A retirement overview

Current retirement lifestyles are likely to be hard to match unless you’re able to provide a major share of the income you’ll need from your own investments. That’s because two of the traditional mainstays — employer provided pensions and Social Security — will probably provide less of what you’ll need than they did for your parents.

It’s not panic time

Building an investment portfolio over time may be the best approach to the retirement income you need, but it’s not the only way. If you get lump sum payouts or bonuses from your employer, inherit money, or sell valuable assets, you can invest that money to help guarantee a more secure retirement. The more you know about how various investments work, the kinds of income they can provide, and the ways they have the potential to grow, the smarter the financial decisions you can make.

The challenge

Even if you have a pension or an employer sponsored retirement savings plan, which typically pay income on a regular schedule, you’ll have to pay more attention to coordinating your cash flow than you do when the bulk of your income comes from your job.

That’s true in part because income from these sources is usually less than you earned when you were working, and you’ll need to supplement it with interest and dividends from your investments. These payments are typically made quarterly or semiannually rather than monthly.

The third source of retirement income, Social Security, provides regular monthly income that’s adjusted annually to reflect increases in inflation. But it replaces only a percentage of your preretirement earnings.

If you’ve wondered why providing retirement income is a major topic of discussion, consider these numbers. According to the Census Bureau, there were 3 million people over 65 in the US in 1900, about 4% of the population. By 2050, that number will be 82 million, or 20% of the population.

The Sandwich Generation

Tomorrow’s retirement generation may have to cope with an added complication.

Managing on your retirement income can be tougher if you still have children living at home or are helping them pay college tuition, buy a home, or get established in their own business. If, in addition, your parents depend on you for support or you’re helping to cover their healthcare costs, you may find you can’t afford to live as you’d like.

If it’s any consolation, many people are finding themselves financially sandwiched by supporting younger and older generations. The Census Bureau reports that between 43% and 56% of 18 to 24 year-olds live with their parents. And the Agency for Healthcare Research and Quality says that 29% of adult children have some financial responsibility for a retired parent.

What this boils down to is needing extra income in your early retirement years if your parents or children need your financial support.

Doing Your Part

Investing is no less important when you’re retired than it is while you’re working. As long as you have earned income, you can contribute to a Roth IRA — or to a traditional IRA until you turn 70½. If you open a small business, you might set up a tax-deferred retirement plan for yourself. And you can always invest in taxable accounts.

What you’re aiming for is a combination of growth and income you can count on, year in and year out, to supplement the checks you get from Social Security and any pension you might expect.

There are other reasons to invest, of course. Investments may help you pay for other things that are important to you, such as owning your own home or your grandchildren’s educations. Investments may allow you to build an estate to leave to your heirs. And for many people, investing is just plain fun — a way to test their ability to make smart choices.



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