Coming up with a retirement game plan involves estimating what your expenses will be once you retire. This is not easy, but figuring out what you are spending now is a good start. Then you need to set up a retirement income that will be equal to or higher than the potential spending. But all the money doesn’t need to come from one source. Here are 6 of the most popular income streams for retirees.
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Social Security. Though the program has a projected long-term deficit, the reality is that Congress will never let this retirement program just disappear. Future retirees may have to make adjustments, such as receiving their benefits later. But you will still receive benefits in retirement whether you are currently 60 or 25 years old. Don’t rely on Social Security as an exclusive source of retirement income, but count on some money coming in as a cushion in retirement.
Retirement account distributions. Hopefully, you have been contributing to a 401(k) and IRA throughout your working life. In your retirement years, this will become a major source of funds. Remember to factor in the income tax you will need to pay on traditional 401(k) and IRA withdrawals.
Pension. Consider yourself lucky if you still have a pension of any kind. But if you do, the monthly checks will provide a guaranteed source of retirement income.
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Savings and investments. Ideally you will have savings and investments both inside and outside of retirement accounts. This will allow you to better time your traditional 401(k) and IRA withdrawals to minimize your tax burden in a given year. Aim to set it up so that the income generated by your investments can sustain your lifestyle. That way you won't even have to touch your principal.
Downsizing income. All the stuff you've accumulated through the years and no longer need such as collectibles, a second car, and even your house can all be converted into extra income in retirement if you can sell it. In the cases of downsizing your house or selling extra cars, there is also the added benefit of reducing your recurring expenses.
Part time work or business income. Working at a retail job may not be part of your dream retirement, but it can help secure your retirement. You may also want to consider starting a small business, where you get to decide how much work to put in. It’s never easy, but making money in a small venture may not be as daunting as you think it is.
David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.