Key Benefits to Include in Your Retirement Plan

Friday, February 16, 2024

Depending on the type of plan, contributions are made on a pre-tax basis, and earnings from investments are tax-deferred. Find out more by reviewing your plan documents or asking your employer or the plan administrator.

Tax-Deferred Savings

One of the most critical aspects of retirement planning is ensuring you save enough money to live comfortably once you stop working. After all, Social Security benefits can only go so far, and most people do not want to work right up until their death.

Tax-deferred savings are a great way to help you build your savings. These types of accounts, such as IRAs and 401(k) plans, allow you to contribute pre-tax dollars that grow tax-free until they are withdrawn, typically after retirement. This reduces your taxable income in the current year and can make retirement savings more attractive to many people.

Many companies, such as Boeing employee benefits, also match a portion of your contributions to these retirement savings accounts, increasing your total savings even further. However, if you cannot access an employer-sponsored plan or maximize contributions to these accounts, consider other tax-incentivized savings opportunities, such as certificates of deposit (CDs) or blue-chip stocks, to bolster your nest egg.

Income in Retirement

For many retirees, the goal is to turn a lifetime of savings into a steady income in retirement. The right balance of savings, other income sources, and investment returns is key.

Generally, Fidelity recommends saving 15% of their pre-tax income each year. However, that rate can vary depending on several factors, such as when you plan to retire, your lifestyle, and when you started saving.

Another important consideration is the income you can expect in retirement, including Social Security benefits (which tend to play a larger role for lower-income workers) and other predictable and permanent income sources like pensions or home equity. For example, you need $50,000 a year to live comfortably in retirement. Fidelity estimates that, on average, Social Security will replace about 74% of your pre-retirement income. 

Long-Term Care Insurance

Many retirees find themselves in need of long-term care services or support. These services may include home healthcare, assisted living, or nursing home care. Unfortunately, many boomers cannot afford these expenses with their savings and may end up draining their retirement assets or becoming dependent on state welfare programs like Medi-Cal.

Investing in a long-term care policy now can help prevent this from occurring. It can also alleviate the burden on family members, who often shoulder the financial and emotional costs of providing care.

There are four main ways to pay for long-term care:

  • Government assistance.
  • Traditional long-term care insurance.
  • "Hybrid" policies offer life or annuity and long-term care benefits.
  • Personal savings.

AARP recommends buying a traditional long-term care policy with a level premium, which protects against increases based on age or health status.

Life Insurance

Life insurance is a critical component of retirement planning for anyone who has dependents. It helps ensure that any surviving spouse or children will not have to borrow money from creditors or take on debt in the event of your death. It can also help cover final expenses and funeral costs. For most people, a term life policy will meet these needs at an affordable cost. But permanent life policies, including whole and universal policies, may also offer cash value in addition to death benefits, which can supplement retirement savings.

A special type of permanent life insurance called a Life Insurance Retirement Plan (LIRP) allocates a portion of each premium payment to a savings account that builds over time at a predetermined rate of return. LIRPs cannot be term policies; they can't be 401(k) or IRA plans because they don't have dedicated retirement investment options.

LIRPs are best for those who want to fund their retirement with traditional savings and investing accounts, especially those who expect to have large financial goals that may exceed the maximum limits of their other saving vehicles.

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