Retirement Income Streams

You need multiple retirement income streams to ensure that your essential living expenses are covered every month. Today, one stream of income is usually not enough to cover your essential living expenses. A regular income in retirement is a fundamental part of retirement planning.

Luckily, you don't need to have a lot of money to make use of income streams in your retirement planning. In addition to Social Security, there are three types of income streams in retirement - pensions, annuities and earnings. Earnings from part-time employment or, preferably, from a home based business should also be considered in your retirement income stream.

Pensions are income streams from company or government pension funds. Whereas, annuities are income streams from insurance companies. Here is a more detailed annuity definition (a new window will open) to help you understand annuities better.

Remember, income streams are part of your complete retirement plan. You should develop your income stream plan so the right amount of income is available at the right times.

Account Based versus Non Account Based

Account based income streams are the most flexible as the money is available for you to access at anytime. In addition, you can adjust the amount of the income stream if you need to. However, the income stream stops once the account balance is depleted. You need to fund these accounts with retirement plan money - that is, 401K's or IRA's, etc. and the income stream will need to meet the minimum required distribution amount. The balance in the account upon your death goes to your estate.

Non account based income streams provide a guaranteed retirement income stream for a fixed period or for your lifetime. You purchase the guaranteed income stream with a lump sum of money. The capital you invest is not accessible. You may gain significantly if you live long. Generally, lifetime income streams use life expectancy tables which are the average life expectancy. You will lose the money if you die early.


You may be interested in the booklet Making Your Money Last for a Lifetime, which was created as a joint project of the Actuarial Foundation and WISER, the Women's Institute for a Secure Retirement. It explains why you need to know about annuities.

Income Stream Risks

You need to evaluate how risky are the underlying investments. Also, consider how predictable is the payment amount. Remember, if your income stream does not have a lifetime guarantee, you could outlive the income stream.

Investing in more than one income stream spreads your risk and is a wise thing to do. Where the risk level is higher there are higher potential returns.

When choosing an income stream, consider having the payments indexed to the Consumer Price Index to protect you against inflation.

We will talk more about these income streams later when we discuss supplemental income and retirement jobs.


The information provided on this website is for informative purposes only. It is recommended that you seek advice for your specific situation from a Certified Investment Advisor or Certified Financial Planner.

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