a glass jar filled with coins and a plant by Towfiqu barbhuiya courtesy of Unsplash.

Retirement, We Have a Problem: Why 80% of Your Investments in Retirement Accounts Could Spell Trouble

Mark W. Vandenburg, Jr. |

In last month's post, we explored some common limitations of 401(k) plans and other employer-sponsored retirement accounts. These limitations can be particularly apparent when it comes to financial flexibility.

The Common Scenario

Consider a mid- to late-career professional in their late 40s or early 50s. On paper, their financial picture may look strong: six-figure earnings, a 401(k)-balance exceeding $1 million, and a healthy savings account. However, financial flexibility can still be limited.

During periods of economic uncertainty, mid- to higher-level managers approaching retirement may face career disruptions. Even with an emergency fund, an extended period without work of six months or more can create significant challenges. Today’s job market may require longer than expected searches for new employment opportunities.

Introducing the Concept of a Freedom Fund

A “Freedom Fund” is a term used to describe a portion of your savings that is designed to provide accessible funds outside of traditional retirement accounts. This fund may offer support during extended periods of unemployment and can also provide financial flexibility for life events or personal goals.

For a more detailed explanation of how Freedom Funds can be structured, you can read our full post here.

Considerations for Tax Planning and Flexibility

Maintaining savings outside of tax-deferred retirement accounts may help reduce potential tax-related impacts in retirement, such as required minimum distributions or certain Medicare-related surcharges. Proper planning and diversification of assets may provide additional flexibility and potential tax benefits over time.

It is important to note that while tax-deferred accounts can offer upfront tax advantages, holding a portion of your assets in accounts with different tax treatments may provide greater long-term flexibility.

Working with Financial Professionals

Strategies for managing asset allocation and planning for both taxes and liquidity can be complex. Collaborating with qualified financial and tax professionals can help ensure that your overall plan aligns with your goals and risk tolerance. For guidance on structuring your savings and investments in a balanced and flexible way, consider speaking with a financial professional.