RETIREMENT INCOME SOURCES AND EXPENSES
You might be counting on Social Security, Medicare or a pension to cover a large part of your expenses during retirement. Each of these sources of support has limitations, and it's important to consider them when planning your retirement income needs.
Since the 1980s the Social Security program has been able to take in more money than it has paid out in benefits. But this money is not maintained in surplus — it's loaned out to the U.S. Treasury in the form of Treasury bonds and spent at the discretion of the government.
In the past, Medicare provided adequate medical insurance coverage for retirees. But today, retirees are living longer and maintaining more active lifestyles. As a result, Medicare by itself is no longer enough.
Gaps in Medicare's coverage — and dollar limits on what it does cover — can force retirees to seek additional health insurance. Medicare still provides overall coverage, but may not be able to keep up with the rising cost of healthcare.
Defined Benefit Pension
For companies that offer defined benefit pension plans, payouts from these plans may represent another source of income. As more people retire, payouts for retirement pension plans place greater financial strain on the companies that offer them. As a result, many companies are phasing out these plans.
But there's more to it than that. Some companies are actually eliminating pension benefits for people who are nearing retirement or who are already retired. If that happens to you, you may not have time to respond if you rely heavily on your pension to provide for your financial security.
The Importance of Your Company's Retirement Plan
These limitations highlight the importance of participating in your company's retirement plan. By contributing as much as you can to your plan and taking advantage of all its options, you take greater responsibility for your own retirement security. This puts you on much firmer ground than relying on programs over which you have less control.