yego.me
💡 Stop wasting time. Read Youtube instead of watch. Download Chrome Extension

Sources of income during retirement | Investments and retirement | Financial literacy | Khan Academy


3m read
·Nov 10, 2024

Let's talk a little bit about sources of income during retirement.

So, we're assuming you're retired, you're not working, so you're not going to get that income. But one of them is perhaps just your straight-up investment income. You save money over time; you've invested it in, let's say, dividend-paying stocks. The dividend is an income. Maybe you've bought rental properties; those rents, after paying all the expenses, those can be income.

But there's also things that are a special purpose for retirement. Probably the most common is Social Security. You pay into Social Security; when you get your paycheck, you will see that some of it is essentially taken out for Social Security. Then, when you become the age where you can start collecting that Social Security, you get a payout, up to a cap. It is related to how much you have actually paid into Social Security.

Now, above and beyond Social Security, many employers will have employer-sponsored plans. That is money that you pay in, and oftentimes the employer will add some money to that. They'll match some percentage of what you put into that plan, for example, a 401k. You can put money into it on a pre-tax basis.

So, what does that mean? Normally, let's say you make an incremental ten thousand dollars, and your marginal tax rate is say 20 percent. Well, you're going to have to pay two thousand dollars of tax on that ten thousand dollars. But something like a 401k, you could put that ten thousand dollars into the plan and not have to pay taxes on it up front. Then you can invest it within the plan.

You can find out different types of investment vehicles, ways to invest that money within the plan. There's not unlimited choices, but they usually have several choices within the plan. Then, when you're of retirement age, you can take it out, and then you pay taxes.

Now, you might say, "Well, I'm going to pay taxes one way or the other." But when you pay taxes when you're retired, one, you deferred those taxes by many years—usually many, many decades. And also, when you're retired, it’s possible that your income is lower, and so your marginal tax rate is lower. You might actually have to pay fewer taxes on those same dollars.

So, you have Social Security, you have employer-sponsored plans like 401ks, and then you have individual retirement plans. The most common one is called an IRA, Individual Retirement Account. That's an individual plan that you usually go and get with a bank or broker on your own; it's not connected to an employer.

There are two types: there’s a traditional IRA, where, similar to a 401k, you can put money in on a pre-tax basis up to a cap, and 401ks also have a cap. You can invest it without taxes, and then at some future date, you're going to pay the taxes on it.

There’s also something called a Roth IRA, which you pay the taxes up front, put the money in, but then you can invest it tax-free. When you take it out at retirement, you don’t have to pay taxes on it. So, those are the basic ways that you're going to get income in your retirement. It's good to start thinking about them early.

More Articles

View All
Why Luxury Watches Are More Expensive Than Regular Watches
Hello, a Luxor’s! In previous videos, we’ve spoken all about some of the most luxurious watch brands in the world and some of the most expensive timepieces they’ve produced. But what makes them so expensive? What drives up the cost of these wrist frosting…
You Have to Protect Your House! | Life Below Zero
You don’t know when something unique is going to happen out here, but you better be on your toes. There he is, he’s on top of my Ridge now. After a brief stay in Dead Horse, SE has returned home to find a Wolverine lurking around CIC’s perimeter. To prot…
8 movies that will quickly improve your life
Here are 8 movies that improved my life, and maybe they’ll improve yours too. Number one: Catch Me If You Can. Catch Me If You Can is a 2002 film that is a true story. Obviously, there are probably some dramatic elements, and it stars Leo DiCaprio and To…
Tornadoes 101 | National Geographic
Tornadoes are big funnel-shaped clouds that can rip through a community and leave a wake of destruction. They can form in seconds, change direction in a heartbeat, and their devastation can last a lifetime. Exactly how and why tornadoes occur is still a b…
Inside Bill Gates' $17B Defensive Stock Portfolio. (Mid 2020)
Hey guys, welcome back to the channel! In this video, we’re going to be running through the top 10 stock positions that Bill Gates holds in his portfolio. So, his portfolio is worth about 17 billion dollars. Technically, it’s not his portfolio; it is the…
A Little Sea Sick | Wicked Tuna
Like liver, like failing. Your liver failing. Did you puke? No, it’s not my stomach. We’ve been fishing hard for almost five straight weeks now, and I woke up this morning with an excruciating pain in my side. Um, it feels like when my appendix burst. I c…