What Are the 8 Most Common Sources of Retirement Income?
As you plan and prepare for retirement, it can be normal to feel a bit nervous about such a major life change. But the good news is that, according to a recent survey by the Employee Benefit Research Institute, 77% of retirees believe they will live comfortably.
It might help to learn about the most common sources of retirement income cited by the respondents to this survey, so that you can identify opportunities available to you.
Social Security. Most of us can count on drawing some amount of Social Security benefits, assuming that we meet minimum work history requirements. Of course, earning more and contributing more will one day result in larger monthly checks. But the average monthly benefit amounts to just over $1,500 for individuals and $2,600 for couples.
Defined benefit (traditional) pension. Pension plans once made up a significant source of retirement income for American workers, but now only about a quarter of them have access to a pension plan.
Defined contribution retirement plan (such as a 401k). Trends show defined contribution retirement plans, such as 401k accounts, replacing pensions as the primary vehicle of retirement planning within employee benefits packages. But of course, that means you’re responsible for making adequate contributions and managing the account over the years. Just 24 percent of survey respondents said that their 401k will be a significant source of retirement income.
Individual Retirement Account (IRA). Even if you already utilize a 401k or other defined contribution plan, you can open an IRA. More than half of survey respondents say that they will draw income from an IRA in retirement.
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Personal savings or investments. No matter how well prepared you are, a personal savings account can provide much-needed cash during an emergency so that you aren’t forced to dip into retirement savings unexpectedly. You might also establish other investments that you can tap for income.
Annuities. Annuities are technically insurance products that provide monthly income in exchange for a one-time lump sum upfront. However, their benefits and drawbacks can vary considerably, so working with a financial professional is essential to sorting through your annuity options.
Work. After retirement, many retirees choose to go back to work part time, on a consulting basis, or as a self-employed worker. Aside from benefits like staying active and socially engaged, the paycheck from a post-retirement job can help to shore up income.
Help from family. It might surprise you to learn that 37 percent of survey respondents expect to receive financial support from family in retirement.
How do you feel after reading about these common sources of retirement income? If you’re looking to investigate your options or maximize the ones in which you already participate, give us a call. We can help you assess your situation and decide upon a retirement income plan that matches your future needs.