When most people plan for retirement they think about saving and investing so they have a large nest egg to draw upon once they stop working. Investing is certainly important, but it is not the whole story. A secure retirement demands more than just a well-funded investment account. Here are five essential components of any retirement plan.
Significant savings. Every retirement plan should include a nest egg from which you draw money for your needs throughout retirement. You will want to focus on growth while you are planning your retirement and shift your focus toward preservation of funds as you draw nearer to your retirement date. Some great vehicles for saving and investing for retirement include employer-sponsored retirement plans, such as a 401(k) or 403(b), and equivalent self-directed investments, such as a Roth IRA. Also consider individual investments with an online discount brokerage, mutual fund company, or other investment service.
Multiple sources of income. Income is one of the most overlooked elements of a retirement plan. Many people focus on retirement savings, but a continued income stream can make your nest egg last much longer and delay your need to tap into it. Some sources of retirement income can include Social Security benefits, a pension, real estate income, investment dividends, part-time work, and other ventures.
Risk management. Once you accumulate wealth you need to protect it. Insurance is generally the best way to do this. Most people have homeowner’s insurance and health insurance. As you approach retirement you need to think about life insurance and long-term care insurance. When determining your life insurance needs, don't forget to factor in potential lost income, how much it would take to eliminate your debts, and your spouse's life expectancy.
An estate plan. A good estate plan could settle your estate in a matter of weeks, compared to a drawn out process that could take months or even years. If you have large and complex assets it is worth investing the time and money to use a professional estate planner.
A professional adviser. You may also want to have a professional adviser for a variety of other needs including insurance, investing, health care, and more. It never hurts to have a second opinion when planning one of the most important stages of your life.