Photo credit: <a href = "http://www.freedigitalphotos.net/images/view_photog.php?photogid=2664">Stuart Miles</a>

A quarter of middle-class Americans are now so pessimistic about their savings that they are planning to delay retirement until they are at least 80 years oldtwo years longer than the average person is even expected to live.

It sounds depressing, but for many it’s a necessity. On average, Americans have only saved a mere 7 percent of the retirement nest egg they were hoping to build, according to Wells Fargo’s latest retirement survey that polled 1,500 middle-class Americans.

According to an article on http://money.usnews.com, here are some common ways to pay for retirement:

1. Social Security

The proportion of workers expecting to rely on Social Security as a major source of retirement income has grown from 27 percent in 2007 to 33 percent in 2012, according to a recent Gallup poll of 1,016 adults.

2. Delay filing for Social Security

Consider a retiree who could claim $12,000 a year at age 65 and $12,860 at age 66–$860 more. If he delays claiming for a year and uses $12,860 from savings or continuing to work to pay the bills that year, $12,860 is the price of the extra $860 income. Plus, Social Security benefits are indexed for inflation, which means by delaying his claim for Social Security for one year he increases his total retirement income from Social Security over his life expectancy.

3.  Retirement accounts

While more than half (52 percent) of workers said their retirement account would be a major source of retirement income before the recession in 2007, just 46 percent of employees feel that way now. And only about a quarter (24 percent) of retirees count their 401(k) or IRA withdrawals as one of their major income sources.

4. Pension

“There’s a generational change in that older people who are already retired tend to be more likely to have pensions,” says Dennis Jacobe, Gallup’s chief economist. “Younger people aren’t as likely to have pensions. They tend to expect to depend more on things like their 401(k)s and personal accounts.”

5. Savings accounts or CDs

Worker interest in these conservative savings vehicles has declined less sharply from 71 percent in 2007 to 68 percent in 2012. While these may be appropriate for holding short-term funds for emergencies or ease of access to funds, over the long term these vehicles may be better suited for many retirees.

6.  Home equity

Just under half (47 percent) of retirees are planning to use equity built up in their home to help finance their retirement years. Even more workers (60 percent) are hoping their home equity will give their retirement finances a boost.

Your client could also downsize to a smaller home or move to a more affordable part of the country and use the profit to help fund their retirement.

7. Stocks or stock mutual funds

Just over half (53 percent) of workers plan to keep some money in the stock market to help finance their retirement years, down significantly from 63 percent in 2007. Only about 42 percent of retirees say they receive income from stocks or stock mutual funds. Because retirement could last 20 or more years and the future changes in the stock market could be hard to plan for, many retirees may want to consider how much of their assets they want to have in the market and the cost of making changes based on market conditions, in real time.

8. Rent or royalties

Just over a quarter (27 percent) of workers are buying property that they hope will provide them with an additional stream of retirement income. And 19 percent of retirees say they are currently receiving rent or royalty payments.

So what information would we want from our clients when calculating for their retirement needs? Here are some questions to ask:

  • Current age?
  • Age at retirement?
  • Clients projected annual retirement expenses?
  • How much money do your clients expect to live on when they retire? Many people say they expect expenses to be about 70 percent to 80 percent of their current expenses. If your client wants to maintain their current lifestyle, enter a figure closer to their current annual expenses.
  • Anticipated annual income sources and amounts?
  • Social Security? (socialsecurity.gov)
  • Pensions? (Check with their employment personnel/HR office.)
  • Savings?
  • Part-time employment?
  • Other?
  • Current value of assets that are designated for retirement?
  • Amounts in tax-deferred plans: 401(k), 403(b), 457?
  • Amounts in IRAs (Roth or Traditional)?
  • Value of other assets “designated” for retirement?
  • Value of assets that will be sold to provide income for retirement?
  • Current monthly savings for retirement?
  • Expected rate of return for their retirement assets?
  • Expected rate of inflation?
  • Current marginal tax brackets (use link this link: IRS.gov)?
  • State:_________________________
  • Federal:_______________________
  • Total:_________________________

Next week: Social Security Options

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