Understanding your retirement income is one of the most important aspects of retirement planning. Retirement income can come from a wide variety of sources including Social Security, pensions, investment accounts, annuities, or even part-time work. By putting together these streams of guaranteed and variable income, retirees must meet their expenses.
Social Security is a primary source of retirement income for most Americans. Retirees can begin collecting Social Security as early as age 62, but monthly benefits will be 20% to 30% less than full retirement benefits. Benefits will grow for each year retirees delay taking benefits, up to age 70. Waiting to take benefits can create a substantial value to retirees particularly with increasing life expectancies.
Another source of guaranteed retirement income is pensions. A pension generally pays a fixed monthly amount for life based on length of employment and salary income. Pensions can typically be paid out over a single life, joint life (with a spouse), or a lump-sum payment. Social Security and pensions are often considered guaranteed forms of retirement income.
The rest of a retiree’s income usually comes from variable sources such as investment accounts. Retirement accounts can be composed of pre-tax funds (401(k), 403(b), or IRA) or after-tax funds (Roth). At age 70 ½, retirees must begin to take draws called required minimum distributions (RMD’s) from pre-tax accounts. Each year, a higher percentage of your retirement account will need be distributed.
At First Point Wealth Management, we can help you with each of these sources of retirement income. By taking the time to understand your complete retirement picture, we can craft an investment portfolio that is tailor made for your income needs. Contact us today to schedule a consultation at 515-663-3078 or email.
Article written by Nick Johnson, CFA, Investment Analyst at First Point Wealth Management.