- Is the income guaranteed by a reliable institution to be paid for the rest of your life, no matter how long you live? Such income sources include Social Security, pensions, and lifetime annuities.
- Will the income continue to your spouse or other dependents after you die? Such sources include Social Security and, if you make the appropriate elections, pensions and lifetime annuities.
- Does your income remain unchanged if there's a market downturn? Again, Social Security, pensions, and annuities fit this criteria. Investments in high quality bonds might also meet this criteria.
- Does your income increase for inflation? Social Security satisfies this criteria. Most pensions do not. You can buy inflation protection with an immediate lifetime annuity, but that costs you more.
- Does your income increase if you achieve good investment performance? Social Security, pensions, and fixed annuities don't fit this criteria, but withdrawals from invested retirement savings can.
- Can you change the amount of retirement income along the way? Once again, Social Security, pensions, and fixed annuities don't meet this criteria, but withdrawals from retirement savings do, as do some annuities that have withdrawal features.
- Does your income have special tax advantages? For many people, Social Security income is not taxed or is taxed at reduced rates. Assets sheltered by 401(k) plans and IRAs are sheltered from taxes until withdrawn. Income outside these sources can have tax advantages if you make the right choices; examples include income generated by capital gains or qualified dividends, municipal bonds, and index funds.
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