A potential “retirement crisis” is currently in the forecast for future generations in America, despite the rebound working families have seen since the market downturns in the mid 2000’s. While opinions on this may vary in the financial planning industry, there are those that caution current generations against being under prepared for retirement. Data from the Employee Benefits Research Institute (EBRI) reflects a healthy state of retirement savings for the current generation of retirees (individuals who began leaving the workforce in the 1990’s). While analysis of this data shows this group preserving the vast majority of their savings throughout their retirement, the executive director of Black Rock Retirement Institute, Bruce Wolfe, cautions future generations against assuming they will be so fortunate.*
Pensions vs 401(k)s
Looking back at the spending and saving patterns of past retirees is not necessarily the best way to predict the climate future generations will experience in retirement. One major difference between the generation of current retirees and those just entering retirement is a lack of defined benefit plans, or pensions. About 42 percent of retirees examined in the EBRI data had significant retirement income from a pension. This group made up the primary work force in the 70’s and 80’s, before 401(k)s took over as the dominant form of retirement benefit offered by employers. The percentage of retirees with the ability to depend on pension funds will wane going forward, as EBRI data shows that only 2 percent of workers were saving through a pension plan by 2014.*
While 401(k)s can be a decent retirement savings option, the structure of these plans can leave people with options that lead to unintended risks and mistakes. Funds from a 401(k) are typically taxed on withdrawal as most of them are pre-tax funded, and many individuals drew from these funds during the substantial market dips in the 2000’s. With the flexibility to contribute less and “cash out” early, the ability to rely on 401(k)s to support future retirees with the same significance as pensions is not guaranteed.
Supplementing with IUL
Since future generations may not have the ability to rely on pensions like those currently in retirement, an Indexed Universal Life (IUL) policy can act as an alternative means of retirement savings that past generations were able to rely on through pensions. This type of plan can be viewed as a tax-protected savings structure. Though policy structures can vary, the IUL allows policy holders to build a tax-deferred cash value and often times they come with a guaranteed minimum interest rate.
Even though retirement savings trends have shifted over time and seemingly left future generations with less resources, there are strong supplemental options available. Through the utilization of all the available tools, coming generations have the ability to enter retirement with similar stability and success of the majority of today’s retirees. To learn more about retirement savings options and the IUL specifically, contact IFN today! 800.921.3100
*Retirement Crisis? Not for past retirees, but…, Benefits Pro