To live a comfortable retirement, most individuals will need to rely on multiple sources of income. The three foundations of retirement income are employer-sponsored retirement plans, Social Security and personal savings.


A. Employer-sponsored plans
The trend in employer-sponsored plans is away from defined benefit plans that guarantee a set benefit at retirement, depending on age, years of service and salary. The trend is toward defined contribution plans under which the employee contributes some, if not all, of what is being saved on their behalf. Among defined benefit pension plans, the most generous ones do not come close to replacing the income a worker earned while employed.

B. Social Security
Social Security benefits also are not intended to fully replace what a retiree earned while working. The replacement ratio - the percentage of income replaced by Social Security retirement benefits - varies by income level. Lower wage earners have more of their income replaced by Social Security - about 57% in 2004 - while higher wage earners experience a lower replacement ratio - about 35% in 2004.

In considering retirement income, a critical question is when to begin collecting Social Security benefits. The longer an individual waits, the greater the monthly benefit will be.

C.Personal savings
Savings outside of employer-sponsored retirement plans are another source of retirement funds. These funds may be in taxable accounts, and therefore the tax implications of selling these assets for use in retirement must be considered.

D. Other sources
These may include anticipated inheritances, real estate, gifts or bonuses.



Financial Needs

Related Articles
  1. Retirement

    Why Retirement Can Be Harder for Those Who Make More

    Increasing your income means you will receive a lower percentage of your income in Social Security.
  2. Retirement

    Introduction to Social Security

    You've probably contributed to this fund, but will you reap the benefits? Find out here.
  3. Retirement

    What Will Social Security Look Like When You Retire?

    Many workers are not confident that Social Security will be around during their retirement. Here's what you need to know about its future.
  4. Financial Advisor

    How Working Longer Impacts Social Security

    A look at the impact of working longer on Social Security retirement benefits.
  5. Retirement

    Retiring Early: How Long Should You Wait?

    Maximize your Social Security benefits by choosing when you retire.
  6. Retirement

    A Comfortable Retirement on Social Security Alone?

    It won't be lavish, but with careful planning it's possible.
  7. Retirement

    7 Steps to Create a 10 Year Retirement Plan

    Workers who are only 10 years away from retirement need to do a number of things to ensure that a comfortable retirement can be achieved.
  8. Retirement

    10 Things You Must Know Before You Retire

    Don't put off your retirement planning - these 10 steps can make your later years much more manageable.
  9. Retirement

    How Does US Social Security Measure Up Abroad?

    Social Security is a hotly debated topic. After examining the retirement plans of three different countries, the U.S.'s does not come out the winner.
Frequently Asked Questions
  1. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  2. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  3. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
  4. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ...
Trading Center