Retirement Income SourcesNote: Original research and information derived from the Internal Revenue Service and the New York State Insurance Department.
Individuals fund their retirement income from some combination of these four sources... - Social Security retirement benefits
- Employer retirement plans and IRAs
- Personal savings and investments
- Post-retirement employment.
- Social Security retirement benefits provide a base income for retirees. The monthly benefit depends on the individual's earnings history and the age at which benefits begin.
The normal retirement age for Social Security traditionally has been 65. However, the normal retirement age increases in stages for persons born in 1938 and after, and eventually reaches age 67 for persons born in 1960 and after. The normal retirement age is the age at which the full Social Security retirement benefit is payable. A reduced monthly benefit may be taken as early as age 62. - Social Security retirement benefits that are in pay status are subject to annual cost-of-living adjustments.
- Social Security retirement benefits are generally nontaxable, but may become partially taxable if the recipient's income exceeds certain threshold amounts.
- Employer retirement plans and personal IRAs supplement Social Security as another source of retirement income. Employer retirement plans may be defined benefit plans, that pay a promised monthly benefit to the retiree, or some form of defined contribution plan, in which the retired employee has an individual account balance. Defined contribution plans, such as 401(k), 403(b) and profit-sharing plans, have been the more prominent form of employer retirement plans in recent years.
- Individual Retirement Accounts and Annuities (IRAs) may be "traditional" or "Roth" IRAs. Contributions to traditional IRAs are tax-deductible in some cases, while contributions to Roth IRAs are never deductible. Distributions from traditional IRAs are taxable in whole or in part as ordinary income. Distributions from Roth IRAs may be federal income tax-free if certain strict requirements are met.
A wide variety of savings/investment vehicles is available to consumers for retirement income accumulation purposes: - Savings Vehicles - These include passbook savings accounts, certificates of deposit, money-market mutual funds, and government savings bonds.
- Equities - These include publicly traded common stocks and mutual funds that invest in equities. Preferred stocks and bonds that are convertible into equities may also be considered equity investments.
- Bonds - These include debt instruments issued by the federal government, corporations, and state and local (municipal) governments. Bonds may be owned directly or through mutual funds and unit investment trusts.
Additional savings/investment options for consumers include: - Real Estate - This includes not only personally owned property, but also property owned through limited partnerships and real estate investment trusts (REIT's). Some consumers have used home equity as a source of retirement income.
- Annuities - These vehicles offer tax-deferred growth of earnings and a variety of payout options, including payouts guaranteed to last for the annuitant's entire lifetime (or until the death of a second annuitant).
- Precious Gems & Metals - These tangible assets may be owned directly, e.g., in the form of gold or silver bullion or coins, or in the form of stock in mining operations.
Some individuals elect to continue working, perhaps in a part-time capacity, after formal retirement, either to remain active or to supplement their retirement income. However, this can be counterproductive in some ways: - First, post-retirement earnings may boost an individual above the income thresholds at which Social Security benefits become subject to federal income tax. These thresholds are currently $25,000 for single persons and $32,000 for married persons filing jointly.
- Second, post-retirement earnings are subject to federal, state and local income taxes, Social Security taxes, and Medicare taxes.
|
