By Rob Johnson
There are dozens of compelling reasons to save for your retirement years, including retiring with enough money to live comfortably, retiring early, buying a vacation or second home, paying for unpredictable medical costs, and building generational wealth.
Millions of Americans are saving for their retirement years by participating in employer-sponsored retirement plans. According to the American Benefits Council, more than 105 million Americans use employer-sponsored 401(k)s to build tax-deferred wealth to see them through their retirement years. The National Association of Plan Advisors, meanwhile, reports that there is more than $30 trillion in assets held in 401(k)s and similar types of retirement accounts.
401(k)s and other retirement plans are the go-to options to build retirement savings for a variety of reasons:
● Taxes on contributions are deferred.
● Contributions can reduce annual taxable income, decrease tax liabilities, and even place you in a lower tax bracket.
● Tax-deferred investment capital can potentially grow over time through the power of compound interest.
Although 401(k)s are the de facto choice for hard-working Americans to pursue a sound financial future for their retirement years, the income they provide still might not be enough for many to maintain their current lifestyles in retirement.
The Retirement Income Gap — and How to Bridge It
Even though you’ve saved for retirement throughout your whole career, you still might not have enough money once you stop receiving regular paychecks. The ever-increasing cost of living, coupled with unforeseen expenses such as exorbitant medical bills or specialized senior care, could rapidly undo decades of savings and financial sacrifice.
The gulf between the funds you’ve saved for retirement, combined with recurring income such as Social Security, and the amount of money you’ll actually need is commonly called the retirement income gap. You can do some simple back-of-the-napkin math to estimate if you have enough income to meet your retirement needs. Add up the value of your current assets, such as your 401(k), cash, stocks and bonds, as well as guaranteed income from Social Security, pensions or annuities, and compare that number against your estimated annual retirement expenses.
A negative number means you’re likely to experience a shortfall of funds in retirement, and you may have to adjust to a step-down in lifestyle. Even if you’ve calculated a surplus of income, you still could be derailed by bear market downturns and escalating healthcare costs.
Bridging the retirement income gap may require you to reposition existing capital deployment to generate additional wealth. Countless investors have successfully used real estate to build their personal wealth. Two financial products that are available to all types of investors that can be leveraged to…