When You Retire Do You Still Get Paid?

Upon retirement, income sources shift from employment wages to accumulated savings and benefits. This transition requires planning and management of diverse income streams to maintain financial stability. Understanding these income avenues is fundamental for successful retirement.

Social Security Benefits

Social Security is a foundational income source for many retirees. Eligibility is determined by earning work credits throughout one’s career. Individuals can earn up to four credits annually; in 2025, one credit requires $1,810 in earnings, and four credits require $7,240. Generally, 40 work credits, accumulated over about 10 years, are necessary to qualify for retirement benefits.

Monthly Social Security benefits are calculated based on an individual’s average indexed monthly earnings (AIME) over their 35 highest-earning years. These earnings are adjusted to account for changes in wage levels over time. The age at which benefits are claimed significantly impacts the monthly payment.

Claiming benefits at age 62, the earliest age, results in a permanent reduction. Full Retirement Age (FRA) is when an individual receives 100% of their calculated benefit; for those born in 1960 or later, FRA is 67. Delaying the claim beyond FRA, up to age 70, provides delayed retirement credits, increasing the monthly benefit.

Social Security also provides spousal and survivor benefits based on a spouse’s or deceased spouse’s work record. These benefits may be subject to federal income tax depending on combined income. In 2025, if an individual’s combined income is between $25,000 and $34,000, up to 50% of benefits may be taxed; if it exceeds $34,000, up to 85% may be taxed. For joint filers, thresholds are $32,000 and $44,000.

Workplace Retirement Plans

Retirement income often comes from employer-sponsored plans, categorized as defined contribution or defined benefit plans. These savings vehicles accumulate during working years, providing financial support after employment ceases. Withdrawal structure and tax treatment vary, influencing retirement income strategies.

Defined Contribution Plans

Defined contribution plans, such as 401(k)s and 403(b)s, involve employee and sometimes employer contributions into individual investment accounts. Income is received through withdrawals from the accumulated balance. Withdrawals before age 59½ typically incur a 10% federal penalty tax in addition to ordinary income tax, though exceptions may apply.

Required Minimum Distributions (RMDs) generally begin at age 73, compelling retirees to withdraw a certain amount annually. Withdrawal taxation depends on whether contributions were pre-tax or after-tax. Traditional contributions, made with pre-tax dollars, are taxed as ordinary income upon withdrawal. Qualified withdrawals from Roth accounts, funded with after-tax contributions, are tax-free. Common distribution options include lump sums or systematic withdrawals.

Defined Benefit Plans

Defined benefit plans, commonly known as pensions, promise a specific monthly payment throughout retirement. Employers typically fund and manage these plans, removing investment risk from the employee. Income is received as a regular annuity payment, providing a predictable and guaranteed stream of funds. The pension payment amount is usually determined by factors such as years of service, salary history, and age at retirement.

Pension plans often offer various payout options, including a single life annuity for the retiree’s life, or a joint and survivor annuity for a surviving spouse. Some plans also offer a lump-sum payment option. Pension payments are generally taxable as ordinary income, as they are typically funded with pre-tax contributions.

Individual Retirement Accounts

Individual Retirement Accounts (IRAs) offer another avenue for retirement income, allowing independent saving and investing. These accounts provide tax advantages that influence the amount of income available in retirement. Specific tax treatment and withdrawal rules depend on the IRA type.

Traditional IRAs

Traditional IRAs allow for tax-deferred growth, with earnings not taxed until withdrawals are made in retirement. Withdrawals are generally taxed as ordinary income. Similar to defined contribution plans, withdrawals before age 59½ may be subject to a 10% federal penalty tax, unless an exception applies.

Required Minimum Distributions (RMDs) apply to Traditional IRAs, typically starting at age 73, mandating annual withdrawals to prevent indefinite tax deferral. The RMD amount is calculated based on the account balance and the retiree’s life expectancy.

Roth IRAs

Roth IRAs operate differently, with contributions made using after-tax money. Qualified withdrawals in retirement are entirely tax-free. For withdrawals to be qualified, the account must have been open for at least five years, and the account holder must be age 59½ or older, disabled, or the withdrawal is for a first-time home purchase (up to a lifetime maximum).

Roth IRAs do not have RMDs for the original owner. This provides greater flexibility in managing tax liabilities during retirement, as funds can remain in the account and continue to grow tax-free indefinitely.

Other IRAs

Beyond Traditional and Roth IRAs, other types like SEP IRAs and SIMPLE IRAs also serve as retirement income sources. These accounts are typically associated with self-employed individuals and small businesses. Income is accessed through withdrawals, and their tax treatment often mirrors Traditional IRAs, with distributions generally taxed as ordinary income.

Other Income Streams in Retirement

Beyond Social Security, workplace plans, and IRAs, retirees often supplement income through various other avenues. These additional streams contribute to financial security and flexibility during retirement. Diversifying income sources provides a more robust financial foundation.

Personal savings and investments in non-retirement accounts can generate income. This includes interest from savings accounts or CDs, dividends from stocks or mutual funds, and capital gains from asset sales. Income from these accounts is generally taxable in the year received, with capital gains often subject to different tax rates depending on the holding period.

Annuities purchased from insurance companies convert a lump sum into a guaranteed income stream for a specified period or for life. These provide predictable income similar to a pension. Annuity payments are typically taxed as ordinary income, with the taxable portion depending on whether the annuity was funded with pre-tax or after-tax dollars.

Generating rental income from owned properties is another potential income stream. This involves collecting rent from tenants, which, after accounting for expenses like property taxes, maintenance, and insurance, contributes to net income. Rental income is subject to income tax.

Many retirees engage in part-time work or consulting roles. This provides supplemental income, allowing them to remain engaged and potentially delay drawing heavily from retirement savings. Income earned from such activities is generally subject to income and payroll taxes, similar to prior employment income.