Understanding Retirement Income Streams
Start Now, Finish Strong
Whether you are an athlete with 40 years before you reach retirement age, a seasoned coach who is just a few years from retiring or somewhere in-between, it’s important to have a working knowledge of retirement preparedness. A young person starting out today has the opportunity to make decisions now that can propel them to a comfortable retirement down the road. Think of it as exploding off the blocks. And a pre-retiree has important decisions to make when it comes to leveraging multiple streams of income so their money will last throughout the remainder of their life.
No matter what your age is, it may be a good idea to think about the various streams of income you could have available when you do retire. A few of the most common streams of income include:
Social Security
Social Security is money that you’ve paid into a government retirement fund, and upon your retirement, it is paid out to you on a monthly basis throughout the remainder of your life.
Credits are units used to determine your eligibility for Social Security benefits. Before you are eligible for benefits, you must earn 40 credits, or have about 10 years in the workforce. Your Social Security benefits calculation uses your highest 35 years of earnings to calculate your average monthly earnings. You can then determine what age to take Social Security disbursements, starting at age 62. Full Retirement Age is set at 67 for anyone born after 1960. But you don’t have to take disbursements until you are 70. Your annual Social Security statement is a helpful resource to estimate what your projected retirement income benefit will be.
To access this information online, visit
www.ssa.gov/mystatement
Traditional IRAs and 401(k)s
These are qualified retirement accounts. Contributions to these types of accounts generally reduce your taxable income, saving you money on your tax bills in the current year. Contributions, dividends and investment gains within the accounts continue to grow on a tax-deferred basis. IRAs are accounts you can invest in with many different financial institutions such as brokerage firms, online trading companies and banks. A 401(k) is an employee retirement plan, allowing you to divert a percentage of your income into a variety of investment funds. An employer may also agree to offer a “match,” in which it matches a percentage of your contribution up to a certain amount.
Roth IRAs
Roth IRAs can come with a big, long-term tax advantage. With a Roth IRA, you invest with money that has already been taxed. This is advantageous if tax rates are low and anticipated to be higher at the time you’re ready to retire and withdraw money. Contributions to Roths aren't deductible, but withdrawals are tax-free.
Required Minimum Distributions – Because 401(k)s, IRAs and Roth IRAs are considered “qualified” accounts, you are required to start withdrawing a percentage of these moneys annually. Currently, that percentage starts out around 4% and increases slightly each year based on inflation.
Stocks, Bonds and Mutual Funds
This income stream comes from the profitable sale of investments (stocks) that you made in individual companies, bonds or mutual funds that have hopefully increased in value over time. A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.
Income Annuities
An Income Annuity is a contract between you and an insurance company where you pay the insurance company a lump sum of money called a premium, and in return the insurer promises to make regular monthly payments to you. Income annuities are often guaranteed to pay for life and can even pay for a spouse's lifetime too. And because they are non-qualified, you don’t have to take required minimum distributions (RMDs) starting at age 72 like you do with 401(k) plans and IRAs. So, you could take out an annuity at age 55 and then not access it until age 85, after 30 years of growth.
Other Options
There are options that may be available to you depending on your financial situation. Check with a financial professional who can review your options and suggest those that make the most sense.
Retirement Income Strategy
Although this information is more targeted to coaches who are over the age of 45, it’s never too early to educate yourself about a variety of retirement topics. Learning about the types of income available during retirement can help you make informed decisions when you are younger.
Determining how to prioritize when to take distributions from the income streams you may have available at retirement requires some strategizing that a financial professional can help you with, even if you are still 10-15 years away from retiring. But some milestones that you should be aware of as you approach retirement are important to know.
59 ½
Can generally make tax-free and penalty-free withdrawals from retirement accounts; some rules and regulations apply, depending on type of account.
62
Can start taking disbursements from Social Security account, but only at a portion of the amount you could take if you wait until 65, 67 or 70.
67
Full retirement age, meaning you would get 100% of your Social Security Primary Insurance Amount (PIA)
72
Age when you must start taking Required Minimum Distributions (RMDs) from your retirement account.
Start Now
Just like training for a national competition, world games or Olympics that are several years out, retirement may seem like it’s a long way off and that you have plenty of time to get your finances in order. But, it’s the little things you do early on and throughout your career that can make a big difference when it comes to making sure you finish strong.
Whether you are an athlete with 40 years before you reach retirement age, a seasoned coach who is just a few years from retiring or somewhere in-between, it’s important to have a working knowledge of retirement preparedness. A young person starting out today has the opportunity to make decisions now that can propel them to a comfortable retirement down the road. Think of it as exploding off the blocks. And a pre-retiree has important decisions to make when it comes to leveraging multiple streams of income so their money will last throughout the remainder of their life.
No matter what your age is, it may be a good idea to think about the various streams of income you could have available when you do retire. A few of the most common streams of income include:
Social Security
Social Security is money that you’ve paid into a government retirement fund, and upon your retirement, it is paid out to you on a monthly basis throughout the remainder of your life.
Credits are units used to determine your eligibility for Social Security benefits. Before you are eligible for benefits, you must earn 40 credits, or have about 10 years in the workforce. Your Social Security benefits calculation uses your highest 35 years of earnings to calculate your average monthly earnings. You can then determine what age to take Social Security disbursements, starting at age 62. Full Retirement Age is set at 67 for anyone born after 1960. But you don’t have to take disbursements until you are 70. Your annual Social Security statement is a helpful resource to estimate what your projected retirement income benefit will be.
To access this information online, visit www.ssa.gov/mystatement
Traditional IRAs and 401(k)s
These are qualified retirement accounts. Contributions to these types of accounts generally reduce your taxable income, saving you money on your tax bills in the current year. Contributions, dividends and investment gains within the accounts continue to grow on a tax-deferred basis. IRAs are accounts you can invest in with many different financial institutions such as brokerage firms, online trading companies and banks. A 401(k) is an employee retirement plan, allowing you to divert a percentage of your income into a variety of investment funds. An employer may also agree to offer a “match,” in which it matches a percentage of your contribution up to a certain amount.
Roth IRAs
Roth IRAs can come with a big, long-term tax advantage. With a Roth IRA, you invest with money that has already been taxed. This is advantageous if tax rates are low and anticipated to be higher at the time you’re ready to retire and withdraw money. Contributions to Roths aren't deductible, but withdrawals are tax-free.
Required Minimum Distributions – Because 401(k)s, IRAs and Roth IRAs are considered “qualified” accounts, you are required to start withdrawing a percentage of these moneys annually. Currently, that percentage starts out around 4% and increases slightly each year based on inflation.
Stocks, Bonds and Mutual Funds
This income stream comes from the profitable sale of investments (stocks) that you made in individual companies, bonds or mutual funds that have hopefully increased in value over time. A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.
Income Annuities
An Income Annuity is a contract between you and an insurance company where you pay the insurance company a lump sum of money called a premium, and in return the insurer promises to make regular monthly payments to you. Income annuities are often guaranteed to pay for life and can even pay for a spouse's lifetime too. And because they are non-qualified, you don’t have to take required minimum distributions (RMDs) starting at age 72 like you do with 401(k) plans and IRAs. So, you could take out an annuity at age 55 and then not access it until age 85, after 30 years of growth.
Other Options
There are options that may be available to you depending on your financial situation. Check with a financial professional who can review your options and suggest those that make the most sense.
Retirement Income Strategy
Although this information is more targeted to coaches who are over the age of 45, it’s never too early to educate yourself about a variety of retirement topics. Learning about the types of income available during retirement can help you make informed decisions when you are younger.
Determining how to prioritize when to take distributions from the income streams you may have available at retirement requires some strategizing that a financial professional can help you with, even if you are still 10-15 years away from retiring. But some milestones that you should be aware of as you approach retirement are important to know.
59 ½
Can generally make tax-free and penalty-free withdrawals from retirement accounts; some rules and regulations apply, depending on type of account.
62
Can start taking disbursements from Social Security account, but only at a portion of the amount you could take if you wait until 65, 67 or 70.
67
Full retirement age, meaning you would get 100% of your Social Security Primary Insurance Amount (PIA)
72
Age when you must start taking Required Minimum Distributions (RMDs) from your retirement account.
Start Now
Just like training for a national competition, world games or Olympics that are several years out, retirement may seem like it’s a long way off and that you have plenty of time to get your finances in order. But, it’s the little things you do early on and throughout your career that can make a big difference when it comes to making sure you finish strong.
Just remember to use good judgement when assuming any debt so that you don’t get yourself into trouble. Funding an education, buying a home, or purchasing reasonable and practical transportation is good debt and can help you build a strong credit score if you make on-time payments. Spending wildly and racking up charges on your credit card without regards to cost and not paying on time can cause balances to be unmanageable and result in a low credit score making it nearly impossible to get a low interest loan. When you manage your debt wisely, you’ll be well on your way to building a strong financial future.
RESOURCES
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