Retirement Specialist With Over 40 Years Of Retirement Planning Experience

The Retirement Income Puzzle

Retirement Plan puzzle

Chances are, your retirement income will come from a variety of sources, which will need to be thoughtfully and carefully combined like pieces of a puzzle. Let’s take a look at some of the more common pieces and consider a few related points.

PUZZLE PIECE #1: The most fundamental piece is Social Security.

To estimate your Social Security benefits, go to the Social Security Administration website,, and sign up for my Social Security account. Here you’ll find details on your earnings history and estimates of how much you’ll receive at different ages, depending on when you claim your benefits. Point to consider: Although you can claim benefits as early as age 62, the longer you delay (up to age 70), the higher your monthly payment will be.

PUZZLE PIECE #2: A traditional pension plan.

If you have one, contact your human resources department to estimate how much you’ll receive each month.
Point to consider: If you don’t have a pension plan, you may want to purchase an annuity, which can provide a predictable stream of income to help cover your fixed expenses. Annuities can be complex, so be sure to understand the specific cost structures and rules before making any decisions.

PUZZLE PIECE #3: Your own savings and investments.

These can include taxable investment accounts, tax-deferred 401(k) plans and IRAs, and tax-free Roth accounts.
Point to consider: Evaluating this piece is a complicated step. One question is, should you tap your taxable, tax-deferred, or tax-free accounts first?

The answer depends on your personal situation. For example, you may want to tap your taxable assets first, followed by your tax-deferred accounts, and finally, your tax-free money. This allows the tax-advantaged accounts to continue potentially growing unhindered by tax payments for as long as possible. Keep in mind that eventually, you’ll have to take minimum distributions from your tax-deferred accounts and pay income tax on that money.

Many other factors will influence your unique retirement income puzzle as well. These include your desired lifestyle, available resources, income tax rate, and even estate-planning objectives. A qualified financial professional can help identify your specific puzzle pieces and determine how they might fit together.

Generally, annuity contracts have fees and expenses, limitations, exclusions, holding periods, termination provisions, and terms for keeping the annuity in force. Most annuities have surrender charges that are assessed if the contract owner surrenders the annuity. Withdrawals of annuity earnings are taxed as ordinary income. Withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty. Any guarantees are contingent on the claims-paying ability and financial strength of the issuing insurance company.

Distributions from non-Roth employer-sponsored plans and IRAs and nonqualified distributions from Roth accounts are subject to ordinary income tax. In addition, distributions taken prior to age 59½ may be subject to a 10% federal income tax penalty, unless an exception applies. State income taxes may also apply.

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