How Will You Pay for Retirement?

Source: Thinkstock

Source: Thinkstock

Have you ever heard the expression: “Don’t put too many eggs in one basket?” It’s a phrase that can and should be applied to your retirement, particularly when you’re determining how you’ll pay for your work-free years. There are several ways retirees can make sure they’re paying their bills, and often, it makes sense to utilize more than one of them. Ready to see how you can fund your golden years? Here are three ways U.S. seniors are paying for their retirement.

1. Retirement Savings

A survey released by Gallup reveals that 36 percent of U.S. retirees rely on a pension plan, while 23 percent get money from a 401(k), IRA, or other retirement savings account. The survey states that pension plans appear to be a major factor in determining retirees’ standard of living, particularly since it is the most commonly cited income source among seniors whose annual household income is at or above the U.S. median of about $50,000.

Interestingly, the retirement landscape could soon see a shift. More non-retirees expect to rely on self-directed retirement savings accounts and less on pensions and Social Security, which current retirees rely heavily on. “But the data suggest the new era of retirement has not necessarily arrived yet — younger and older retirees today largely rely on the same funding sources,” the survey said.

U.S. News & World Report writes that 30 percent of retirees receive income from either a traditional pension or take withdrawals from a retirement savings account such as a 401(k) or individual retirement account, with retirees receiving a median income of $12,000 per year.

Retirees are also using personal savings accounts to help fund their retirement. However, don’t expect to watch your money rapidly grow in a savings account. Low interest rates can prevent seniors from seeing substantial returns on that money. “The Federal Reserve policy keeping interest rates down isn’t good for seniors. They need a magnifying glass to see how much they have been earning on their savings,” Pamela Yellen, author of The Bank On Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future, said to U.S. News & World Report. “Let’s say you have $250,000 in savings and you planned on earning 4 percent. That’s $10,000 per year. If that drops to 1 percent, as it has now, you end up with only $2,500 per year.”

Source: Thinkstock

Source: Thinkstock

2. Social Security

Social Security continues to be the most common way to pay for retirement, according to Gallup’s survey. In fact, 62 percent of retirees younger than 70 say Social Security is a major source of their retirement income, compared with 61 percent of retirees aged 70 or older. U.S. News & World Report writes that the majority (84 percent) of people age 65 and older received income from Social Security in 2012.

“We still see that Social Security is the foundation of retirement income,” Gary Koenig, director of economic security at AARP’s Public Policy Institute, said to U.S. News & World Report. “Pretty much everyone who is 65 and older receives Social Security.”

Additionally, over the past two decades, Social Security has provided more than a third of income for retirees, with retirees in the lowest income quintile receiving more than 80 percent of their income from Social Security. In 2012, the median Social Security benefit was $16,295 for men and $11,999 for women.

However, a MarketWatch article cautions against relying too heavily on Social Security. If you’re planning to rely entirely on Social Security, there’s a good chance it won’t provide you with enough income to pay for all your expenses. One of the biggest mistakes you could be making is not saving at all in hopes that Uncle Sam will be able to provide you with enough money each month.

When you’re retired, there’s a good chance you’ll want to travel, eat out, and spend more on entertainment. Ideally, you should be aiming to have income similar, or even a bit higher, than what you were making while working, MarketWatch writes. That means that Social Security benefits probably won’t cut it unless you’re willing to cut back on your expenses.

Source: Thinkstock

Source: Thinkstock

3. Paychecks

Semi-retirement continues to increase in popularity. More and more, retirees are choosing to work part-time to help supplement their monthly income. According to U.S. News & World Report, a study completed by HSBC and the Cicero Group found that 19 percent of people between 55 and 64 said they consider themselves to be semi-retired, while 32 percent are hoping to transition into semi-retirement before completely retiring.

For those considering semi-retirement, you’ve got a couple of options. First, you can consider staying with your current employer, which allows you to easily transition from full-time to part-time, according to How Stuff Works. If that’s not an option or you’re ready for a fresh start somewhere else, you should consider lining up a different part-time job that is less demanding and has less hours. Remember, you don’t want to be overworked and super stressed in semi-retirement.

You can get creative with this one, too. Since you’re using your job in semi-retirement to help bring in a little extra money, you can also look for jobs that may not pay great but offer exceptional benefits. For example, if you work part-time in the travel industry, you may be able to travel much cheaper, ensuring you can see the world and not put a huge dent in your monthly budget. Or, if you work at a museum or movie theater, you should be able to take advantage of their free entertainment perks. Just make sure you confirm with potential employers that these benefits are offered to part-time employees.

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