Do you have a retirement savings gap? While you may be feeling some stress about your retirement outlook, you certainly aren’t alone. According to Gallup’s 2017 study of financial concerns, more than half of all Americans are worried about their ability to pay for retirement.1
If you’re behind on your retirement planning, the simple solution is usually to save more money. Conventional wisdom is to increase your contributions to your 401(k) or IRA. However, that may not be possible. After all, there’s only so much money you can put away for the future. You still have to cover current bills and expenses.
Does a significant portion of your retirement assets exist within your 401(k) plan? If so, you’re not alone. Many workers use their 401(k) as their primary retirement-saving vehicle for a number of reasons. You get tax-deferred growth inside a 401(k) plan. You also may get matching contributions from your employer. Those two components can make a 401(k) a powerful accumulation vehicle.
Retirement isn’t only about asset accumulation, though. You certainly need to save a substantial amount of money to fund a long retirement. However, you also need to make that money last. Your retirement could last several decades. If you aren’t disciplined with your spending and money management, your 401(k) funds may not last the long haul.
How confident are you that you will have enough income and assets to support a comfortable and enjoyable retirement? If you’re like many Americans, you may not be completely confident. According to a 2016 study from the Employee Benefit Research Institute, only 21 percent of Americans say they’re “very confident” that they will have enough money to live comfortably through their retirement years.1
That lack of confidence could stem from a number of issues. Many workers may still be feeling the effects of the recession of 2008-09. Others may be suffering from the reduction in pension programs offered by employers. And many people could simply be behind on their retirement savings efforts.
As you approach retirement and the later stages of your life, you may be considering your legacy and how you will pass your assets on to your loved ones. Perhaps you want to fund your grandchildren’s education or help your grown children get started on their retirement nest egg. Maybe you have assets that hold sentimental value that you would like to distribute to specific relatives.
To achieve these goals, it’s helpful to have an estate plan in place. Your estate plan should prioritize your objectives and offer a strategy. It should also identify risks and challenges, such as taxes, end-of-life costs and even probate expenses.
Any solid financial plan is built on a foundation of risk protection. It’s difficult to reach your financial goals if you are vulnerable to risk. It takes only one sizable threat or unexpected event to create a financial crisis and throw your planning off track.
You probably have various types of insurance to minimize your risk exposure. For example, you may have health insurance, life insurance, homeowners insurance and more. If you’re like many Americans, however, you may not be protected against one significant risk—disability.
Are you recently retired or nearing retirement? If so, you may believe that a financial plan isn’t necessary at this stage of life. After all, retirement planning is a major component in most financial plans. If you’ve already achieved your retirement goals, do you still need a plan?
The truth is that retirement planning is just one piece of a comprehensive financial plan. Even after you retire, you will still have other financial objectives, challenges, and needs. You’ll need to make your retirement assets last through your lifetime. You may have legacy goals on how your estate is distributed after your death. You will likely face health care costs and other financial risks. A comprehensive financial plan can help you tackle these issues.
Today’s retirees face an unprecedented level of financial risks. People are living longer than ever, stretching the amount of time that one’s retirement savings must last. Health care and long-term care costs continue to rise, placing added financial pressure on older Americans. Volatility in the investment markets can threaten your financial stability in retirement.
There’s one other financial risk that you may not have considered. It’s inflation, which is the incremental increase in the price of goods and services from year to year. Inflation is caused by a wide range of factors, including interest rates, economic growth and much more.
If you’re like many working Americans, your 401(k) may be one of your largest financial assets. The combination of regular elective contributions and matching employer contributions can help a 401(k) balance accumulate quickly.
One of the most powerful features of a 401(k) is the fact that growth isn’t taxed as long as the funds stay in the account. That tax deferral can often help funds compound at a faster rate than they might in a taxable account. You pay taxes on your 401(k) funds when you take distributions, and if you take a withdrawal before age 59½, you could also face a 10 percent early withdrawal penalty.
One of the essential goals of any retirement strategy is to ensure your future financial stability when you’re no longer working. A key way to do this is to reduce your expenses in retirement as much as possible.
Taxes are one of the biggest expenses retirees often face. As a retiree, you’ll likely be required to pay taxes on Social Security, pension benefits, retirement account distributions and more. This significant tax bill often takes many people by surprise, and it can critically affect your retirement savings.
You might think of estate planning as something for only the wealthiest Americans. The truth is, though, estate planning is an important process for anyone who has accumulated assets, not just the ultra-wealthy. It’s a common assumption that estate planning only regards estate taxes, but in reality, this isn’t the case.
Think of estate planning as legacy planning. It’s about building and protecting your legacy for your loved ones after you pass away.