Your retirement plan can be your legacy
You contribute to your retirement plan so that you’ll increase your chances of enjoying a financially secure retirement. That’s critically important. But that money in your plan also represents an asset that you can leave to your loved ones in the event of your death.
Since the money in your retirement plan cannot be forfeited or taken from you once you have satisfied your plan’s vesting requirements, you can opt to do whatever you want with that money. If you were to pass unexpectedly, that money would go to the individual or individuals you named as your beneficiaries when you first started in your plan.
The money in your plan could provide financial stability for your loved ones. Your spouse or children could use that money to make mortgage payments, pay household expenses or cover medical bills. It could help pay college tuition for a child or help with the down payment on a child’s first home.
When and how distributions are made to your beneficiaries are governed by tax law and the terms of your retirement plan. Details about your plan’s terms and conditions can be provided by the plan administrator.
A financial professional or a tax specialist can give you more details related to the tax aspects of leaving your retirement benefits to a beneficiary.
Getting by on $22,872 a year
It’s an attractive sum if you receive it as a gift or win it in a lottery. But, if you had to live on it for one year, could you? Some people have to, since it is the average annual Social Security benefit for all retired workers in 2024.
Without question, some expenses could be lower once you retire—your children may be financially independent, your mortgage may be paid off and you won’t have the expense involved in commuting to work. However, you should expect that certain expenses, such as health care, will be more expensive as you get older. And you can’t ignore inflation and its impact on the cost of food, energy, and other goods and services.
Social Security is simply a safety net
You could be misjudging reality if you expect to get by in retirement on Social Security alone. The reality is that Social Security is a safety net intended to pay for the basics. If you hope for a comfortable retirement with a good quality of life, you have to take responsibility now and focus on building your own retirement savings. Over time, the money you invest in a retirement account will have the potential to grow and put you in a stronger financial position when you do retire.
Put compounding to work on your behalf
While contributing to your employer-provided retirement plan is an important first step, it’s just as important to keep increasing the amount you contribute to your retirement plan over time. All things being equal, the more you contribute to your retirement plan, the greater your potential retirement income. Long-term compounding may even transform a small contribution increase into a higher plan balance at retirement.
Planning to retire on Social Security payments alone is a high-risk strategy. It makes more sense to develop your own saving program that can complement Social Security payments.
5 interesting facts about Social Security
3-to-1 | The ratio of workers to retirees for Social Security in 2023 | ||
8% | The amount your benefit grows per year for each year you postpone enrolling in Social Security after full retirement age (up to age 70) | ||
96% | Percentage of working Americans between age 20 and 49 who have survivor’s insurance protection for their spouse and children through Social Security | ||
90% | Percentage of workers aged 21 – 64 in covered employment in 2023 and their families who have protection in the event of a prolonged and severe disability | ||
6.2% | Social Security payroll tax on earnings up to $168,600 in 2024 |
