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There are two phases to retirement planning: the first is the accumulation phase where we employ strategies to develop enough wealth to meet the potentially longer second phase or the distribution phase.There are traps down the road that can be avoided with thoughtful planning. Prior generations had what was known as the “three-legged stool”. The company that employed them often had a pension plan that defined their retirement income as a percentage of their salary. Another stream of income was their Social Security and finally the last leg was comprised of their savings and investments.
The 401(k) changed the dynamic. Pension plans were thought of as a company liability and within a few short years were abandoned and replaced by company-sponsored 401(k) plans. The burden to fund an employee retirement plan was now borne by the employee. Currently, only 11% of private sector employees are in a pension plan.1
Is the amount that a person contributes to their plan sufficient to fund their retirement?
People are uncomfortable to retire today because they do not know what their income will be relative to what they were earning while working. There is little similarity between the accumulation and distribution of assets. Factors that effect one may have very different effects on another. Additionally, when it comes to retirement income, it is anyone’s guess as to the relationship between the amount of the accumulated asset, the income that can generated, the duration of that income, and the impact from the tax rate at that time. Means-testing can also effect the net amount of income a person will have. Medical costs, long term care costs and living expenses must all be considered.
This is where we can help you. It is complicated, but we have the tools and the expertise to clarify what retirement will mean for you.
Certain Uncertainties in Retirement