Combined income sources: An answer to a sustainable retirement?

If you have clients walking through your door, they likely understand the need to supplement any Social Security benefits they’ll receive in retirement. Without question, Social Security is a relied-upon source of guaranteed income for most seniors, but its ability to serve as the sole source of income and still allow them to live a comfortable lifestyle is often insufficient.

When your clients express concern over whether they’ll make ends meet, leveraging a combination of the following income sources may help them alleviate economic hardships in retirement.

Social Security

If you and your client determine there may be a shortfall when assessing income sources in retirement, delaying Social Security until full retirement age or longer can help them earn a higher monthly benefit payment. While this is common knowledge, clients may be shocked to realize just how significant the difference can be. Someone who waits until age 70 to claim benefits could earn about 77% more than if they start claiming benefits at age 62.1 If a retiree claims benefits too early, the disparity in income might threaten their financial security.

The average $1,669 monthly Social Security benefit accounts for about 30% of the income of the elderly.2 The importance of Social Security cannot be overstated, and the remaining 70% of income will need to come from other reliable sources.

Defined contribution funds

Employer-sponsored 401(k) and 403(b) accounts and others are often considered a major benefit for workers, allowing them to invest their own pre-tax dollars in the market. Employers that offer matching funds help employees add even more to their retirement savings. Unlike Social Security and high-yield savings accounts, however, earnings are not guaranteed, and the value of defined contribution accounts can fluctuate based on market performance.

Encouraging working clients to contribute the maximum allowable amount to their employer-sponsored account is typically sound advice, but only in context of a broader, solid financial plan. Other considerations may play a role, such as paying off high-interest debt or achieving other short-term financial goals like buying a home or funding a child’s education. Depending on the level of income combined with market performance, an employer’s plan may or may not be depleted over time.

Defined benefit pensions

Employer-sponsored pension plans may be a major source of guaranteed retirement income and are often highly sought after. However, many of these investment vehicles are becoming a thing of the past and being replaced with the aforementioned defined contribution plans.

While 86% of government workers have traditional pension plans available to them, the majority of private-sector employees do not. An average of only 15% of private-sector workers have access to employer-sponsored pensions, with about three in four actually participating. That figure may be deceiving, however. Top earners in the private sector are far more likely to have access to pension plans, coming in at 30%; that number drops to just 4% for the lowest wage earners, with only half of those eligible low-wage earners participating.3


Traditional savings accounts may be appealing for their liquidity and the ability to access funds quickly, but may come with downsides. At one time, bank accounts may have helped retirees receive a small income, albeit in the form of meager interest earnings. In today’s economy, however, low interest rates may not keep up with annual inflation and actually result in negative earnings.

With the understanding that it’s not a way to increase wealth, encouraging clients to maintain an emergency fund to cover unexpected expenses, such as a major repair or healthcare costs, is generally considered a best practice. Keeping these funds in a high-yield money market account with an FDIC-insured establishment may offer better rates of return than a traditional bank account and come with little risk.

Build-your-own pension plans

Taking some of the money that might be stashed away in savings, CDs* or money markets and investing it in an annuity may be a more reliable alternative fixed income allocation. It can also help supplement other income sources and serve as a do-it-yourself pension plan. Similarly to pensions, many annuity products offer guaranteed income that can’t be outlived—an appealing prospect to many clients. What’s more, some annuity products could outperform bonds in retirement portfolios.

Diversification has long been touted as a key investment strategy, but going beyond the traditional portfolio may be necessary for some clients. When Social Security and an employer-sponsored 401(k) fall short, or a pension plan isn’t an option, your clients might be able to build their own version of a pension plan with an annuity that bridges the gap.

A combination of income streams may be the best way to ensure your clients don’t run out of money in retirement. Knowing whether they face a potential retirement income crisis is critical in determining next steps. Use our guide below to help inform your conversations moving forward.



* There are distinct differences between annuities and Certificates or CDs. Most CDs are generally considered a short-term investment. An annuity is considered a long-term investment. The investment in a CD is insured by the federal government, either through FDIC or NCUA. The investment in an annuity is guaranteed by an insurance company. Like CDs, annuities generally have a penalty for early surrender, and withdrawals taken before the age of 59½ from an annuity may be subject to a 10% federal tax penalty.4

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