The foundation for a secure future is proper retirement planning today. Unfortunately, too many people avoid retirement planning. In fact, according to the recent Retirement Confidence Survey from the Employee Benefit Research Institute, less than half of American workers have performed a retirement needs assessment. This means that most people don't even understand how much they need to retire -- much less have a clear idea of where their retirement income will come from.
As you prepare your retirement plan, you need to figure out what you need to retire comfortably, but you also need to consider where that money will come from. You need to figure out your sources of retirement income, and determine how they will work together to provide you with exactly what you need to improve your overall situation.
Sources of Retirement Income
Most people, when they think of retirement, consider employer-sponsored plans like 401(k)s, or they think of IRAs. However, these aren't the only sources of income available to you. While a good portion of your retirement income will come from these types of accounts, you need to look beyond figuring out your withdrawal rate, and trying to build a nest egg big enough to handle your retirement needs.
Income diversity is a big deal in retirement, since there are a lot of things that can change between now and when you retire. Just relying on a single source of retirement income isn't any better than putting all of your income eggs in one basket during your working years. It's vital that you think about where else you will get income from in your golden years.
Some sources of retirement income to consider include:
- Social Security: In spite of all the scary, scary rhetoric, Social Security isn't out for the count completely. While you might have to moderate your expectations in terms of when you can expect to start taking Social Security, and while you might need to prepare for cuts in benefits, the reality is that you will still likely be able to draw -- at least to some degree -- on these promised benefits.
- Real Estate Income: While real estate investing isn't really my thing, I know a lot of people who do well at it. If you can build your real estate empire, you can create a source of retirement income that doesn't go away when the stock market drops. Even if you end up having to hire property management to help you run your real estate, you can still do well, and get a regular income from this.
- Some Sort of Earned Income: Many people like working part-time in retirement. You might also work on your business, or start a side business during retirement. Doing some sort of work during retirement is smart, since it can keep you engaged, fulfilled, and provide you with a bit of an income stream.
- Investment Income: This can include the income that you receive as a result of withdrawing money from your tax-advantaged retirement accounts. You might also have other investments, held in taxable accounts, or assets in other places, that generate income for you.
In general, the more sources of income you have, the better off you'll be in retirement. Your retirement plan should include ideas for cultivating multiple sources of income now, so that when you retire, you aren't dependent on just one revenue stream to keep you in comfort.
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