While having a 401(k) or IRA is a great start, a solid financial plan takes a closer look at the income you have coming in, and the amount you'll need to supplement. The earlier you start planning, the longer you have to build up your savings and put your plan into action. But even if you plan on retiring in the next year or two, there's time to get prepared.
31% of American workers have no savings set aside specifically for retirement. Social Security Administration, 2017
We often hear about the importance of starting early to save for retirement, but it's hard to visualize the difference that starting early can make. Regardless of the rate of return (as long as it's greater than zero) a person who only saves from ages 25–35, will always have considerably more money by age 60, than the person who saved from ages 35–60. Thanks to compounding interest, you can end up with more money, after saving for fewer years, as long as you start earlier.
For example: Someone contributing $5,000 a year from ages 25 to 35, will have an account balance of $615,580 at age 60, given an annual return of 8%1. Whereas someone contributing $5,000 a year from ages 35 to 60, will have an account balance of $413,754 at age 60, given the same annual return of 8%. At age 60, the person who contributed earlier, will end up with a balance 42.5% higher, despite contributing for just ten years, versus the person contributing later, for 25 years.
Beyond traditional investments, here are some more places where you can find money for retirement:
Put money away now, for a guaranteed income later with annuities.
Aside from keeping your loved ones' financial future bright, you can use living benefits from your whole life insurance policy after you stop working.2 More about Life Insurance
Whether you know exactly what you want,
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1An annual return of 8% is not guaranteed. The projections regarding the likelihood of various outcomes are hypothetical in nature, do not reflect actual investment or life results and are not guarantees of future results.
2Your policy's cash value typically becomes a useful source of funds only after several years of premium payments, which allows the cash value to build up. Each method of utilizing your policy's cash value has advantages and disadvantages and is subject to different tax consequences. Surrenders of, withdrawals from and loans against a policy will reduce the policy's cash surrender value and death benefit and may also affect any dividends paid on the policy. As a general rule, surrenders and withdrawals are taxable to the extent they exceed the cost basis of the policy, while loans are not taxable when taken. Loans taken against a life insurance policy can have adverse effects if not managed properly. Policy loans and automatic premium loans, including any accrued interest, must be repaid in cash or from policy values upon policy termination or the death of the insured. Repayment of loans from policy values (other than death proceeds) can potentially trigger a significant tax liability, and there may be little or no cash value remaining in the policy to pay the tax. If loans equal or exceed the cash value, the policy will terminate if additional cash payments are not made. Policyowners should consult with their tax advisors about the potential impact of any surrenders, withdrawals or loans.