Allard LTD. CPA & Financial Services

(952) 895-0895

Retirement Read Time: 4 min

Where Will Your Retirement Money Come From?

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 are averaged in as zero.1 In 2021, the average monthly benefit was estimated at $1,543.2

Personal Savings and Investments

Personal savings and investments outside of retirement plans can provide income during retirement. Retirees often prefer to go for investments that offer monthly guaranteed income over potential returns.

Individual Retirement Account

Traditional IRAs have been around since 1974. Contributions you make to a traditional IRA may be fully or partially deductible, depending on your individual circumstances. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act as long as you meet the earned-income requirement.

Roth IRAs were created in 1997. Roth IRA contributions cannot be made by taxpayers with high incomes. 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. Tax-free and penalty-free withdrawals also can be taken under certain other circumstances, such as a result of the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.

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, which then accumulates, tax deferred.

Under the SECURE Act, in most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 72. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.

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 factors such as salary history and duration of employment. The number of traditional pension plans has dropped dramatically during the past 30 years.3

Continued Employment

In a recent survey, 71% of workers stated that they planned to keep working in retirement. In contrast, only 31% of retirees reported that continued employment was a major or minor source of retirement income.4

Expected Vs. Actual Sources of Income in Retirement

What workers anticipate in terms of retirement income sources may differ considerably from what retirees actually experience.

Employee Benefit Research Institute, 2019 Retirement Confidence Survey

1. SSA.gov, 2021
2. AARP.org, June 8, 2021
3. Investopedia.com, November 16, 2020
4. EBRI.org, April 23, 2020

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

Managing an Inheritance

Managing an Inheritance

A windfall from a loved one can be both rewarding and complicated.

Attract Better Employees with Better Benefits

Attract Better Employees with Better Benefits

In a good economy, smart business owners know that a benefits package needs to fan a candidate’s excitement for joining...

What Is My Current Cash Flow?

What Is My Current Cash Flow?

Assess whether you are running “in the black” or “in the red” each month.

 

Have A Question About This Topic?







Thank you! Oops!

Do You Know the Whole Life Story?

Change comes at us from every angle as people update and upgrade everything from their diets to their devices, seemingly every day.

Attract Better Employees with Better Benefits

In a good economy, smart business owners know that a benefits package needs to fan a candidate’s excitement for joining...

Financial Hacks for Millennials: Student-Debt

Here are seven ways to reduce that debt and live more confidently.

View all articles

Potential Income from an IRA

Estimate your monthly and annual income from various IRA types.

A Look at Systematic Withdrawals

This calculator may help you estimate how long funds may last given regular withdrawals.

Annuity Comparison

This calculator compares a hypothetical fixed annuity with an account where the interest is taxed each year.

View all calculators

Protecting Those Who Matter Most

The importance of life insurance, how it works, and how much coverage you need.

Investment Strategies for Retirement

Investment tools and strategies that can enable you to pursue your retirement goals.

5 Smart Investing Principles

Principles that can help create a portfolio designed to pursue investment goals.

View all presentations

Retiring the 4% Rule

A portfolio created with your long-term objectives in mind is crucial as you pursue your dream retirement.

Coaches

Coaches have helped you your whole life, in ways big and small. We’d like to be one of them.

The Business Cycle

How will you weather the ups and downs of the business cycle?

View all videos