For many young couples, putting a retirement plan is a very individualized process that involves finding out the couple’s unique wants and needs, then crafting a plan customized around those needs. That said, Jonathan Lord, a managing associate for MassMutual Greater Houston offers a few components he says may come into consideration for those working through the planning process:
A Financial Professional: One of the most important components of a retirement plan is an experienced and knowledgeable financial professional to help evaluate your unique needs and determine which, if any, of the other components may be needed. Lord recommends choosing a financial professional carefully; do research; ask your friends and family for recommendations, because the relationship with this professional should last throughout your lifetime. Don’t be lured into believing your family can provide you with the expertise and objective viewpoint necessary to plan for your retirement.
College Funding: Many new parents are so intent on providing for their children’s education first that they don’t consider their own future needs until they are sure the kids will be provided for, Lord says. A variety of vehicles are available for college funding, including but not limited to 529 Plans and permanent insurance policies like whole life. There are advantages to both. The main difference between the two is that 529 plans are funded with “before tax” money and whole life policies are funded with “after tax” money. 529 plans can only be used for education fees, such as tuition and books, while whole life policies can be used for whatever is needed.
Taxable and Nontaxable Buckets of Money: A variety of vehicles also are available to accumulate assets for retirement. Some are accumulated post-tax, like permanent life insurance, and some are accumulated pre-tax, like 401Ks. According to Lord, this means retirees will need to pay taxes on the retirement income that was accumulated pre-tax, and the retirement income accumulated post-tax will be accessed tax-free in retirement. It’s a good idea to accumulate your retirement income in both “buckets” so that you are not losing so much of your retirement income to taxes at the time when you may be least able to afford it.
Disability Income Insurance: Young couples have the advantage of time to plan and prepare for retirement, but they often fail to consider the very real possibility that their ability to earn a living is the key asset that they really hold. Take that ability away, for example due to an illness or injury, and the entire financial plan is pulled off track. Disability income insurance replaces a portion of your income if hurt or sick. MassMutual focuses on trying to achieve 50% income replacement with their policies.
Long Term Care Insurance: Just like the risk that young working parents make by not ensuring their ability to earn a living and accumulate retirement income, many fail to take into consideration the risk that long-term care needs may pose to their retirement income. The much-publicized cost of long-term care, whether it is provided in a nursing home or by skilled nurses at home can cause a retired couple to drain their accumulated assets to pay for it, and jeopardize their ability to live out the rest of their retirement in comfort.