Format for printing

Social Security
Depending on your age, you may or may not believe Social Security will be there for you when you become eligible to collect it. We won't promise you it will be. Still, we certainly won't say you should exclude it from your plans, either. Most Fools know who votes in federal elections (think of those over the age of 50), and we also know that our fearless leaders can count. Therefore, we tend to believe that Social Security is here to stay.

But we also recognize that the system will almost assuredly give future recipients less than it does today. Therefore, because it will continue to play an important part in how we plan for retirement, it would behoove us to understand today's system, and to watch closely how it evolves in the future. That way we'll know how to plan for retirement with more precision.

Employer-Provided Moolah
As Fools, we also recognize that employer-provided pensions, otherwise known as defined benefit plans, are rapidly becoming an endangered species. These plans are dying off as employers switch to 401(k) plans or hybrid vehicles like cash balance plans. By eliminating the traditional defined benefit (or pension) plan, the employer shifts all investment risk to the employee and avoids having to guarantee a particular level of income at the employee's retirement. This shift in emphasis puts more importance on personal savings as a major source of retirement income. And in the process, it makes our need for retirement planning more important, too.

Personal Savings
The tax advantages of employer-sponsored retirement plans are also available to most individuals in the form of IRAs (Individual Retirement Accounts). The great thing about IRAs is that you have complete control over them. You get to decide to invest in individual stocks, an index mutual fund (the only kind of fund we Fools like), bonds, or whatever, without the limitations of investment vehicles provided in most employer-sponsored plans. We'll cover some strategies for accumulating the most money you can with your personal savings in our next lesson. Just know that your personal savings will figure largely during your retirement.

Work (Wages)
Will you work in retirement? Many folks think they will. (We'll discuss this and lifestyle issues in Lesson 6.) Many also think they will be forced to work, just to survive. We hope you're not in the latter category. Instead, we trust you will do so only as a means of providing yourself pleasure, to contribute your productivity to others, and/or to fill your waking hours with meaningful activity. We believe Fools who plan will work in retirement by choice, not by necessity. And you're a planner -- or you wouldn't be taking this seminar.

Other
How about that magical catchall category of "other"? Some of us may stand to inherit big bucks from our parents. Gifts, though, may or may not materialize, and estates have a way of disappearing in the wake of terminal illnesses, remarriages, estate taxes, and inheritance taxes. Besides, there is no guarantee that bequests will be made at all. So, for planning purposes at least, we're simply going to ignore gifts or inheritances as a source of income in our retirement.

It's tempting to think of collectibles, such as stamps, coins, Hummel figurines, or Jim Beam bottles, as potential sources of income. While we don't ordinarily think of selling these items, they do have value and could be sold in a pinch. (Plus, who wants to spend their retirement dusting their collectibles?) Again, though, we're going to be conservative and ignore 'em.

For those who own their own homes, we could also include home equity -- meaning that you take some money out from what you've paid in for your home. You can do this either through a loan or by selling your home. Both actions have advantages and disadvantages, the discussion of which is outside the scope of this lesson.

We also could include rental real estate. Many folks have properties that produce an income stream from rent. Again, such a discussion remains outside the scope of the seminar. If you have such property, we will leave it up to you to decide how reliable the annual income from that property may be.

« How To Pay For Retirement

The Inflation Relation »