Types of Retirement Income: Know Your Options Part 1

Are you getting ready for retirement? It is an exciting time, but there is a lot you must consider. For many, finances are a major concern when planning retirement. This post will cover a few types of retirement income.

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Types of Retirement Income You Need to Know

Social Security

Social Security retirement benefits help replace some income when you stop working or do less work. However, they might not cover all your expenses. You need to be at least 62 years old to get retirement benefits. However, you can increase your benefits by waiting longer. You also must have at least ten years of work and have paid into the system.

Recipients can maximize their monthly benefits by waiting until they are 70. Your total benefit amount will depend on the amount you earned during your highest-earning 35 years of work.

Defined Benefit Plans

These are pensions with employer funding. They are traditional pension plans that offer a guaranteed monthly income in retirement. Your benefit amount depends on your salary and years of service with your employer.

Defined benefit plans are becoming less common. However, many government workers and employees of large corporations still have them.

Defined Contribution Plans

The individual is the primary funder of this type of plan. A common example is a 401(k). Your company may match contributions, but it’s not responsible for the account’s performance. It makes it low-risk and cost-effective for the employer.

You manage contributions and choose investments in mutual funds or other options like annuities and individual stocks. Investments grow tax-deferred until retirement, with annual contribution limits.

Individual Retirement Accounts (IRAs)

An IRA is a tax-advantaged savings option for individuals with earned income. You can open an IRA through various institutions, including banks, investment companies, online brokerages, or with a personal broker. There are different types of IRAs, each with its own rules and advantages.

Personal Savings and Investments

Personal savings and investments can be a significant source of retirement income. You might have money saved in bank accounts, CDs, and money market accounts. It can also include investments in stocks, bonds, and mutual funds.

Ready to secure your retirement?

In part 2 of this series, we will explore additional sources of retirement income. Stay tuned for more insights and tips on optimizing your retirement income.

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