Average Retirement Income From Pensions
The Pension Rights Center reports that one out of three older adults have retirement income from a pension. This number is trending further downward. Consider yourself extremely lucky if you have this income!
Very lucky in fact: Older adults who have pensions typically have at least twice the income of those living only on Social Security
The median annual pension benefit ranges between $9,262 for private pensions to $22,172 for a state or local pension, and $30,061 for a federal government pension and $24,592 for a railroad pension.
Correcting Retirement Saving And Wealth Shortfalls
In view of the serious potential for retirement inadequacy, the committee explores next possible solutions to the problem. In particular, it focuses on what governments and employers might be able to do to help workers achieve retirement security, and what new financial products and services might help meet these deficiencies. Several approaches might be useful in correcting retirement saving and wealth inadequacies.
Managing Income Streams In Retirement
While the amount of money you have coming in changes in retirement, daily bills tend to stay the same. Managing income streams wisely in retirement is crucial to making your money last long as you need it. Older adults need to consider the sources of income, how much they have, what they need to spend each month, and how long it will last you. This can be solved with a strategy for your retirement paychecks.
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Canada Pension Plan Or Qubec Pension Plan
The Canada Pension Plan and Québec Pension Plan provide monthly payments to people who contributed to the plans during their working years.
CPP contributions are managed by the Canada Pension Plan Investment Board . The CPPIB invests these contributions to ensure there is enough money in the plan to provide payments to both current and future Canadian retirees.
The amount you’ll get every month depends on how long you contributed to the plan and how much you contributed. It also depends on the age when you start receiving your CPP or QPP retirement pension.
You can choose to take your CPP or QPP as early as age 60 or as late as age 70. The earlier you take your CPP or QPP, the lower your monthly payments will be. The later you take your CPP or QPP, the higher your monthly payments will be.
Old Age Security Pension
The Old Age Security pension is a monthly benefit for Canadians who are 65 or older. You can get OAS benefits even if you’re still working or have never worked.
You dont need to contribute to the OAS pension in order to benefit from it. You can start to receive OAS at age 65 or choose to defer for up to 5 years. For every month you delay receiving your OAS pension, the higher the monthly payment will be.
Youll typically be eligible for the OAS pension if you are a Canadian citizen or legal resident and have lived in Canada for at least 10 years. The amount you will get from the OAS pension depends on how long you lived in Canada after the age of 18. You will typically be eligible for the maximum amount if you lived in Canada for 40 years or more.
You may be selected for auto enrolment in the OAS pension. This means that you wont have to apply to start receiving your OAS pension. You will receive a letter a month after you turn 64 years old telling you if you are chosen for auto enrolment in the OAS pension. You can still defer receiving your OAS pension if you are eligible for auto enrolment.
If you dont get a letter telling you that you are eliglble for auto enrolment then you will have to apply for the OAS in writing by completing and mailing in the application form.
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Protecting Against Longevity Risk
Some commentators have suggested that strong bequest motives might inhibit annuity purchase because people want to be sure that their heirs receive at least some of their retirement benefits in the event of an unexpected death. This concern would be valid if no current annuity products offered a certainty period as a provision in the annuity contract. However, most annuity providers offer this provision in their product lines. Research by Brown, shows strong take-up of certainty periods by retirees who are starting a stream of annuity income. This evidence suggests that public policy should encourage annuity providers to offer products that include the option to purchase competitively priced certainty periods. Because long-lived individuals are also likely to have as many or more years of living with various diseases and disorders, it will be important to develop health-related products and services that provide for age-appropriate diversification of health care cost risk over the increasing length of older Americans’ lifetimes. Better long-term care insurance products will be valuable here, including ways to provide for extended stays in retirement and nursing homes. Increasing availability and access to deferred annuity products that better meet retirement and estate planning needs would also enhance adequacy by providing better diversification of retirement risk burdens.
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Important Financial Trends For Retirement Income 2022 And Beyond
Average retirement income in 2022 is somewhat driven by choices retirees made long ago where did they work, how much did they save, did they buy a home, and more. However, retirement income is also driven by decisions retirees make today and trends driving the overall economy.
Here are some financial trends that may impact your retirement income:
Funding Your Retirement With A Strategic Distribution Plan
One mistake many retirees make is relying only on investment income to support retirement spending and not considering all return sources, including a rise in the value of their investments.
If you can live on investment income only, great. But don’t do so at the expense of potential for growth in your portfolio or forget that you have four sources in your portfolio you could tap: interest, dividends, capital gains, and stable assets like cash.
Keep these points in mind as you structure your retirement portfolio and create your own distribution plan, and be sure to watch for changes in your spending or income to ensure that your expectations are on track. In a prolonged down market, for example, you may want to curb or postpone discretionary spending to avoid drawing down your portfolio too quickly.
Creating income during retirement might sound daunting, but it doesn’t have to be. Three stepsstarting with a plan, investing in a balanced portfolio, and then distributing income from a variety of sourcescan help you simplify the process and lay the groundwork for the kind of retirement you’ve always wanted.
1 Annuity guarantees are subject to the financial strength and claimspaying ability of the issuing insurance company.2 Withdrawals are subject to ordinary income tax, and prior to age 59½, may be subject to a 10% federal tax penalty.
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Converting Assets Into Income
This page is primarily about your potential sources of retirement income. But you may wonder how youll spend that money in retirement. You have several options, including :
- Withdrawal strategies based on a withdrawal rate
- A bucket strategy, where you set aside funds needed in the near-term, medium-term, and long-term, and keep your short-term assets in relatively safe investments
- Annuities to guarantee a portion of your required monthly income
Live off the interest? Most individuals need to develop a plan that involves spending down your principal and earnings over time. To live off the interest your investments generate, you need substantial assets. Anything is possible, but its essential to look at the numbers to understand whats feasible for you. A popular estimate known as the 4% rule for retirement says you might start by withdrawing 4% of your savings .
Well get into more detail with the pros and cons of those strategies elsewhere. Above all, its best to prepare to be flexible with your retirement income strategy. The ability to adapt can improve your chances of success considerably. For more details on planning, review the list of frequently asked retirement questions.
Disclosure: For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
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Retirement Income Strategies And Planning: Get A Real Plan And Keep It Updated
One of the best and easiest steps you can take to figuring out retirement income is to create a detailed retirement plan. You need to really dig into the details of your own financial situation and see how well that mixes with your hopes for the future.
You probably have significant retirement income from Social Security. The trick is to calculate out how much more you might be spending every month and figuring out a reliable income plan for that difference.
A simple five question retirement calculator wont do this for you, but there are some sophisticated tools available online.
The NewRetirement Retirement Planner is widely considered the best online tool. It is highly detailed and easy to use, best of all it saves your information so you can quickly make adjustments as your finances and plans evolve.
And, once you have set up a baseline plan you can try any of the scenarios described above and assess whether or not its really a good idea for your future.
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Assess Your Income Needs For The Long Run
Your living expenses may evolve over the course of retirement, but for starters, you want to try to spell out what your first year expenses will be. These can be separated into two categories â essential expenses and discretionary costs.
Essential expenses are those that you want to be sure you have enough income to meet throughout your life, including:
- Housing costs: Your rent or mortgage payments, plus insurance, taxes and ongoing maintenance.
- Day-to-day living expenses: Make sure youâve allotted for food, clothing and utilities.
- Taxes: Depending on how your retirement accounts are structured, you may need to pay taxes on withdrawals. A portion of your Social Security income may also be subject to tax.
- Healthcare needs: This is typically one of the larger retirement expenses, and Medicare only covers part of it. You should consider, and prepare for, the possibility of unforeseen health issues that could require out-of-pocket costs.
Discretionary expenses are funds used for purposes such as travel, entertainment, hobbies or other non-essential expenses that are designed to enhance your quality of life in retirement.
Itâs important to remember that many of your living costs will rise over time. Most categories of expenses are subject to the impact of inflation. Some, such as healthcare, may rise much more significantly, particularly as you grow older and health issues become more significant.
Creating A Steady Income For Older Adults
Social Security, pensions, and investments are common sources of income for older adults, but many additional possible income streams exist. From annuities and bond ladders to reverse mortgages, the options below may not fit every person but are an excellent place to start exploring what may be possible.
Get an understanding of multiple strategies for receiving a steady income, along with the pros and cons and why theyre important.
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Government Resources And Public Assistances
When considering government assistance for those facing retirement, most people do not think beyond Social Security and Medicare, but there are a variety of additional offerings to aging adults. Income programs like the Supplemental Security Income and Senior Community Service Employment programs can provide another income stream for individuals in retirement. There are also numerous tax assistance programs as well as resources for federal workers and retired military. Learn about different avenues of income and government and public assistance in the resources below.
Average Retirement Income And The Risk Of Running Out Of Money
The Boston College Center for Retirement Research publishes the National Retirement Risk Index . It measures the share of American households that are at risk of being unable to maintain their pre-retirement standard of living in retirement. The index is updated each year.
According to their most recent analysis, the percentage of retirees in 2021 who are at risk of not having enough is about 50%.
The most recent analysis uses data from 2019, but because the economy has changed dramatically over the last year, the researchers have attempted to determine the impacts of job losses and also growth in the financial and housing markets.
Their conclusion? The bottom line is that half of todays households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65 and annuitize all their financial assets, including the receipts from a reverse mortgage on their homes.
Jump down to see average projected retirement income numbers for 2022. Or, use the NewRetirement Planner to calculate your own retirement income, assess if it is enough, and learn about moves to make now so you can feel great about your financial future.
Top 10 Sources Of Retirement Income
The income from your job has probably been your sole source of income for most of your life. Once you retire, that source of income will be gone. However, even in retirement, youll still need money to live and pay for your need expenses. Your retirement income will likely come from several sources. In this article, well review the 10 most common sources of retirement income.
1. Social Security Social Security is perhaps the most valuable and stable income resource for you in retirement. The income benefit cant be outlived and features a generous Cost of Living Adjustment or COLA. Also, the longer you defer collecting benefits, the more income youll receive when you finally start collecting.
However, if you have a certain type of job, your Social Security benefits might not be a reliable source of income. For example, if youre a public-school teacher in Texas who is expected to earn a pension, your Social Security benefit will be reduced by two-thirds. To learn more about Social Security, click on the my article: What You Need To Know About Social Security.
5. Annuities Fixed annuities are excellent sources of longevity insurance. If you own a lifetime annuity, you have guaranteed income for the rest of your life, even when other sources of retirement income have been exhausted. However, fixed annuities can be expensive. Furthermore, variable annuities feature unreliable returns and a myriad of hidden fees.
Healthy Real Estate Market
You might not immediately think of your home as having an impact on your retirement income. However, your home is most likely your most valuable financial asset and there are various ways to turn your equity into retirement income.
Home values are at record highs in many locations.
There are many ways that you can tap into your home equity to help maximize your wealth, add to your retirement income, or make other assets last longer. Reverse mortgages are an increasingly popular option. Downsizing is another possibility.
You can model future housing changes as part of your long term financial plan in the NewRetirement Planner.
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Canadas Retirement Income System
Your income during retirement will typically come from three main sources:
- the Canada Pension Plan or Quebec Pension Plan
- the Old Age Security
- employer-sponsored pension plans and personal savings and investments
You may hear these called the three pillars of Canadas retirement income system.
Youll need to know how much money you may get from these sources to be able to plan for your retirement. Youll also need to consider what to do with your personal savings at certain stages in your life.
You should start thinking about all of these things before you retire. This will help you figure out when you can comfortably retire, and how much money you can expect to have when you do.
Explanations For Saving Inadequacy
Analysts have offered a variety of explanations for why many people fail to save enough for retirement. One economic argument is that public policy has engendered moral hazard, so that many may look to government programsSocial Security, Medicare, and, in some cases, Medicaidto take care of them after they retire . Especially for lifetime low-income workers, support provided by such government programs can represent a significant percentage of income before retirement and also make it possible to mostly maintain the same lifestyle postretirement. Because Social Security is often presented as a publicly managed DB retirement program financed by lifetime worker contributions, many wrongly assume that there is no need for them to devote anything more to retirement saving. So while Social Security was initially conceived of as an insurance program , survey evidence now suggests that many expect Social Security to provide everyone with a reasonable standard of living in retirement .
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