For most people, saving for retirement means making steady contributions to a 401(k) until they hit a specific goal. However, a broader approach to saving and investing offers more options for building that nest egg.
By keeping a mix of tax-free and tax-deferred sources of income, you’ll have the flexibility to withdraw funds strategically during retirement, based on tax and market implications.
While tax-qualified retirement plans like 401(k)s and 403(b)s are the most common retirement savings plans, they shouldn’t be your only option.
To build well-diversified income sources for retirement, consider a broader approach toward saving and investing by having a mix of assets that complement your 401(k) and help fill in financial gaps based on your needs, goals and tax situation.
Here are a few other options to consider:
- Deferred annuities: Allow you to accumulate retirement funds on a tax-deferred basis and can be designed to provide a stream of lifetime income during retirement.
- Investments: Outside of a traditional retirement account, investments are bought with after-tax dollars. When you sell those investments, the growth of the investment (the amount earned beyond the initial investment) is generally taxed at the capital gains rate— which is lower than your ordinary tax rate.
- Traditional IRAs: Earnings for Individual Retirement Accounts (IRAs) grow tax deferred and contributions may be tax deductible, depending on your income and whether you also participate in an employer-sponsored retirement plan.
- Roth IRAs: Contributions are made after you pay taxes, so they will not reduce your taxable income today. Your money grows tax free and distributions from your Roth are usually tax-free during retirement.
- Roth 401(k)s: Offer all of the characteristics of a Roth IRA (tax-free growth and tax-free distributions) but have no income limits for contributions.
- Permanent Life Insurance: Provides protection of your assets through a death benefit to your survivors. The policy also accumulates cash value that can be used to help pay for emergency needs. The cash value grows tax free and can generally be utilized tax free up to the amount contributed.
Choosing the right combination of retirement income sources is an individual decision and should be part of a comprehensive financial plan. A financial professional can help you create this plan and provide a detailed analysis of optimum retirement savings strategies, considering your risk tolerance, investment time frame and distribution needs. With the right strategy, you can plan to save enough and in the right places so you’re better able to meet your retirement goals and dreams.
Article prepared by Northwestern Mutual with the cooperation of James A. Smith. This publication is for educational purposes only. It is not intended as an endorsement of any specific financial product or strategy and does not constitute legal or tax advice. Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM) (life and disability insurance, annuities, and life insurance with long-term care benefits), Milwaukee, Wisconsin, and its subsidiaries. Securities are offered through Northwestern Mutual Investment Services, LLC (NMIS), a subsidiary of NM, broker- dealer, registered investment adviser, member of FINRA and SIPC. James A. Smith is an agent of NM and registered representative of NMIS based in Mahomet, IL. To contact James A. Smith, please call 217-586-6651, email him at polariswealth@nm.com
Any content, resident submissions, guest columns, advertisements, and advertorials are not necessarily endorsed by or represent the views of Best Version Media LLC (BVM) or any municipality, homeowners associations, businesses, or organizations that this publication serves. BVM is not responsible for the reliability, suitability, or timeliness of any content submitted, inclusive of materials generated or composed through artificial intelligence (AI). All content submitted is done so at the sole discretion of the submitting party.
