NDSU Extension Service - Ramsey County


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Money for Retirement

Money for Retirement

            Where to find money for retirement?  At one time, one source or stream of money for retirement was considered adequate. Whether it was a company pension or Social Security or stocks & bonds, one source was enough.  But as return on investments has decreased and the cost of living has increased, retirees have found that more than one source is needed. Where can retirement dollars be found?  Check which of the following applies to you.

            Retirement plans – This includes 401(k)s, IRAs, SEPs, 403(b)s, 457s, Keogh plans and more. While each has its pros and cons, almost half (45 percent) of Americans expect to fund their retirement with some type of retirement account according to a recent Gallup poll.  This is down from 52 percent in 2007.

            Pensions- A record low of 23 percent of workers expect to receive pension income in retirement, down from 31 percent in 2007. Fewer companies are offering pensions and new workers who join pension plans may receive less generous payouts than their elders. About 37 percent of current retirees get pension income.

            Social Security – Ranking second-highest in surveys of expected retirement income, Social Security has provided far and away the largest part of actual retirement income – nearly 40% over the last few decades.  Increases in life expectancy and declines in birth rates though have thrown a monkey wrench into this plan throughout the world and there are always concerns about it supporting itself.   Social Security benefits are indexed to inflation as measured by the Consumer Price Index which is a real positive.

            Personal savings – This category includes assets such as CDs and savings accounts, which are by agencies such as the FDIC. In recent years, Americans have become better savers but this category still falls far short of being a major source of retirement income.

             Part-time work – Many Americans plan to work during retirement, but many don’t.  It is difficult to stay market ready when technology changes so quickly and health concerns can quickly shorten one’s work life.

            Home equity –Drawing on the equity in one’s home is a tempting but risky retirement source.  One’s home is usually their largest asset but too large a draw can quickly move one out the door.  The expenses of maintenance are often overlooked in this scenario.

            Annuities – Many analysts consider this the most underrated potential retirement-income source.  Annuities do not have the high rate of return that stocks and bonds do, but they are an extremely safe investment during a volatile economy.

            Rents, royalties, etc. – For most people, this is a small share of both expected and past retirement income but it can be a very long-lasting source and even extend to the lives of your heirs.   With rental property, the expense of maintenance is again an issue.  

            Stocks & bonds. Stocks rank just below personal savings in surveys of expected retirement income. Their status in the eyes of Americans has declined thanks to recent financial downturns.  One’s principal investment is at great risk with every market downturn but the potential for fast growth still attracts investors.

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