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Saving for retirement: IRAs, annuities and 401(k) plans

A recent study by the Bankers Life Center for Secure Retirement revealed that four in five (81%) Americans worry about their retirement.

The COVID-19 pandemic has deepened these concerns and amplified a prevailing lack of familiarity with savings tools that could help people approaching retirement reach their financial goals.

In fact, the study found that fewer than half of respondents had familiarity with IRAs (47%) or annuities (48%), and only 65% reported being familiar with the most popular retirement savings tool, 401(k)s.

“In times of uncertainty, it’s important that pre-retirees have a basic understanding of the various savings options at their disposal,” said Cheryl Heilman, vice president of Bankers Life Securities, Inc. (BLS) and president of Bankers Life Advisory Services, Inc. (BLAS). “A moment of upheaval like that experienced amid COVID-19 … represents an opportunity to educate the next generations of retirees about their options to ensure their financial security in retirement isn’t upended and that they have peace of mind.”

The first step in reaching your financial goals is understanding your options. Keep reading for simple, easy-to-digest information on IRAs, annuities and 401(k) plans.



What is an IRA?

An IRA is a tax-advantaged retirement investment account. The three main types of IRAs each have different advantages:

  • Traditional IRA—Contributions are often tax-deductible, and any earnings can potentially grow tax-deferred until you withdraw in retirement. Many retirees find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.
  • Roth IRA—Your contributions are not tax-deductible, but your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.
  • Rollover IRA—You move funds from a qualified retirement plan into this traditional IRA. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA.

Whether you choose a traditional or Roth IRA, the tax benefits allow your savings to potentially grow or compound more quickly than in a taxable account.

Why invest in an IRA?

An employer-sponsored savings plan, such as a 401(k), might not be enough to amass the savings you will need to live the life you want in retirement.

Fortunately, you can contribute to both a 401(k) and an IRA. An IRA can help you:

  • Supplement your current savings in your employer-sponsored retirement plan.
  • Diversify your retirement investment plans beyond your employer-sponsored plan.
  • Take advantage of potential tax-deferred or tax-free growth.

To get the most out of these savings, try to contribute the maximum amount to your IRA each year. Work with your financial representative to monitor your investments and adjust as needed, especially as retirement nears and your goals change.



What is an annuity?

For retirees, an annuity is a financial product that provides a reliable, steady stream of income for a fixed amount of time or a lifetime. Annuities are structured as fixed or variable. Fixed annuities are generally considered a low-risk option, providing regular payments at a guaranteed return. Variable annuities are designed as longer-term investments with exposure to stock market fluctuations and tax-deferred earnings. Whether your financial need is growth, income, or stability, Bankers Life’s diverse suite of annuity products is here to help with principal protection and guaranteed income.

Why buy an annuity?

Annuities are great for retirees who are concerned about outliving their retirement savings. Annuities can provide principal protection, tax-deferred growth, and a stable income stream.


401(k) plan

What is a 401(k)?

A 401(k) plan is an investment account set up by an employer. Your employer may or may not make contributions. However, the investment earnings in a traditional 401(k) plan are not taxed until you begin to withdraw funds. With a Roth 401(k), you contribute taxed funds, but your withdrawals are tax-free.

Why invest in a 401(k)?

A major reason to invest in a 401(k) is that your contributions are tax-deferred. When you invest, your taxable income when you are working will be lower, saving you money. If your employer matches or contributes to your 401(k) savings, you can accelerate your savings with free money. Even if your employer does not match your 401(k) contributions, you are still earning a guaranteed investment return on your money.


The best way to prepare for unpredictable financial times is to know and explore your options with a trusted financial representative.

The more you know about your options, the better you can weather uncertain financial times and be prepared for retirement. It’s important for pre-retirees to understand their investment options to diversify their retirement income, plan their retirement financial plan, and measure their retirement financial goals. To learn more about these options or discuss your retirement plan, contact your financial representative!