Retirement Income Planning

The composition of retirement income has changed dramatically over the last 30 years.

In the good old days, when someone retired it was typically after having worked for the same employer for dozens of years.

And, most of the time, the company pension plan... together with social security... provided a comfortable standard of living until death.

Little attention was paid to one's return on investment because it was seldom a major consideration in the progression from full-time employment to mandatory retirement.

The company funded the pension plan, while the government provided lifetime social security.

Today, this is no longer the normal situation. The onus of preparing for retirement income is now squarely on the shoulders of the workforce.

Over time, companies have converted pension plans (defined benefit plans) into profit sharing plans (defined contribution plans).

Companies are mandated to fund their pension plans each year. Actuaries calculate the minimum contribution that will support the future guaranteed retirement income for the plan participants.

On the other hand, companies have flexibility when funding profit sharing plans. If profits aren't declared, no contribution is necessary. Indeed, even with a profit funding can be temporarily curtailed.

The most common type of profit sharing plan is the 401(k) plan. This provision permits eligible employees to personally contribute with pre-taxed dollars. Taxation on the earnings is postponed until withdrawn as retirement income.

The employer can chose to match the employees contribution in varying amounts, plus it can make a regular profit sharing contribution.

The distinctive point is that in today's world of retirement plans, companies have the ability to control their costs... unlike pension plans from the good old days.

Simultaneous to the transition from defined benefit plans to defined contribution plans in the private sector has been the strain placed on the federal social security system to predictably provide guaranteed benefits for tomorrow's workforce.

The following link provides an excellent white paper on the subject of retirement income as it relates to the social security system.

Typically, most people worry more about accumulating their retirement fund than they do about assuring that they will never run out of money once they begin to draw down their income.

Retirement income funds have become more popular lately due to the marketing efforts of mutual fund families and life insurance companies.

These are designed to help alleviate the stress caused by wondering how to allocate and monitor individual investment decisions.

The retirement annuity is a tool that, while not suited for everyone, can provide comforting income guarantees for those who simply can't cope with severe market fluctuations.

Finally, the immediate annuity, as well as the variable annuity, offer excellent income benefits to those who understand and are willing to pay for their costs.