Top 3 Sources of Retirement Income — Which One Are You Using?

A top priority for many Americans is saving for retirement. According to Bank of America’s 2025 Workplace Benefits Report, workers are focused on more than meeting basic financial needs. They want to thrive in retirement and plan to rely on several sources of income to do so.

But with so many options, including Social Security, employer-sponsored retirement plans, personal investments and more, it’s not always clear which ones people lean on the most as they prepare for life after work.

According to BOA, these are the most common retirement income streams and what financial experts say about each one.

The BOA report found that 85% of respondents say their top expected source of retirement income will come from a 401(k) or 403(b) retirement plan.

Doug Carey, chartered financial analyst (CFA) and founder of WealthTrace, a retirement and financial planning software for consumers, said he’s not surprised by the top source of income. According to Carey, Tax-deferred retirement plans are the single biggest source of wealth for many retirees.

“Over the past 40 years, many tax-deferred retirement plans have skyrocketed due to the strong performance of the U.S. stock market,” Carey said. “Using the returns of the S&P 500, if a person contributed $10,000 a year to a 401(k) plan over 40 years and was invested 80% in stocks, she would have nearly $3.5 million.”

However, Linda Jensen, wealth management for individuals and principal owner at Heart Financial Group, pointed out that this reliance also signals a significant tax burden in retirement.

“When the majority of a retiree’s income is coming from tax-deferred accounts, taxes become one of their largest and most unpredictable retirement expenses,” Jensen said. “It also means many retirees are entering retirement with limited tax flexibility and heavy exposure to future required minimum distributions.”

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Social Security came in second, with 75% of respondents expecting it to be a top source of income in retirement.

And employees who intend to collect Social Security say they’ll do so at the average age of 66, although only one-third say they understand what those benefits would be.

And as of May 2025, only 45% of employees say they still plan to rely on Social Security in retirement. BOA also found that two in three are concerned that benefits won’t be there for them by retirement, and 40% say they’re no longer confident in Social Security as a source of future income.

Carey also pointed out that many rely too heavily on Social Security as a source of income in retirement. “In fact, in 2023, 27% of all people on Social Security had Social Security as their only source of income,” Carey said. “This is a major problem if benefits are cut, and they are scheduled to decline by nearly 25% in 2033.”

Tax bracket creep is another potential problem. “Social Security taxation is not indexed to inflation. So more and more people are paying taxes on their Social Security checks,” he said. “This can be a serious issue for those who assume there will be no taxes on their benefits.”

The third top source of expected retirement income was checking or savings accounts (53%), but Jensen explained that cash is best used for short-term income stability, not long-term retirement funding.

“Cash should protect you from market volatility, not from retirement itself. It works well for 12 to 24 months of income and emergencies, but not as a long-term growth solution,” she added. “Too much cash exposure increases inflation risk and longevity risk.”

While Jensen emphasized the limitations of relying heavily on cash, another expert noted that there are situations where using cash for retirement income can be a smart move.

“It could be wise to use cash if an investor has a lot of capital gains in other investments. It can also be a good idea to use cash if this person is waiting until he is in a lower tax bracket before using capital gains or withdrawing from a retirement account and triggering income taxes on the withdrawal,” Carey said.

And in some cases, investors may want their non-cash investments to grow as long as possible at higher returns before using them, he added.

According to Jensen, “the strongest retirement plans use intentional tax diversification, not just asset diversification.”

She recommends building retirement income across three tax categories:

Tax-deferred: 401(k), IRA
Tax-free: Roth accounts, properly structured insurance
Taxable: Brokerage accounts and cash reserves

“The goal isn’t just to have income — it’s to control how that income is taxed,” Jensen said. “Tax diversification gives retirees flexibility that no market strategy can replace.”

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This article originally appeared on GOBankingRates.com: Top 3 Sources of Retirement Income — Which One Are You Using?

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