4 Pillars Your Retirement Plan Must Include

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According to a Schroders survey, 32% of retired Americans feel that they don’t have enough saved up, and 58% admitted that they have no idea how long their nest egg will last.

Creating a retirement plan that will survive the changing financial landscape is more important than ever. A recent article featured an expert who shared what makes a retirement plan successful.

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“The biggest takeaway is that every retirement plan needs these four pillars to be successful: income, growth potential, protection and liquidity,” said Jaqueline Schadeck, CEO at Golden Wealth Strategies and host of PBS’s “My Money Mentors.”

We’ll break down these four pillars that every retirement plan must include:

Pillar #1: Income

“Generating income is the basis for any successful retirement plan, and each retiree needs enough income to comfortably cover their expenses now and in the future,” said Stephen Kates, CFP and principal financial analyst at Annuity.org. “Without income production from one’s assets, it is difficult to effectively stop working.”

Retirement planning involves figuring out how to earn enough money to support yourself and your family after you no longer receive a steady paycheck from your employer. If you want to enjoy your golden years, you want to ensure that your plan involves a decent amount of money coming in every month so that you can stay on top of your expenses.

Pillar #2: Growth Potential

“Living longer is a blessing but also means your money needs to work harder,” remarked  Sean Lovison, a CFP, CPA, and lead planner at Purpose Built Financial Services, LLC. “Investing for growth helps your savings outpace inflation’s rising costs.”

You worked hard for your savings throughout your career, so you want to know that your money’s working for you now. This means you want to see your funds grow consistently over time to have a larger nest egg for your retirement.

“Since people typically take the time to defer their income with pre-tax savings and tax-deferred growth, except for with a Roth IRA, having the ability to grow assets for retirement is important,” shared Brett Bernstein, a financial advisor and CEO of XML Financial Group.

The stubborn inflation figures from the last few years have shown us that prices will continue to rise around us, requiring our savings to at least provide returns equal to the inflation rate.

“The cost of everyday items slowly rises over time, and in retirement, important expenses like healthcare can become more expensive as additional care is needed,” Kates noted. “This requires retirees to invest in a way that can offer them higher income over time to match these rising costs and maintain the same standard of living.”

If your funds aren’t growing in your retirement accounts, it’s difficult to feel comfortable about your financial security as you prepare to exit the workforce.

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Pillar #3: Protection

“In America’s litigious environment, unexpected lawsuits or medical bills can derail the best-laid retirement plans,” Lovison said. “No one wants to spend their golden years worrying about financial ruin.”

There are different forms of protection for your retirement plan, and they’re all equally important. You want to do whatever you can to protect yourself and your finances as you transition to life post-work. On top of spending the money on adequate insurance policies when it comes to home, auto, and life insurance, you want to focus on these two types of protection.

Income Protection

“Income protection allows retirees to depend on the fact that they will have a minimum level of money each month,” stated Kates. “Guaranteed income sources like Social Security, pensions, or annuities are the most common sources of income protection.”

Retirees should aim to have enough guaranteed income to cover their basic expenses because they want to know that they’ll be able to get by no matter what.

Asset Protection

Asset protection can’t be ignored either, especially since market-based investments can experience volatility and losses. Kates suggests setting aside a certain amount that isn’t correlated to the market and can grow without risks. Options here include cash, CDs, treasury bonds, or fixed annuities if you’re looking for guaranteed investments that don’t lose value.

“You want the ability to move among various asset classes if protection is important to you,” Bernstein remarked. “Some plans have Stable Value Funds, Money Market Funds or other Low Duration Bond Funds to provide that.”

Pillar #4: Liquidity 

According to Lovison, being forced to sell investments in a downturn is like selling your house at a fire sale. He stressed that liquidity ensures you can ride out market storms without sacrificing your long-term goals.

“Many company retirement plans have loan provisions providing some liquidity,” noted Bernstein. “Other retirement plans like IRAs, Roth IRAs and others have very few liquidity options other than pre-mature withdrawals that may come with a penalty and taxes unless it’s for a major medical expense or a first-time home purchase.”

Easy access to your funds is essential, especially as you may deal with unexpected expenses in your golden years.

“Liquid money offers flexibility without waiting for the next paycheck or payment. Cash in a checking or savings account is one of the best options for liquidity, but it has the cost of limited long-term growth,” Kates added.

Retirement Plan Closing Thoughts

These four pillars must be included in your retirement plan if you want to enjoy your life as you leave your job.

Kates concluded:

“Each of these pillars is important, but no single pillar can stand alone as the sole basis for a successful retirement plan. Liquidity without growth will suffer from inflation. Growth-focused assets without protection have too much market risk. Protection without income or liquidity leaves retirees at the mercy of an unexpected expense.”

This article originally appeared on GOBankingRates.com: 4 Pillars Your Retirement Plan Must Include