What retirement income plans are Americans relying on now? Wouldn’t it be nice to have a guaranteed retirement income? Do you have a plan for that? Low risk retirement income is a topic we are all interested in. So where do we find it?
Retirement Income Sources
1. Retirement accounts. These include 401(k), IRA, Keogh, and other tax-deferred accounts typically used for retirement income. Before the market crash of 2008-2009, 54% of U.S. workers were planning on using retirement accounts as a primary source of retirement income. That has since dropped to 42%. That number may fall more as baby boomers get the nerve to look at their account statements!
2. Social Security. 30 percent of U.S. workers anticipate that Social Security will be major source of retirement income. Is Social Security risk-free? Well, the Obama administration has put Social Security reform back on the front burner. One of the reform items likely to be on the agenda is means-testing benefits. In other words, if you were smart and fortunate enough to have invested wisely, your retirement assets may work against you in receiving full Social Security retirement benefits compared to someone who has a smaller nest egg. As a baby boomer, I’m still counting on Social Security.
3. Stocks. Approximately 17% of Americans plan to rely on stocks or mutual funds for retirement. This is a decrease from 24% in 2007. I own a few stocks for dividend income, although that percentage has fallen with the downfall of the big banks and their cancelled or reduced dividend payouts.
4. Savings. It should come as no surprise this year that approximately 20% of Americans expect to rely on insured savings and CD accounts when they retire, an increase from 17% the previous year. There are some experts who think that retirees should be putting their retirement assets exclusively in I-Bonds and other inflation protected securities.
5. Pensions. 24% of Americans will rely on a work-sponsored pension when they retire. This is down from 31% in 2007 and 34% in 2001. A pension income is normally thought of as risk-free but the automobile companies are threatening that assumption. Moreover, fewer baby boomers than ever are eligible for a pension. I certainly am not.
6. Rent and royalties. 6% of Americans expect to use rent and royalties as retirement income. Not me. Being a landlord over crazy tenants is not a job I want to have in retirement.
7. Inheritances. Only 7% of Americans are expecting an inheritance that would be large enough to make a meaningful contribution to their retirement. With what has happened to a lot of retirement nest eggs, I think a lot more current retirees will be spending their children’s inheritances.
8. Annuities. 7% percent of Americans will rely on an annuity or other insurance product for retirement income. I think that will increase as more folks learn that a fixed annuity can provide greater income security than many stock portfolios.
9. Part-time work. According to the survey, 22% of retirees expect to work part-time. This percentage has doubled since 2001. I think it will be even higher. I plan on selling my experience and expertise in some fashion to provide supplemental retirement income, at least for a while.
10. Home equity. For many, the largest component of net worth is home equity. This can be accessed by downsizing or through a reverse mortgage.
I am going to be looking more closely at option 4, including studying Zvi Bodie’s thoughts on the topic of low risk retirement income plans.
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