Most Americans find retirement planning a challenge. After all, you cannot foretell the future. And your income needs may always seem like a moving target. To help you worry less about what you can't foresee or control, here are five ways to build a safety net into your retirement plan.
1. Use Low Projections
How much will your retirement contributions add up to when you need to draw on them? Projecting this helps you decide if you're saving enough now. But the projections you use can be sunny and optimistic, or they can be conservative. Rather than using the multi-year average stock market returns, for instance, reduce it by one or more percentage points. Then, you have a buffer of money in real life.
2. Include Insurance
Insurance is a key safety net feature throughout your adult life, allowing you to hedge against unexpected expenses. What insurance may be valuable to protect your retirement? Certainly, medical insurance — including gap insurance to complement Medicare — is vital. But you may also need to purchase long-term care insurance, life insurance, accident insurance, dental and vision insurance, and travel insurance.
3. Leave Out an Item
Whether you're planning alone or working with a financial planner, you likely started by identifying all sources of income during retirement. This may include Social Security, employer pensions, 401(k) accounts, IRA accounts, business income, and taxable investments. Build up an invisible safety net by intentionally leaving out one of these. If you ignore the availability of one of the smaller income generators, there is a buffer of money you can tap later.
4. Buy an Annuity
For Americans with no access to traditional employer pensions, secure income for life seems unattainable. But you may be able to structure your own type of pension by purchasing an annuity with part of your retirement nest egg. Annuities provide a monthly check for a certain number of years — or a lifetime — in accord with terms you set out as the buyer.
5. Plan to Retire Early
Give yourself a higher goal to meet rather than simply retiring in the standard time frame. Early retirement requires more diligence, higher savings rates, and plans for things like individual health insurance. When you aim for early retirement, you have more options as you age. Not only have you saved more money, but you also planned for what many people consider surprises.
Where to Start
Could you use one or more of these strategies to firm up your retirement safety net? No matter what your situation or goals, the best place to begin is by meeting with a retirement financial planner in your state today.
For more information about retirement planning, contact a local company.
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