Arizona Tribune - Aflac: What Should Be Included in a Retirement Plan?

In addition to saving, retirement planning should also involve considering taxes, health insurance, living arrangements, and more. This article will explore the types of accounts to include in a retirement plan and other important considerations to keep in mind when planning for retirement.

Four account types to include in a retirement plan

Retirement plans typically consist of the following four account types:

1. Employer-sponsored retirement account

Employer-sponsored retirement accounts, such as 401(k) plans, are tax-advantaged (often pre-tax) accounts that allow employees to contribute through paycheck deductions.³

Employers will sometimes match contributions up to a specific percentage of the employee's salary, effectively providing the employee with additional funds to help grow their savings faster.

Investment options are typically limited to funds targeting different retirement goals. However, the contribution limits can be relatively high, making this a good account to focus on first.

2. External retirement accounts

Once the account holder has reached their employer's matching bonus, they may consider opening external retirement accounts.

These accounts generally have lower contribution limits but offer a broader selection of investments, including stocks, bonds, mutual funds, and other securities.

The two main types are:⁴

• Traditional IRA: Contributions are pre-tax, and retirement withdrawals are typically taxed as ordinary income. Account holders must begin taking Required Minimum Distributions (RMDs) at age 72.

• Roth IRA: Contributions are made with after-tax money, but qualifying retirement withdrawals are tax-free. Account holders can also typically withdraw up to their total contribution amount before retirement without penalty.

3. Life insurance

Life insurance can help policyholders leave a larger legacy for their heirs by offering tax benefits when structured correctly. This is particularly important for those with larger estates.

Some people may also consider life insurance for retirement savings, as permanent life insurance policies can help offer a way to build wealth through the cash value growth component.

This component grows with each payment and earns tax-deferred interest at a rate that varies by policy type. Policyholders can borrow or withdraw from their policy. If they surrender the policy, they receive the cash value minus surrender charges.⁵

Using life insurance in this way is typically known as a Life Insurance Retirement Plan (LIRP). It may be particularly beneficial for those with higher incomes or more complex financial situations.

4. Taxable brokerage account

A taxable brokerage account can help someone to invest more once they've maxed out other retirement savings options.

While these accounts usually don't offer pre-tax deductions or tax-free withdrawals, they can allow the account holder to withdraw funds at any time without penalty. Additionally, sales of assets held for more than a year may qualify for favorable long-term capital gains taxes.⁶

These accounts can help supplement retirement funds or enable early retirement by providing funds before the account holder reaches the official retirement age.

Other retirement plan considerations

In addition to the types of accounts mentioned above, you should consider the following aspects when planning for retirement:

Estate plan

An estate plan is a series of documents outlining someone's wishes for asset distribution upon their passing, end-of-life care, and related matters.

Key documents include:⁷

• Last Will and Testament: Specifies asset distribution wishes, an executor to distribute assets, and a guardian for minor children.

• Durable Power of Attorney: Names an individual to manage finances if the individual becomes incapacitated.

• Healthcare Power of Attorney: Names an individual to make healthcare decisions and access private medical information.

• Letter of Intent: Provides non-legally binding instructions on various matters, such as the reasoning behind stated decisions or funeral wishes.

It's a good idea to regularly review an estate plan to account for any changes in life circumstances.

Taxes and withdrawal strategy

Minimizing tax consequences can be crucial for making retirement savings last. It may be a good idea to consider a withdrawal strategy that can allow someone to live on fewer withdrawals while letting their remaining assets grow.

For example, if someone plans to have a lavish retirement or anticipates a higher tax rate, consider saving more in a Roth IRA for tax-free income in retirement. Conversely, if they expect to live more frugally, they might focus on pre-tax accounts like a 401(k) or Traditional IRA.

Health insurance

Most retirees qualify for Medicare at age 65, offering basic health coverage. However, healthcare costs can increase in retirement, and Medicare may not cover everything.

It may be a good idea to consider saving now or evaluating private health plans to help supplement Medicare in retirement. For example, those in good health may opt for a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA), offering tax advantages.

Home and vehicle

Many retirees become empty nesters and may no longer need as much space. Some choose to pay off their mortgages or downsize to a smaller home, reducing expenses like utilities and property taxes.

Similarly, selling one or both vehicles can help eliminate auto debt and free up equity for additional savings.

The bottom line

Retirement planning can involve many moving parts. Employer-sponsored plans, external retirement accounts, life insurance, and taxable brokerage accounts often form the foundation of a solid retirement plan. Additionally, it's important to consider creating an estate plan, developing a withdrawal strategy, planning for healthcare costs, and reassessing one's living situation from time to time. Diligently saving and keeping these factors in mind is a good way to work toward creating a stable and secure financial future for retirement.

Sources:

¹ Vanguard - Saving for Retirement. https://investor.vanguard.com/investor-resources-education/retirement/savings. Accessed April 1, 2025.

² Charles Schwab - What Should Your Retirement Portfolio Include? https://www.schwab.com/retirement-portfolio. Accessed April 1, 2025.

³ Investopedia - Employer-Sponsored Plan (ESP): What It Is and How It Works. Updated November 3, 2024. https://www.investopedia.com/terms/e/employer_sponsored_plan.asp. Accessed April 1, 2025.

⁴ Vanguard - Roth IRA vs. traditional IRA: Eligibility, rules, and tax benefits. https://investor.vanguard.com/investor-resources-education/iras/roth-vs-traditional-ira. Accessed April 1, 2025.

⁵ Forbes - What is Cash Value Life Insurance? Updated January 22, 2025. https://www.forbes.com/advisor/life-insurance/cash-value-life-insurance/. Accessed April 1, 2025.

⁶ SoFi - Understanding a Taxable Brokerage Account vs. an IRA. Updated December 13, 2024. https://www.sofi.com/learn/content/what-is-a-taxable-account/. Accessed April 1, 2025.

⁷ Investopedia - 6 Estate Planning Must-Haves. Updated October 30, 2024. https://www.investopedia.com/articles/pf/07/estate_plan_checklist.asp. Accessed April 1, 2025.

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.

Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, Aflac coverage is underwritten by American Family Life Assurance Company of New York.

Aflac life plans - A68000 series: Term Life Policies: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68200, A68300 & A68400. In New York, Policies NY68200, NY68300 and NY68400. Whole Life Policies: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368100. In Delaware, Policy A68100. In New York, Policy NYR68100. B60000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Not available in Delaware. Q60000 series/Whole: In Arkansas & Delaware, Policy Q60100M. In Idaho, Policy Q60100MID. In Oklahoma, Policy Q60100MOK. Not available in Virginia. Q60000 series/Term: In Delaware, Policies Q60200CM. In Arkansas, Idaho, Oklahoma, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C. Not available in Virginia.

Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY, VA or VT. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations, and exclusions.

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Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211

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CONTACT:

Senior PR & Corporate Communications
Contact: Angie Blackmar, 706-392-2097 or [email protected]

SOURCE: Aflac

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