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RESOURCE CENTER

Top Sources of Retirement Income

Retirement Income Sources

Retirement can be a scary word for some.  How do you know what you will need years into the future?  There are so many unknowns.  So many variables, some in your control and some that aren’t.  Don’t worry though, it’s not all doom and gloom!  Although your situation might change, the major sources of supplying retirement income have remained very consistent.

We are going to take a look at the most common sources of trusted retirement income that we encourage you to research and consider for your retirement portfolio.

SOCIAL SECURITY RETIREMENT BENEFITS
Unfortunately, far too many people are putting all of their retirement eggs in the social security basket. Social Security has always been a benefit intended to provide just a portion of your overall retirement income. If your retirement plan includes only Social Security and nothing else, you may want to research other options available to you and even talk with a financial professional that can provide you with some additional assistance.
As it stands today, for anyone born after 1937, your social security benefits can begin at age 65 years or older. For those born after 1960 however, the age at which full benefits begin, is 67 years or older. Reduced benefits are available starting at age 62, but deferring your benefits is almost always the right approach if you can wait.
Your benefit amount is based on your earnings record. The more you made in your career, the more you will receive when you start to receive your benefits. You can also receive a larger benefit by continuing to work past “retirement” age up to age 70. Another important aspect to remember with social security benefits, is that up to 85% of what you receive are subject to federal and local (if applicable) taxes as normal income.
QUALIFIED RETIREMENT PLANS
The name “qualified” retirement plan obviously indicates that there are some plans that do not meet the qualified criteria. In this case, qualified means it meets certain requirements set by the Federal Income Tax Law.
Employee-Sponsored Qualified Plans
These plans can generally be classified as either defined benefit or defined contribution.  Defined benefit plans specify a benefit a participant will receive at retirement. Actuary tables are used to calculate the contribution amount needed to provide the anticipated benefit. Benefits are generally taxable and the investment risk rests on the employer.

With a defined contribution plan such as a 401k, 403b or a SEP, the employee contributes a percentage of their salaries into the plan each year.  The retirement benefits received are directly related to the amount of dollars invested by the employee, the rate of return and the amount of years until a participant retires. The benefits are generally taxable and the investment risk rests on the employee.
Individual Qualified Plans
The two most common types of individual qualified plans are an IRA and a Roth IRA.  The IRA has a yearly contribution limit of $6,000 or $7,000 if you are 50 or older.  All contributions to an IRA are after tax and those contributions can be deductible. All earnings grow tax deferred with a traditional IRA.

Like the traditional IRA, the Roth IRA has the same yearly contribution limits. Unlike the traditional IRA, the Roth contributions are pre-tax instead of after tax but then your earnings grow tax free if all requirements are met. The contributions are never tax deductible with a Roth.
Non-Qualified Plans
An employer can also set up a plan, often in the form of a deferred compensation model,  which does not meet the federal requirements to be considered “qualified”.  Benefits of these plans are generally taxable and often times these plans are used as a supplement to a qualified retirement plan.

INDIVIDUAL SAVINGS

Individual savings are the third primary source of retirement benefits. As an individual you have a large variety of choices you can contribute to. Your plan for these individual strategies should factor in things like your investment background and skill level, risk tolerance, tax bracket and the number of years until you retire.

Savings Accounts
Savings accounts include things like a traditional savings account from a bank, CDs and Money Market Funds.

Common Stocks
This can include other forms of equity ownership like preferred stock or convertible bonds. Stocks can also be owned directly, in a personal portfolio or indirectly through a mutual fund or EFT.

Bonds
There are three types of bonds including corporate, government or municipal.  Bonds can be directly owned in a personal portfolio or indirectly held in either a mutual fund, unit investment trust or an exchange traded fund or EFT.

Real Estate
This includes real estate that is individually owned or an indirect investment through a real estate investment trust (REIT) or a limited partnership.

Precious Metals
Precious metals include gold and silver in the form of coins, bullion or in common stocks of the mining companies. 

OTHER SOURCES

Additional retirement sources can include the following:

Immediate Annuity
An immediate annuity is purchased from a life insurance company and it typically comes with a single, lump-sum payment. Usually within one year after purchase, it starts to make regular, periodic payments to the annuity owner.

Continued Employment
After working for years and years, sometimes just the idea of continuing to work when you thought you would be retiring, can be a tough pill to swallow. Finding a second career in an industry that you have some passion towards either on a full-time or part-time basis,  can still be a great way to add more income to your retirement plan.

Home Equity

For a lot of investors, their home is their largest investment, and the equity in their homes can represent the largest amount of capital available.  With a reverse mortgage, you can replace your traditional mortgage so that there are no more monthly principal or interest payments and you can even receive additional cash in your pocket each month if you qualify. 

Life Insurance
A permanent life insurance policy may have a cash value that you can be withdrawn or borrowed against that you can use to supplement your other sources of retirement income.  

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