One retiree turns a passion for cooking into a small catering business; another makes a run for public office; another goes back to school full time. Decades ago, who ever imagined life after work could be like this?
While retirement holds all sorts of interesting possibilities, there is a catch. Where will the money come from to support two or three decades of doing what you really want to do? For most retirees, there are several sources.
- Pensions and Social Security still fund a major portion of many retirement incomes. But that may not be true for you. Certainly, the traditional company pension isn’t as common—or as generous—as in years past. Social Security currently accounts for about 39% of income for retirees. However, Social Security’s future faces a shrinking workforce and growing retirement population.
- Employer-Sponsored Salary Deferral Plans offer an excellent opportunity to save for retirement on a pretax basis. With substantially higher contribution limits in a 403(b) or 401(k), these types of programs are often the primary retirement savings vehicles. In addition, many plans offer an added incentive in the form of an employer match of all or a portion of employee contributions.
- Personal Savings and Assets Invested in Individual Retirement Accounts (IRAs) are two other potential sources of income. Outside of your company pension plan, an IRA can be one of the most powerful tools available to help save for your retirement. IRAs offer flexible investment options and tax-deferred growth as well as tax-deductible contributions for some; and Roth IRAs offer tax-free distributions. They provide an unprecedented degree of personal control over, and access to, accumulated balances.
Use this retirement income calculator to help determine your retirement income needs and see if you are on track with your retirement savings.