The Most Important Retirement Income Sources
What significant sources of income will you have in retirement? What sources of income will you rely on to maintain your ideal standard of living during your “retirement” years? Will you need the support of your children or other loved ones, or do you intend to be financially independent?
As you approach retirement, these are crucial inquiries. Your current income from work, entrepreneurship, or other sources will probably change once you leave a full-time career.
While some people main income is based solely on Social Security, others have multiple income streams, including 401(k)s, annuities, pensions, and other investments. As you consider your retirement income options, start categorizing them into income categories such as lifetime, dividend, and interest income. Many retirees use lifetime income sources to cover essential expenses because they are predictable. Discretionary and unexpected expenses are typically more flexible than essential expenses, so your investable assets can assist in covering these costs.
Here are some retirement income sources you can tap into when you reach your golden years. Consider working with an expert if you need assistance planning retirement and creating income streams.
Based on the Social Security Administration, Social Security is the most widely used retirement benefit, with 86 percent of people 65 and older receiving monthly payments. Some people wait until 65 to file for benefits to receive larger monthly payments.
The amount you receive each month depends by the age when you apply for Social Security. For those born in 1960 or after, the age at which you they are eligible for the full amount of benefits is 67. At the same time, you can begin receiving Social Security benefits at 62; doing so locks in a lower benefit rate. On the flip side, delaying your benefits until age 70 means, you’ll receive more once they start paying out.
An immediate annuity is a simple way to turn a lump sum into an ongoing income stream you cannot outlive. Retirees frequently use the money they saved during their working years to purchase an immediate annuity contract because the income stream begins immediately, is predictable, and is unaffected by falling stock prices or interest rates.
An immediate annuity buyer accepts, in exchange for the cash flow and security, that the income payment will never increase, implying that it will decrease in value over time due to inflation.
Certificate of Deposit
Certificates of deposit are yet another way to make your money work for you in retirement. Banks and credit unions offer these low-risk accounts, which have a maturity date when they begin to pay out. You put some of your money in a CD, which is paid out with interest at a later date, usually 28 months to 10 years later. If you do this with enough CDs, you can ensure they all pay out simultaneously. That’s called a CD ladder.
Income From Assets
In 2010, nearly half of all seniors (49%) received interest from assets held in bonds, treasury notes, IRAs, certificates of deposit, and interest-bearing savings and checking accounts. And 19 percent of retirees received dividend payments from stock holdings and mutual fund shares. Some seniors supplement their retirement income by renting out a property or earning royalties from previous work.
Pensions Paid for by the Employer
Only a small percentage of those polled said they could rely on a guaranteed pension from their employer. Corporate pensions are rapidly becoming obsolete. This is due, among other things, to their high cost and the high financial liability they bring to employers. Unsurprisingly, more full-time than part-time workers said their employers offered this type of retirement benefit.
Other types of pensions
Some current retirees still have access to private pensions or annuities and public pensions provided by the military, federal, state, or local government. Government employee pensions generally paid significantly higher annual benefits than private pensions and annuities.
Bonds are another investment that could provide a steady income stream in retirement. Bonds are a fixed, low-risk investment. They are, in essence, loans. A bond is a loan given to the government or a corporation in exchange for periodic interest payments.
The fact that they can rely on these interest payments makes them ideal for retirees. These payment dates, known as “coupon dates,” occur twice a year on average.
It is possible to have a consistent source of income during retirement, but it takes planning. Save diligently, invest prudently, and determine the best payout options when it comes time to withdraw your funds.
An experienced and knowledgeable expert can assist you in developing a solid idea of how much retirement income you will require, as well as a strategy to get you to the numbers needed to meet that goal.
They can also assist you in maximizing your retirement income while managing risks and lowering your tax burden. With their help, you could also create a written financial plan that provides you with a battle plan for the coming years, benchmarks to measure your progress, and more flexibility to make changes as needed.