Retirement income sources

While you may be counting on Social Security, Medicare or a pension to cover a large part of your costs in retirement, possible changes to these benefits may have a big impact.

Social Security may be limited

The Social Security Administration has predicted that it will be able to pay benefits in full and on a timely basis through 2033, stating on its website :

"The projected point at which the combined trust fund reserves will become depleted, if Congress does not act before then, comes in 2033 – the same as projected last year. At that time, there will be sufficient income coming in to pay 77 percent of scheduled benefits."

Even if you’re able to draw the maximum Social Security benefit, you may not be able to live on that alone. The Social Security Administration says it covers only about 40% of an average retiree’s expenses.

You may need more than Medicare

In the past, Medicare covered most healthcare needs for retired people. However, today’s retirees are living longer and incurring more costs. Medicare may not be enough. Gaps and dollar limits on coverage often force retirees to seek extra insurance.

Companies are phasing out pension plans

A pension or “defined benefit” plan is funded by an employer and doesn’t usually include contributions from employees. This type of plan offers a retirement benefit based on a formula that often includes years of service and pay. Many organizations are phasing out or reducing pensions plan benefits. Many new workers have no pension plan available, and others may have their benefits frozen before they retire.

Your workplace retirement plan can be critical

These changes highlight the importance of developing your own strategy for generating retirement income. By joining your employer’s retirement plan or funding an Individual Retirement Account (IRA), and by saving as much as you can, you have more control over your retirement income strategies and your retirement savings.