INTERVIEWER:
Think about mobile technology, social media and shopping. These three things have drastically changed over the past 20 years…just like the proper way to save for retirement has.
The way we prepare for retirement – today - is different from that of your parents and grandparents.
Hi, I’m Sarah Westin, host of Roadmap for the Future, brought to you by Western & Southern Life.
With us today is Troy Brodie, President & Chief Marketing Officer - W&S Agency Group, to talk about sources of retirement income. So, Troy… What makes today’s retirement different from that of the past?
TROY:
So many things, Nicole! For starters, let’s talk about longevity. For the most part, people are living longer, which equates to more time spent in retirement.
On the surface, this sounds great, and it is… but we need to think about our finances, and what we’re going to live off of during those added years of longevity. I was reading in an article that the average life expectancy of an American is 78.9 years. This number is increasing each year, so it is important to think about how the added years will affect us financially.
Another big difference is that our parents and grandparents may have been able to rely more heavily on a defined benefit plan from their employer, and even Social Security. We cannot.
INTERVIEWER:
I have heard talk about a three-legged stool, and retirement. What’s up with that?
TROY:
The old saying was, “retirement income is a three-legged stool”. Making up the three legs were governmental payments like Social Security, employer plans like pensions and 401(k)s, and personal savings.
And there was a time when this was thought to be a solid retirement income plan.
INTERVIEWER:
I see, and I’m sensing you’re speaking of the three-legged stool in the past tense.
TROY:
You’re right – I was speaking in the past tense. With today’s economy, three legs simply may not provide sufficient retirement funds for many people. And that oftentimes is because people have not saved enough on their own for their retirement.
The personal savings leg is even more important as government programs diminish. Nowadays, you simply cannot expect Social Security to make up the difference.
So… Too many people end up adding a fourth leg to their retirement stools, and that amounts to working either full or part-time after retirement.
INTERVIEWER:
But what happens if you want your retirement to look like what most Americans had a generation or two ago… What then?
TROY:
That is entirely possible, but you need to save. And to do that, you need a plan. I recommend starting as early as you possibly can.
Seek out a reputable financial professional to listen to your dreams, someone who will work with you to create a reasonable roadmap to retirement.
Here at Western & Southern, we are dedicated to helping you create your roadmap to retirement and working with you to achieve your dreams.
INTERVIEWER:
Okay, a roadmap. But where do you start, Troy? I seem to hear about all kinds of IRAs out there… how can one know what to choose or where to start?
TROY:
Well, you’re right, Nicole… There really is no one way to save for retirement. For instance, there are a variety of IRAs out there. But they tend to fall into just a few buckets.
I’ll start with the traditional IRA… You contribute to an account, and any earnings are tax-deferred until you access them.
To avoid tax penalties, you need to leave your money in your IRA until you’re at least 59 ½. When you take your money out, you have to pay taxes but the expectation is you will be in a lower tax bracket when that occurs.
INTERVIEWER:
So how does a traditional IRA differ from a Roth IRA?
TROY:
The biggest difference is… the Roth does not allow you to take a tax deduction on your contributions.
Any earnings accumulate tax-free, and unlike traditional IRAs, Roths do not have required minimum distributions. Roth contribution limitations are the same as a traditional IRA, although some income restrictions apply, so it is a good idea to check with a financial professional, or the IRS for more information.
INTERVIEWER:
I have heard about SIMPLE IRAs having something to do with business ownership. Could you talk about that?
TROY:
SIMPLE IRAS are for employers who have 100 or fewer employees. SIMPLE… stands for, “Savings Incentive Match Plan for Employees.” SIMPLE IRAs, typically accessed at retirement, have the potential to accumulate tax-deferred.
INTERVIEWER:
So we’ve talked IRAs… Are there other ways to save?
TROY:
There are all kinds of annuities out there. If you prefer less risk, or if you’re a little closer to retirement age, you may prefer a fixed annuity that offers guarantees. If you’re more comfortable with risk, or if you’re a little younger, you may want to opt for a variable annuity, with earnings tied to the ups and downs of the financial markets.
INTERVIEWER:
But there are more than annuities, right?
TROY:
Absolutely. If you are not averse to risk you could look into more aggressive investing. Broadly speaking— the greater the risk, the greater the potential for reward.
The bottom line is… if you’re really serious about preparing for retirement you need to take it upon yourself to do a great deal of the heavy lifting. The government, and in most cases your employer is not going to do it for you.
And remember, you should not put all of your eggs in one basket.
Diversification is a term used to describe spreading out your retirement savings strategy among a variety of vehicles with varying risks and reward potentials.
The combination can change for most people over time, so it is important to have a relationship with a financial professional who understands your needs and will re-visit and re-calibrate your plan to fit your changing situation over time.
Here at Western & Southern, we are committed to helping you understand their needs and create a personalized plan to fit their lifestyle.
INTERVIEWER:
Diversification and recalibration…and professional guidance. You have truly shed some light on retirement income sources.
Troy… thanks for your time today.
TROY:
Thank you!