I’ve been noticing that every income stream follows one of two basic patterns. It is either an indefinite stream that will go as long as you live, or it is a finite stream that will end at some point in the future.

Additionally, income streams either start now, or in the future.

If you think about income in these terms it helps to give you a mental framework when trying to structure your portfolio to give you the income you need, when you need it. For example, if you will have an indefinite income stream (like a pension) that starts in the future, then you may want to create some other income stream now that will last until that future date.

Indefinite Income Streams

Indefinite income streams are those that are expected to last as long as you and your spouse are alive. The most common examples of this type of income are as follows:

  • Social Security - It will still be there when you need it. Ignore those who say otherwise.
  • Pensions - Pensions from a company you worked at tend to kick in at your retirement (or when you reach a particular age).
  • Annuities - You can buy an annuity from an insurance company that will give you income for as long as you live.
  • Systematic Withdrawals - If you withdraw funds from your portfolio at a prudent rate (3-4%) then there is a pretty good chance that it will last last long as you do. The only question is whether or not it will keep pace with inflation.

Finite Income Streams

Finite income streams are those that you expect to end at some point. Here are some examples of those:

  • Your Job - This is the quintessential finite income stream. You can’t work forever.
  • Bridge Fund - See my article on creating a bridge to social security for an example of how to use funds to bridge to a future date.
  • Income Replacement Funds - Fidelity offers a particular type of fund called Income Replacement Funds that are designed to provide income until some future date.
  • Bonds - You could buy a portfolio of bonds that return the principal in different years and spend that money as it is returned to you.
  • Lending Money - You can lend funds to somebody with the promise that they will pay it back with some agreed-upon rate. Micro-lending companies like Lending Club and Prosper are a good way to do this efficiently.
  • Imprudent Systematic Withdrawals - if you draw down your portfolio too quickly, you could deplete it in a finite period of time. Don’t do this.

Income Start Dates

In addition to the duration of an income stream, you need to consider when they income starts. For example, if you are retiring at age 62, you could start taking your Social Security right at age 62. However, it is often beneficial for you to delay taking your benefits until age 70. In that scenario, you would need to figure out how to get an income stream that lasts 8 years until your social security kicks in.

Ultimately, your goal as a retiree is to arrange these blocks of income to give you an income stream that lasts indefinitely but is relatively smooth. I like to think of it using building blocks. Here’s a crude drawing of what I mean.

                                   | Longevity Annuity (age 80)
|  Bridge Fund   |          Pension (age 65)
|  Income Replacement Fund  | Social Security (age 70)
|  Systematic Withdrawals of remaining portfolio

In this drawing, time goes from left to right. This example depicts having a relatively steady stream of income until age 80 at which point your income is boosted by a longevity annuity. The “Longevity Annuity” is one income stream you might want to purchase if you anticipate needing extra future income to help with age-related expenses.

Also in this example, I am also showing a couple of different finite income stream types being used to bridge forward to indefinite income streams (pension and social security) in the future. The type of bridge isn’t important, I’m just trying to illustrate the concept of bridging forward to that indefinite future income stream.


This article doesn’t introduce much in the way of new concepts. But I have found it useful in structuring my own portfolio to think of income streams as one of two basic types that can be combined like building blocks to give you the income you need in retirement. Hopefully this framework will help you too.