In our last article, we discussed why you need a Plan B for retirement. In this article, we want to provide some ideas for what that plan might include.

Let’s assume your Plan A consists of traditional retirement accounts that you’ve been adding maximum contributions to during your entire working career. Your Plan A has accounted for sufficient savings, strategies for spending, drawing from retirement accounts, taxation, and health care. While theoretically, this is a great first step, even with maximizing your retirement contributions, having a backup plan or two can help to ensure you will have enough to live happily into retirement and be prepared for the unexpected.

Having a Plan B is all about securing income streams to sustain you in retirement. Think of it as more than diversifying your existing retirement accounts. Those can still be affected by major life changes, such as a recession or a divorce. And you don’t want to be limited by one income stream. Your Plan B should create diversity in the types of wealth you accumulate.

5 Ways to Diversify with a Plan B

Savings and Investments Outside of Retirement Plans

Having savings for emergencies is critical for everyone, but having a savings cushion is a great backup for retirement. This is not your 6-month emergency fund. To create a savings cushion for retirement, we are referring to growing a large nest egg in your savings outside of your typical retirement plans. This requires you to commit to save more in addition to your retirement savings. Say you put aside an additional 5 to 10% of your income in an investment account each year for 20 to 30 years. By the time you retire, you could have a savings cushion of hundreds of thousands of dollars. The key is to start saving and investing more as early as possible. This type of investment account will also allow for the flexibility to use these funds prior to the 59-½ age requirement associated with dedicated retirement accounts, so as to avoid early withdrawal penalties.

Home Equity

For many, home equity is their largest asset and offers a great safety net for retirement. But it’s important to understand how you can use that asset to your best advantage in retirement. It makes no sense to live in your house if you are starving or can’t afford the upkeep. Instead think of ways you can tap into its value by converting it into an income stream. Some of the ways to do this include downsizing, refinancing, and opening an equity line of credit. Downsizing can be the most efficient since you can turn the equity difference into an immediate income stream and usually avoid any capital gains associated with the appreciation of your home ownership. A line of credit can be used to avoid tapping other retirement investments in down periods by providing short term access to funds on an as-needed basis.

Working After Retirement

More people are planning to work after they retire. It could be continuing to work in their career, starting a new business, or taking on a side job. Working longer will not only help you to bring in income to maintain your lifestyle, it will give your investments more time to grow and help to reduce the length of time that you'll be living off savings.

Delaying Social Security Withdrawals

Each year you delay withdrawing from social security, you can boost your benefits by increasing your payment amount. Therefore, it makes sense to delay withdrawing from social security for as long as possible. Just be aware that if you draw from other sources, you'll need to account for taxes and potential early-withdrawal penalties, if you use your retirement accounts.

Investing in Insurance

Besides financial setbacks, ill health is a major issue that often affects your retirement plans. Even with it being such an issue, many people don’t adequately anticipate how much they will spend on healthcare in retirement. An option to look at is investing in health supplements that help to offset the costs for prescriptions and major illnesses. Another insurance option to look at is long-term disability (LTD) insurance in your early years before you retire. LTD insurance is a policy that protects you from loss of income if you are unable to work due to illness, injury, or accident for a long period of time. This can help prevent you from having to dig into your retirement and other savings too early. Long-Term-Care Insurance and the use of Health Savings Accounts are other ways to build a solid Plan B for your retirement years.

There are many ways to create a Plan B for retirement. At Reagan Financial Planning, we can help you create a plan or evaluate an existing plan. Contact us at (770) 658-9440 to learn more.

Do you have a Plan B for when you retire? Life is full of surprises. You’ve spent decades planning and saving for retirement. You saved for retirement by faithfully putting money into a plan such as a 401K or IRA. Many people wonder if it will be enough. What will your retirement savings be when you are ready to retire? Will it be enough for what you need? Do you have the right plan? These and other questions are great starters for thinking about having a Plan B for retirement.

3 Reasons You Need a Plan B

Life is not perfect.

Unfortunately, things happen that are beyond your control. These affect your retirement plans. You could lose your job, have a major-medical issue, get a divorce, or lose savings from a market crash. The Great Recession of 2008 saw many investment accounts, including those for retirement, plunge. This left retirees and those close to retiring without the funds they were relying on. People lost their jobs that stopped the flow of positive investments. And if you’ve experienced anything like a divorce, your retirement savings could have been cut in half.

You’ve experienced income creep.

If you have a salary that has continuously gotten bigger as you age, you’ve most likely adjusted to the lifestyle that matches that salary. The term is called income creep, and it could be difficult to maintain into retirement. In addition, you might be surprised to learn that your payments from your retirement savings, pension plans, and social security will be a lot less than the salary you’vebecome so accustomed to getting. While you might think that you won’t need that same annual income when you retire, you have your habits that are hard to break. Be realistic. You have astandard of living to maintain that needs a strategy and a backup plan.

You are more likely to live longer.

Times have changed when it comes to thinking about retirement. A decade or two ago, people thought about retirement as the end of their life in terms of only so many years. Today’s retirees can expect to live another 20 to 30 years. That’s about the same amount of time you spent in your working career. How much will you need so you don’t run out of money? One current estimation from a formula by Fidelity indicates you need about eight times your final salary at retirement.

By creating a Plan B, you can better ensure you will be able to retire safely and securely. You can reduce your risk by not putting all your eggs in one basket. If you want to learn more about creating alternate plans or want to evaluate your current plan, contact Reagan Financial Planning.