Sources of Retirement Income: Stacking the Guarantees
The four pillars
Retirement income generally comes from Social Security, employer-sponsored plans (DB pensions and DC accounts), personal savings (IRAs, annuities, taxable accounts), and home equity or continued work. Each source carries a different risk profile: DB pensions and life annuities transfer longevity and market risk to the payer; DC accounts leave both risks with the retiree.
Social Security mechanics you must know
The primary insurance amount (PIA) is payable at full retirement age (FRA). Claiming at 62 permanently reduces the benefit (70% of PIA for an FRA of 67); delaying past FRA adds 8% per year of delayed retirement credits up to age 70 (124% of PIA). Spousal benefits max out at 50% of the worker's PIA and do not earn delayed credits; survivor benefits can equal 100% of the deceased worker's benefit, including credits. A person cannot receive a spousal and a worker benefit simultaneously - they receive the larger. Deemed filing applies to anyone born after January 1, 1954; file-and-suspend is gone. The earnings test withholds benefits before FRA but the reduction is recomputed at FRA.
Traps
Assuming a spouse can "switch" and collect both benefits; assuming a survivor's own benefit can be added to the survivor benefit; assuming annuitization is reversible; assuming a lump-sum pension payout is always superior - the comparison hinges on implied interest rates and longevity.
Worked example
PIA $2,400 at FRA 67. Claiming at 62 yields $1,680 monthly (70%). Claiming at 70 yields $2,976 (124%). That 77% difference is permanent and inflation-indexed - powerful longevity insurance.