Retirement might come with the relief of not working and enjoying the remaining years of your life in peace, but it comes with the cost of no income. Sure, you might have some amount of savings or investments left to survive during retirement, but without any active or passive income, it can be quite a struggle to survive with just basic expenses.
So what types of income can you use in retirement to support yourself? Here’s a breakdown of different income sources you can have during your retirement.
Social Security Benefits
For most retirees, Social Security Income is the main source for all basic expenses. Social Security is a government benefit that provides a base amount based on your work history to replace your work income.
The amount you receive entirely depends on your work history, lifetime earnings, and the age you claim your Social Security benefits. The average Social Security payout for a retiree at 62 is $2,710. But to get the full benefits, you can delay your retirement until the full retirement age or 70 to increase your monthly payouts by an even larger amount.
Pension Income
If you are one of those lucky individuals who got access to a pension plan, then you can get guaranteed income without any additional inconvenience after your retirement. Mostly, pension plans are offered by the government, large corporations, or unions as support for employees during their retirement.
The pension is calculated as a % based on your salary and years of service, from which monthly payouts are made based on the corpus therefore created. Pensions often last a lifetime and guarantee you a fixed and stable income that can cover most of your living costs. Many pensions also offer spousal or survivor benefits so that your partner will receive these benefits even after your death.
Retirement Accounts: 401(k)s and IRAs
Now apart from Social Security income, most people can also rely on their 401(k)s or IRAs as support during their retirement. When you save and invest during your working years in these accounts, the amount will get compounded over the years and in the end, you get a huge sum of money where you can withdraw some amount monthly or annually.
They also have tax advantages so you don’t have to spend a good amount of your income on taxes.
- 401(k) Plans: Many employers offer 401(k) plans where you can contribute pre-tax earnings, and often, employers provide matching contributions. The maximum contribution limit for 2024 is $23,000, with an additional $7,500 catch-up contribution for those over 50.
- IRAs (Individual Retirement Accounts): IRAs are another popular retirement savings vehicle, available in Traditional and Roth forms. Traditional IRAs provide tax-deferred growth, while Roth IRAs offer tax-free withdrawals in retirement.
Dividends and Investment Income
You can also earn dividends or investment income if you have invested a good amount of money and built a portfolio during your working years. These stocks or assets will give you dividend income monthly, quarterly, or annually, depending on their payout policy.
Even if you haven’t invested in stocks or other asset classes during your work years, you can still park your savings in high-yield stocks or other investments and get regular income from these investments. They can be a reliable source of passive income and most often pay higher than any other income source.
Annuities
If in case you are worried about outliving your savings, you can get annuities for a lifetime or a specified period. These are financial guarantees offered by insurance companies for a specific period or lifetime that provide guaranteed income. Now depending on the period, there are several kinds of annuities you can apply for:
- Immediate annuities: Immediate annuities pay you right away in regular intervals after paying the insurance company a lump sum of money.
- Deferred annuities: These annuities start paying you out after a specified date or period. This means that you can build your investments in the meantime and claim them once you are ready for retirement.
- Fixed vs variable annuities: Fixed annuities guarantee a fixed income in regular intervals, while variable annuities payout based on the performance of the underlying asset.
Part-Time Work or Freelancing in Retirement
Now if you don’t want to be stuck up in your retirement and want some activity in your life based on your expertise, you can always go for part-time work or freelancing. Whether it’s working a few days a week or turning a hobby into a small business, you can still contribute to work to gain some extra income.
Conclusion on Retirement
To wrap it up, there are several sources of income that you can tap into during your retirement to support yourself. It all comes down to how much time and money you’re willing to put into each source to make the most out of during your retirement.
It’s always best to diversify yourselves in different sources of income to make sure you’ll be financially independent with added benefits during your retirement.
Sources:
https://www.bankrate.com/retirement/average-monthly-social-security-check/
https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000
https://m.economictimes.com/wealth/invest/retirement-planning-annuities-can-give-you-income-for-life-should-you-invest/articleshow/104060680.cms