Where Will Your Retirement Money Come From?11/01/2019
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 may be counted in the calculation.) In mid-2018, the average monthly benefit was $1,413.1,2
Personal Savings and Investments. These resources can also provide income during retirement. Personally, you may want investments that offer steady monthly income over vehicles giving you the potential for double-digit returns. But remember, a realistic understanding of your ability and willingness to stomach large swings in the value of your investments is a must. A quick chat with a financial professional can help you understand your risk tolerance as you approach retirement.
Individual Retirement Accounts. Traditional IRAs have been around since 1974. Contributions you make to a traditional IRA are commonly deductible. Distributions from a traditional IRA are taxed as ordinary income, and if taken before age 59½, may be subject to a federal income tax penalty. Once you reach age 70½, these accounts require mandatory withdrawals.3
Roth IRAs were created in 1997. Contributions you make to a Roth IRA are non-deductible, as they are made using money that has already been taxed. Sometimes, only partial Roth IRA contributions can be made by taxpayers with six-figure incomes; some especially high-earning individuals and couples cannot direct money into Roth IRAs at all. 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. Contributions may be withdrawn penalty-free at any time. Roth IRAs do not have any required minimum distribution rules.3
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, and the invested assets may accumulate with taxes deferred, year after year. (Some of these accounts are Roth accounts, funded with after-tax dollars.) Generally, once you reach age 70½, you must begin taking required minimum distributions from these workplace plans.4
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 specific factors, such as salary history and duration of employment. Relatively few employers offer these kinds of plans today.5
Continued Employment. In a recent survey, 68% of workers stated that they planned to keep working in retirement. In contrast, only 26% of retirees reported that continued employment was a major or minor source of retirement income. Many retirees choose to continue working as a way to stay active and socially engaged. Choosing to work during retirement, however, is a deeply personal decision that should be made after considering your finances and personal goals.6
Talk with a qualified CFS* financial advisor at Apple Financial Services today; appointments are available at no cost or obligation.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer, (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Apple FCU has contracted with CFS to make non-deposit investment products and services available to credit union members. Apple Financial Services LLC is a subsidiary of Apple FCU and is not directly affiliated with CFS.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - waddell.com/explore-insights/market-news-and-guidance/planning/9-facts-about-social-security 
2 - cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security [8/14/18]
3 - cnbc.com/2018/07/30/roth-vs-traditional-iras-how-to-decide-where-to-put-your-money.html [7/30/18]
4 - fool.com/retirement/2018/11/21/the-most-important-401k-rules-for-maximizing-your.aspx [11/21/18]
5 - investopedia.com/terms/d/definedbenefitpensionplan.asp [1/26/18]
6 - investopedia.com/articles/personal-finance/101515/planning-retiring-later-think-again.asp [10/25/18]