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Articles: Tap Three Sources for Retirement Income

Where is the income you need to sustain you through retirement going to come from? If you are like most people, there are three primary sources.

1.  Social Security  benefits. Generally, the size of your retirement benefit is based on your earnings throughout your working years and the age when you retire. For instance, if you were born in 1950 and retire in 2012 at the age of 62, you will receive only 75% of the full amount of retirement benefits available to you at age 66.  (For those born after 1937, the age for full benefits gradually increases from age 65 to age 67.)

You can obtain more details about your personal status from the Social Security Administration (SSA).  The SSA will tell you what you will receive in Social Security benefits when you retire.  Similarly, if you are married you can obtain an estimate of your spouse’s benefits.

Note:  If you work during retirement, you may lose some of your Social Security benefits if you are younger than normal retirement age, based on the “earnings test.”  For those attaining normal retirement age after 2012, the annual threshold in 2012 is $14,640.  You forfeit $1 for every $2 over this limit.  For those attaining normal retirement age in 2012, the annual threshold is $38,880.  You forfeit $1 for every $3 over this limit.

2.  Qualified retirement plans. One of the best ways to save for retirement is through a qualified retirement plan. Usually, the contributions’ accumulated earnings are tax-deferred until the money is withdrawn.  In addition, you can take advantage of favorable tax provisions for some distributions.  These plans come in many different shapes and sizes.  The list includes popular 401(k) plans, pension and profit-sharing plans, and plans targeted to small businesses such as SIMPLEs (Savings Incentive Match Plans for Employees) and SEPs (Simplified Employee Pensions).

Be aware that the exact rules and contribution limits vary from plan to plan.  Obtain expert advice with respect to your situation.

3.   Individual savings  and investments. Assuming Social Security and retirement benefits aren’t enough and there’s a good chance they won’t be the balance of your retirement income may have to be supplied by savings and investments.   For example:  You may be able to feather a retirement nest egg by investing in stocks and bonds, mutual funds, money market funds, annu ities, real estate or other investment vehicles.

Don’t overlook amounts you have stashed away in bank accounts and U.S.  Savings  Bonds.  In  addition, you may continue to receive income from existing business interests. You also may be able to tap into the cash value of a life insurance policy (with certain limitations).

Finally, if you sell your principal residence when you retire, you may benefit from a special tax exclusion.  If certain requirements are met, the first $250,000 of profit may be excluded from federal income tax ($500,000 for a married couple).

Best advice:  Don’t put off saving for the future.  The longer you wait, the harder it will be to secure a comfortable retirement.

This newsletter/advertisement is produced for our clients, friends and associates through an arrangement with WPI Communications, Inc. for the representatives’ use. Although the editorial content is professionally researched, written and edited, neither our firm nor any of its agents, representatives or associates make any representations regarding the accuracy of the content or its applicability to your situation. The information in this communication is not intended as tax or legal advice. In accordance with IRS Circular 230, the information provided herein may not be relied on for purposes of avoiding any federal tax penalties. Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of 1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or 2) promoting, marketing or recommending to another party any transaction or matter addressed herein. You are encouraged to seek tax or legal advice from an independent advisor.


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