There are four main resources most people rely upon when it comes to funding
plans and accounts
Social Security was never meant to be a sole source of retirement funding. It was designed to provide a minimum income, in return for contributions made to its pool over the course
of a working lifetime.
The dollar amount of your benefits increases (to a point) proportionate to your contributions.
However, the higher your pre-retirement income, the lower the percentage of that income Social Security will replace. As your income level increases, you'll need to look for sources
other than Social Security to fund your retirement.
Another reason you shouldn't depend too heavily upon Social Security is that it is subject to Congressional changes as well as changes in the future financial health of the system.
So, look to Social Security as a source but not the only source of your retirement income.
For more information on Social Security, click on the
Social Security subheading under the
Retirement Planning heading in the left margin.
Retirement Plans and Accounts
For many, a comfortable retirement income depends on the size of their retirement plans and accounts more than on Social Security or any other resource.
There are a wide range of plans available. Employers have many choices in setting up and sponsoring retirement plans and accounts for their employees. Some plans provide a fixed
percentage of salary (for example, 35%) as a retirement benefit for life. Others allow employees to accumulate assets in a retirement fund but without any guarantee as to the percentage
of salary that the fund will replace.
Plans are funded in diverse ways, too. Some call for only employer contributions, some allow only employee contributions, and others have a mix of the two.
Contribution terms also can vary. For example, although contributions by employees and their earnings belong to the employee, employer contributions may be handled differently. Some
plans provide that employer contributions and the related earnings totally vest (belong to the employee) in seven years. Other plans have faster vesting schedules.
Although companies are not required to have retirement plans, there are advantages to setting them up, including reduced taxes for the employer, increased incentives for employees
to join and stay with a company, and opportunities to attain financial security.
Self-employed people can establish retirement plans as well. And self-employed owners with employees can benefit from offering retirement plans just like other companies do.
Individual Retirement Accounts
Some retirement accounts are set up by an individual and not by an employer. The two most common types are the traditional IRA and the Roth IRA. In both cases, it is up to an individual
to set up an account and make contributions. IRAs have significant tax benefits so much so that many people participate in an employer-sponsored retirement plan and have IRAs, as
Retirement income can also come from personal, non-retirement investments, including stocks, bonds, mutual funds, savings accounts, CDs, real estate, businesses, annuities and almost
anything else you can imagine.
When choosing personal investments to use for retirement, consider these factors:
potential growth in value
Your plan for your retirement fund may call for a significant personal investment
component in addition to retirement plans and accounts.
long you'll own the investment
yearly cost of maintaining the investment until retirement
potential income flow from the investment during retirement
easy it is to turn the investment into cash (liquidity) when you need it
involved in converting it into cash (such as sales commissions and closing
costs on real estate)
much risk there is with the investment
tax benefits/costs involved with owning and selling the investment
Working During Retirement
Although it may seem like a contradiction to talk about working during "retirement," for
some it will be a necessity to make ends meet. This may mean working part-time
or full-time as an employee, or running your own business.
But even if you don't need additional money you may continue to work. For many,
work contributes self-worth and self-esteem. Not working, without replacing it
with something equally satisfying, can affect your mental sharpness, your health
and, for some, even your sense of purpose.
If continuing to work looks like it's going to part of your retirement, plan
for it. If you have a hobby or special interest that you could turn into a viable
business, investigate it. Advance research will improve your chances of success
both in business and as a retiree.
A Final Word
It's always nicer if working during retirement is a choice instead of a necessity.
Plan for retirement now so you'll have sufficient income during your golden years.
Between now and then, be aware of how your investments are performing and whether
you're on track to meet your goals. And learn about the income tax and estate
tax consequences and benefits available to you.
Chances are you'll need to rely on at least two of the four sources of retirement
income to have a comfortable retirement.
For more information:
If you'd like more information about how diversified investment advisors can help you achieve your financial objectives through personalized wealth or retirement and risk management strategies, please contact us. We welcome the opportunity to discuss your unique needs and how we may best meet them.
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Charles M. Bloom, Registered Principal offers securities
and advisory services through Centaurus Financial, Inc. - Member FINRA and SIPC - 775 Avenida Pequena, CA, 93111 (mailing address: 3905 State Street Suite 7173, Santa Barbara, CA, 93105) - CA Life Insurance License No. 0A52786 - Centaurus Financial, Inc. and Shoreline Wealth & Investment Management are not affiliated companies.
The information contained in this web site is neither an offer nor solicitation of any security or service.