Income in Retirement
A crucial part of retirement is having enough money to live on. Unfortunately, some individuals do not properly plan and are left wondering how to supplement their income.
While few people can say they are guaranteed a favorable monetary future, there are some steps individuals can take, similar to the ones below, that might bolster their positioning.
IRA. An Individual Retirement Account is a relatively easy way to accrue money for the future. The plan is tax-deferred, and many individuals can contribute up to $5,000 per year (those over 50 may be eligible to put in an additional $1,000). There are different types of IRAs: let’s briefly touch upon two.
- The Traditional IRA defers taxes until funds are withdrawn (at which time taxes are applied to the amount taken). Age 59 ½ is the earliest that someone can begin withdrawing without a penalty. A 10% fine may apply if funds are taken out before the minimum age requirement.
- A Roth IRA is different than the Traditional IRA in that withdrawals are typically tax-free (to be eligible for a Roth IRA, 2009 guidelines indicate that joint filers must not make over $176,000, and single must not exceed $120,000). A Roth IRA is especially beneficial to people who might expect a higher tax bracket in retirement.
Pensions. Pensions can come from different sources and indicate payments a person receives upon retirement. Still, a number of people tend to associate pensions with Defined Benefit Plans.
Defined Benefit Plans are chosen by the employer. They are noncontributory (meaning the company sets aside a certain amount of money on behalf of the employee). A fixed income, based on a formula of earned wages, coupled with other variables such as number of years employed, determines the retirement dollar amount. DB Plans are less popular now than in prior years because they are expensive for companies to manage.
Defined Contributory Plans appear more popular today. The employee contributes a portion of his or her income (typically tax-deferred), and the payout is based upon the amount put in and success of the respective investment. Unlike Defined Benefit Plans, the income from Defined Contributory Plans is not set (meaning that if your investments go down, your pension might, also). A perk? Should individuals leave the company, they can usually roll their money into an IRA (or transfer it to the new employer plan).
There are other income types in retirement such as Social Security. The Social Security Administration informs people over 25 (via mail) as to current and projected estimates of their benefits.
Savings and stock investments are also crucial in senior years. Instead of spending $100 now on an item you really don’t need (assuming that sort of thing happens), maybe consider adding the money to your bank account for later.
Everyone hopes to be financially secure in retirement. Some thoughtful planning (and a good financial advisor) can help make that hope real.