Retirement
income may come from a variety of sources.
Provided by Taylor McClish
For many people,
retirement income may come from a variety of sources. Here’s a quick review of
the six main sources:
Social Security. Social Security is the
government-administered retirement income program. Workers become eligible
after paying Social Security taxes for 10 years. Benefits are based on each
worker’s 35 highest earning years. (If there are fewer than 35 years of
earnings, non-earning years may be counted in the calculation.) In mid-2018,
the average monthly benefit was $1,413.1,2
Personal Savings and Investments. These resources
can also provide income during retirement. Personally, you may want investments
that offer steady monthly income over vehicles giving you the potential for
double-digit returns. But remember, a realistic understanding of your ability
and willingness to stomach large swings in the value of your investments is a
must. A quick chat with a financial professional can help you understand your
risk tolerance as you approach retirement.
Individual Retirement Accounts. Traditional IRAs
have been around since 1974. Contributions you make to a traditional IRA are
commonly deductible. Distributions from a traditional IRA are taxed as ordinary
income, and if taken before age 59½, may be subject to a federal income tax
penalty. Once you reach age 70½, these accounts require mandatory withdrawals.3
Roth IRAs were
created in 1997. Contributions you make to a Roth IRA are non-deductible, as
they are made using money that has already been taxed. Sometimes, only partial
Roth IRA contributions can be made by taxpayers with six-figure incomes; some
especially high-earning individuals and couples cannot direct money into Roth
IRAs at all. To qualify for the tax-free and penalty-free withdrawal of
earnings, Roth IRA distributions must meet a five-year holding requirement and
occur after age 59½. Contributions may be withdrawn penalty-free at any time.
Roth IRAs do not have any required minimum distribution rules.3
Defined Contribution Plans. Many workers are
eligible to participate in a defined-contribution plan such as a 401(k),
403(b), or 457 plan. Eligible workers can set aside a portion of their pre-tax
income into an account, and the invested assets may accumulate with taxes
deferred, year after year. (Some of these accounts are Roth accounts, funded
with after-tax dollars.) Generally, once you reach age 70½, you must begin
taking required minimum distributions from these workplace plans.4
Defined Benefit Plans. Defined benefit plans
are “traditional” pensions – employer-sponsored plans under which benefits,
rather than contributions, are defined. Benefits are normally based on specific
factors, such as salary history and duration of employment. Relatively few
employers offer these kinds of plans today.5
Continued Employment. In a recent survey, 68%
of workers stated that they planned to keep working in retirement. In contrast,
only 26% of retirees reported that continued employment was a major or minor
source of retirement income. Many retirees choose to continue working as a way
to stay active and socially engaged. Choosing to work during retirement, however,
is a deeply personal decision that should be made after considering your
finances and personal goals.6
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 -
waddell.com/explore-insights/market-news-and-guidance/planning/9-facts-about-social-security [2018]
2 - cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security
[8/14/18]
3 -
cnbc.com/2018/07/30/roth-vs-traditional-iras-how-to-decide-where-to-put-your-money.html
[7/30/18]
4 -
fool.com/retirement/2018/11/21/the-most-important-401k-rules-for-maximizing-your.aspx
[11/21/18]
5 -
investopedia.com/terms/d/definedbenefitpensionplan.asp [1/26/18]
6 -
investopedia.com/articles/personal-finance/101515/planning-retiring-later-think-again.asp
[10/25/18]