Sources of Retirement Income

Social Security, a long-time retirement income safety net for elderly Americans, faces an uncertain future. According to the AARP, Social Security can meet 100 percent of its obligations until the year 2030. If no changes are made to Social Security, only three-fourths of the baby boomers' (those born between 1946 and 1964) benefits will then be available.¹

But even if you receive 100 percent of your Social Security benefits, will it be enough to cover the retirement income you estimate you will need? Help ensure your "golden years" will indeed be golden by exploring other potential sources of retirement income and building a solid, long-range financial plan.

• Life Insurance: Life insurance provides protection for your family and business associates in the event of your death. Because it accumulates cash value, permanent life insurance can be used to supplement retirement income.
  
  
• Annuities: A tax-deferred annuity’s value grows by delaying income tax payments until withdrawal. However, a 10 percent penalty may be assessed if funds are withdrawn before age 59½. You receive a guaranteed percentage of interest in a tax-deferred annuity. There are no IRS limits to how much you can put in an annuity each year. If you have accumulated large amounts of discretionary cash or assets, you may want to consider a variable annuity* in which the rate of return is connected to the stock market or an index annuity with the returns linked to an market index . Upon retirement, a single premium immediate annuity can be part of a retirement plan. Single Premium Immediate Annuities offer a guaranteed income option that can never be outlived.
  
  
• Individual Retirement Accounts (IRAs): Money in IRAs grows tax-deferred until withdrawal, at which time withdrawals are taxed as ordinary income. You are required to begin withdrawals no later than age 70½. Many IRAs offer a variety of investment options, including mutual funds and stocks, and you can move your IRA from one financial institution to another. You may contribute up to $5,000 (age 50+ $6,000) or 100 percent of your earned income, whichever is less, each year. You may be able to deduct contributions to an IRA from your income taxes under certain provisions.
  
  
• Roth IRAs: Contributions to a Roth IRA are non-deductible. Contributions are always accessible and gains can be withdrawn tax-free, as long as the account has been in existence for five or more years and the withdrawals are taken after age 59½ . Money in Roth IRAs also grows tax-deferred. Like a traditional IRA, you may contribute up to $5,000 (age 50+ $6,000) or 100 percent of your earned income, whichever is less, each year.
  
  
• Simplified Employee Pension-Individual Retirement Account (SEP-IRA): SEP-IRAs assist self-employed people in planning for their retirement through tax-deferred accounts. This special IRA is funded entirely by the employer.
  
  
• 401(k) Plans: A 401(k) plan is a type of retirement account offered by employers. You decide how much of your paycheck you want automatically deducted for the plan before taxes are taken out. Your employer may offer a company match. Some employers also offer Roth 401(k) plans. You choose how to invest your contributions depending on the choices in your 401(k) plan. Upon leaving your employment, you can roll over your 401(k) into an IRA. A 403(b) is a tax-deferred investment and savings program for employees of certain tax-exempt employers, including hospitals and health care organizations, charitable foundations, religious organizations, scientific and research organizations, educational institutions, and others.
  
  
• Pension plans: Some employers offer pension plans, retirement plans that pay a set amount each year during retirement. Also called a defined-benefit plan, company pensions guarantee a specific amount of benefits to employees, calculated using a formula that typically includes final salary, years of service, and a fixed percentage rate. Most pension plans are covered by the Pension Benefit Guaranty Corporation, or PBGC, a federal agency that protects employer-sponsored defined-benefit plans.
  

¹See http://www.aarp.org/realitycheck/home.html