This question is posed to me often enough to prompt an attempt at an answer. Probably the number one fear of the majority of retirees is whether enough money has been saved and invested, along with expected income from Social Security and a pension to last until that person's death. Where does my money come from when the checks stop?
Obviously, I don't know your specifics since the answer depends on your resources and how long you live. But, I do feel confident in outlining a few basic responses to the question of income and retirement. And, I urge you to add a comment at the end of the post if another idea comes to mind.
So, what are the sources of income when the regular paycheck stops? You might be surprised by the wide range of possibilities.
The basic foundation that most of us use for our retirement. Out of a population of 46 million over the age of 65, nearly 40 million receive a monthly check from the government. 25% of that total 40 million recipients are disabled or dependent folks, many under the age of 65.
The amount of the payment is based on too many variables for this post, but the more you made during your working days, the amount of time you were employed, and when you start taking payments, determines your monthly check. Delayed acceptance and spousal benefits are other factors.
Usually the amount of your payment increases each year with a cost of living adjustment based on inflation. For 2016 there was no increase even though most of us saw health costs, for example, jump. The average Social Security check is $1,300 a month. Medicare premiums are deduced from that base amount.
Roughly 22% of Americans still receive a monthly payment for life from their employer under a defined benefit plan. That is down from 42% less than 30 years ago and is likely to continue to shrink in the years ahead. Companies are finding the benefits are becoming too great to maintain, particularly in the area of health care. If you worked for the government you are probably in better shape. Close to 90% of full time workers continue to receive defined benefits pensions.
To millions of us, a promise to pay doesn't always mean the reality of payment. Under severe financial stress, companies have found ways around a pension promise, leaving too many folks in dire straits. Planning your future around a private sector pension is becoming a bit of a roll of the dice.
IRA/401(k)If you work for a company that offers a 401(k) retirement plan and contributes a percentage of your salary, this could be an important linchpin in your income stream for retirement. Likewise, a well-funded IRA is often a key to a satisfying retirement. Since having both an IRA and a 401(k) is allowed, if you afford to do so but money in both starting as early as you can. For those over 50, there is a special provision allowing extra money to be put in an IRA each year.
Remember, the money grows tax-free but you are only delaying the tax bill that comes due when you withdraw funds. Be sure to take that into account. Of course, a Roth IRA allows you to invest money that has already been taxed, meaning it grows and will be withdrawn without any other deductions.
InvestmentsThis covers things like mutual funds, bonds, and stocks that you have placed money in over the years. While there are some tax consequences, like capital gains tax, your investments provide income as you need it.
AnnuitiesThis investment choice contains many too many variables and cautions to detail here. If you'd like a simple overview, click this link or search Google for more information. Annuities are designed to provide a fixed, monthly income for life from a lump sum of money you turn over to a private company.
For many retirees, some retirement income comes from a part time job. Depending on the state of the economy and your particular skills, this is one way to supplement other income sources.
Part time work
Not that different from part time work, turning a hobby or skill into retirement income is a natural for many folks. Love woodworking? Make cabinets or coffee tables. Know how to build a website? Help small businesses establish their presence on the Internet. Love to paint or take stunning photos? Sell them online or in books. Have specific knowledge about a particular industry? Become a consultant.
For the lucky few, parents or relatives will leave you money, investments, or property that can be turned into a steady source of income. Unless you are quite sure this will happen, I'd strongly suggest you don't build your retirement plan around this possibility.
Hopefully, this list should encourage you. With the eight income possibilities listed here, plus whatever readers add, the way to pay for a satisfying retirement is likely within your grasp.