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Planning your retirement income is like putting together a puzzle with many different pieces. One of the first steps in the
process is to identify all potential income sources and estimate how much you can expect each one to provide.

Social Security
According to the Social Security Administration
(SSA), more than 9 of 10 people aged 65 or
older receive Social Security benefits. However,
most retirees also rely on other sources of
income.

The SSA sends you an estimate of your
benefits each year. The closer you are to full
retirement age, the more accurate that
estimate will be. For a rough estimate, you can
use the calculator on the Social Security
website (www.ssa.gov).

Your Social Security retirement benefit is
calculated using a formula that takes into
account your 35 highest earnings years. How
much you receive ultimately depends on a
number of factors, including when you start
taking benefits. You can begin doing so as early as age 62. However, your benefit may be 20% to 30% less than if you waited
until full retirement age (65 to 67, depending on the year you were born).

As you're planning, remember that the question of how Social Security will meet its long-term obligations to both baby boomers
and later generations has become a hot topic of discussion. Concerns about the system's solvency indicate that there's likely
to be a change in how those benefits are funded, administered, and/or taxed over the next 20 or 30 years. That may introduce
additional uncertainty about Social Security's role as part of your overall long-term retirement income picture, and put
additional emphasis on other potential income sources.

Pensions
If you are entitled to receive a traditional pension, you're lucky; fewer Americans are covered by them every year. Be aware
that even if you expect pension payments, many companies are changing their plan provisions. Ask your employer if your
pension will increase with inflation, and if so, how that increase is calculated.

Your pension will most likely be offered as either a single or a joint and survivor annuity. A single annuity provides benefits
until the worker's death; a joint and survivor annuity provides reduced benefits that last until the survivor's death. The law
requires married couples to take a joint and survivor annuity unless the spouse signs away those rights. Consider rejecting it
only if the surviving spouse will have income that equals at least 75% of the current joint income. Be sure to fully plan your
retirement budget before you make this decision.

Work or other income-producing activities
Many retirees plan to work for at least a while in their retirement years at part-time work, a fulfilling second career, or
consulting or freelance assignments. Obviously, while you're continuing to earn, you'll rely less on your savings, leaving more
to accumulate for the future. Work also may provide access to affordable health care.

Be aware that if you're receiving Social Security benefits before you reach your full retirement age, earned income may affect
the amount of your benefit payments until you do reach full retirement age.

If you're covered by a pension plan, you may be able to retire, then seek work elsewhere. This way, you might be able to
receive both your new salary and your pension benefit from your previous employer at the same time. Also, some employers
have begun to offer phased retirement programs, which allow you to receive all or part of your pension benefit once you've
reached retirement age, while you continue to work part-time for the same employer.

Other possible resources include rental property income and royalties from existing assets, such as intellectual property.

Retirement savings/investments
Until now, you may have been saving through retirement accounts such as IRAs, 401(k)s, or other tax-advantaged plans, as
well as in taxable accounts. Your challenge now is to convert your savings into ongoing income. There are many ways to do
that, including periodic withdrawals, choosing an annuity if available, increasing your allocation to income-generating
investments, or using some combination. Make sure you understand the tax consequences before you act.

Some of the factors you'll need to consider when planning how to tap your retirement savings include:

  • How much you can afford to withdraw each year without exhausting your nest egg. You'll need to take into account not
    only your projected expenses and other income sources, but also your asset allocation, your life expectancy, and
    whether you expect to use both principal and income, or income alone.
  • The order in which you will tap various accounts. Tax considerations can affect which account you should use first, and
    which you should defer using.
  • How you'll deal with required minimum distributions (RMDs) from certain tax-advantaged accounts. After age 70½, if you
    withdraw less than your RMD, you'll pay a penalty tax equal to 50% of the amount you failed to withdraw.

Some investments, such as certain types of annuities, are designed to provide a guaranteed monthly income (subject to the
claims-paying ability of the issuer). Others may pay an amount that varies periodically, depending on how your investments
perform. You also can choose to balance your investment choices to provide some of both types of income.

Inheritance
One widely cited study by economists John Havens and Paul Schervish forecasts that by 2052, at least $41 trillion will have
been transferred from World War II's Greatest Generation to their descendants. (Source: Why the $41 Trillion Wealth Transfer
Is Still Valid) An inheritance, whether anticipated or in hand, brings special challenges. If a potential inheritance has an impact
on your anticipated retirement income, you might be able to help your parents investigate estate planning tools that can
minimize the impact of taxes on their estate. Your retirement income also may be affected by whether you hope to leave an
inheritance for your loved ones. If you do, you may benefit from specialized financial planning advice that can integrate your
income needs with a future bequest.

Equity in your home or business
If you have built up substantial home equity, you may be able to tap it as a source of retirement income. Selling your home,
then downsizing or buying in a lower-cost region, and investing that freed-up cash to produce income or to be used as needed
is one possibility. Another is a reverse mortgage, which allows you to continue to live in your home while borrowing against its
value. That loan and any accumulated interest is eventually repaid by the last surviving borrower when he or she eventually
sells the home, permanently vacates the property, or dies. (However, you need to carefully consider the risks and costs before
borrowing. A useful publication titled "Reverse Mortgages: Avoiding a Reversal of Fortune" is available online from the
Financial Industry Regulatory Authority.)

If you're hoping to convert an existing business into retirement income, you may benefit from careful financial planning to
minimize the tax impact of a sale. Also, if you have partners, you'll likely need to make sure you have a buy-sell agreement that
specifies what will happen to the business when you retire and how you'll be compensated for your interest.

With an expert to help you identify and analyze all your potential sources of retirement income, you may discover you have
more options than you realize.
Sources of Retirement Income in Dallas, Texas | Frisco, Texas
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