There are over 57 million Americans receiving Social Security today. Of the 57 million, 40 million are retired worker and dependents, 6 million survivors, and 11 million disabled workers and dependents. Full retirement age, also called normal retirement age is when you may start receiving Social Security benefits. You can start receiving benefits as early as age 62 and as late as age 70. However if you start early your benefits will be reduced a percentage for each month before your normal retirement age. All of these details are listed on the Social Security web site.
Gallup data shows as of April 2013 among current retirees, 61% rely on Social Security as a major source of income, as opposed to non-retirees who expect to reply on Social Security as a major source of income only 30% when they retire. Today there is general belief that our Social Security system is failing, and insufficient funds may be left when milleniums retire. Government reform is a possibility for the out dated system, but is it too late?
A pension is defined as a regular payment made during a person’s retirement from an investment fund to which that person or their employer has contributed during their working life. According to the Bureau of Labor Statistics, today only 18 percent of private industry employees are covered by defined pension plan. That’s down from 35% in the early 1990s.
A 401(k) retirement savings plan allows a worker to save for retirement and have the savings invested while deferring current income taxes on the saved money and earnings until withdrawal. This is the most common employer established retirement plan today, were eligible employees make contributions and employers offer matching contributions up to a certain percentage. There are over 51 million active 401k participants today.
An Individual Retirement Accounts is a form of an individual retirement plan provided by many financial institutions. IRAs are basically a saving account that provides tax advantages. There are several different types of IRAs. Here’s a list of the most common:
- Traditional IRA – contributions are taxed when you withdraw.
- Roth IRA – contributions are taxed, and no taxes when you withdraw
- SEP IRA – an IRA that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employee’s name.
- SIMPLE IRA – a Savings Incentive Match Plan for Employees that requires employer matching contributions to the plan whenever an employee makes a contribution
How prepared is your Nest Egg?
I think it’s apparent that we live in changing times. The days of working for a single company for your entire career, collecting a pension and then Social Security have past us by. The individual needs to do more today to prepare themselves for retirement then ever before. As seen in the last few years having all of your retirement saving tied up in just the stock market at the wrong time could cost you a lot of money, and could take you years to rebuild. They key is to have a plan. Understand at what age you would like to retire and estimate how much money, (monthly budget) you would need. This will help you plan how much you will need to save between now and then. It will also determine how much risk you can afford to take. Educating yourself about the options for retirement like saving and investing will help avoid complete meltdowns. I happen to work for one of the small percentage of companies that still offer a cash pension. I have a 401k as well and plan on adding some IRAs once we complete our debt repayment. I believe you need to be diversified in you retirement plan and not keep your nest eggs in one basket.
What’s your Retirement plan? What types of strategies have I overlooked?