How to choose the best retirement plan?

Planning for retirement can feel overwhelming, but it doesn’t have to be. The key is to create a retirement plan that ensures your financial security while allowing you to enjoy life after work. So, how do you choose the best retirement plan? It starts with understanding your income needs, using strategies like our 5 Bucket Strategy, and working with a financial advisor who can see the big picture.

Identify Your Income Gap

Before you can choose the right retirement plan, you need to calculate your income gap. This is the difference between the money you’ll need each month in retirement and the income you’ll receive from sources like Social Security, pensions, or rental income.

To determine this, start by estimating your monthly expenses, including housing, food, healthcare, transportation, and leisure activities. Then, identify your guaranteed income sources such as Social Security benefits, pension payouts, or rental income. Subtract these from your total monthly expenses to find your income gap. This number is your “magic number”—the amount you need to cover through your retirement savings.

The Power of the 5 Bucket Strategy

Once you know your income gap, it’s time to strategize. Our 5 Bucket Strategy is designed to help you achieve that magic number while managing risk and ensuring long-term growth.

1. Cash/Immediate Needs Bucket: This bucket covers essential living expenses for the next 1-2 years, such as housing, food, utilities, and healthcare. It’s kept in highly liquid, low-risk accounts so you can access funds quickly.
2. Safe Growth/Short-Term Stability Bucket: Reserved for unexpected expenses or emergencies, this bucket prevents you from having to dip into long-term investments prematurely. It includes savings accounts or short-term bonds.
3. Risky Growth/Medium-Term Growth Bucket: This bucket focuses on moderate growth investments intended for 3-5 years into retirement. It balances risk and return with diversified assets like mutual funds or dividend-paying stocks.
4. Healthcare Planning Bucket: Planning for long-term health care in retirement is crucial to protect your wealth and family from the financial and emotional strain of future medical needs.
5. Legacy Bucket: This bucket is for leaving a financial legacy to loved ones or charitable causes. It includes long-term investments, life insurance policies, or trusts designed to preserve wealth.

By diversifying your savings across these buckets, you can ensure that you have money available when you need it while allowing other funds to grow over time.

Why Work with a Financial Advisor?

Choosing the best retirement plan isn’t a one-size-fits-all process. Working with a financial advisor makes it easier because they provide personalized guidance tailored to your unique situation. Advisors help you see the big picture, considering every aspect of your finances, from income sources and investments to tax strategies and estate planning.

A financial advisor can:

• Analyze your current financial situation
• Identify gaps and opportunities in your retirement plan
• Recommend strategies to optimize your investments
• Adjust your plan as your needs and market conditions change

Ready to find the right plan? Working with our team can help you create a retirement strategy that fits your unique needs and goals.

Key Factors to Consider When Choosing a Retirement Plan

When evaluating different retirement plans, consider the following factors to ensure your plan aligns with your financial goals:

• Retirement Timeline: How many years do you have until retirement? The closer you are, the more conservative your investment strategy should be.
• Tax Implications: Consider whether tax-deferred accounts (like traditional IRAs or 401(k)s) or tax-free growth accounts (like Roth IRAs) make more sense for your situation.
• Risk Tolerance: Understand your comfort level with market fluctuations and how it affects your investment choices.
• Income Needs: Ensure your plan provides enough income to cover both essential expenses and discretionary spending.

Types of Retirement Plans to Explore

Depending on your situation, you might consider several retirement plan options:

• 401(k) Plans: Ideal for employees, especially if your employer offers matching contributions. They allow for tax-deferred growth, reducing your taxable income while working.
• IRAs (Traditional or Roth): Great for tax advantages. Traditional IRAs offer tax-deferred growth, while Roth IRAs provide tax-free growth and withdrawals in retirement.
• SEP IRAs and SIMPLE IRAs: Suitable for self-employed individuals or small business owners looking for tax-efficient retirement savings.
• Annuities: Provide guaranteed income in retirement, acting as a supplement to other income sources.

Not sure which one is right for you? That’s where we come in. Our advisors can help you navigate these options and find the perfect fit for your financial goals.

Periodic Check-Ins Are Essential

Your retirement plan isn’t a set-it-and-forget-it deal. Regular reviews ensure your strategy stays aligned with your goals. Life events like job changes, health issues, or market shifts can significantly impact your plan.

Periodic check-ins with a financial advisor allow you to:

• Reassess your income gap and adjust as needed
• Evaluate the performance of your investment buckets
• Make strategic changes based on life events or market conditions

Final Thoughts

Choosing the best retirement plan starts with knowing your income gap, using smart strategies like the 5 Bucket Strategy, and partnering with a financial advisor who understands your full financial picture. The right plan can provide peace of mind, financial security, and the freedom to enjoy your retirement years to the fullest.

Ready to get started? Contact us today to build a retirement plan that works for you.