Income Planning · 6 min read
The Two Halves of a Retirement Paycheck
A retirement paycheck has two halves. The reliable half arrives on a schedule whether markets are up or down: Social Security, a pension, a ladder of bonds or CDs coming due, rent from a property. The growth half is the portfolio, sold a little at a time. We match the reliable half to the bills that arrive every month and let the growth half cover the spending that can flex. Morningstar’s 2025 research puts the starting withdrawal rate for steady, inflation-adjusted spending at 3.9%, and finds that how much a plan can flex depends on how much of the fixed bills are covered by income from outside the portfolio.
Most households arrive at retirement with one income question: how much can the portfolio pay each year. It is only half the picture. Bills arrive every month on a schedule that pays no attention to the market, and they deserve income that arrives on a schedule the household can count on. We build a retirement paycheck in two halves for that reason.
The two kinds of bills
Retirement spending sorts into two piles. Fixed bills arrive whether or not anything else happened that month: housing, insurance, utilities, groceries, Medicare premiums, and the tax on withdrawals. Flexible spending is everything the household chooses: travel, gifts, a newer car, help for a grandchild.
The line between the piles is personal, and it should be drawn on purpose before the paycheck is designed. Morningstar’s 2025 retirement income research makes the same point. The right level of flexibility in a spending plan, it finds, depends on the household’s tolerance for spending changes. That includes how much of the fixed expenses are covered by income from outside the portfolio. (Morningstar, State of Retirement Income 2025, Key Takeaways)
The two halves of the paycheck
The reliable half
The reliable half is income that arrives on a schedule and does not depend on the price of anything. For most households it starts with Social Security. The Social Security Administration calls the program a major source of income for most people over age 65. Nearly nine out of ten people 65 and older were receiving a benefit at the end of 2024. (SSA, Fact Sheet: Social Security) A pension belongs here for those who have one. So does a ladder of bonds or CDs timed to come due when the money is needed, and rent from a property the household intends to keep.
Reliable means the income arrives without selling shares, not that nothing about it can change. Social Security rises with inflation; many pensions do not. Rent depends on a tenant.
The growth half
The growth half is the portfolio, the accounts that stay invested and are sold a little at a time to fund the rest. It is the half the withdrawal-rate research measures. Morningstar’s December 2025 report puts the highest starting safe withdrawal rate at 3.9% for a retiree who wants steady, inflation-adjusted spending. That figure assumes a 90% probability of funds remaining after 30 years and counts no Social Security or other outside income. (Morningstar, State of Retirement Income 2025, Key Takeaways) A flexible approach that adjusts spending after good and poor years lifted the starting rate to 5.7% in the same study. Flexibility is only affordable when the bills that cannot flex are paid from somewhere else.
Matching the halves
Cover the fixed bills with the reliable half. Let the growth half cover the rest, and let it flex.
Suppose a household’s fixed bills come to $6,000 a month, or $72,000 a year, including the tax on its withdrawals. Combined Social Security of $4,000 a month covers two-thirds. The remaining $2,000 a month is the gap the reliable half has to close. Everything above $72,000 is flexible, and the growth half pays for it.
| Line | Per year | Paid from |
|---|---|---|
| Fixed bills | $72,000 | The reliable half |
| Social Security (combined) | $48,000 | Scheduled income |
| Gap to close | $24,000 | Pension, ladder, or rent |
| Flexible spending | As planned | The growth half, sold over time |
Illustrative. Not a recommendation.
Matched this way, a poor market year changes the vacation, not the mortgage. Morningstar finds flexible spending systems suit retirees whose necessary expenses are largely covered by Social Security and a pension, because a downward adjustment then will not cut into basic needs. (Morningstar, State of Retirement Income 2025, Section VI)
Where alternative income fits, and what it costs
The gap between fixed bills and Social Security is where households ask about other income. We ask four questions of each: what does it pay, how easily can the money come back out, what does it cost, and whose promise stands behind it. None of the sources below is a recommendation.
A ladder of bonds or CDs
A ladder holds bonds or CDs that come due in each year the money is needed, so cash arrives on a date rather than on a sale. It spends itself down, each rung is reinvested at whatever rates exist when it matures, and every payment depends on the issuer. Morningstar calls a ladder of inflation-protected Treasury bonds self-liquidating: spending through it exhausts what is left for heirs unless other assets are kept alongside. (Morningstar, State of Retirement Income 2025, Key Takeaways)
Rental income
Rent from a property the household already owns can be part of the reliable half; Morningstar lists rental income among the outside sources that can go hand in hand with portfolio withdrawals. (Morningstar, State of Retirement Income 2025, Section IV) It is also the least liquid income here. A property cannot be sold a little at a time, and it carries vacancies, repairs, insurance, and property tax while concentrating wealth in one asset and one location.
An annuitized portion
Converting a portion of savings into a lifetime income stream from an insurer moves some fixed bills onto a schedule that does not depend on markets. The cost is control. The SEC notes that withdrawing an annuity’s value early may bring surrender charges, taxes, and tax penalties, and that the insurer’s obligations depend on its financial strength and claims-paying ability. (SEC Investor.gov, Annuities) Morningstar adds that money placed in an annuity early in retirement reduces what remains in the portfolio to compound. (Morningstar, State of Retirement Income 2025, Key Takeaways) Contract fees and riders deserve a full reading; the decision is about a portion, never the whole.
Private credit
Private credit means lending to companies outside the public bond market, usually through a fund, and the fund structure matters. The SEC explains that interval funds repurchase shares only periodically, often quarterly, and only a limited percent at a time. That may substantially limit an investor’s ability to get out, and the next offer could be twelve months away. (SEC Investor.gov, Interval Funds) The income depends on borrowers repaying, the loans can be hard to sell, and fees deserve comparison with a public bond fund. Private credit can sit in the growth half. It should not be counted on to pay the mortgage.
The first five years
The reliable half matters most at the start. The order the returns arrive in decides whether an early poor year is a nuisance or a permanent dent. Shares sold to pay bills in a down market are not there for the recovery, a mechanism we described in Sequence Risk Still Matters. Morningstar describes the same protection from the other side: spending held outside the invested portfolio is funded without selling assets if markets decline, giving the portfolio time to recover. (Morningstar, State of Retirement Income 2025, Section IV) A household entering retirement should know how many years of fixed bills are covered without a sale.
What this does not mean
It does not mean every fixed bill should be covered by scheduled income at any price. Certainty has a cost, and covering the last dollar can cost more than leaving it in the portfolio. It does not mean Social Security should be claimed early to enlarge the reliable half; that decision has its own arithmetic. It does not mean rental property, annuities, or private credit suit any particular household; nothing here is a recommendation to buy, sell, or convert anything. The plan is in how the trade-offs fit a household’s bills, accounts, health, and heirs.
Frequently asked questions
What counts as the reliable half of a retirement paycheck?
Income that arrives on a schedule without selling shares: Social Security, a pension, a ladder of bonds or CDs coming due when needed, and rent from a property the household keeps.
Does the reliable half have to cover every fixed bill?
Not necessarily. Certainty has a cost, and some households accept a small uncovered gap. The point is to know its size and decide on purpose what closes it.
Is the 3.9% figure a rule to follow?
No. It is a starting rate for a new retiree who wants steady, inflation-adjusted spending from the portfolio alone, at a 90% probability over 30 years. A flexible approach can start higher.
Where does alternative income belong in the plan?
Usually in the growth half, with a liquidity note. Rental income, an annuitized portion, and private credit each trade something away: access to the money, fees, or dependence on a tenant, an insurer, or a borrower.
Sources and further reading
- Social Security Administration, Fact Sheet: Social Security (2025 edition, December 2024 beneficiary data)
- Morningstar, The State of Retirement Income: 2025 (Arnott, Benz, Kephart, Guo; Dec. 3, 2025)
- SEC Investor.gov, Annuities: surrender charges, fees, and claims-paying ability
- SEC Investor.gov, Interval Funds: periodic repurchase offers and liquidity limits
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The views and opinions expressed here are those of The Financial Sciences Company as of the publish date and are provided for informational and educational purposes only. They are not personalized investment, tax, or legal advice. The Financial Sciences Company, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. Additional information is available in our Form ADV at adviserinfo.sec.gov.
General educational information, current as of 2026. Figures and rules change. For guidance specific to your situation, speak with a qualified professional.