 There also are capital gains and dividends. Fully taxable investment vehicles are taxed the same way whether you're retired or still employed. The last route, there's life insurance cash values. Cash surrender values of your life insurance policy can generally be assessed tax-free by first withdrawing the premiums you paid and then taking the remaining cash value by treating it as a loan. But keep in mind that tapping into a policy's cash value can reduce the available death benefit.