spending the money you’ve saved. Since your financial needs will be different in retirement, it’s important to know what resources are available to you and how to manage them. The following income sources and strategies can be helpful as you move forward into retirement. 


What is it? An IRA is a tax-advantaged savings plan individuals use to save for retirement. There are 2 main types of IRAs: traditional and Roth.

How can it help meet your goals? IRAs allow you to save for the long term, and offer tax-free growth or tax-deferred growth.

How can it help reduce risk? An IRA can help supplement other retirement accounts you might have to provide greater income in retirement, reducing the risk that you’ll run out of money.

What should you remember? Factors such as age and how long the account has been open can affect when you can or should take withdrawals.

Employer-sponsored retirement plan

What is it? Employer-sponsored retirement plans, such as 401(k)s, allow you to contribute a percentage of your pre-tax salary directly into a long-term investment account. 

How can it help meet your goals? You can choose the investments in your employer plan, usually stock and bond mutual funds and target-date funds. When you retire, you can let your savings continue to grow in the account, roll your money over into an IRA, or start taking qualified distributions and use that money for discretionary spending.

How can it help reduce risk? Because employer plans offer a mix of assets to choose from, you can create a diversified, balanced portfolio to help reduce your market risk. In addition, you can choose target-date funds, which are built to help manage risk as your retirement date—your target date—approaches.

What should you remember? There are different types of employer plans and the rules around withdrawals vary. Be sure to check your specific plan to make the best choices for yourself and your goals.

Social Security 

What is it? Social Security is a federal government program that provides a guaranteed monthly income, adjusted for inflation, for as long as you live. The monthly payments aim to replace a portion of your pre-retirement income. How much you receive is based on your lifetime earnings and when you begin to collect your money. 

How can it help meet your goals? Social Security payments are an additional source of income to add to the savings you’ve already accumulated (which may also make it easier to start spending those savings).

How can it help reduce risk? Think of your Social Security benefits as a safety net. They can supplement other retirement income to help ensure you don’t run out of money in retirement.

What should you remember? Most taxpayers must pay Social Security taxes on their income to qualify for the payments later on. Social Security payments increase your monthly income, which can mean a difference of thousands of dollars over your lifetime.

In addition to those main sources of retirement income, you may have others, including pensions, housing wealth, insurance payments, and income from working.

Defined benefit pension plan

What is it? A defined benefit pension plan is a private or government financial resource with a guaranteed payout. While not as common as in the past, pensions are still offered by most U.S. governments and some private industries. Finance, nursing, insurance, and military are a few examples of industries with pensions.

How can it help meet your goals? This type of plan can act as a base level of income for retirees and help with standard living expenses. However, if the amount you need for your basic living expenses is more than your pension payout, you’ll need to make up the remaining amount with other retirement income sources.

How can it help reduce risk? Pension payouts are generally stable, which reduces both longevity and market risk.

What should you remember? This income source can be affected by your marital status, income level, work history, health care coverage, and more, so check with your pension provider to get the details.

Housing wealth

What is it? Many people hold a large amount of their wealth in home equity, and some may need to tap it as a source of income. 

How can it help meet your goals? The home is often one of the main assets left to heirs, so you should decide if you want to preserve your property for legacy goals or sell it for income.

How can it help reduce risk? Turning home equity into income can reduce the risk of running out of money. However, the process can be complicated, so you may want to look at your other sources of income before using this one. 

What should you remember? Be sure to thoroughly analyze your retirement expenses so you’ll know if or when you would need to dip into your home equity.

Insurance payments

What is it? Insurance can provide protection against unexpected health events, and in turn, unexpected expenses. There are multiple types of health-related insurance—government-provided, private, long-term, and custodial care. In addition, life insurance can help to address longevity risk for a surviving spouse or partner. As with all insurance types, you should thoroughly evaluate the costs and trade-offs to decide which types of insurance may be best for you.

How can it help meet your goals? Insurance can hedge against health and other risks and increase peace of mind.

How can it help reduce risk? It can decrease the impact of unexpected health costs and, in the case of life insurance, provide support for a surviving spouse or partner. 

What should you remember? Insurance can be costly, so you’ll want to determine if your existing insurance should be carried into retirement or if you’ll need a new type of insurance.

Income from work

While some may think that retiring means no more clocking in, many retirees choose to continue to work, even if it’s just part-time. Working can increase your savings and help delay dipping into other resources. What’s more, continuing to work can help prevent cognitive decline and provide both physical and emotional benefits.

Understanding your retirement income resources and strategies is crucial in planning for a long and happy retirement. Don’t know where to start? Talk to a Vanguard advisor today to get the ball rolling

Let's talk



You can make the most of your retirement income sources by using a specific asset allocation that aligns with your goals.

Asset allocation

What is it? Your asset allocation is the investment strategy you use to balance risk and reward in your portfolio. Your asset allocation may be more conservative or aggressive depending on the bond and stock exposure in your aggregated portfolio. A well-balanced, diversified asset allocation is key to a successful retirement. 

How can it help meet your goals? Your asset allocation is what drives the speed of growth in your portfolio. Your allocation should reflect both your risk tolerance and the time horizon of your goals. It should also be diversified to help protect your account against market downturns.

How can it help reduce risk? A diversified portfolio that invests in both lower-risk assets and higher-risk assets allows room for growth while still hedging against market risk.

What should you remember? When choosing an asset allocation, always consider your goals and your timeline. We recommend revisiting your portfolio 3–4 times per year to ensure it’s in line with your preferred asset allocation.

Now that you’ve made the most of your income sources, here’s how you can strategize spending in retirement.


Spending strategy

What is it? A spending strategy can help ensure that you have enough money for your basic needs and any discretionary spending. Four components typically affect how much you’ll be able to spend from your portfolio. They are: 

  • Asset allocation.
  • Time horizon.
  • Degree of certainty: Also called the “success rate,” or the likelihood your portfolio will last your entire time horizon or life expectancy. The lower your degree of certainty, the more hesitant you might be to spend your money. 
  • Spending flexibility: How much money you can spend on discretionary items after taking care of expenses.

How can it help meet your goals? A strong spending strategy can increase the likelihood of meeting your retirement goals. It can also help give you greater peace of mind.

How can it help reduce risk? A stable spending strategy can reduce tax risks. Because your savings will most likely be invested in a mixture of taxable and tax-advantaged accounts, the order in which you withdraw them will affect the taxes you pay.

What should you remember? Assess how much of your portfolio can be used for discretionary spending after meeting your basic expenses.

Most Viewed

Ready to invest? See how to open an account
Start with this step-by-step guide to opening a personal investment account, such as a general investing brokerage account or an IRA.
How SECURE 2.0 reforms affect retirement plans
An omnibus bill signed into law on December 29, 2022, has wide-ranging impact on retirement plans and participants.
Our 2023 economic and market outlook and you
Ryan C. Murray, a Vanguard senior financial advisor, shares his thoughts on how inflation and recession expectations and developments in fixed income and equity markets could affect your portfolio.
Introducing the Vanguard Multi-Sector Income Bond Fund
Learn how our new multi-sector bond fund can be used to complement a core fixed income position in your portfolio.
Vanguard economic and market outlook for 2023: Beating back inflation
Our base case for 2023 includes a global recession brought about by policymakers’ efforts to control inflation.
Who owns Vanguard?
Who owns Vanguard? Learn more about the only investment management company owned by investors—and how this distinction keeps us consistently focused on investor needs first.

All investing is subject to risk, including the possible loss of the money you invest.

Diversification doesn't ensure a profit or protect against a loss.

Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target date funds is not guaranteed at any time, including on or after the target date.

Vanguard Personal Advisor Services is provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.