Ever wonder how seniors pay for their retirement? Many Americans have questions about this important topic; after all, it's something that affects almost all of us in our golden years.
In fact, our retirement investment advisors often field inquiries about how to pay for retirement. Though every senior's situation is, of course, unique, one factor is common: Instead of relying on a single source of income, most retirees live off of income from several different sources.
An article published in 2015 by the Henry J. Kaiser Family Foundation shed some light into the current state of retirees' income in the United States. The report indicates that as of 2013 over half of the seniors lived off of approximately just $23,500 per year.
What income streams go into that low figure and how can a retiree plan to do better?
Strategic Financial Planning: Social Security
For most seniors -- 84%, to be exact -- Social Security is part of their income stream. Almost all Americans age 65 and older receive payments from Social Security, according to the AARP. As of February, 2015, the average Social Security monthly payment to those age 65 and older was $431.37.
Many retirees rely heavily on Social Security disbursements to get by. Since the 1990s, Social Security has provided more than 33 percent of annual income for retirees. Seniors in the lowest income levels rely on Social Security for more than 80 percent of their income and in 2012, the median SSI annual benefit totaled $11,999 for women and $16,295 for men.
Investments are Important, say Retirement Planning Advisors
A separate study done by AARP in 2012 found that almost a third of retirees receive income from pensions, 401(k) accounts, or Individual Retirement Accounts or IRAs. Retirees in higher income brackets were more likely to have an employer-sponsored savings account, such as a 401(k), or a pension. Those in the highest income quintile had median annual incomes of about $30,000 from 401(k) and IRAs. Retirees in the lowest quintile only received about $2,400 per year from their retirement savings accounts. Overall, the median amount from such sources was about $12,000.
Part-Time Jobs: Part of a Comprehensive Financial Plan?
For those seniors who can't stay afloat through Social Security, retirement investment accounts, pensions or other investment accounts, working part-time to supplement income is an increasingly common option. According to the AARP, about 22 percent of those surveyed continued to work during their (traditional) retirement years.
The median annual income from part-time work was around $25,000, making this the highest source of income for seniors. Over the past three decades, income from employment has grown in importance for seniors, with the percentage of income from work doubling from 1990 to today. Many predict that seniors will continue to stay or re-enter the workforce in coming years in order to supplement their income in retirement.
These figures are not necessarily encouraging, but we find that good financial planning can help maximize your resources before retirement. If you have questions about your retirement planning we encourage you to talk with your trusted financial advisor or give us a call.