social security – Safe Retirement Income

What Are the Available Sources of Retirement Income?

When you retire and your earning power ceases, you will have to depend on three primary sources for your retirement income:

Social Security

According to the Social Security Administration, the average retired worker in 2015 receives an estimated $1,328 monthly benefit, about 40% of average preretirement income. As pre-retirement income increases, however, the percentage replaced by Social Security declines.

Employer Sponsored Plans and IRAs

You may be eligible to participate in a retirement plan established by your employer and receive pension income at your retirement. You may also be able to contribute to an individual retirement account (IRA) to supplement Social Security and pension benefits.

Home Ownership and Personal Retirement

For many people, there is a gap between the retirement income they can expect from Social Security and employer-sponsored plans/IRAs and their retirement income objectives. Home equity can be used to bolster retirement security.
Personal retirement savings, including bank and brokerage accounts and insurance and annuity contracts, can be used to bridge a retirement income gap.

If sufficient retirement income is not available, will you defer your retirement age, or will you choose to reduce your standard of living?

Low yields on retirement savings and increasing costs are causing some retirees to consider part time or temporary work to make ends meet.

If they work what happens to their Social Security benefit?

Does it pay to work?

Continuing to work after you begin receiving Social Security retirement benefits may reduce the amount of those benefits ultimately available to support your retirement standard of living in two ways:

Your earned income (wages and self-employment income) may cause your Social Security benefits to be subject to income tax. If your Social Security benefits are not currently exposed to income tax, you should evaluate whether your earned income will put you over the tax-free base amount of Social Security retirement benefits ($25,000 if single; $32,000 if married filing jointly).
If you are between the ages of 62 and your full retirement age (age 66 in 2012), your 2012 Social Security benefits are reduced $1 for each $2 of your earned income in excess of the 2012 exempt amount of $14,640. The exempt amount is adjusted each year for inflation.

If you are receiving Social Security benefits and you have reached your full retirement age, there is no retirement earnings test for people who have reached their Social Security full retirement age (age 66 for people born between 1943 and 1954). Here’s how it works:

In the year in which you reach full retirement age, $1 in benefits will be deducted for each $3 you earn above a specific annual limit ($38,880 in 2012), but only counting earnings before the month in which you reach the full benefit retirement age.
Starting with the month in which you reach full retirement age (age 66 for people born between 1943 and 1954), you will receive the full Social Security retirement benefit to which you are entitled, without regard for or limit on your earnings.

Also keep in mind some annuity payments do not count as taxable income allowing a retiree who is receiving these payments to earn more in wages before triggering any of the Social Security earning limits.

You may ask questions in the comments or contact me privately:

Tim Barton Chartered Financial Consultant