According to the Social Security Administration, 9 out of 10 people over age 65 receive Social Security. On average, Social Security counts for about 39% of total income during retirement. Social Security can’t cover all your financial needs during your retirement years. Having a solid retirement plan that will give you a financially secure retirement is based on having a bundle of various income sources best suited to meet your goals. With so many options, how do you select the right types of retirement plans?
1. Pensions
Having A Pension Is The First Thing Most People Think Of They Think Of Retirement Income. Many People Have Earned A Pension At Some Point During Their Working Careers. It Requires Very Little Involvement Because The Employer Contributes The Money On Behalf Of The Employee. You Work, And When You Retire, You Collect Your Pension. These Days Pensions Are Less Popular And Less Generous. They Are, However, Still Quite Common For Government Jobs. The Most Prominent Downside Is That There Are No Cost-Of-Living Adjustments So Your Pension Payment Will Always Be The Same Year After Year During Your Retirement.
2. Defined Contribution Plans
Defined contribution plans are now offered by most employers. There are four primary defined contribution plans, 401k, 403b, 457 and TSP. If you decide to participate in a defined contribution plan, you pick plan options that best suit you and decide how much to contribute. Many employers that have defined contribution plans offer matched contributions as well. For a certain portion that you contribute, your employer will contribute as well (depends on the employer).
3. Nonqualified Deferred Contribution Plans
The Nonqualified Deferred Contribution Plan (NQDC) is similarly structured like a Roth but allows greater contribution amounts. For those with higher incomes who have other retirement plans but have reached their contribution limits, the NQDC is an option. Deferring a portion of your income for a later time is appealing as it will grow tax-deferred and will be tax-free in the year you become entitled to it. With an NQDC you have no income restrictions or contribution limits. Another appealing feature is the vast investment options available with an NQDC.
4. Cash-Value Life Insurance Plan
Many financial advisors highly recommend investing in Cash Value Life Insurance plans because of the ability to accumulate value in a tax-free vehicle. Buying a cash value insurance plan allows you take a loan against your death benefit which can serve as income during your retirement. For example, a $500,000-dollar policy could provide you with a loan of $250,000 and can be paid out as a lump sum or in several withdrawals. The loan is repaid from your death benefits, leaving your beneficiary with the remaining $250,000. The loan is tax-free and can serve as an excellent retirement income for an unemployed spouse as well as providing life-insurance coverage.