Where will the Money Come From?
According to Principal Life Insurance Company actuarial tables and a study of 1994
Department of Health and Human Services data, for every 100 people born, at age 65, 15 are
dead, 15 have incomes below the poverty level (under $8,000 per year), 56 have incomes
between $8,000 and $45,000 (with the median income of $19,500) and only 14 have incomes
over $45,000.
Your financial independence later depends on your actions now. You must consider everything - Social Security, pensions, annuities, life insurance and investments, too. A careful analysis of these and other pertinent areas will help you determine whether you have adequate reserves to retire comfortably. It's amazing how many people never achieve true financial independence
Retirement-Funding the
Retirement Pyramid
Your retirement plan should be structured like a pyramid. Some call it the "Retirement
Pyramid". Social Security provides the base, followed by qualified retirement
plan(s), then personal savings and nonqualified retirement programs.
Social Security is a good base. But that's all it's really meant to be -- base income upon
which to build a retirement plan.
Qualified (pre-tax) retirement programs (Money Purchase, Defined Benefit, Target Benefit,
Comparability, Profit Sharing and 401(k) plans) can provide substantial amounts of
money at retirement.
Personal savings are also a good source of retirement income. However, income tax on
interest earnings takes a big bite out of savings. How much can you count on Social
Security or an employer pension plan for financial support during retirement? The answer
lies in your individual circumstances...and in your skills as a "detective" to
uncover clues that will put you on the trail to success. There's no need to grab
your magnifying glass. Instead, ask the right questions, and get your hands on information
that is readily available.
Social Security
To find the approximate amount you'll receive from Social Security, submit a Request for
Earnings and Benefits Estimate Statement (available from your financial professional, or
through your local Social Security office). You'll receive a benefit estimate based on
your normal retirement age. Keep in mind that while 65 is the typical retirement age for
those born before 1959, it may be higher for those born later.
If you're considering early retirement, determine when you can receive Social Security
benefits, and how this will affect your future benefits. For instance, partial benefits
may be available as early as age 62. However, this may mean a permanent reduction in
benefits.
Qualified Retirement Plan
Your employers' pension plan also affects your retirement picture. Ask these
questions...
Will benefits be adjusted for inflation?
If you die, will your spouse receive benefits?
Are benefits based on years of service or earnings?
When are your benefits fully or partially vested?
Ask for a copy of the summary plan description to assist you in answering these pension questions.
Other Resources
Personal savings and investments such as annuities, stocks, certificates of
deposit, life insurance policies, savings bonds, mutual funds, money market accounts, real
estate, and personal property often define the difference between financial hardship and
financial comfort in your retirement years. A financial counselor can help you make sound
decisions about how to handle your assets and investments before and after you reach
retirement age.
You may still be earning income when you retire. Many people who retire go right back to
work, and some even pursue new careers. If you decide to work after you retire, it's a
good idea to check how it may affect your Social Security benefits. Planning for your
retirement is more important now than ever before. We tend to live longer and lead more
active lives; therefore, retirement benefits may need to stretch over longer periods of
time. With the future availability of Social Security benefits in question and related tax
laws constantly changing, having your own "nest egg" is a necessity rather than
a luxury. Knowing your sources of income, what to expect from them, and how they work
together will help you toward a financially secure retirement.
There are many factors to consider to determine if you're on your way to a successful
retirement. The time to start planning is now........and.....with the right strategy... a
successful retirement is within your reach.
