Three-Legged Stool of Retirement. This metaphor has been a cornerstone in retirement planning, standing for a well-balanced approach to securing financial stability during our golden years. Each “leg” of the stool plays a crucial role in supporting retirees as they transition from work life to retirement.

The Three Legs of the Stool

1. Social Security

Social Security is the first leg, and it’s like the foundation of our retirement stool. It provides a safety net for retirees by offering a steady stream of income based on your work history. However, it’s essential to recognize that Social Security alone may not be sufficient to cover all your expenses in retirement. 

2. 401(k) or Retirement Savings Accounts

The second leg is employer-sponsored retirement plans, such as 401(k)s. These plans allow you to contribute pre-tax dollars, and some employers even match your contributions up to a certain percentage. Over time, your 401(k) grows through investments. However, unlike traditional pensions, 401(k)s do not guarantee a specific monthly income. Instead, they serve as supplementary savings accounts, building value over your career. As you transition into retirement, it is important to consider turning your 401(k) into a personal pension you can never outlive. Consider guarantee income annuities, this takes the market risk away from your 401(k) and delivers a check to your bank account every month as long as you live. Wow that feels good!

3. Indexed Universal Life (IUL) Policy

The third leg introduces a new twist: the Indexed Universal Life (IUL) policy. This life insurance policy combines a death benefit with a cash value part. Here’s how it works:

• Death Benefit: If you pass away before retirement, the IUL provides a death benefit to your family. This financial protection ensures that your loved ones are taken care of.
• Cash Value: Unlike term life insurance, an IUL accumulates cash value over time. This value grows based on the performance of a stock market index (such as the S&P 500). The IUL offers tax-free withdrawals during retirement, providing an added income source.

Why the Stool Matters

The three legs work together to create a stable foundation for your retirement. Here’s why:

1. Diversification: By relying on multiple income sources, you reduce dependence on any single leg. If one leg wobbles (e.g., Social Security faces challenges), the others can compensate.
2. Risk Mitigation: The IUL’s cash value part helps mitigate market volatility. Unlike a 401(k), which exposes you to market fluctuations, the annuity provides a more predictable income stream.
3. Flexibility: Having different legs allows you to adapt to changing circumstances. For instance, if you live longer than expected, the IUL’s cash value can supplement your other income sources.

The Best Time to Start

It’s never too late to start planning. Even if you haven’t begun yet, act today. Here’s what you can do:

1. Assess Your Current Situation: Understand where you stand with Social Security, existing retirement accounts, and life insurance.
2. Maximize Contributions: Contribute as much as possible to your 401(k) or other retirement accounts. Consider catch-up contributions if you’re over 50.
3. Explore IUL Options: Consider working with Retirement Benefits Inc. to explore Indexed Universal Life policies. Evaluate their suitability based on your needs and risk tolerance.

Remember, while the best time to start was yesterday, the second-best time is now. Secure your retirement stool and build a solid foundation for your future!

Retirement Benefits Inc. is helping clients daily with all three of these legs discussed in this article. Consider reaching out for a consultation today!