Finance
February 2, 2024
It doesn’t take long in the working world for people to start daydreaming about their retirement years. Everyone imagines the days when you’ll have enough time for new hobbies and trips around the world.
The problem is that you need to plan for your retirement in order to afford those exciting experiences. With fewer employee pensions and the unknown future of Social Security, the need for planned retirement options is greater than ever if you want to stop working when you’re older.
Over the last 30 years, the average retirement age for Americans has risen, from 62 years old for men and 60 for women to 64 years old for men and 62 for women. And even then, many people retire from their careers only to discover that they need additional retirement financial planning to live comfortably for the rest of their lives.
What Is Retirement Planning?
Americans didn’t always think about planning ahead for their retirement years. From the late 1800s up until as recently as 2005, private companies offered pension plans as a tool to reduce employee turnover and attract more qualified workers. When you retired with a pension, you’d get a monthly check for the rest of your life as thanks for decades of hard work.
For those who didn’t earn a pension, they still had a support system for retirement: Older relatives could move in with their grown children and their families. But if you want to maintain your independence, sharing a household isn’t the best option.
Today, working-age adults must create a retirement investment plan, starting as early as possible. By saving and investing in a strategic manner, you will be able to support your lifestyle and be prepared for unforeseen emergency costs that may arise.
5 Retirement Options to Consider
401(k) Plans
In lieu of pension plans, in which employers guaranteed a benefit after a certain number of years of work, modern companies commonly offer 401(k) plans for retirement option planning. However, many employees don’t know how to take full advantage of these plans.
Check your benefits paperwork or talk with your human resources department to see if you can take advantage of this financial opportunity. Often, employers will match up to a certain percentage that you elect to deduct from your paycheck each month.
Try to contribute at least the maximum matching amount every payday. You’ll enjoy tax benefits by reducing your taxable income as you plan for your retirement options. But beware: it’s usually not enough to live on for years.
IRA
Let’s say you’re leaving a job that offered a 401(k). You’ll need to roll over those funds into another account within 60 days to avoid fees and penalties. That’s just one reason why you should consider an IRA for retirement planning.
IRAs, or Individual Retirement Accounts, are vehicles for you to contribute an amount of your own funds every year. Both traditional IRAs and Roth IRAs offer tax incentives and better, individualized oversight than an employer 401(k). However, the law limits the amount you can contribute each year, so you’ll need to start early to reap the benefits of compounding interest.
Life Insurance Plans
Some insurance companies offer death benefits plans that can be accessed for your retirement needs. As you pay monthly premiums, your account will build cash value, which you can withdraw without tax penalties.
However, these plans can be very expensive and are often used as a complement to other investments. You’ll be locked into the plan once you begin. And if you don’t keep up with your premiums, you risk a large tax bill and no future plan for retirement options.
Voluntary Employee Beneficiary Associations
Rather than providing an opportunity for saving money, VEBAs (Voluntary Employee Beneficiary Associations) help retirees cover their medical, dental, and other basic insurance needs. Since this is a major expense as we age, buying into these plans is worth considering.
Also known as a health reimbursement account, these welfare plans must be created under the umbrella of a shared employer, labor union, or collective bargaining tool.
Sale-Leaseback Option
If you own a home, you’ve got an asset that can be used to fund your retirement dreams — if you can find a way to access the funds. It doesn’t always make sense to sell your home, especially when the housing market is a buyer’s market. If you love your home, it will be an important part of your life after you finish working.
That’s why many soon-to-be retirees consider a sale-leaseback opportunity. This program lets homeowners sell their homes to a reputable company without having to pack up and leave. Instead, the homeowner converts their equity to cash and signs a lease to stay in the home as long as they’d like while paying monthly rent.
You can use the money you receive from the transaction for any retirement options you may have, or you can invest it in other financial vehicles that can help fund your lifestyle for years to come.
Create Your Retirement Plan Today
Whatever method you choose to fund your retirement options, experts agree that you should start thinking ahead as soon as possible. Start by talking with a financial professional to see what options are best for you. Conduct your own research to make the most informed decision.
If you’ve waited until the last years of employment or have already retired, you can still create a plan to build on your existing assets. Start by creating a realistic budget for your household so you can reduce your debt and expenses. Brainstorm to see if there are investment or passive income opportunities that can allow you to continue earning money without working.
Homeowners should also learn more about the sale-leaseback options that are available to convert the value of their home, especially when housing prices remain high throughout many markets in America.
Key Takeaways
If you’re looking at options for your retirement, talk to a financial advisor to be sure you are aware of the pros and cons of each one. Explore the traditional as well as alternative solutions, such as a sale-leaseback to decide which one works best for you.
