Retirement Income 101: What are the Building Blocks of a Reliable Retirement Income Strategy?

Retirement income can vary widely depending on where you live – for example, Oregon retirees have an average income of $28,565 per year, while Indiana residents bring home a lower $20,542.

If you’re thinking those numbers seem low, you’re not alone. It can be jarring to see such a reduction in income once you leave the workforce. Luckily, it’s never too late to create a retirement plan that supports your own goals for the future. 

Most people retiring in the next decade are planning to fund their golden years through a combination of their 401(k), Social Security benefits and personal savings. With the right foundation and balance in place, you can create a plan fit for your needs. 

Let’s explore five essential “building blocks” of retirement income that could offer more stability and funding for this exciting new phase of your life. 

What are the Building Blocks of a Reliable Retirement Income Strategy? 5 Common Income Sources to Fund Your Golden Years

1. Portfolio withdrawals

Your retirement portfolio is likely made up of several accounts including 401(k)’s, Traditional IRAs, and Roth IRAs. But after saving for several decades, it can be tough to know how and when to start withdrawing those funds. 

We recommend you work with a financial advisor to figure out a withdrawal plan that will best serve you in retirement. Each account has different tax implications, so it is important to understand how these accounts will work with your other retirement funding sources to create a tax efficient withdrawal strategy.

However, before you get to retirement, it’s important to make sure your retirement accounts are properly diversified. Diversification is an investment strategy that involves buying different asset types (like stocks, bonds, and real estate) and industries – and it’s one of your best friends when it comes to decreasing the risks associated with investing.

Related: 3 Tips for Protecting Your Retirement Income In a Volatile Economy

2. Social Security

Social Security is a cornerstone of retirement income for most Americans. In fact, the Center on Budget and Policy Priorities reports that Social Security makes up 50% or more of retirement income for 4 in 10 retirees. Moreover, 1 in 7 respondents indicated that their Social Security benefit made up 90% or more of their total income in retirement.

Your exact Social Security benefit amount will depend on several factors, like income, age, marital status, when you claim, and more. To get an estimate of what your amount might look like, you can use this simple online calculator from the Social Security Administration. 

Related: ‘Will Social Security End in My Lifetime?’ and 5 Other Common Questions About Social Security

3. Working

Retirement doesn’t have to mean complete disengagement from the workforce. Many people choose to keep working part-time, either for the financial benefits or the social and intellectual stimulation. In fact, recent research has shown that nearly one in five seniors in America are still supplementing their income through a part-time or full-time job. 

And that number is only expected to grow – Business News Daily reports that “59 percent of older Americans expect to continue working in retirement.” 

If you want to pad out your retirement income through work, you could even use the opportunity to explore a new career, hobby, or passion that’s always been of interest to you. 

4. Pension

While less common than in years past, pensions might be making a comeback. As of 2019, roughly 13 million individuals in America were actively participating in a private pension plan – although they remain more popular in the public sector, such as the PERS Retirement Plan for employees of the state of Oregon.

Pensions are employer-sponsored retirement plans that provide a guaranteed monthly income after retirement. The median pension benefit reportedly hovers around $11,000 per year for private pension earners and closer to $25,000 per year for federal, state, and local pension participants.

Related: How to Read Your PERS’ Oregon Public Service Retirement Plan (OPSRP) Statements

5. Rental income

Owning rental properties can provide a steady stream of income in retirement. Over 10 million Americans owned rental property in 2018, averaging 1.72 properties across the board. 

However, there are many trade-offs that come with owing rental property. Keep in mind that renting out apartments or homes can come with a laundry list of (sometimes quite expensive and time-consuming) to-dos. It’s important to factor in the responsibilities, energy, and prices that come with property management, potential vacancies, and ongoing maintenance costs before investing in rental real estate. 

Additionally, the housing market is subject to changes and it’s own set of risks. Even though houses have increased in value by about 5.5% each year since 1992, there’s no guarantee that yours will keep pace, and it could even lose value. 

Whether you plan to retire in ten years or twenty, it’s worth your time to connect with a financial planner and consider how each of these income strategies could better support your golden years. In all likelihood, the best route for you will be some combination of the above!

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