3 Potential Income Streams in Retirement
Paying for retirement typically requires pulling money from different sources to replace working income. For most families, this can come from several different places including the government, personal savings, and your job.
Government income, in the form of Social Security, can begin as early as 62 and as late as age 70. The full retirement age for Social Security is between 66 and 67, depending on your year of birth and creates the benchmark. Taking money before your full retirement age will reduce income for life on a prorated basis. Taking money after the full retirement age will add approximately 8% to the monthly stipend for every year you wait.
Personal savings comes from independent investment or savings accounts, work or personal retirement accounts, and other products such as annuities. Overall the rate of savings in personal accounts is very low compared to the needs of most retirees. Accounts dedicated for retirement can offer tax benefits initially or in retirement to encourage savings. Personal investment accounts pay taxes each year often at the lower capital gains rate, and annuities can create a pension style income with payments guaranteed for life.
Employer retirement assistance is on the decline with pensions decreasing in value and frequency among most major companies. Those with a pension can take a monthly payout for life or convert it to a personal retirement account.
Calculating estimated income needs compared to retirement payouts will help you identify and fill anticipated gaps in future retirement income. The Human Resources department at your job can give you an estimated pension payout, and online Social Security calculators offer estimates based on the age you begin receiving benefits. The earlier you begin the process, the more time you have to build up your personal savings or identify additional sources of income to pay for the retirement you hope to achieve.