Planning for retirement is not simple. It requires discipline, rigor, strength, and heart to manage your savings strategy effectively. Like a complex machine, your retirement savings comes in many parts: operating autonomously and moving synergistically to produce a better whole, one that is more than the sum of its parts.
Luckily, you do not have to form and maintain your retirement strategy alone. We are here to help ensure your income channels are working smoothly to contribute to the life you want to have when you retire.
Have you ever heard the saying, don’t put all of your eggs in one basket? Often people dole this out for advice when others are too intent on engaging with only one option in front of them as opposed to understanding the array of possibilities that could help them reach their destination.
The same principle applies to your retirement income channels. You don’t want all of your retirement income funneling from one source. This is true for a couple of reasons: one account may not be able to support you and your dependents for the rest of your life, and your income is better protected if divided into multiple accounts.
Think of retirement savings as a three-legged stool:
This 40/40/20 savings method breaks down these income channels by projected percentages. Do note that this is general savings advice and may not apply to each person in the same way. Should you be looking for more personalized recommendations, I would love to speak with you.
As an Iowa resident, your pension options will be quite significant due to the Iowa Public Employees’ Retirement System (IPERS). Remember – not all employees are offered IPERS as their pension system. However, all permanent employees of public entities like state government, city work, school districts, community colleges, and others can contribute up to 5.95% of their income into their retirement account while the employer contributes 8.93% bringing the total retirement contribution to 14.88% per employee per year.
IPERS is mandatory for all who are eligible to contribute, meaning that the state is dedicated to helping you have a built-in way to save more efficiently for retirement. The income that you contribute to the account is done so on a pre-tax basis, and will not be subject to taxation until it is withdrawn throughout retirement.
Like many pension plans, IPERS does not take inflation into account. This means that the money you accrue will be vulnerable to inflation which could decrease the value of your money over time. This is unfortunate, but simply the way that pension plans are structured.
IPERS is helpful when thinking about how your pension will contribute to your retirement income. But pensions have changed and the way they are used now requires some extra thought to see how it can best support you and your loved ones during retirement.
Time does not stand still, it keeps moving, changing, and altering everything it touches. Pension plans have not remained immune to the changes that time presents, therefore a traditional pension payout may not be the best option for you. It is time to think outside of the box and maximize the benefits for both you and your spouse.
For example, in a traditional household, you often had two partners, a husband and wife, who built their life together. When it came time for the husband to retire and choose a pension payout plan, he would elect for the joint/survivor option which would protect his wife financially should he pass sooner.
This working dynamic has seen a dramatic shift throughout the 21st century. More often than not, modern families are sustained on a two-income basis which would allow for both partners to contribute to and receive benefits from retirement accounts. This shift in the modern workforce should cause couples to reconsider the role their pensions will play in their retirement lifestyle. It is important to take a close look at your options for payout plans to ensure that you both maximize the benefits available to you. For many people, a single life payout on their pension is wise – especially if both you and your partner have strong pension amounts.
Retirement savings is a strategy, one that should continue to evolve and be flexible when need be. With IPERS it is good to know that you have a built-in funnel for beginning your retirement savings. Along with Social Security and personal savings, you will be well equipped to enter retirement with the money you need.
© 2019 Arnold & Mote Wealth Management All Rights Reserved