Retirement planning has always been a complex process. It involves evaluating a multitude of factors, such as investment options, tax implications, government benefits, and personal lifestyle choices. With the changing financial landscape, it has become increasingly important to stay up to date with emerging trends in retirement planning. By tailoring retirement accounts to meet individual needs and goals, retirees can lock in significant advantages and maximize their savings. In this blog post, we will delve into some of the latest trends in retirement and how they may be beneficial to your plan.

Recent Developments in Retirement Planning

In recent years, retirement planning has undergone significant changes driven by demographic shifts, new legislation, and economic trends in the global marketplace. Individuals are not only living longer, but they are also retiring later in life. Moreover, the global recession has made individuals more reluctant to rely solely on social security or traditional pension plans to fund their retirements. As a result, individuals are looking for alternative ways to save and invest in order to secure their financial futures. Retirement planning is evolving, and recent trends are impacting what future retirees can expect when they leave the workforce.

1. The Retirement Savings Gap

According to a recent study, more than half of American households are at risk of not being able to maintain their standard of living during retirement. When individuals’ spending habits and current lifestyles aren’t able to be maintained in retirement, this is defined as the “Retirement Savings Gap.” There is a growing concern about the retirement savings gap, due to the increases in life expectancy and costs of living. According to the Social Security Administration, a man reaching age 65 today can expect to live, on average, until age 84 and a woman until age 87. In comparison, the life expectancy of a 65 year-old individual in 1990 was 80 for men and 84 for women according to the Social Security Administration. With longer life expectancies, individuals have to be more diligent to save more to cover the costs of living longer.

One reason for this gap is the shift from defined benefit pension plans to defined contribution plans. In the past, workers could rely on employer-provided pension plans that guaranteed a set amount of income during retirement. Now, many employers have switched to defined contribution plans, such as 401(k)s with matching incentive, which place the responsibility of saving for retirement on the individual.

Bridging the retirement savings gap requires a comprehensive approach, including increasing the availability and accessibility of retirement plans, promoting financial literacy, and encouraging individuals to start saving as soon as reasonably possible.

2. Financial Wellness

In recent years, financial wellness has emerged as a significant trend in retirement planning. Financial wellness is composed of four elements: having control over day-day finances, having financial freedom to do the things you enjoy, the ability to absorb an unexpected financial hardship, and being on track to meet your long-term financial goals.  With increasing concerns about longevity risk, the rising cost of healthcare, and the decline of traditional pension plans, individuals are taking a more proactive approach to their retirement planning. A complete financial wellness plan for retirement requires a holistic approach that considers a wide range of factors.

One of the key aspects of financial wellness is evaluating your overall financial health. This involves taking a comprehensive look at your financial picture, including your income, expenses, assets, and liabilities. By understanding your current financial position, you can identify areas where you need to make changes and develop strategies to improve your financial health.

Another important consideration in financial wellness planning is identifying risks and developing strategies to mitigate them. Risks can come in many forms, such as economic downturns, inflation, and unexpected health expenses, auto repairs, etc. There are several ways to prepare for risk such as emergency funds and insurance plans.

In addition to financial health and risk mitigation, financial wellness also involves considering your lifestyle goals, health, family responsibilities, and any other factors that may impact your financial security in retirement. For example, if you plan to travel extensively in retirement, you may need to save more than someone who plans to stay close to home. Similarly, if you have elderly parents or adult children who rely on you for financial support, they may also impact your retirement plan.

Overall, financial wellness is a critical component of retirement planning. By taking a holistic approach to your finances and developing a comprehensive plan, you can ensure that you are prepared for the challenges that may come during retirement.

3. Technology Solutions

Financial planning has traditionally been a human-driven process, with wealth managers and financial advisors encouraging individuals to invest through their financial recommendations. However, the advent of technology has transformed the way people approach financial planning, particularly in the context of retirement savings. With the rise of robo advisors, individuals can now access affordable and reliable solutions to plan for their retirement.

Robo advisors are a form of automated investment service that utilizes algorithms to manage and optimize investment portfolios with minimal human intervention. These algorithms can provide investors with investment recommendations based on their financial goals, risk tolerance, and time horizon.

Moreover, most robo advisors have relatively low fees and minimum investment requirements, making it possible for individuals to start planning for their retirement with a small initial investment. Through online platforms, investors can manage their portfolios from anywhere in the world, at any time.

While robo advisors offer benefits to those seeking an automated approach to investment management, there are compelling reasons to work with a human financial advisor instead. Although robo advisors consider a person’s age, risk tolerance, and investment goals, they do not take into account the many nuances and challenges that may impact an individual’s investment strategy. A human advisor can provide personal interaction, increased flexibility, and customized advice that is tailored to an individual’s unique financial situation and goals unlike any robo advisor.

4. Self-directed Retirement Plans

Individual retirement accounts (IRAs) and other self-directed retirement accounts have become a popular trend for many individuals looking to save for their future. These accounts allow people to invest in a range of assets such as stocks, bonds, and real estate. Individuals can choose how much they want to contribute on a regular basis and can adjust these amounts accordingly, subject to contribution limits. Furthermore, investment decisions can be altered as market conditions change or new opportunities arise.

Another important feature of self-directed retirement accounts is their contribution limits and flexible investment options. While traditional retirement plans may have strict contribution limits and limited investment options, self-directed accounts may offer higher limits and more flexibility in the investments you choose, thus giving individuals the opportunity to save more for their retirement years.

Self-directed retirement accounts can also be a valuable tool for tax planning. Depending on the type of account, contributions may be tax-deductible or tax-free, and earnings can grow tax-deferred until withdrawal. In other cases, you can contribute post tax dollars to the account and at the time of distribution in retirement, the distributions are tax free. This can significantly reduce an individual’s tax burden in retirement, allowing them to make the most of their retirement savings.

In addition to the already existing self-directed accounts, many companies now offer self-directed 401(k) plans, giving employees even more control over their retirement savings. In a traditional qualified contribution plan such as a 401 (k) plan, the investment options are often limited to mutual funds and ETFs. As more people look for ways to secure their financial future, the option to invest in self-directed retirement accounts has become an attractive option, giving individuals more freedom and flexibility to tailor their investment portfolios to their personal needs and goals.

Overall, the recent trends in retirement planning reflect a shift towards greater personal responsibility and a more holistic approach to retirement savings. By taking advantage of these new tools and strategies, individuals can better prepare for their futures and enjoy a secure retirement.

How to Build a Retirement Plan

Creating a solid retirement requires a comprehensive approach. To build an effective retirement plan and achieve financial wellness, it is essential to consider all aspects of your finances, including budgeting, income, expenses, debt, and investments.

Start by assessing your retirement goals. Consider the lifestyle you want to have in retirement, the age you plan to retire, and the length of your retirement. Once you have a clear understanding of your goals, you can determine your investment risk tolerance and time horizon. An individual’s risk tolerance is the level of risk they are willing to endure through their investments, while the time horizon is the period in which they plan to accumulate and manage their retirement fund. When designing your retirement plan, it is critical to balance risk and reward. You can achieve this goal by diversifying your portfolio across various asset classes that are uncorrelated with each other. Diversification helps limit your exposure to market volatility and reduce risk. While diversification won’t guarantee success, it can help protect your assets from market fluctuations and provide a safety net for unexpected losses during retirement.

Creating a successful retirement plan is not only about financial planning but also about financial wellness. Consider your long-term goals and priorities. Your plan might include setting up an emergency fund, paying off debts, creating a budget, and saving for major expenses like medical costs and home repairs. Furthermore, it is essential to have access to financial education and resources that can help you make informed financial decisions.

Staying informed, reviewing your investment plan regularly, and seeking professional guidance when necessary are also important steps in creating a retirement strategy. Working with a financial advisor can help you navigate these decisions and create a strategy that aligns with your needs and preferences. With the right approach, you can create a sustainable and secure retirement plan to help you achieve your financial goals.

Plan Your Retirement with Members Trust Company

At Members Trust Company, we are committed to helping our clients build sustainable and secure plans for the future. Our team of experienced advisors has extensive knowledge of retirement planning strategies, financial market trends, and investment products that can help our clients achieve their financial goals. We work closely with our clients to understand their specific needs, risk tolerance, time horizon and objectives, and we tailor our recommendations accordingly.

Through our holistic approach, we can help you make informed investment decisions, take advantage of tax-efficient retirement accounts, and create a diversified portfolio that balances both risk and returns that best fits your needs. We also provide regular portfolio reviews and performance tracking to ensure that your retirement plan remains aligned with your goals and risk tolerance.

With our expertise, experience, and personalized approach, you can trust us to help you create a retirement plan that meets your unique needs and goals. Give us a call to start your retirement plan today (888) 727-9191.

Non-deposit investment products available through Members Trust Company are not deposits of or guaranteed by the trust company, a credit union or credit union affiliate, are not insured or guaranteed by the NCUA, FDIC or any other governmental agency and are subject to investment risks including possible loss of the principal amount invested. Members Trust Company, owned and managed by America’s credit unions, is a special purpose federal thrift regulated by the Office of the Comptroller of the Currency. Past performance is not indicative of future results. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant. Any opinions expressed are those of the presenter and do not necessarily reflect the position of Members Trust Company. The information above is obtained or compiled from sources we believe to be reliable. We Do Not Guarantee that such information, will be free from errors, omissions, whether human or mechanical, nor do we guarantee their timeliness, accuracy, or completeness.