Retirement. For many of us, that word conjures visions of golden years, leisurely travels, and finally having the time to pursue our passions. 

But it can also lead to anxiety over having enough savings, confusion about how to develop a financial plan, or “paralysis by analysis” — being overwhelmed by so many choices and options and a fear of making the wrong decision that you do nothing at all. 

The truth is, there’s no one-size-fits-all path to the retirement of your dreams. Multiple roads lead to that destination, each with potential pitfalls and opportunities. As an experienced financial adviser, my role is to help you navigate those roads and equip you with a retirement strategy crafted around your specific goals and values.

With that in mind, let’s take a look at three of the most common retirement investment vehicles: IRAs, 401(k)s, and annuities. Understanding how each of these works is key to helping you determine which one(s) may be the best fit for your retirement roadmap.

Building Sustainable Wealth with an IRA

Individual Retirement Accounts (IRAs) are tax-advantaged investment accounts that allow you to save and invest for retirement. There are two main types of IRAs: traditional IRAs and Roth IRAs.

With traditional IRAs, you can contribute pre-tax dollars directly from your paycheck, reducing your taxable income for that year. Those contributions are tax-deferred until you begin making withdrawals in retirement, at which point they are taxed as ordinary income.

Alternatively, Roth IRAs are funded with after-tax dollars, but qualified withdrawals in retirement are 100% tax-free. This can be an excellent wealth-building tool if you expect to be in a higher tax bracket years from now versus your current rate.

Many investment funds now offer a plethora of Environmental, Social, and Governance (ESG) focused options within IRAs. These initiatives prioritize companies demonstrating responsible practices regarding the environment, social programs, and ethical governance. By investing in sustainable choices, you’re building your nest egg as well as contributing to a healthier planet and a more just society.

The limit on annual contributions to an IRA increased to $7,000, up from $6,500. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 to include an annual cost‑of‑living adjustment.

Sole proprietors of small businesses can create a simplified employee plan–individual retirement account (SEP-IRA), although account holders are limited to contributing 25% of their earned income.

More About 401(k) Plans

Offered by many employers, 401(k)s allow you to contribute a portion of your salary directly into a retirement account, often with a valuable employer matching contribution. These contributions are typically pre-tax, which allows you to reduce your taxable income for the year while simultaneously building up retirement savings.

Similar to IRAs, 401(k)s often offer a range of investment options, but the specific choices may be determined by your employer’s specific plan. There are several types available, such as:

Entrepreneurs, independent contractors, and freelancers can now choose to set up a solo or one-participant 401(k). These are designed for business owners with no employees and mimic many features of an employer-sponsored plan, and spouses can also join.

Many 401(k) retirement plans offer index funds that are now outperforming more actively managed funds that have much higher fees. Index funds provide broad market exposure and diversification across various sectors and asset classes, making them an excellent choice for a long-term investment strategy.

Annuities and Sustainability

An annuity is a contract between you and an insurance company. You make a lump-sum payment or a series of payments (contributions) and in return, the insurance company guarantees you a stream of income payments starting at a predetermined future date. 

While annuities offer benefits like guaranteed income and potential tax advantages, they can also come with limitations in terms of flexibility and control over your investment.

Since future income is guaranteed regardless of what happens in the markets, fixed annuities can offer unmatched peace of mind for retirees concerned about running out of money. Your retirement income becomes stable and predictable for as long as you live.

Of course, that security comes at a cost, such as typically higher fees than other retirement accounts and less ability to access your entire principal investment upfront. Annuities shine when used as just one component of an overall retirement income strategy, not the sole investment vehicle.

The key to a successful retirement plan lies in understanding your options and mastering the art of asset allocation. Consider factors like your current income, desired retirement age, and risk tolerance

Take Control of Your Future

When it comes to retirement planning, having the right tools for the job is essential. That’s why I encourage my clients to consider using buckets of different investment accounts — IRAs, 401(k)s, annuities, and more — to create a diversified, sustainable portfolio designed to last.

By understanding their features and benefits, and working with a trusted financial advisor, you can craft a personalized roadmap that takes you from the initial steps of planning to the joyous reality of a comfortable and secure retirement.

It’s never too late to take control of your financial future. Reach out to me today to schedule a complimentary consultation!