Many Americans dream of the day that they get to kick back and enjoy retirement, yet not enough have put sufficient financial plans in place to make those dreams a reality. One survey by the U.S. Government Accountability Office (GAO) found that about half of all U.S. households age 55 and older have no retirement savings at all.
The U.S. Economic Policy Institute (EPI) recently took a look at the state of retirement benefits and retirement living in the U.S. What they found was that, due to a lack of savings, many seniors are still working. In fact, the percentage of seniors still in the workforce (18.8%) is higher today than in over half a century. If you want to ensure a happy and carefree retirement, here are your sources for savings and future income replacement.
Social Security Retirement Benefits
If you're like most Americans, you've been paying into the Social Security system for years and expect it to return the favor when it's time for you to retire. The earliest age that you can begin collecting Social Security (subject to change) is 62, and your benefits hit their maximum level if you leave them in place until you reach the age of 70.
According to the EPI, Social Security is the most important source of income for seniors, with 82 percent of adults age 65 and over receiving benefits. The median Social Security benefit per year is $14,400. Your benefit is based on your income over a certain number of years, subject to current federal laws. You can estimate your social security retirement benefits on the government's website.
Employer Pensions and Retirement Plans
Over 50% of Americans still have access to public or private pension benefits upon retirement. This is a traditional retirement benefit guarantee from your employer that is usually available after a certain number of years with the company. Upon retirement, a benefit is paid monthly based on your retirement salary and will continue until death. Even if a private pension runs into financial trouble, most are insured by the Pension Benefit Guaranty Corporation (PBGC).
Retirement Savings and Investment Options
If you are among the 50% of Americans who don't have access to a pension plan, some additional retirement planning and savings is in order. Actually, even if you will receive pension benefits, it's important that you make sure that it will be sufficient for your needs as you will need to consider inflation factors. Fortunately, there are some excellent retirement savings and investment options available.
The most popular options for retirement savings are either a 401(k) plan or an IRA. If your employer offers a 401(k), be sure to take advantage of this retirement plan because employers will also often match your contributions. An Individual Retirement Account (IRA) is a tax-advantaged plan that you can open through your bank.
Some other sources of retirement income might include your savings, investment account, and even real estate holdings. As with any investment, you should speak with your accountant about the tax advantages or consequences of your choices. Finally, if you have a universal life insurance policy, you may be able to tap into the cash value component of your policy at a later date to help supplement your retirement income.
Saving for retirement isn't something that most Americans do well. Unfortunately, it's necessary if you want to enjoy your golden years. If you get started as early as possible and combine several different savings vehicles, you should be in good shape several years down the road.
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