Older Adults' Guide to Income Streams and Money Management in Retirement

BySara East

Updated: March 17, 2024

BySara East

Updated: March 17, 2024

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If you’re heading into retirement, the last thing you want to worry about is how you’ll continue to make money. Generating income without working can be complicated for older adults, but it’s not impossible. It’s essential to understand your options and be aware of potential scams. Unfortunately, older adults are the main target for financial scams.

Still, you can maintain smart spending in retirement and maximize your finances safely and successfully with the proper planning and strategies.


Creating a Steady Income for Older Adults

Social Security, pensions, and investments are common sources of income for older adults, but many additional possible income streams exist. From annuities and bond ladders to reverse mortgages, the options below may not fit every person but are an excellent place to start exploring what may be possible.

Get an understanding of multiple strategies for receiving a steady income, along with the pros and cons and why they’re important.

1. Retirement Annuities

An annuity is an insurance product that provides the buyer with a guaranteed income for life. When purchasing a retirement annuity, you can do so as an immediate or deferred option. For most older adults, immediate annuities are more popular because they start paying out within a month of being purchased.

To buy an immediate annuity, you pay one lump sum exchanged for a monthly cash flow. If you prefer to let your principal increase before receiving payouts, you opt for a deferred annuity.

Typically, those facing retirement will take money earned during their working years to purchase an immediate annuity. Annuities come in many shapes and sizes, so it’s best to research different annuity options before buying one.


Why Is Retirement Annuity Important?

Annuities work like Social Security and can supplement for individuals who do not receive enough benefits to cover daily bills and expenditures from other income streams. Annuities can provide a consistent payout for older adults looking for a stream of income with low risks and should be purchased if you do not need the total sum of money soon. At times, annuities can result in higher fees than other investment options. When exploring annuity options, it’s best to work with a financial advisor versus an annuity seller.

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To determine the return on an immediate annuity, take the lump sum you purchased the annuity for and divide it by your life expectancy. For example, if you buy an annuity for $500,000 and your life expectancy is 20 years, you would receive $2,083 a month for the next 20 years.

2. Strategic Withdrawal

Money in the bank is ideal, but without a strategic withdrawal plan you could end up running out of your savings with many years left to live. Strategic withdrawal includes a method for withdrawing your money and using it as cash flow in addition to allowing what you still have in savings to continue to work for you. Older adults need a strategic withdrawal plan for anywhere that you’re storing money, including 401k plans, IRAs, mutual funds, bonds and bank accounts.


Start small

Withdraw 4-5% in your first year of retirement and increase slowly every year.

Withdraw from one account at a time

Start with your taxable accounts, then traditional and Roth accounts last.

Withdraw proportionally

Spread out your withdrawals across all accounts to save money to reduce the tax impact.

Only take out what you need

Keep as much money in savings as you can so it can continue to work for you.

Choose a timeframe

Commit to withdrawing money monthly, quarterly, or yearly versus any time.

Why Is Strategic Withdrawal Important?

Without a plan in place and some general knowledge of how much money you have and how long you need it to last, it’s easy to spend quickly. Strategic withdrawals provide a steady source of income without burning through your savings. While it’s a great way to provide regular income, it doesn’t take into consideration the tax implications of withdrawing from retirement accounts as well as any fund performance you’d receive from keeping the money in high-performing mutual bonds or retirement stocks.

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Traditional withdrawal strategies include withdrawing from one account at a time but can result in higher tax implications. If you do not have significant taxable capital gains, a proportional strategy in taking cash across all accounts could lower the tax impact.

3. Using a Bond Ladder

Bonds are issued by companies or government entities but can be purchased as investments. Bond laddering is when you purchase a variety of bonds that all have differing mature dates. When a bond matures, it pays out an interest rate, typically twice a year. When you use a bond ladder, the maturity dates are staggered, leading to a steady stream of income. To build a bond ladder, you’d start with purchasing a bond. When the maturity date occurs, you then purchase a new bond. With each bond purchased, the maturity date is further in the future, which extends the ladder.


Why Is Bond Laddering Important?

Bond laddering is a popular source of predictable income because it is low risk and allows you to avoid the impact of increased tax rates. It’s a valuable strategy to add to your portfolio because you know what you’re getting. With bond laddering, you receive cash from the interest payments until the bond matures. By understanding the maturity date, you know exactly when you’ll receive your money. It’s essential in bond laddering to ensure you’re investing in high-quality bonds. Fidelity’s bond ladder tool can help you get started building a bond ladder.

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If you buy four bonds today that have staggered maturities of 1% yield, 2% yield, 2.5% yield, and 3% yield, you’d have an average yield of 2.215%. When the first bond matures in two years, you can take the proceeds and reinvest in a new bond to extend your ladder.

4. Pension Plans

Pension plans are employee benefit plans that provide retirement income upon ending your career until the day you die. Typically, companies build pension plans by investing large sums of money into the stock market and bonds to ensure enough money to pay employees’ pensions once they retire. There are two types of pension plans, a defined benefit plan and a defined contribution plan. Both promise a specified amount of money at retirement, either in an exact dollar amount or based on a formula that includes salary and service.


Why Is a Pension Plan Important?

Finding a company that offers a pension plan can provide valuable comfort in retirement. Pension plans provide a steady income for the rest of your life without you having to do much. Sometimes you can even choose a pension plan that includes a beneficiary. While a pension plan is not as individually flexible as a 401k, it provides a guaranteed source of income throughout the rest of your life, as long as the company continues to see success.

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Pension plans are paid out on a specific amount, such as $500 a month, or based on salary plus service. For example, an individual could receive 1% of the average salary over the last five years with the company. If you were making $100,000, you’d receive $1,000 a month for the rest of your life.

5. Reverse Mortgages

A reverse mortgage allows you to take the equity in your home and turn it into cash. For older adults who own a large portion of their home, a reverse mortgage can be used as a source of retirement income without risking the roof over your head. To access a reverse mortgage, you must be 62 years or older and have enough equity in your home to borrow against it. You can choose your payouts from a reverse mortgage loan in a monthly payment, one large sum or as a line of credit. When you purchase a reverse mortgage, you don’t make any loan payments.


Why Is a Reverse Mortgage Important?

Many individuals spend years paying off their homes and earning equity. A reverse mortgage can keep you in your home while providing monthly, quarterly, or yearly income. You can even take your loan in one lump sum. Reverse mortgages are a good option for retirement income because you can spend the money on anything you need. As long as you are committed to paying off your loan, you won’t go into more debt by pursuing a reverse mortgage. You can determine how much you may get from a reverse mortgage using a reverse mortgage calculator.

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Reverse mortgage payouts are based on the value of your home and current loan rates. As of 2022, the max amount someone can get paid by a reverse mortgage is $822,375.

6. Social Security Benefits

Every paycheck you receive has a small amount taken out that goes into Social Security for most individuals. You also earn credits for the number of years you pay into Social Security. Once you’ve reached 40 credits, you qualify for Social Security benefits which are monthly cash payouts from the government to supplement income in retirement. You must be 62 years old to claim Social Security, and the amount you receive is based on your earnings record from your working years.

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  • More than retirement: Social Security provides disability and life insurance benefits in addition to Social Security payouts.
  • Benefits are progressive: The higher your earnings, the more money in benefits you will make. Social Security benefits increase with the cost of inflation.
  • It’s widely offered: More than 97% of Americans receive Social Security benefits. It’s not need-based or limited by income or assets.
  • It’s secure: Social Security is collecting more than it pays out, making it a secure form of income for years to come.

Why Is Social Security Important?

Social Security is the most widespread form of income for retired adults in America. It’s important to take advantage of Social Security because it’s money you’ve already worked to earn that you can finally claim. For individuals who have other income sources, you may need to pay taxes on your Social Security. The Social Security Administration makes it easy to calculate your potential benefits, apply, and manage your Social Security account.

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If your last yearly income were $80,000 a year, you would receive $1,450 in Social Security benefits from age 62 to 67. According to the Social Security benefits calculator, that amount increases several hundred dollars at age 67 and again at age 70.

7. Government Resources and Public Assistances

When considering government assistance for those facing retirement, most people do not think beyond Social Security and Medicare, but there are a variety of additional offerings to aging adults. Income programs like the Supplemental Security Income (SSI) and Senior Community Service Employment (SCSE) programs can provide another income stream for individuals in retirement. There are also numerous tax assistance programs as well as resources for federal workers and retired military. Learn about different avenues of income and government and public assistance in the resources below.


Managing Income Streams in Retirement

While the amount of money you have coming in changes in retirement, daily bills tend to stay the same. Managing income streams wisely in retirement is crucial to making your money last long as you need it. Older adults need to consider the sources of income, how much they have, what they need to spend each month, and how long it will last you. This can be solved with a strategy for your retirement paychecks.

Factors to Consider

Several risks can impact finances throughout our lives, and that does not change in retirement. When crafting strategies to manage income streams it’s important to understand different factors that will impact how you strategize your finances. These include things like tax efficiency, income, investment strategies, and others listed below.

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  1. Your age: Perhaps the biggest factor to consider is how old you are and what your life expectancy is. This will provide a basis for creating a strategy that allows your money to outlive you.
  2. Types of assets: Knowing where your money is will impact where you withdraw it from. Some funds, like 401ks, require withdrawal at a certain age. Some income streams will continue to work for you while others are worth withdrawing from as soon as possible.
  3. Tax implications: Withdrawing from a 401k too soon or taking large sums of money from other suggested income streams can result in large tax implications. When planning your strategy, understand any taxes you’ll have to pay from receiving or withdrawing income.
  4. Your financial knowledge: Some individuals are well-versed in money management. If you’re not confident making your investments or strategies, seek a professional to assist you.

Retirement Strategies to Maximize Income

It’s never too soon to start implementing strategies that maximize your income. Even if retirement feels a long way away, there are things you can start doing today to improve your finances so that you’re secure down the road.

Meet your employers’ match

If your employer offers a 401k, you should be contributing as much as you can early on and at the very least meeting your employers’ match. The max you can contribute to a 401k is $19,500, and the earlier you can start contributing, the more you’ll gain from compounded interest over the years.

Diversify your portfolio

Explore the multiple streams of income that we mentioned earlier. You can start working towards many of these long before you retire, like purchasing bonds and annuities.

Use catch-up contributions

For individuals aged 50 that haven’t been contributing the max amount to your 401k or IRAs, you qualify for catch-up contributions that enable you to invest beyond the typical limits.

Have a goal

Knowing the amount of money you’re working towards saving for retirement and receiving monthly upon retirement can help you achieve success. Start with a goal and put a plan in place to reach milestones throughout your life.

Avoiding Common Mistakes

Even if you’ve been managing your finances for several decades, there are a variety of hiccups and mistakes that can impede your financial success as you age. A few wrong moves could leave you without enough money in retirement, from ignoring inflation to relying on the wrong income streams. When planning and managing your retirement paycheck, avoid making these common mistakes.


How to Stay Safe from Money Scams

Aging adults are the center of money scams because they’re often polite, trusting, and believed to have a lot of money. Lottery, tech support, government impersonation and several other scams target older adults every year. Scammers will build relationships with their targets via email or telephone, and over 90% of the time, the scammer is a family member. Use the following steps to avoid the most common types of scams to protect yourself and your finances.

Understand common scams

It can be challenging to identify scams if you don’t know what to watch for. The most common scams that target aging adults include romance, tech support, grandparent, government impersonation, sweepstakes/charity, home repair, TV/radio, family/caregiver scams. You can learn more about each of these through the FBI's scam and safety breakdown for older adults.

Don’t disclose identifiable information

Unless you’re certain of who is asking for it, never disclose identifiable information like your Social Security number, credit card numbers, driver’s license or similar.

Be cautious of what you download

Many scams will come through a computer, informing you that your hard drive needs to be reset or that it has a virus. Most of the time, these are scams looking for your credit card. Never download unsolicited information from a pop-up on your computer.

Search for contact information

Before you provide any personal information or money to someone over the phone, email, or online, search for their contact information to identify that they are who they say they are.

Take your time

Most scammers will pressure you to act quickly. Do not give in to the sense of urgency and take the time to assure that the person asking for your information or assets is not a scammer.

Shut down your personal info if you’re hacked

Should someone gain access to your personal information via your computer or mobile device, immediately call your financial institutions and credit card companies to notify them of the infiltration.


Resources for Income Streams for Aging Adults

There are a variety of resources available for aging adults to begin preparing for retirement as early as possible. No matter what stage of life you’re in, the following resources are a good place to further your knowledge on potential income streams and how to get started today.

  • Life Expectancy Calculator: The living to 100 life expectancy calculator will calculate your life expectancy using researched medical and scientific data.
  • AARP Retirement Calculator: Answer questions about your household status, salary, retirement savings and other income and the AARP calculator can provide insight on whether you’re saving enough money for retirement.
  • Social Security benefits calculator: Provided by the Social Security Association, this page consists of various tools and calculators to help you determine government benefits you may receive when you retire.
  • American Retirement Association: This nonprofit organization was created with the goal to educate retirement plan and benefits professionals and create a framework that allows working Americans to retire comfortably. On the site, you’ll find professionals, advocacy, and a variety of connections for retirement education and support.
  • PensionHelp.org: A website from the Pension Rights Center, PensionHelp.org connects individuals with counseling projects, government agencies, and legal service providers that offer free information and assistance in pension planning.
  • Pension Counseling and Information Program: Assists Americans in managing their retirement benefits and assists with any employer negotiations for unpaid pension benefits.
  • Center for Retirement Research at Boston College: A variety of research and information regarding retirement income. The CCR has been recognized by the New York Times as the nation’s leading center on retirement studies.
  • National Council on Aging: On this site, you’ll find resources, tools, best practices and advocacy for aging with health and financial security.
  • Internal Revenue Service — Tax Information for Seniors & Retirees: A free tax-filing tool including an Interactive Tax assistant. This tool includes information specifically for older adults, including deducting medical expenses, tax scams, finding a tax-aid volunteer and special rules.
  • National Older Worker Career Center: Connects older adults, age 55+, with part-time and full-time career opportunities.
  • SeniorLiving.org: A comprehensive website dedicated to helping adults with all aspects of aging. This is a one-stop-shop for aging adults, from money management and retirement resources to health, living and technology.

About Sara East

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Sara East is a freelance writer and content marketing professional based in Reno, NV. She has more than 10 years marketing experience in public relations, content and digital marketing. Sara has been a published writer for more than 10 years having written articles about finance, business, entrepreneurship, education, travel, real estate, insurance, healthy living, social media, travel and study abroad.

Sara's writing has been published in national news sites including Mashable, The Muse and The Next Web as well as on a variety of blogs. When she's not writing, Sara enjoys spending time with her fur kids exploring the mountains of Reno/Tahoe and enjoying the outdoors.