How a ‘Blended Income’ Strategy Can Boost Retirement Cash
March 14, 2025
More Americans are expected to reach retirement age this year than ever before. For many folks hitting that milestone, a difficult reality may await. That’s because fewer people are feeling secure with their plans.
According to Fidelity Investments’ 2025 State of Retirement Planning study, while two-thirds of people in their planning years feel confident with their prospects, that figure is seven percentage points lower than last year. Meanwhile, 70% of retirees say that rising living costs have eroded their savings.
Fidelity’s findings aren’t the only indication of trying times ahead: A 2024 survey from The Senior Citizens League found that 67% of seniors rely on Social Security for more than half of their income. Being that dependent on Social Security benefits is a slippery slope towards financial hardship.
One way to build confidence and avoid those troubles is with a comprehensive retirement plan, which can entail using your investments as part of a blended income strategy to help offset recurring (and unexpected) costs throughout your golden years.
What is blended income?
As of January 2025, the average monthly Social Security benefit was $1,976. That considerably lags older Americans’ monthly expenditures, which average $5,007.25 for those ages 65 and up, according to data from the U.S. Bureau of Labor Statistics.
Creating a stream of blended income can help retirees fill that gap. Nearly 60% of retirees with a blended income strategy reported having a better lifestyle after retiring, compared with 49% of retirees who used only one additional income source aside from Social Security, according to a 2023 Goldman Sachs survey. Retirees using a blended income strategy also reported higher levels of satisfaction with their money.
Blended income combines multiple sources of both fixed and variable income to create diversified, steady cash flow. Fixed income includes predetermined amounts from sources like annuities, bonds, pensions and Social Security, while variable income comes from sources where your money can ebb and flow, such as traditional or Roth IRAs, employer-sponsored plans like 401(k)s and taxable savings and investment accounts.
Each type has its benefits and risks, according to a report from investment advisory firm Vanguard, which recommends using both regular (aka fixed) and variable sources to produce retirement income. Fixed income provides predictability. It insulates you from market swings but also precludes you from benefiting from the market’s growth. Alternatively, variable income is more difficult to forecast but provides a higher risk-reward ratio. Combining them allows you to reap the benefits of each while limiting the downsides.
Before planning for how to diversify your retirement income, you first need to establish your risk tolerance. “Finding that sweet spot is the first thing that we do with a client,” says Jaime Ruff, certified financial planner and principal at Homrich Berg. “Then we can start thinking about the income construction.”
Understanding your risk tolerance can help you figure out how to best approach potential deficits between your expected retirement income and your likely expenses.
“We prepare a financial plan that considers all the sources of income that are not in their investments — like a pension or Social Security or even a post-retirement gig where they’re making some amount of income,” says Ruff. “Then we work into a long-term projection where you deduct expenses, and there’s this line, then, for what total return they need to meet their goals.”
Once that line is determined and you know what total return is required, the next step to crafting a blended retirement income plan is determining which sources of fixed and variable income will factor into the equation.
Fixed retirement income
Beyond Social Security, fixed retirement income is often associated with annuities, bonds and defined benefit plans (i.e., pensions). It can also include cash alternatives like certificates of deposit (CDs) and nuanced, asset-backed financial instruments like mortgage-backed securities.
Annuities, which have increased in popularity, are contracts issued by insurance companies that provide an income stream to the purchaser in exchange for premiums they have paid. Notably, these products are not the same as life insurance policies that only pay benefits when the insured person dies. While there are both fixed and variable annuities, fixed annuities provide guaranteed returns — for a term or the remainder of your life — and are not linked to market performance.
However, there can be high costs associated with annuities. Premiums can be paid as a lump sum or satisfied in a series of installments over time. Additionally, commissions, administrative fees, expense ratios and other fees can result in annuities being more costly than most other investments. The commission for a 10-year annuity, for example, can range from 6% to 8%, compared to 0.5% to 2% for stocks and bonds.
“I like fixed income. I like guaranteed income,” Ruff says. “It’s just the cost of getting an annuity is sometimes really high.”
Instead, he prefers bonds, noting that when they mature, you can decide to use the principal as income or reinvest it. This can be achieved through bond laddering — creating a timeline with multiple bonds carrying varying maturity dates, which allows you to either capture the proceeds as income or reinvest them to continue growing your money.
Laddering is particularly appealing to those with lower risk tolerances. Ruff suggests Treasurys for those looking for safety and guaranteed income, noting that they are “theoretically the safest bond in the world” since they’re issued by the federal government. He also recommends corporate bonds, which have incredibly low default rates.
“Bonds are like the ballast in a ship — they help steady things,” Ruff says. “I like to see clients have several years worth of cash and bonds available to meet their needs. So if the stock market drops a lot, they still have plenty of things in their portfolio that don’t drop.”
Since the core concept of a blended income strategy is diversifying where your money comes from, combining Treasurys, corporate bonds and even cash equivalents like CDs can provide numerous sources of fixed income to supplement Social Security.
Variable retirement income
Variable income provides greater access to your funds than fixed income, but it carries less predictable yields. Traditionally, sources of variable income include investments made through a 401(k), IRA or brokerage account. However, it can also include income generated from alternative assets such as real estate.
When considering how to invest for variable income, be mindful that equities (i.e., stocks, mutual funds and ETFs), whether in a tax-advantaged retirement account or normal brokerage account, carry higher risk. Once retired, you should focus on wealth preservation and income generation — not share appreciation.
“A lot of people put it all in stocks,” Ruff says. “And the risk is, at some point, the stock market is going to go down, and a lot of people will lose a lot of money when it does.”
Fluctuations are a natural part of the market cycle, but the older investors get, the less time they have to recover from losses. When eyeing variable income in retirement, experts say it’s prudent to focus on conservative holdings as opposed to growth stocks. This can be accomplished with a combination of income-producing equities such as bond funds (which pay dividends unlike individual bonds that are tied up until they reach maturity), dividend ETFs and stocks in sectors know for slower growth and lower volatility, like consumer staples and utilities.
“Stocks with a reliable history of consistent or steadily increasing dividend payouts are likely to be the most attractive to consider for this purpose,” according to a report from U.S. Bank.
Still, equities carry an elevated risk-reward ratio, so you’ll want to balance them with other income streams. Bank products such as high-yield savings accounts and money market accounts offer additional sources of variable income while providing a layer of safety. The APYs for those types of deposit accounts are not fixed, but they are typically protected by FDIC or NCUA insurance and provide better liquidity than fixed-income alternatives like CDs.
“Once you quit your job, you no longer have employment income,” Ruff says. “So you need to consider safety as part of your strategy.”
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