In an ideal world, retirees would have so much money saved before retirement that they could hang up their hat without having to work for another dollar. However, portfolio income in retirement is a huge challenge for many retirees.
Despite diligent saving, many Americans find that their retirement nest egg isn’t sufficient for a comfortable retirement. According to recent studies, while 67% of workers are confident they’ll have enough money to live comfortably in retirement, a significant number still plan to work during their retirement years. In fact, 30% of workers expect to retire at age 70 or older or not at all. The data suggest that financial necessity is a key driver in the decision to delay retirement or continue working during retirement.
For someone to truly enjoy retirement the way it’s meant to be enjoyed, they will have to find ways of generating passive income. If you find yourself in a situation where you’re concerned about your post-retirement income and want to know how to make money without taking another job, here’s what you should know.
Retirement Income Challenges
There are a few reasons why a retiree may face financial problems well into retirement that prevent them from making the most of their time.
1. A lack of pre-retirement funds
Despite growing awareness of the importance of retirement planning, many Americans remain financially unprepared. As of 2025, approximately 56% of American workers participate in a workplace retirement plan, meaning a significant share of the workforce is saving without the support of employer-sponsored programs—or not saving at all.
Among those in their 50s — a critical decade for retirement preparation — the average retirement savings balance is around $964,000, but the median is far lower at approximately $457,000. This indicates that while some households have saved well, many others fall short. Compounding the issue, Americans now estimate they will need about $1.26 million to retire comfortably, according to Northwestern Mutual’s 2025 Planning & Progress Study. That leaves a notable gap between what people have saved and what they think they’ll need.
With retirement potentially lasting 20 to 30 years or longer, inadequate savings can quickly lead to financial strain. A lack of sufficient pre-retirement funds may force many retirees to downsize their lifestyle, delay retirement altogether, or continue working well into their later years simply to cover basic living expenses.
2. Prematurely raiding retirement accounts
Accidents, health problems, or job losses can damage pre-retirement savings. Without an emergency savings plan in place, some are forced to dip into their retirement accounts early, further damaging their access to usable income after retirement.
To compound this issue, according to the 2025 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI) and Greenwald Research, only 24% of American workers report being very confident in their ability to live comfortably throughout retirement. Conversely, 21% of workers express being either not too confident or not at all confident about their retirement prospects.
These findings highlight a significant disparity in retirement confidence among American workers, underscoring the importance of proactive financial planning and savings strategies to ensure a secure and comfortable retirement.
3. Inflation
Inflation remains a critical consideration for retirement planning, especially as retirees face the prospect of extended lifespans and fixed incomes. As of April 2025, the U.S. annual inflation rate stands at 2.3%, a significant decrease from the June 2022 rate of 9.1%.
Inflation’s long-term impact on purchasing power can be substantial. For instance, over a 30-year retirement period, an average annual inflation rate of 2.3% would reduce the purchasing power of $1,000 to approximately $518. If the average inflation rate were to rise to 3%, that same $1,000 would be worth about $412 in today’s dollars after 30 years. At a 5% inflation rate, the value would diminish to around $228.
These figures underscore the importance of accounting for inflation in retirement planning. Even modest inflation rates can erode savings over time, potentially compromising the ability to maintain a desired standard of living throughout retirement. Therefore, it’s essential to incorporate strategies that hedge against inflation, such as investing in assets that historically outpace inflation, to preserve purchasing power over the long term.
4. Taxation
Depending on where your retirement income comes from, it can also be taxed—sometimes more heavily than many retirees anticipate. Traditional retirement accounts such as 401(k)s and traditional IRAs are funded with pre-tax dollars, meaning that all withdrawals are taxed as ordinary income when you begin drawing from them. Similarly, most pension income is also fully taxable at the federal level and may be taxed by your state as well, depending on local laws. Investment income from non-retirement accounts—such as dividends, interest, and capital gains—is also generally subject to taxation. Long-term capital gains may be taxed at a lower rate than ordinary income, but they still impact your tax liability and could push you into a higher tax bracket when combined with other retirement income.
The only major exception is money withdrawn from Roth accounts, such as Roth IRAs and Roth 401(k)s, provided the withdrawals are qualified (i.e., taken after age 59½ and after the account has been open for at least five years). Since Roth accounts are funded with after-tax dollars, qualified distributions are tax-free, which can provide a valuable planning advantage and help manage your taxable income in retirement.
Social Security benefits may also be partially taxable depending on your total income. If your combined income—defined as your adjusted gross income (AGI) plus nontaxable interest plus half of your Social Security benefits—exceeds certain thresholds, up to 85% of your benefits could be taxed.
If you face any of these challenges, you will need to find a way to create income after you retire in order to offset any potential setbacks.
Generating Income With Options
One of the best ways to do this is through investing. More specifically, by selling covered calls. If you’re not familiar with the idea of a covered call, here’s what to know.
A stock option – or the right to buy stock in a company at a discounted or stated fixed price – allows investors to buy and sell their share in a business. A covered call is a type of stock option where you sell (or “write”) call options against shares of stock you already own. You can also sell “puts” against stocks you want to buy, which is called a put option.
Call options provide the buyer the right to purchase a stock at a certain price, though they’re not obligated to actually buy the stock. Investors often purchase call options when they believe the share price will rise and they can sell later on at a profit.
When you sell a call option, you collect the premium (cash) up front, which you can use for income. In exchange for the premium, call sellers are obligated to sell their shares at the agreed Strike Price on or before the Expiration Date.
Put options provide the buyer the ability to sell at a specific price, also called a strike price. The writer of the put option is obligated to buy the stock at the strike price. Investors who are put buyers tend to be shareholders who want to protect their stocks from a steep price decline.
When you buy a put option, you pay cash up front, but in return you have the right to sell it at the strike price. If the stock drops below the strike price, you are protected from further price declines. The put seller gets to keep the premium even if they don’t purchase the shares prior to expiration.
While selling puts can be a great option for investors, it does require a substantial amount of cash set aside in your account in case you need to purchase the shares. Selling both calls and puts are great tools to enhance your long-term investment strategy. Neither should be used recklessly in the hopes of making a quick profit.
Ultimately, deciding if you will sell calls or puts depends on your goals as well as your financial stability. If you want to potentially buy a stock at a lower price, sell puts. If you want to potentially sell a stock at a higher price, sell calls.
Keep in mind that both options are part of a cash flow investment strategy that can generate income and reduce investment risks, though covered calls typically yield higher profits, which can offset the income challenges faced by many retirees.
Final Thoughts
If you’re concerned about your income after retirement, the good news is that you don’t have to be an investment expert to generate income with covered calls. Do-It-Yourself investors or those new to investing can choose stocks and sell options to help reduce the costs of retirement.
Remember that while all investment strategies do contain some risk, with the right strategy you can navigate through those risks in order to generate income when you need it the most. The time to plan for income in retirement is now, not
If you want to learn more about selling options to generate retirement income, we have several free courses available that cover these topics more in depth here.