Saving for retirement may seem like a no-brainer. But knowing whether your nest egg will be large enough to live on? That can be a head-scratcher.
One key planning strategy is to set up multiple retirement income sources. This can help you feel confident about covering your daily expenses—and having money left over to support people and causes you care about.
Common primary retirement income sources
Retirees typically receive income from a few key sources including Social Security and personal or retirement accounts, like 401(k)s, IRAs and pensions.
Social Security
Social Security—a federal government "safety net"— was created to help seniors avoid outliving their savings. If you or your spouse pays Social Security taxes while working, the program provides a guaranteed income stream in retirement. The amount you receive each month depends, in part, on what you (or your spouse) earned while employed.
You can start claiming Social Security as early as age 62. But holding off for a few years results in larger checks. Waiting until age 70 to collect Social Security maximizes your monthly benefit.
Get more insight into Social Security claiming strategies
401(k)s, IRAs & other retirement savings solutions
If you participate in a 401(k), 403(b) or similar workplace retirement savings plan or have an IRA, you—and perhaps your employer—can contribute money while you're working. You then can take penalty-free withdrawals starting at age 59½. Because your account's value likely will depend on market performance, you can't know in advance how much income it will provide in retirement.
Your account type determines whether you pay taxes on your money before putting it in or after taking it out. Traditional 401(k)s and IRAs take pre-tax contributions, so you must pay income taxes on your distributions. Roth 401(k)s and IRAs are funded with after-tax money, so no income taxes are due on the earnings when you make qualified withdrawals.
Discover tips on how to use your retirement savings
Pension plans
If you participate in a pension plan during your working years, you'll receive monthly payments from the start of retirement through the rest of your life or the lives of both you and your spouse. Unlike a 401(k), a pension doesn't allow you to choose how the money is invested, so its potential growth may be limited. But you're protected from loss—and your income amount is guaranteed.
Learn more about pension decisions as you near retirement
3 ways to add to your retirement income stream
While you may rely on Social Security and a 401(k) as your core retirement income solutions, additional cash flow can be a huge help. Sources can include:
1. Annuities
An
Deferred annuities allow you to put money in over time, offering the potential for long-term, tax-deferred growth. If you're already nearing—or in—retirement, an immediate annuity might be more useful. You can fund it with a one-time lump sum. Soon after, you'll start receiving recurring income payments that can continue for life—unaffected by market volatility.
Immediate annuities are funded by a lump-sum payment, such as money from a 401(k) or an IRA. You decide on the frequency and duration of your payouts when you make the purchase. Your initial withdrawal can start in as early as 30 days but must be taken within the first year. An immediate annuity doesn't have an accumulation period, so there's no opportunity to increase its value. But the guaranteed distributions it provides might help you feel comfortable investing other assets more aggressively.
Fixed annuities pay a guaranteed fixed interest rate (such as 4%) on your investment for an agreed upon period. Since fixed annuities offer a fixed interest rate, you know in advance how much your annuity will grow and how much income it will pay out. That predictability helps some people feel more comfortable about the long-term stability of their retirement income.
Variable annuities can be risker than other annuities as the value fluctuates based on the performance of investment options, called subaccounts. When you purchase a variable annuity, you decide how to allocate your premiums in the available subaccounts based on factors like your risk tolerance and timeline for retirement. Any investment earnings from a variable annuity grow tax-deferred until you begin taking payouts. These annuity payouts can last throughout your life, depending on the option you select.
2. Other investments such as stocks & bonds
If you own
You also may consider
3. Part-time work
Entering retirement doesn't prohibit you from
If you're early in your retirement years, pay attention to how much you earn from employment. Hitting a certain threshold temporarily will reduce the size of your Social Security checks. Once you reach full retirement age (between 66 and 67, depending on your birth year), income from a job won't lessen your Social Security benefits.
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3 other ways to boost your retirement income
Securing multiple streams of steady payments may meet your everyday needs in retirement. But to cover extra expenses or achieve certain goals, you may want to be able to access additional cash. These resources might include:
1. The cash value of permanent life insurance
Your life insurance
In many cases, withdrawals from a permanent life insurance policy are
2. Home equity
After years of paying a mortgage, owning your home outright gives you an asset you can tap for cash. You can take out a
3. Savings accounts & CDs
To prepare for unexpected one-time expenses, consider stable, low-risk solutions such as a
Even high-yield savings accounts may not offer the highest return, but they allow you to access your cash immediately if a financial crisis arises.
A CD may require a higher minimum balance, but it provides less
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Strategies to maximize your retirement assets
To stretch your retirement income as far as possible—and make the most of its buying power—it's important to develop strategies for how and when you'll take money from your accounts. This helps you:
- Meet financial needs as they arise
- Ensure your income lasts throughout retirement—which may span decades
- Maximize the total amount you accumulate so you not only support yourself but can also be generous with your wealth if you wish
To meet those goals, you may benefit from considering these approaches:
Have diverse income sources
Having multiple retirement income sources is most effective when they vary in key ways. An ideal mix might include accounts that provide guaranteed, predetermined payments, along with sources that pay less predictable amounts but have greater potential to grow in value.
Make wise withdrawals
To make the most of your savings and investments, try to withdraw only as much money as you need, when you need it. Keeping money in your accounts for as long as you can helps you build wealth, which you can tap later in life—or pass to others upon your death.
Some income sources—including workplace retirement plans and traditional IRAs—impose
Plan with tax efficiency
It's important to understand—and anticipate—all the