Determining Retirement Needs - Income Sources

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


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