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few months ago , we began a series related to the importance of reviewing your current retirement plan , combined with how best to navigate potential changes to your overall plan moving forward . We discussed what typically forms the basis for most present-day retirement plans and how to posture these plans related to your specific retirement time horizon , associated pension plan , if applicable , and your particular level of risk tolerance .
The next steps for creating a sound foundation for your retirement plan involve taking advantage of the individual investment alternatives that best complement your workplace plans . These alternatives include ; Individual Retirement Accounts ( IRAs ), Health Savings Accounts ( HSAs ), Self-Employed Retirement Accounts , and possibly , deferred annuities . Another important aspect for your overall plan is how best to maximize your individual or spousal Social Security benefits . You set the date to begin these benefits , and this should be determined in conjunction with your other retirement assets .
A good analogy regarding your retirement plan is to think of the different areas of your plan as legs to a stool . The more legs you have under your stool , the sturdier the seat will be . With one or two legs , it will probably need to be propped against something , while a stool with three or four legs will provide you with a sound base . With one of the legs being represented by your
Social Security benefits , and one leg by your workplace plan , you can then add stability to your “ stool ” with individual account options .
For most people , the best individual option to take advantage of is the Roth IRA . A Roth IRA provides the most flexibility during retirement , as well as the most opportunity for future growth . While the Roth option does not offer the immediate tax deferment that a Traditional IRA account does , it offers tax free growth on all of the earnings . These accounts are also not subject to the Required Minimum Distributions that must be taken at age 70-½ from your other retirement accounts . Your other retirement accounts will also generate taxable income on distributions . The flexibility within the Roth account , combined with the tax-free growth , are what make these accounts so attractive .
A Health Savings Account is also an excellent option to add to your retirement plan . These accounts are combined with a high deductible insurance plan . The account allows you to reduce your current taxable income by the amount contributed to the account each year , and then allows the account contributions and earnings to grow tax free , provided the funds are used for future medical expenses both before and after retirement .
A few of the other possible options to save for retirement include deferred annuities and , when self-employment income has been generated , numerous types of tax deferred Self-employed Retirement Accounts become available for use as well .
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