Final answer:
Retirement income can come from multiple sources: Social Security, providing government checks after retirement; personal savings through various investments; Individual Retirement Accounts (IRAs) which are tax-advantaged; and 401(k) plans that are employer-sponsored, pre-tax savings vehicles.
Step-by-step explanation:
Sources of Income during Retirement
- Social Security: A program that workers pay into to qualify for government checks after retirement. It is designed to provide a foundation of income that protects against poverty in old age. However, there is evidence that its existence may reduce the amount individuals save independently.
- Personal savings: Includes money saved in savings accounts, investments in property, stocks, bonds, and other financial instruments. The goal is to generate income through interest, dividends, or capital gains.
- Individual Retirement Account (IRA): A tax-advantaged investing tool that individuals use to earmark funds for retirement savings. There are several types of IRAs (Traditional, Roth, SEP, SIMPLE), each with specific rules regarding taxation and withdrawals.
- 401(k) investment: A retirement savings plan offered by many employers that allows workers to save a portion of their paycheck before taxes are taken out. Investments are typically managed through a selection of funds, and the account grows tax-deferred until withdrawals begin at retirement.