OTHER INCOME SOURCES For most Americans, Social Security offers a guaranteed source of income during retirement. Understanding your distribution options can potentially help optimize your benefits. However, Social Security was not designed to provide 100% of the income America’s retirees need throughout their golden years. In fact, Social Security represented just 33% of total retirement income in 2019, which means the average retiree still needs to provide 67% of his or her retirement income from other sources. 19 3 Ways to Supplement Social Security Benefits
:10: This document is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. This content is not endorsed by the Social Security Administration, and our firm is not affiliated with the United States government or any other governmental agency. 19 Social Security Administration. “Fact Sheet: Social Security.” https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf. Accessed Feb. 29, 2020. 20 U.S. Bureau of Labor Statistics. March 2018. “Employee Benefits Survey.” https://www.bls.gov/ncs/ebs/benefits/2018/ownership/private/table02a.htm. Accessed Feb. 29, 2020. 21 CNN Money. “Ultimate guide to retirement: What if I work for the government?” https://money.cnn.com/retirement/guide/pensions_basics.moneymag/index8. htm. Accessed Feb. 29, 2020. 22 Paul Davidson. USA Today. Jan. 9, 2019. “Older workers are driving job growth as boomers remain in workforce longer.” https://www.usatoday.com/story/ money/2019/01/09/boomers-older-workers-work-longer-driving-job-growth/2496893002/. Accessed Feb. 29, 2020. 23 IRS. Nov. 6, 2019. “401(k) contribution limit increases to $19,500 for 2020; catch-up limit increases to $6,500.” https://www.irs.gov/newsroom/401k-contribution- limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500. Accessed Feb. 29, 2020. a. Maximize contributions to a defined contribution employer plan, such as a 401(k), 403(b), 457 plan or Thrift Savings Plan. In 2020, participants may contribute up to $19,500. Employees age 50 and over can contribute an additional $6,500 for a total of $26,000. With a defined contribution employer plan, contributions are made with pre-tax dollars, and money grows tax deferred. The funds are taxed as ordinary income when they are withdrawn. An additional 10% penalty applies for any withdrawals made before age 59 1/2. b. Maximize contributions to a Roth or traditional IRA. If you are not eligible for a tax deduction for traditional IRA contributions due to participation in an employer-sponsored retirement plan, you may want to consider contributing to a Roth instead so you benefit from tax-free distributions during retirement. In 2020, participants may contribute up to $6,000. People 50 and over can contribute an additional $1,000 for a total of $7,000. Roth IRAs are funded with post-tax dollars and distributions are tax-free, as long as the account has been open for a minimum of five years and the owner is 59 1/2. Typically, there are three ways to supplement Social Security benefits for retirement income: 1. Employer-defined benefit plans, also known as “pensions.” Unfortunately, the percentage of employers offering traditional pension plans has dropped dramatically over the years; in 2018, only 13% of private sector workers participated in a defined benefit pension plan.20 (However, 84% of state and local governments still offer traditional pensions.)21 This leaves far more Americans responsible for a larger portion of their retirement income. 2. Work earnings. Many retirees choose to work long past traditional retirement age, or even retire from their career and then take a job or launch a small business to supplement other retirement income sources. A January 2019 study showed that 39.2% of Americans age 55 and over were working, the largest percentage of that population since 1961. 22 3. Savings and investments. Long-term saving and prudent investing may enable you to accumulate a significant nest egg from which to draw income. The following are two traditional retirement income account options: 23 This document is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. This content is not endorsed by the Social Security Administration, and our firm is not affiliated with the United States government or any other governmental agency.
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