Retirees Need to Take Charge of Their Retirement Income and Expenses
Retirees Need to Take Charge of Their Retirement Income and Expenses
To get the most for your buck, you need to take charge of your income and expenses; maximize the former and minimize the latter. Knowing the statistics of retirement incomes can help you understand where you stand compared to others.This article shows how retirement income, statistically, breaks down between different income sources. Afterwards, I warn you how to take charge of your income and expenses.1. Retirement income statistical breakdown:The three retirement income sources are made up of social security, pension, and savings. With so many retirees 'under-funded' for retirement, you may want to do some part-time work to supplement your 'retirement' income.According to the Social Security Administration, more than 9 out of 10 individuals - age 65 and older - receive Social Security benefits, but most retirees also rely on other sources of retirement income. A 2006 statistical breakdown for the percentage of income from each source was:* Social Security - 38.6%* Pensions - 19.7%* Savings and Investment - 12.6%* Work Earnings - 26.3%* Other - 2.7%In 2007, the maximum possible social security income was $2116 per month for those waiting until their full retirement age (FRA).However, whatever your FRA benefit is, it'll be permanantly reduced if you begin your benefits early - between age 62 and your FRA. And then it'll be temporarily reduced further if you earn above a Social Security-defined threshold income while you're under your FRA and receiving benefits.Your defined benefit pension will probably give you a fixed income. But, perhaps, your pension has a cost of living adjustment (COLA)like Social Security.Your savings are composed of your regular investments and bank accounts as well as what you have in your defined contribution plans like your 401(k)and IRA. You'll want to choose the best way to convert these savings into an annual income.Possibilities include converting them to an annuity, or into another an IRA, or Roth IRA. And then devising your own annual withdrawal procedure that'll ensure that your savings will last as long as you do.2. Control your expenses:Some advisors say your retirement expenses can be covered comfortably by about 75% of your pre-retirement income. This, of course, assumes that some 25% of your pre-retirement income went to work and its associated taxes, transportation and clothing costs as well as contributions to retirement savings.I think you can lower your expenses much more than this. But you must make a concerted effort to do so while still having an enjoyable retirement.Controlling your expenses helps prevent them from robbing too much of needed income. You can categorize your expenses under essentials, debts, taxes, and enjoyment. Essentials cover your food, housing, and transportation. You often can find inexpensive alternatives to your housing and transportation costs.Debts such as mortgage, car, and credit card payments should be reduced as much as possible. Paying off these loans is often the best way to handle them.Taxes are pretty much dependent on how you choose to handle your distributions from savings and what tax category your savings are in - i.e. tax deferred, taxable or tax free in the case of as a Roth IRA.Part-time work can produce a very high penalty on Social Security benefit you begin receiving before your FRA. But working income won't diminish your Social Security benefits after you reach your FRA.With your expenses minimized, you can better plan on the travel and other enjoyments you've set aside for your retirement years.
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