I am in retirement in the withdrawal stage, and except for a very small pension, live off covered call income. Without re-starting the wars of past discourse on which method is best, I sell covered calls primarily, with some cash covered naked puts at certain times in the method. I employ techniques to buy back and sell for higher premiums if it looks like I may get exercised on stocks that I really like, and if they haven't run away from me to the upside. On the downside, I sell calls above strike but below my initial cost, and as previously mentioned either allow to expire or buy back and roll out or up as the market is moving to recover my original share cost, while extracting the option premium to live on. My only real problem has been that I have too much in taxable account, so I pay taxes on money made, that I don't really need for expenses. I do have about the same in an IRA, and that continues to grow without paying taxes, at least right now, as I don't need to withdraw that. I'm expecting to move the IRA to Roth in 2010, when the income limits are uncapped, and after a few years to recover the taxes, should provide a nice stream of tax free income, if the the next regime doesn't change things. YMMV
Oh, and I hadn't posted much about this lately, as previously a lot of discussion about market downturns was thrown out, but the market of the last 2 years hasn't hurt results at all.