Tip: Retiring Older.
One survey found 23% of woman and 22% of men reported that during the past year they have changed the age at which they expect to retire. The vast majority said they plan to retire later.
Source: Employee Benefit Research Institute, 2011
For many people, retirement income may come from
a variety of sources. Here’s a quick review of the six
main sources:
Social Security
Social Security is the government-administered retirement income program. Workers become eligible after paying Social Security taxes for 10 years. Benefits are based each worker’s 35 highest earning years. If there are less than 35 years of earnings, non-earning years are averaged in as zero. In 2011, the average monthly benefit was $1,177.1
Personal Savings and Investments
One survey found that 65% of today’s workers expected their personal savings and investments will be either a major or minor source of retirement funds. The same survey found nearly 50% of current retirees report personal savings and investments is a major or minor source of funds.2
Individual Retirement Accounts
Traditional IRAs have been around since 1974.3 Contributions you make to a traditional IRA may be fully or partially deductible, depending on your individual circumstances. Distributions from a traditional IRA are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
Roth IRAs were created in 1997.4 Roth IRA contributions cannot be made by taxpayers with high incomes. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as a result of the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
Defined–Contribution Plans
Almost one-third of workers are eligible to participate in a defined–contribution plan such as a 401(k), 403(b), or 457 plan.5 Eligible workers can set aside a portion of their pre-tax income into an account, which then accumulates tax deferred.
Distributions from defined contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
Defined–Benefit Plans
Defined–benefit plans are “traditional” pensions — employer–sponsored plans under which benefits are defined rather than contributions. These benefits are normally based on factors such as salary history and duration of employment. The number of traditional pension plans has dropped dramatically during the past 30 years. (See chart below.)
Continued Employment
In a recent survey, 74% of workers stated that they planned to keep working. In contrast, only 23% of retirees reported that continued employment was a major or minor source of retirement income.6
Fall of the Traditional Pension
Traditional pension plans have largely disappeared during the past 30 years. Participation in definedcontribution plans, such as 401(k), 403(b), and 457 plans, has risen steadily over the same period.
Employee Benefit Research Institute, 2011
1. Social Security Administration, 2011
2. Employee Benefits Research Institute, 2011
3,4. Congressional Budget Office, 2011
5,6. Employee Benefits Research Institute, 2011
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as 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. This material was developed and produced by FMG, LLC to provide information on a topic that may be of interest. 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. Copyright 2011 FMG, LLC.