We all know how paramount it is to plan for retirement. Yet, with so much information available, it’s no surprise so many people feel overwhelmed. From finding the right retirement vehicles to figuring out how much to save each month, there’s a lot to consider. Even if you feel confident about your strategy, retirement planning is not without risk. Luckily, there are some ways to minimize that risk while planning for retirement.
1. Reconsider Your Perspective
By definition, retirement means to be taken out of service. I don’t know about you, but I never want to be “taken out of service” until I graduate from this world! Instead, I like to look at it as retooling ourselves for another phase of life. Part of doing that is having a passive income to support my new adventure.
The question is, how long will that phase last? That’s a hard question to answer, but one thing I know for certain is that I want guaranteed income during that time. Because we don’t know what the future will bring, it’s essential that our retirement plan offers variety. Statistically speaking, if you make it 65 years old, you have a better likelihood of living until 90. What’s your strategy to accommodate a longer lifespan?
2. Retire at the Right Time
A crucial piece of planning for retirement is choosing when you’d like to retire. Knowing how long you have to earn and how much money you’ll need for retirement is crucial. But, as we all know, even the best-laid plans go awry sometimes. While it’s essential to set a goal for retirement, it’s just as important to be flexible with the age you’ll retire. Be mindful of how investments in retirement accounts and the market are performing and, if you can, retire when your assets are at their peak.
Another option is to start with a partial retirement. Opting to work part-time for a while gives you an opportunity to dip your toes into retirement while still growing your nest egg. What’s more, the longer you keep working, even if it’s just a few hours at a time, minimizes the risk that you’ll run out of money during retirement.
3. Don’t Defer Taxes
Traditional retirement vehicles like a 401(k) let you sock away untaxed money and pay the taxes when you withdraw the funds. While this sounds like a prime opportunity to save more of your hard-earned dollars, you may end up with less money down the road. That’s because tax-deferred accounts not only defer your taxes but they also defer your tax calculation.
Typical financial planners would have you believe:
- You’ll be in a lower tax bracket when you retire. (Because they want you to live on less income, which is a scarcity mindset.)
- The tax rate will be lower when you retire than it is today. (Do you really believe that?)
The thing is, neither of these things is guaranteed. History shows the tax rate is more likely to increase over time than it is to decrease. A higher tax rate means you’re going to pay more in taxes when withdrawing your retirement funds, which gives you less money to retire on. What is your strategy to receive tax-free income?
4. Diversify Your Retirement Investments
Ever heard the phrase, “don’t put all your eggs in one basket?” This universal phrase also applies to retirement planning. Your employer likely sponsors a retirement investment account. Taking advantage of an employer-sponsored account may be a great idea, especially if your employer offers to match a percentage of your contributions. But then again, they may not be the best way to save for retirement. There’s a lot to think about, like:
- How much do these types of accounts really cost you?
- Is it guaranteed to last you through the entirety of your retirement?
- What happens if you retire the day before the market crashes (like it seems to do every 8-10 years)?
The question is, do you want more certainty or less certainty when you retire? Unfortunately, the typical retirement planning strategy will give you more uncertainty. The key to successfully reducing risk while planning for retirement is to get as much clarity and certainty as possible.
That means creating a retirement strategy that utilizes both economic powers: investment accounts and financial products backed by actuarial science. Incorporating a properly structured whole life insurance policy is a great way to supplement your retirement fund and provide you with a larger income stream in retirement. A whole life insurance policy allows you to be your own banker by employing the infinite banking concept. Not only can you continue to grow wealth, but you can also borrow against a whole life insurance policy to finance large purchases or help out during an emergency.
5. Employ a Sage Wealth Strategy
There’s no need to embark on your financial journey alone. A wealth strategist can be your guide as you navigate the peaks and valleys of retirement planning. In addition to helping you find the right retirement tools for you, a wealth strategist can teach to take control of your finances and grow a financial legacy that will benefit generations to come.
Want more information on minimizing risk while planning for retirement by using actuarial science to bolster your retirement savings? Wade Borth and Sage Wealth Strategy can teach you how to incorporate actuarial science into your retirement plan. After all, it’s not just about accumulation! It’s also about the distribution strategy and developing a strategy tailored to your unique lifestyle and goals.