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eggs in one basketIn 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.

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