Retirement Strategy: How Retirement Strategy Has Changed

There was a time when you'd have a pension at the end of your working years. Now, pensions are not as common for individuals outside the public sector. 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. Here's a brief look at the different strategies, who can access them, and what they 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 contribution level or even make contributions on your behalf – after all, the employer contributions are tax deductible.

The SIMPLE 401(k).

Designed for small business owners who don't want to deal with retirement plan administration or non-discrimination tests, the SIMPLE 401(k) is available for businesses with less than 100 employees. Like a Safe Harbor plan, the business owner must make fully vested contributions (a dollar-for-dollar match of up to 3% of an employee's income or a nonelective contribution of 2% of pay for each eligible employee).  

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.

This is like a SIMPLE 401(k) – a small business retirement plan with mandatory employer. 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. 

First Responder: 403(b).

403(b) plans are offered by public schools and certain non-profit, tax-exempt organizations. Contributing to a 403(b) may incur higher administrative costs than a 401(k). The employee typically pays for investment fees, but employers can opt to pay some or all of the administrative fees. Review your paperwork carefully to determine what fees, if any, you may be responsible for.

First Responder: 457(b).

One of the most significant benefits of a 457 plan is the tax options for contributions. The standard option is similar to a 403b or 401k where contributions are deposited pre-tax (benefit now) and are taxed upon withdrawal. Some plans may also offer the Roth option. Roth contributions are taxed now and will grow tax-free and be withdrawn tax-free (benefit later).

Another key benefit of a 457(b) is the ability to avoid the typical early withdrawal penalty before 59 1/2.457(b) plans are offered by state and local governments, as well as select 503(c) non-profit companies.

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.

Your options matter. Depending on what you do, you'll have access to different plans. Don't forget to consider:

• The impact of taxes
• Advisor fees
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Across the country, 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 future 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 considers possible health care costs and even the transfer of assets to heirs. 

A prudent retirement strategy also entertains different consequences.

Financial advisors often use multiple-probability simulations 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. Contact our team of expert advisors for help building your retirement plan.