How Retirement Strategy Has Changed

Not all retirement strategies are the same.

There is such a wide variety of retirement strategies that it is worth reading up on your choices. There used to be a time when an employee could rely on their pension and social security alone. Since things have changed since then, it is important to maximize your use of the vehicles available. Here's a brief look at the different strategies and what they have to offer.

The traditional 401(k).

Most people have this type of retirement savings strategy, and it works like this. The strategy is funded with pre-tax dollars taken out of your paycheck (through payroll deductions). If you're lucky, your company will match your level of contribution or even make contributions on your behalf – after all, the employer contributions are tax deductible.

The Solo 401(k).

Combine a profit-sharing plan with a regular 401(k), and you have the Solo 401(k) plan, a retirement savings vehicle designed for sole proprietors with no employees other than their spouses.  

The Roth 401(k).

Imagine a traditional 401(k) fused with a Roth IRA. Here's the big difference: you contribute after-tax income to a Roth 401(k), and when you reach age 59½, your withdrawals will be tax free (provided you've had your plan for more than five years). 

You can roll Roth 401(k) assets into a Roth IRA when you retire – and you don't have to make mandatory withdrawals from a Roth IRA when you turn 70½.

The SEP-IRA.

This employer-funded plan gives businesses a simplified vehicle to make contributions toward workers' retirements (and optionally, their own). The employer contributions are 100% vested from the start, and the employer can supplement the SEP-IRA with another retirement plan. 

The SIMPLE IRA.

Kind of like the "little brother" to a 401(k) – a small business retirement plan with mandatory employer match. But in this plan, there is one big difference for the business owner. If the business is not doing well, the owner can temporarily reduce plan contributions. 

The Keogh Plan.

The Keogh is designed for small, unincorporated businesses. There are defined benefit, money purchase, and profit-sharing variations; the defined benefit variation is a qualified pension plan offering a fixed benefit amount. 

Did you know you had so many choices?

If you are an employer, you may not have realized you have such an array of choices in retirement plans. But you do, and asking the right questions may represent the first step toward implementing the right plan for your future or your company. Be sure to ask a qualified financial advisor or business retirement plan consultant about your options today.

All the time, people are saving for that "someday" called retirement.

Someday, their careers will end. Someday, they may live off their savings or investments, plus Social Security. They know this, but many of them do not know when, or how, it will happen. What is missing is a strategy – and a good strategy might make a great difference.  

A retirement strategy directly addresses the "when," "why," and "how" of retiring.

It can even address the "where." It breaks the whole process of getting ready for retirement into actionable steps.

This is so important. Too many people retire with doubts, unsure if they have enough retirement money, and uncertain of what their tomorrows will look like. In contrast, you can save, invest, and act on your vision of retirement now to chart a path toward your goals and the future you want to create for yourself.

Some people dismiss having a long-range retirement strategy since no one can predict the future. Indeed, there are things about the future you cannot control: how the stock market will perform, how the economy might do, and so on. That said, you have partial or full control over other things: the way you save and invest, your spending and borrowing, the length and arc of your career, and your health. You also have the chance to be proactive and to prepare for the future.

A good retirement strategy has many elements.

It sets financial objectives. It addresses your retirement income: how much you may need, the sequence of account withdrawals, and the age at which you claim Social Security. It establishes (or refines) an investment approach. It examines tax implications and potential tax advantages. It takes possible health care costs into consideration and even the transfer of assets to heirs. 

A prudent retirement strategy also entertains different consequences.

Financial advisors often use multiple-probability simulations to try to assess the degree of financial risk to a retirement strategy in case of an unexpected outcome. These simulations can help to inform the advisor and the retiree or pre-retiree about the "what ifs" that may affect a strategy. They also consider sequence-of-returns risk, which refers to the uncertainty of the order of returns an investor may receive over an extended period.

Let a retirement strategy guide you.

Ask a financial professional to collaborate with you to create a retirement strategy, personalized for your goals and dreams. When you have this strategy, you will know what steps to take in pursuit of the future you want.

Spiritual Application

It is so easy to get caught up in the negativity and bad reports of the world that we get bombarded with on a daily basis. If we're not careful, we can take to heart what we are seeing, to the point that it affects us emotionally, spiritually, and even physically and financially. While God gave us emotions to be used for his purposes, we shouldn't be allowing it to influence the major decisions that have important consequences for our future. 

1 Peter 4:12-13(MSG) states, "Friends, when life gets really difficult, don’t jump to the conclusion that God isn’t on the job. Instead, be glad that you are in the very thick of what Christ experienced. This is a spiritual refining process, with glory just around the corner." I love that Peter makes sure to emphasize process. Process is defined as "a continuous action, operation, or series of changes taking place in a definite manner." God works through process! While he's not limited to working just through natural means, he uses these processes to relate back to us and refine us over time. And, the more that we do our part with the natural resources he has given us, the more opportunity we will have to experience success. 

While it may not seem like it's working, implementing a strategy, especially in retirement, is a process. All of the little changes can add up to big results. Never underestimate the value of what making continual small changes now will result in over time. 

Evergreen Financial Group is a Fee-Only Financial Planning and Investment Firm located in Billings, MT serving clients in Montana, Wyoming and virtually across the country. Evergreen Financial Group specializes in working with Christian families, including Young Professionals, Current and Future Retirees and Church Staff Members.