Research summary
Four ways to cover your essentials in retirement
September 29, 2026
Ensuring that your basic needs are covered in your later years is one of the keys to successful retirement planning. Our new research paper Vanguard’s Principles for Retirement Income explains how guaranteed income sources—money you can count on regardless of market conditions—as well as working longer and tapping home equity can help take the guesswork out of covering these needs.
The heart of retirement planning is maintaining your standard of living. One of the keys to achieving this is making sure your essential needs like housing, food, and health care are fully funded. Of course, there is no universal definition of essential expenses—they are whatever someone deems necessary to maintain what they consider a minimally acceptable lifestyle.
No matter how you define essential expenses, using guaranteed income sources such as Social Security and income annuities can be an effective way to cover the costs of those expenses, as can working longer and tapping home equity.
Social Security can provide a foundation for retirement income
For married couples, planning together rather than separately can be a smart way to approach Social Security. When only one spouse claims benefits, it can affect how much income the entire household receives over a lifetime, especially if one spouse has earned significantly more than the other. In many cases, making coordinated decisions—such as having the lower-earning spouse claim earlier and the higher-earning spouse claim later—can increase the total household benefits and provide greater financial security for a surviving spouse.
Each year you wait to claim beyond your full retirement age (FRA) up to age 70 can increase your benefit by an annualized rate of about 8%. Delaying can not only boost lifetime benefits for the person claiming, but for married couples it can also result in higher benefits for a surviving spouse. The best approach depends on your health, financial situation, and retirement goals. If you’re financially secure with a long life expectancy and no immediate income needs, delaying to maximize monthly income may be sensible. However, if you’re managing a tight budget or facing health challenges, claiming earlier may make more sense.
How delaying Social Security may increase your monthly benefit
Notes: The figure illustrates how monthly Social Security benefits vary based on when benefits are claimed. The calculations follow standard Social Security rules with an FRA of 67 and assume an average individual FRA benefit of $1,900. For primary beneficiaries, claiming before FRA results in a permanent benefit reduction, while delaying claiming until after FRA increases the benefit through delayed retirement credits. The reduction and credits are applied monthly, consistent with Social Security Administration (SSA) formulas. This modeling isolates the impact of claiming age on benefit levels, holding all other variables constant.
Sources: Vanguard, using data from the SSA.
Income annuities can help manage market and longevity risk
Market downturns and longer life spans can reduce the amount retirees can safely withdraw from their portfolios. An income annuity can serve as insurance against this by providing steady, guaranteed lifetime income that isn’t affected by market conditions. Just as health insurance protects you when you get sick, an annuity can help guard against the risk of running out of money if you live longer than expected or experience poor market returns.
With an income annuity, you pay a premium to an insurance company and receive guaranteed income for life—in effect, you trade assets today for income in the future. Most people already have an income annuity and don’t realize it: Social Security is, essentially, an income annuity run by the government. Private income annuities work much like Social Security does, but with a range of pricing options and features.
Annuities are especially useful when existing income sources don’t fully cover essential expenses. They can be particularly valuable for retirees with longer life expectancies, larger late-life portfolio drawdowns, or a lower tolerance for market risk. A steady monthly payment provides structure around withdrawals, reducing the need to make frequent adjustments based on inevitable market movements. However, once purchased, the funds used to purchase the annuity are generally no longer available for emergencies or to pass on to heirs, so it’s important to balance desired income with the need for future liquidity.
Working longer may help extend your retirement income
For those who are able to do so, staying in or returning to the workforce, either full-time or part-time, can be another way to make your savings last longer. Even a one-year delay in retirement can have a significant impact on your income. Working an extra year can increase your spending power in retirement, as shown in the figure below, where the hypothetical investor increases her spending power by 15%.
Working longer enables you to save more while withdrawing less of your savings, and it may allow you to delay Social Security, increasing your monthly benefit. Working longer may also provide access to health insurance, bridging the gap to Medicare or supplementing existing coverage. Beyond finances, for many people work provides structure, purpose, and social connections. Many retirees find that part-time roles offer a fulfilling way to stay active without the demands of a full-time job.
How delaying retirement may increase spending ability
Notes: The figure assumes a female investor with $450,000 in a traditional IRA, $400,000 in a traditional 401(k), $200,000 in a Roth IRA, and $200,000 in a taxable account, invested in a static allocation of 50% equities (60% U.S. and 40% international) and 50% bonds (70% U.S. and 30% international). Annual spending is set at $65,000. Social Security benefits are assumed to be claimed at FRA and worth $1,900 per month. In the first scenario, the investor retires at age 66, and in the second scenario, she retires at age 67 after earning one more year of income at $160,000. Account balances, pension income, asset allocation, and Social Security claiming assumptions are the same for both scenarios, but annual spending is increased to $75,158 for the age 67 scenario. Outcomes are generated using the Vanguard Financial Advice Model, which incorporates long-term capital market and inflation projections from Vanguard Capital Market Model (VCMM) simulations run on February 28, 2026. These results are hypothetical, do not reflect actual investment performance, and are not guarantees of future outcomes.
Source: Vanguard.
IMPORTANT: The projections and other information generated by the VCMM regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from VCMM are derived from 10,000 simulations for each modeled asset class. Simulations are as of February 28, 2026. Results from the model may vary with each use and over time. For more information, please see the Notes section below.
How home equity can support retirement income
For homeowners, their residence likely represents a significant portion of their wealth, and accessing that equity strategically can help cover expenses while preserving portfolio assets. Three primary options exist for converting home equity into retirement income: downsizing, reverse mortgages, and home equity lines of credit.
Downsizing to a smaller, less expensive home can free up cash while reducing maintenance costs and property taxes. This strategy works well for retirees ready to simplify their living situation, but transaction costs and an emotional attachment to the family home can make it less appealing for some.
A reverse mortgage allows homeowners 62 and older to convert home equity into cash without selling, with no monthly payments required as long as the owners remain in the home. However, these loans come with fees and reduce the equity available to heirs.
Home equity lines of credit offer flexible borrowing against the value of the home—useful for covering unexpected expenses—though these lines of credit require regular payments and interest charges that can add up.
Compare your retirement income options and trade-offs
Each option carries trade-offs among flexibility, cost, and complexity. The right choice depends on your financial situation, housing preferences, and legacy goals. Many retirees find that combining approaches provides the best balance.
Building a retirement paycheck from these four sources—Social Security, annuities, continued employment, and home equity—can help cover your essential expenses, creating a foundation that is better able to withstand market volatility. By coordinating Social Security strategically, considering annuities for guaranteed income, extending your earning years when possible, and tapping home equity thoughtfully, you can build a plan designed to support the retirement you envision.
Notes:
All investing is subject to risk, including possible loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
IMPORTANT: The projections and other information generated by the Vanguard Capital Markets Model (VCMM) regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VCMM results will vary with each use and over time.
The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More importantly, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.
The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard’s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include U.S. and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. money markets, U.S. municipal bonds, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over time. Forecasts represent the distribution of geometric returns over different time horizons. Results produced by the tool will vary with each use and over time.