7 Key Components of a Comprehensive Retirement Plan

In a 2019 survey, nearly half of all American adults reported having nothing saved for retirement. Another 19 percent had between $1 and $10,000 set aside, and 20 percent had between $10,000 and $100,000.This means that more than eight in every 10 adults have under $100,000 in dedicated retirement savings, at a time when the average household spends around $5,000 per month.

With dismal statistics like these, it can be easy to become discouraged at the thought of retirement. But it’s never too late to start saving for retirement—and having a comprehensive retirement plan can ensure that your assets stretch as far as possible. Learn more about some of the most important components of a plan that will cover all your retirement bases.

1. Income Plan

While most people tend to focus on retirement savings, having a source (or sources) of income in retirement can help your nest egg last far longer.

After you’ve made a retirement budget, you should have a better idea of how much income you’ll need to generate each month to stay afloat. This income can be drawn from a variety of sources, including personal savings, pension, Social Security benefits, investment dividends, or a 401(k) plan. The more separate sources of income available to you, the more flexibility you’ll have when it comes to your retirement plans and budget.

2. Investment Strategy and Asset Allocation

For many retirees, a significant portion of their retirement income will be drawn from investments in a 401(k), IRA, or taxable account. To maintain a steady source of income, it’s crucial to ensure that these funds are invested according to the account holder’s desired asset allocation and risk tolerance.

Because many retirees will need these investments to last for decades in retirement, they must grow at least enough to beat inflation. Simply putting investments into a money market savings account means committing to a loss of purchasing power over time. On the other hand, investing in risky assets may force seniors to make withdrawals during a stock market slump, thereby locking in any losses.

For many, the answer involves a careful assessment of one’s investment strategy and asset allocation. Many retirees choose to split their funds between more conservative investments that will preserve one’s nest egg (like bonds and money market funds) and riskier investments that will grow it (like stocks and exchange-traded funds).

For decades, a retirement planning rule of thumb has advised investors to allocate their assets between stocks and bonds by subtracting their age from 100—so while a 30-year-old should have no more than 30 percent of their assets in bonds, a 70-year-old should have no more than 30 percent of their assets in equities. Recently, some advisors have criticized this rule of thumb as too conservative, revising it to recommend subtracting one’s age from 110 or 120 instead. But this rule is only a guideline, and your financial advisor can work with you to see how you envision your funds growing and what level of risk you’re comfortable with.

3. Risk Tolerance and Risk Management

Risk tolerance and risk management are part and parcel of one’s income plan and asset allocation. Without some risk, your assets can’t grow; but too much risk can mean having to make budget cuts during a time you can least afford them. This is one reason why guaranteed income options like pensions and annuities are so popular. Keep in mind that any guarantees in an annuity are subject to the strength and claims-paying ability of the issuing company. Additionally, many annuities impose significant surrender charges on investors who surrender early, which is why these products are generally appropriate only for investors with long-term investment goals. By adding these options to other sources of income, like Social Security, retirees can establish a cash flow that isn’t vulnerable to market fluctuations.

But comprehensive retirement planning doesn’t just address risk tolerance in the context of investments—retirees must also think of how to protect their wealth against natural disasters, lawsuits, unexpected medical expenses, and other potential complications. Retirees may want to consider whether any of the following types of insurance make sense for their situation:

  • Life insurance (term or whole)
  • Long-term care insurance
  • Umbrella insurance
  • Expanded home or auto coverage

By maintaining insurance coverage for expenses they’d prefer not to pay out of pocket, retirees can manage risk and avoid having to make any major changes to their retirement plans.

4. Social Security Integration

Today’s retirees can choose to claim Social Security early (at age 62), at full retirement age (FRA) (at age 67), or late (at age 70). As with so much of retirement planning, there’s no one-size-fits-all answer when it comes to the question of when to claim Social Security.

Claiming Social Security early (or even at full retirement age) will mean receiving a lower monthly benefit than you’d get if you waited until 70. But as the saying goes, “a bird in the hand is worth two in the bush”—so if health concerns or other factors mean you’re not certain you’ll live beyond 70, or if you have enough additional invested assets that you won’t rely on Social Security to make ends meet, it can make sense to claim these funds as soon as you can.

Your financial advisor can work with you to test various claiming scenarios, revealing which options can maximize your total payout from Social Security.

5. Tax Optimization

Imagine your entire retirement nest egg instantly reduced by one-third. For many whose assets are primarily held in tax-deferred accounts, this can be the reality once federal and state income taxes are paid on retirement withdrawals.

Fortunately, there are several strategies retirees can use to minimize their tax burden. These include everything from moving to a state with no income tax to converting IRA funds to a Roth to withdrawing assets in order of their tax treatment. As with so much about retirement, the specifics of a tax optimization plan will depend on your unique circumstances.

6. Long-Term Care Planning

Nearly four in 10 Americans will, at some point, require long-term care in a nursing facility. And with the average monthly cost of care approaching $4,000 (for assisted living) up to $7,000 (for a nursing home), these expenses can cripple even the most generous retirement budget.

Retirees who want to avoid spending their entire nest egg on long-term care, or who would like to protect their spouse from having to deplete their assets to provide this care, need a thorough long-term care plan. The financial component of this plan can include long-term care insurance or an annuity that can be signed over to the care facility; on a personal level, a long-term care plan can include documents like a do-not-resuscitate order or a living will that clearly expresses what you wish to happen if you become incapacitated.

7. Working With a Certified Financial Planner

The prospect of ironing out these complex issues on your own can be daunting. Having a financial advisor or certified financial planner on your side can help. A financial advisor will work with you to create your retirement plan and can review and amend it at regular intervals, helping adapt it to any changes in your lifestyle, assets, or plans.

This advisor can also refer you to other professionals to assist with various aspects of your plan, such as an attorney to draft a will or trust or a tax expert to advise you on tax optimization strategies in retirement. By seeking a financial planner’s advice early on in the planning process, you’ll be better equipped to handle any complications life may bring.

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The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).

At Medallion Financial Group, we believe financial planning is about Family. We have been helping families invest in the future since 1987 through a holistic planning approach. We recognize there are a variety of needs when it comes to retirement planning, plan rollovers, annuities, college planning, life insurance options, and investment management. It is easy to get lost in a sea of choices. Our financial advisors help with the basics and beyond to enable our clients to get the education, advice and management they need to retire with confidence.

Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.

We strive to exceed client’s expectations – because we have high expectations of ourselves.