Fundamental Sources of Retirement Income

Traditional sources for retirement income—such as Social Security and defined benefit plans—are less certain to satisfy retirement needs than they were in the past. The rising cost of living, a diminishing number of defined benefit plans and a social security system that requires reform in order to pay benefits for younger workers in the distant future are worrisome. As a result, it’s increasingly more important for investors to work closely with their advisors to create a comprehensive plan that will enable them to meet their income needs during retirement.

The traditional sources of retirement income include:

  • Employee sponsored retirement accounts
  • Pension plans
  • Social Security
  • Employment
  • IRAs
  • Fixed income securities
  • Dividends
  • Annuities

How much is enough?

Running out of money in retirement is a concern for many investors. It’s a challenge to calculate exactly how much they’ll need, given that many factors—from investment returns, healthcare costs and inflation to Social Security’s future and individual life spans—are nearly impossible to predict.  What is certain is that individuals are living longer. In fact, at least one member of a 65-year-old couple has a high probability of living into his or her 90s, 35 years beyond what has historically been considered a “normal” retirement age in the United States.

Experts often estimate retirees will need 75 to 85% of their pre-tax, pre-retirement income.  But often there will be no reduction at all in the cost of living in retirement due to medical bills and the desire and the time for travel.

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