You’ve probably heard the phrase “the whole is greater than the sum of its parts.” It’s used to describe a system where individual elements work together to produce a bigger effect—which is exactly what you want out of your retirement plan.
The best retirement plans don’t rely on just one account or savings vehicle. It typically takes a combination of elements to create a solid retirement strategy that meets your needs throughout your retirement years.
If you’ve been counting on an individual retirement account—like your 401(k)—to provide all the income, tax advantages, and coverage you need through your retirement, you may want to explore additional options to build a holistic retirement strategy that can truly meet your retirement goals. There’s no one-size-fits-all solution—after all, your needs and goals are unique to you—but here are five elements you’ll want to consider as you build out your complete retirement strategy.
Element 1: Income Sources
You will likely need multiple sources of income to help make sure you have a regular income stream that will cover all your needs in retirement. Preferably, at least some of those income sources will also be tax-advantaged and guaranteed for life. Here are some common sources of retirement income you may want to consider as part of your plan:
Element 2: Tax Considerations
Taxes can be a larger factor in retirement than you might realize. By identifying sources for tax-free income in retirement and including them in your retirement strategy, you can potentially lower your federal and state income tax bills.
A couple options that offer tax-free income and benefits are the Roth IRA and permanent life insurance. In both cases, your premiums go in post-tax and your withdrawals, along with any interest earned, are tax-free. Life insurance also offers your beneficiaries a tax-free death benefit.*
Element 3: Protection
After you’ve put together a strategy for income and optimized it for tax advantages, you should consider protecting it with insurance. Things like homeowner’s insurance, health insurance, long-term care insurance, and life insurance can all help protect your assets and your overall retirement strategy.
Health care expenses are a common concern for many retirees. While some medical expenses are covered by Medicare after age 65, it does not cover all health-related expenses. For example, long-term care is not covered by any part of Medicare and the cost of long-term care can be excessive. Long-term care insurance can help cover what Medicare doesn’t.
Long-term care insurance can help cover what Medicare doesn’t.
Element 4: Legacy
A good legacy plan can help settle your estate quickly and make the transition of your absence a smoother one for your family.
Roth IRAs and life insurance are both ways to pass on benefits to your loved ones because of their tax advantages. But speaking with a tax advisor or estate planning attorney can help you identify other options that will work for your estate and your family.
Element 5: A Financial Professional
While you can do some financial planning on your own—like estimating your income needs, assessing expenses, and even doing some trading on the stock market—you may want to consider meeting with a financial professional to help create an overall retirement strategy. Financial professionals offer a qualified outside perspective and bring years of experience to the table. Additionally, they can help you obtain retirement vehicles that may not be as accessible on your own—for example, products like annuities, long-term care insurance, and permanent life insurance are all insurance products that can generally only be purchased by working with a licensed financial professional.
Beyond those individual elements, a financial professional can help you navigate the often-complex world of retirement products, helping you create a strategy that meets your needs and goals in retirement. Social Security is a good example of something that you may not have given much consideration. Once you hit your claiming age, you just start to collect a monthly check, right? Not necessarily—there’s more you can do, and a financial professional can help you optimize Social Security so you get the most of your available benefits.
While you can do some financial planning on your own, you may want to consider meeting with a financial professional to help create an overall retirement strategy.
When you’re ready to create a customized, holistic retirement strategy that goes beyond your 401(k), speaking with a financial professional is a good first step.
*Income from a Roth IRA is tax-free if withdrawals are taken after age 59 ½ and the account has been open for at least five years. Life insurance policy loans and withdrawals will reduce available cash values and death benefits and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax.
Annuities are long term financial products designed for retirement income and may not be suitable for everyone. They involve fees, expenses and limitations, including surrender charges for early withdrawals. Some include optional riders and benefits that may come at additional cost. Annuity product and feature availability may vary by state.
The purchase of a life insurance policy is an important decision. Be sure to carefully evaluate the features and benefits, costs and limitations of any policy you are considering before making a purchasing decision.
Insurance and Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing company. Retirement Well Spent and its financial professionals are not affiliated with the Social Security Administration or any other governmental agency.