In honor of National Retirement Planning Week®, I thought I’d offer a few thoughts about the importance of retirement planning and highlight a few investment and savings options that people might consider as part of their retirement plans. First, National Retirement Planning Week (NRPW) is a nationwide effort to help consumers focus on their financial needs in retirement. This year the event will be held April 3-7, 2017.
According to an NRPW press release, “the goal is to promote the importance of comprehensive retirement planning. Despite developing trends that have made planning for and funding retirement more difficult – it is still possible to “Retire on Your Terms” if comprehensive retirement plans are properly developed and managed.”
I agree with the above statement about “developing trends that have made planning for and funding retirement more difficult.” There was a time, not that long ago, when American workers received a pension from the company they faithfully and consistently served. Combined with Social Security income and maybe a few investments, people could be assured of a fairly comfortable life in retirement.
Today, very few companies offer pension plans to their employees. Pensions have been replaced by 401k plans (or similar plans) which require people to save and invest for retirement on their own. The investment management and associated risk has shifted from employers to employees.
It’s true that many companies match a percentage of the contributions that are made into a 401k plan. But even if the maximum allowable contributions are made and those amounts are matched by the employer, a 401k plan is still subject to the trends and risks inherent in the stock market, and those risks are borne by the employee.
Another trend that must be accounted for is that people are living longer. In the 1950s, the average life span for men and women was 68.5. In the U.S. today, that number is 79.3 – almost a full 11 years longer. And that’s just the average; many people are living well into their 80s or beyond. When planning for retirement, these facts must be considered.
Given these statistics, it’s no wonder that one of the greatest fears that retirees face is whether they will outlive their retirement funds. In order to assuage those fears, the core goal of successful retirement planning is to ensure that this doesn’t happen, that there will be sufficient income for the duration of one’s life, no matter how long they live.
Another factor is that retired people today are generally healthier and more active than they were several generations ago. This is significant because people have more options to consider when deciding what kind of lifestyle they would like to create for themselves in retirement.
Perhaps traveling the world is an ambition or enjoying sports and recreational activities. Some retirees might prefer to work in some capacity or be engaged in volunteer activities. In addition to ensuring that there is sufficient income to cover their core living expenses, the aim of comprehensive retirement planning is also to provide individuals with the means to live their ideal retirement life.
My professional experience is in the insurance field and so I feel qualified to discuss how insurance products can help people to secure the peace of mind they are seeking.
Of all the insurance-related concerns among retirees, there is probably nothing more important than long-term care insurance. Medicare does not provide for genuine long-term care so if an individual wishes to be covered for long-term care, they will have to acquire that insurance on their own.
For those who can afford it, long-term care insurance will have an impact on the quality of their lives in retirement. It instills a greater sense of security and offers additional peace of mind.
Another health-related issue is the use of a Health Savings Account (HSA).
A health savings account is a medical savings account which is available to people who are enrolled in a high-deductible health plan.
The funds contributed to an HSA account are not subject to federal income tax at the time they are deposited, and the funds can be used to pay for qualified medical expenses at any time without incurring tax liabilities or penalties. This is a great option for people to help defray the costs of their medical expenses.
Annuities are also an investment vehicle to consider as a way to provide guaranteed income* during retirement years. The annuities market has evolved considerably in the last 10-15 years. There are many different products available today that are cost-sensitive. For the right person, allocating some of their income to an annuity may be a strategy to consider. Contact your adviser for a copy of a prospectus for a product that interests you.
* Guarantees are subject to the issuing life insurance company’s claims-paying ability.
Finally, I recommend that people carefully examine their current life insurance plans. The plans that people purchased when they were younger may have outlived their usefulness. Typically, those plans today have cash values associated with them, and that cash can be repurposed into long-term care insurance or exchanged into an annuity product.
In addition, by repurposing that cash into long-term care insurance or into an annuity, rather than just withdrawing the cash, that money can continue to be tax-deferred. If done properly, it could be an efficient tax strategy to consider.
Someone once said, “None of us plan to fail but often we fail to plan.” By spending some time and effort to plan for and execute an effective retirement strategy, the result is that your retirement years will be more enjoyable and you may have greater peace of mind.
Consider consulting with a qualified financial adviser to learn what is right for you.
DISCLOSURES: Any guarantees and protections are subject to the life insurance company’s claims-paying ability. Life insurance products are not a deposit, not FDIC-Insured, not insured by any federal governmental agency, not guaranteed by any bank or credit union, and may go down in value. The guarantees of an annuity contract, including fixed returns, payouts, and death benefit guarantees are contingent on the claims-paying ability of the issuing insurance company. Annuities are sold by prospectus, which describes risk factors, fees, and surrender charges that may apply. Read the prospectus carefully before investing. Variable annuities are long term investment vehicles designed for retirement purposes. Remember that you, not the insurance company, bear the risk associated with a variable annuity. Upon redemption, the value of a variable annuity may be worth more or less than the original cost. The principal amount of payments of an annuity purchased with funds from a qualified retirement plan may be taxable. With either systematic withdrawals or free withdrawals you will still be subject to regular income taxes, as well as the 10% tax penalty on early withdrawals prior to age 59 ½. You may also incur surrender charges on amounts withdrawn in the early years of the contract. There may be additional costs associated with features of a variable annuity that are not typically associated with other investments. Withdrawals or loans will reduce the value of the contract as well as reduce the death benefit. Variable annuities are investments and are subject to market risk, investment risk, and possible loss of principal. United Capital Risk Management, LLC (UCRM) makes recommendations based on the specific needs and circumstances of each client. UCRM does not provide legal, accounting or tax advice. Investors should consult their tax professional with questions about their particular circumstances. IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document. UCRM is an insurance agency and a subsidiary of United Capital Financial Advisers, LLC (United Capital).
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