Ten Ways to Pay for Retirement
Retirement is on my mind. Not because I'm planning on quitting my worklife anytime soon, but because I'm in the process of setting my retirement number. So when I ran into this article from U.S. News on ten ways to pay for retirement, I had to check it out.
I'll give my thoughts on each of these later, but let's start by listing their list of ten ways to pay for retirement (with some key comments):
1. A 401(k), IRA, Keogh, or other retirement savings account. "They're saying that they expect a 401(k) to be a major source of income," says Lydia Saad, a Gallup Poll senior editor. "But people are not saving as much money as they should toward retirement."
2. Home equity. Two ways of doing this are taking out a reverse mortgage or selling a house to move into less expensive quarters.
3. Pension plan. "This is becoming a disappearing source," says Saad.
4. Social Security. Only 1 in 4 nonretired adults expects to receive considerable retirement income from Social Security, Gallup found, but 55 percent of current retirees say they rely on it as their major source of income.
5. A regular savings account or certificates of deposit. A traditional savings account seems to have taken a back seat to tax-deferred savings accounts.
6. Stocks and mutual funds. Similarly, 19 percent of adults who aren't retired expect individual stock or stock mutual fund investments to be a major source of income in retirement, while 10 percent of retirees rely on these investments.
7. Part-time work. Half of all nonretired adults (50 percent) expect that a part-time job will be a minor source of retirement income, with 18 percent thinking it will significantly finance their retirement, Gallup found. Yet only 20 percent of current retirees say continuing to work is even a minor source of retirement income.
8. Annuities or insurance plans. Annuities or insurance plans significantly finance retirement for 8 percent of current retirees, while 7 percent of nonretirees expect to receive these forms of income.
9. Inheritance. Few Americans are pinning their retirement hopes on a rich uncle or other benefactor.
10. Rent and royalties. Have you written a book? Have property for rent? Well, only about 6 percent of nonretired adults listed this as a major source of income as they plan for retirement, although 26 percent say it's a minor source. And even fewer current retirees (5 percent) report making money this way.
My thoughts on each of these:
1. This is where I'm banking on the bulk of my retirement income to come from. I've been fully funding my 401k for years now, and it's built up into a nice nest egg.
2. This is a reasonable option for us as well. My wife complains that our house is already too big for four of us (I disagree), so when the kids eventually leave and we head to retirement, downsizing is definitely a possibility.
Another option for people is to retire in a cheaper, foreign country.
3. No pension for me. Do people really still have these?
4. Ha! I'm planning on nothing from the government. If I get $1, that will be $1 more than I expect. Of course this really galls me to no end considering the thousands of dollars I've paid (and am still paying) into the system.
5. Nope. I'm not "traditional." ;-)
6. Our 401k savings won't be enough to retire on, so we're also socking away funds in taxable accounts that we keep in stocks and index funds.
7. Could be an option for us. Especially for my wife. ;-)
Seriously, I would like to work, at least part-time, for as long as possible. It will keep me active and engaged, which seems to be a vital part of staying healthy in your later years. Plus, it will significantly expand the length of time my nest egg lasts.
And, BTW, I agree with the article. There is new thinking on retirement that's happening. In fact, some people are now saying you should never retire.
8. No annuities for us and we buy term insurance (and invest the difference).
9. Yeah, right. I think most people will spend more on caring for older relatives than they'll ever get in inheritance. That will certainly be the case for us.
10. We don't own rental property, but I may want to write a few books. I'm able to blab a lot, that's for sure. ;-)
For some more thoughts on retirement from Free Money Finance, see these links:
I take the same approach on social security (or whatever passes for it in Hong Kong). I expect nothing and if I get anything it's an unexpected bonus.
Like you I intend to keep working. As you say there are many good reasons for working other than financial necessity (including subsidising my many vices). However, I would not want to be dependant on paid employment to support my retirement, especially in the latter years. It is just too risky in my opinion. I would rather hang on to the full time job a few years longer.
Posted by: traineeinvestor | July 20, 2006 at 07:44 AM
Here is some unconventional thinking:
1-by piling into 401Ks people assume tax rates at withdrawl will be the same as they are currently. Before you put another nickel into 401ks read the Kondlikoff/Burns book about the Social security melt down. They advocate paying taxes now and putting AT savings to work in a Roth or non retirement vehicle.
2 Owing no one anything is the key. once your outgo slows down you will find it doesnt take alot to like, once the kids are gone.
3. Look at the RV lifestyle in retirement. No fixed address, warm in the winter, cool in the summer.
Posted by: Fred | July 23, 2006 at 04:34 PM