Where Will Your Money Come From In Your Retirement?
In 2002 the average household income for each retired person in America was a little below $20,000 a year. The average income for American households was around $45,000 at the same time. For people retired in America today their income comes from either earnings from work or payouts from their retirement funds. Unfortunately many Americans find they have no choice but to continue working in order to build up their incomes to the minimum level that they need.
For people within ten years of retirement the question will be whether their pension provisions will be enough to meet their needs or will they have to continue working into their sunset years. If you look into the future in this situation and realize that there is insufficient retirement income for you, you must act now. Firstly you must act now to become debt-free, then you must divert the maximum amount of your current income into some form of retirement fund.
For younger people the question is how much money should they be putting into retirement funds rather than spending currently. Most people think the big unanswerable question is of course, how long will you live? But this question is easily answerable. Look at your parent’s lifespan and your own lifestyle, use of tobacco, diet and obesity for example and you can make a very good ‘guesstimate’ as to how much retirement time you need to finance.
The Employee Retirement Income Security Act, ERISA, is a National law designed to protect the retirement funds of members in employee benefit plans. It lays down the code of conduct for retirement plans. Retirement plans are set up by one or more of three types of organization. These are either your employer, a financial institution such as an insurance company or the government either local or federal. Many people opt to manage their own retirement income by buying bonds for instance.
Bonds are a form of investment with a relatively low interest return but which are very safe. They are basically ‘IOU’s from companies or governments that repay the money lent by you after an agreed number of years and also pay an amount of interest on top. There are many such forms of investment to enhance your retirement income and the general rule is the less safe the investment the higher the return.
Retirement plans should be a very safe form of retirement income investment and they benefit from tax advantages. This is because the government wants you to make provision for your retirement and encourages you through tax deferments. The big decision with retirement plans is whether to take the tax deferment now while you are earning or later on through your retirement income payouts.
Whatever decisions you make regarding your income in retirement there is one thing you must not do and that is to do nothing. He who hesitates when it comes to pension management is doomed to an impoverished retirement.