 During retirement, our sources of income need to satisfy our financial needs. There are three fundamental sources of income:
- Government-Sponsored Programs
The main Government-Sponsored program is Social Security. It is a valuable source of retirement income. Nevertheless, it was never intended to replace 100% of an individual’s income in retirement. Social Security benefits are regressive:
- If you had minimum wage earnings during your life your benefits would equalize approximately 59% of your earnings before your retirement.
- If you had average earnings during your life you beneficial would equalize approximately 42% of your pre-retirement earnings.
- And in case your earnings were in the highest tax bracket during your life your benefits would equalize approximately 24% of you earnings to prior to retirement.
You have to know that receiving maximum Social Security benefits also involves a number of criteria, such as age, working credits, and current income.
- Employer-Sponsored Programs
Such programs as 401(k) and 403(b) plans can also be a valuable part of retirement income. Nevertheless, more and more employers are moving the responsibility for funding these programs to the employees themselves.
Advantages of employer-sponsored programs:
- Employer funds retirement benefits.
- Money collects tax-free.
- Employees have a vested interest in the plan.
- Employee enjoys appointed retirement benefits.
Disadvantages of employer-sponsored programs:
- Contributions may be contingent on current and future profitability.
- Employers often select investments, and account balances may not be available for borrowing.
- Employees’ non-vested retirement account values may be forfeited if employment terminates.
- Individual Programs
These programs, such as IRAs and life insurance are perhaps the most critical for retirement planning in today’s economic environment. IRAs offer even more valuable tax benefits to help you meet your retirement needs. Only permanent life insurance provides simultaneous protection against the two greatest financial risks – dying too soon and living too long.
Life insurance provides unique benefits that should be a part of any retirement plan.
And to crown this all, it should be mentioned that while none can provide for all of your retirement needs alone, each of these sources is a valuable part of your retirement income.
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