Where Will Your Retirement Income Come From?

As you start nearing retirement, meet with a financial advisor to create a strategy for receiving your retirement income. You may need to start withdrawing some of your savings at around age 70½.

By Jeanne Lee

Now that your retirement is drawing closer, you need to start mapping out where your income will come from and roughly how much you’ll have. You’ll probably want to meet with your financial advisor to create a steady income stream (and one for your husband or partner, if you have one).

These are the main types and how to determine the amount of income coming:

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Social Security
Review your annual Social Security Statement. (If you can’t find yours, get one from the Social Security Administration using its Request for Social Security Statement form.) Or use Social Security’s online Retirement Estimator tool to learn how much you’ll receive, based on your Social Security earnings record.

The exact size of your monthly Social Security benefits depends on what age you start collecting your checks. The Center for Retirement Research at Boston College has an excellent, free e-book, “Social Security Claiming Guide,” spelling out the rules.
Employer pension plans
The traditional pension, also called a defined-benefit plan, can provide you a certain amount of money each month in retirement. Many plans offer a variety of options for payment of your benefit, such as guaranteed payments for your lifetime (and your husband’s) or guaranteed payments for a certain number of months with payments continuing for as long as you live. The forms of payment available are determined by your plan. Your benefit is guaranteed by your employer and may also be insured by the Pension Benefit Guaranty Corporation.

If you’re entitled to a pension through your employer, review your employee benefits statement or request a meeting with your benefits representative to figure out how much you’ll receive. For more on defined benefit plans, check out What You Should Know About Your Retirement Plan at the U.S. Department of Labor’s website.
Income annuities
An income annuity is an insurance product that provides you with a guaranteed monthly check for a period you specify, which could be the rest of your life. Its guarantee is backed by the claims-paying ability of the issuing insurer.

Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk.

Guarantees apply to minimum income from an annuity; they do not guarantee an investment return or the safety of the underlying funds.
Retirement accounts
These savings plans are not guaranteed. You can choose when to withdraw money from them in retirement, although you often must start withdrawals at age 70 ½. The most common types:

  • 401(k) and 403(b) plans are tax-deferred, employer-sponsored, defined-contribution savings plans.¹ How much income you’ll receive from them in retirement depends on how your investments perform. These plans require you to start taking withdrawals at age 70½. The exact amount you need to pull out is based on a complicated IRS formula, so you’ll want to ask your tax advisor for guidance.

    If you’ve accumulated several different employer-based retirement accounts during your working life, you may want to make managing them easier by rolling them all into one account.

  • Traditional IRAsandRoth IRAs let you start taking penalty-free distributions at age 59½.² You can withdraw your Roth IRA contributions at any time without a penalty; Roth IRA earnings are subject to an early-withdrawal penalty before age 59½.

    When you do start taking the money out in retirement, you’ll pay income tax on the cash if it’s a Traditional IRA, but you won’t owe taxes on Qualified Roth IRA distributions. You must start taking mandatory distributions from a Traditional IRA at 70½; there’s no such requirement for Roth IRAs.
Stocks, bonds, and mutual funds
Talk with your financial advisor about devising a strategy for receiving income from your stocks, bonds, and mutual funds in retirement. If your portfolio is weighted toward stocks and stock funds, now may be the time to begin to think about shifting toward producing income through bonds and money-market securities.
Part-time employment
More and more retirees are supplementing their income by continuing to work in some capacity. You might choose to do so as an independent consultant or by working part-time for your preretirement employer. Alternatively, you may branch out and turn a hobby — such as gardening or pottery — into a part-time business.

Key Points:

  • Start thinking about my future retirement income.
  • Use Social Security’s Retirement Estimator calculator to get a rough idea of the amount I’ll receive from Social Security.
  • Look into consolidating my various 401(k) accounts from previous employers.
Jeanne Lee is a business journalist whose work has appeared in Financial Planning, Fortune, Money, and on CBS MoneyWatch.com.

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