No one wants to spend their entire life working. However, if you do not make a plan for retirement income, this could be a reality that you face. If you are not planning to work in retirement, you will still need a way to make money so you can afford to live. This means having enough money to cover the basics like food, housing, and medical care, at a minimum (and you will likely need money for many more things than these basic necessities). These are a few of the most popular options that you can use in seeking to create retirement income.
Social Security is the most common way Americans pay for retirement, and historically many Americans have counted it as their main source of income after leaving the labor force. However, Social Security currently is in deficit spending, and a majority of working Americans don't expect Social Security to play a large role in their retirement finances, with younger Americans the least likely to count on it. Many financial advisors working with younger clients will even recommend you remove Social Security from your calculations when planning out your retirement budget, as there is no guarantee it will still be around when the time comes for your own retirement.
One option that many workers take advantage of is their employer-sponsored 401(k). If your current employer offers a 401(k) and you’re not contributing to it yet, you'll want to start right-away. One reason why this is such a great option is because many employers offer a match, meaning any money that you put in will also be added by your employer. You can choose to invest up to the match or max it out based on the current IRS regulations every year (your employer will tell you the maximum you can contribute). If you can't stomach the idea of less take-home money in your paycheck, start small. Contributing just 1 or 2% won't seem like much at first (and you might barely notice the difference), but it is better than nothing. After a few months, up the percentage, and continue doing so, until you reach the max allowed by your employer.
Another good option for investing money is an IRA. This is a personal account that you can create that is separate from your employer. Just like a 401(k), there are IRS regulations regarding how much you can actually put into this account every year. If you can, it is a good idea to max out this account. You can also choose between a tax-deferred account or one that accounts for taxes at the time of contribution. Deciding which account is best for you may be a good thing to discuss with your financial planner.
You want to retire in style and live with confidence for what the future holds. With careful financial planning, you can pursue that goal.
Note: Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.