Planning For Retirement

Too many people are financially unprepared for retirement. Are you one of them? Don't worry . . . it's never too late to start saving. Use the checklist on the left to plot your strategy.

People get retirement income from three sources. How solid is your retirement three-legged stool?

The traditional retirement income “stool”—Social Security, employer pensions, and personal savings—is getting shaky. Accelerate your personal savings to keep your future in balance.

Most people have three possible sources of retirement income:

  • Savings and investments
  • Pension payments (retirement benefits provided by your employer)
  • Social Security

The income that will have to be provided through savings and investments (which you can plan for) can be determined only after you have estimated the income you can expect from Social Security and from any pension plans (over which you have little control).

Social Security

The amount of Social Security benefits you will receive depends on how long you worked, the age at which you begin receiving benefits, and your total earnings.

If you wait until age 65, the current full retirement age, to begin receiving benefits, your monthly retirement benefit will be larger than if you elect to receive benefits beginning at age 62. The full retirement age is due to increase beginning in the year 2003, and will increase gradually to age 67 by the year 2027.

Social Security benefits may be subject to income tax. The basic rule is that if your adjusted gross income plus tax-exempt interest plus half of your Social Security benefits are more than $25,000 for an individual or more than $32,000 for a couple, then some portion of your Social Security benefit will be subject to income tax. The amount that is subject to tax increases as the level of adjusted gross income goes up.

Retirement Plans

Estimate how much you can expect to receive from a traditional pension plan or other retirement plan. If you are covered by a traditional pension plan and you are vested, ask your employer for a projection of what you can expect to receive if you continue working until retirement age or under other circumstances—e.g., if you terminate before retirement age. You may already have received such an estimate.

If you are covered by a 401(k) plan, a profit-sharing plan, a Keogh plan, or a Simplified Employee Pension, make an estimate of the lump sum that will be available to you at retirement age. You may be able to get help with this estimate from your employer.

Tip: If you are in the military or formerly served in the military, contact the relevant branch of service to find out about retirement benefits.

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Know Where Your Retirement Income Comes FromEstimate Your Social Security BenefitsUtilize Your Employer Retiree BenefitsEstablish Your Retirement GoalsChoose Your Investment VehiclesDetermine Your Investment StrategyUnderstand Your IRA OptionsAnalyze Annuity Options
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