Retirement Planning

Retirement planningNumerous studies have been done to survey and examine how much money Americans are saving toward retirement. According to the Federal Reserve Report on Economic Well Being of U.S Households 2020 one quarter of American’s don’t have any retirement savings at all. 

Furthermore, those who are actively contributing to a retirement account have a median savings of $65,000 (source: Federal Reserve 2019). The average savings for those who are just approaching retirement is just over $400,000. 

Given the concerns over rising inflation, market fluctuations and tax increases it appears that the majority of American’s are ill prepared to adequately finance their retirement.

Types of Retirement Savings

Tax Deferred Accounts

Tax Exempt Accounts

Employer sponsored

  • 401 (k) 
  • 403 (b)
  • IRA
  • TSP 
  • Pensions
  • Fixed rate annuities
Taxes are paid when money is distributed and penalties apply for early withdraws.

Employer/non-employer sponsored

  • Roth IRA
  • Roth 401 (k)

Money is paid into with after tax dollars and is allowed to be distributed tax free. Penalties apply for early withdraws.

Alternative to traditional investment accounts:

  • Index Universal Life insurance
  • Dividend paying whole life insurance

The tax problem

Most American’s have the majority of their savings in employer sponsored plans. The biggest drawback of these plans is that all the money in the account is subject to regular income tax when withdrawn. 

Therefore, people don’t have as much money as they think they do when it comes time to retire. For example, a $500,000 401k account might be subject to a 24% tax rate. This means that the real amount that can be used is $380k. This is a simplistic example, but the problem is consistent across all tax deferred plans. 

When you consider most people live 20yrs past the age of retirement. You have to ask yourself, will your savings be enough to last you 20yrs into the future. Unfortunately, the the majority of people come up short.

Tax Exempt Alternatives

In order to mitigate future tax liabilities a retirement portfolio should contain other tax exempt options. Roth plans are great options, but they are limited. Contributions are capped at $6000.00 per year and $7,000 if you’re over 50yrs old. 

Roth 401k’s offer a slightly better contribution amount, but not all employers offer this option. 

Lastly, my favorite savings option is permanent life insurance. Not all permanent life insurance offers the kind of benefits that can be leveraged for retirement, but properly structured index universal life (IUL) plans and dividend paying whole life plans can provide for additional tax free income in the retirement years.

Are you on track?

Schedule a no obligation consultation. We’ll talk about your hopes and dreams for the future and discuss what your your ideal retirement looks like? 

I will listen to your desires and take into consideration your tolerance for risk, future health care concerns and tax implications. I will do an assessment of where you’re at today.  If you’re not on track for the retirement of your dreams, I will design a plan to get you where you want to be.

You are unique and growing your retirement savings deserves a unique solution.