When thinking about your retirement wealth, there are several options to consider. These include 401(k)s, Roth IRAs, and life insurance. If you are unsure of which option is best for your financial situation, consider calculating your wealth gap. This will help you put your fears into perspective. The wealth gap is the difference between your current financial situation and your desired retirement lifestyle.

Tax-advantaged accounts

If you’re saving for retirement and need a place to put your money, you should consider using a tax-advantaged account. These types of savings accounts are designed for retirement and come with certain access rules and restrictions. For example, you must wait until age 591/2 before you can begin withdrawing your money from these accounts. If you withdraw money before that time, you may face an early withdrawal penalty of 10% and you may need to pay income taxes on your distribution.

You can also keep your after-tax dollars in a variety of different investment options, such as stocks and bonds, exchange-traded funds, brokerage accounts, and bank accounts. This is known as tax diversification. By allocating your investment dollars to several different types of accounts, you can develop a sustainable withdrawal strategy.

401(k)s

401(k)s are tax-advantaged savings accounts that can help you build your retirement wealth. Contributions to these accounts are invested according to your personal preferences. Typically, you can choose from various stock and bond funds or target-date funds. Target-date funds are particularly helpful in reducing the risk of investment losses as you near retirement.

Although defined-benefit pension plans are more common among older people than those of today, the retirement wealth of black and Hispanic workers has remained disproportionately low compared to that of white and non-Hispanic workers. As of 2013, only 41 percent of black and Hispanic families had saved for their retirement, compared to 65 percent of white families. This gap in retirement savings is exacerbated by the fact that many 401(k)-style retirement accounts do not offer substantial incomes.

Roth IRAs

Roth IRAs provide retirement investors with flexibility to access cash when needed. While some experts recommend that you avoid tapping into your account until you reach retirement age, the flexibility is still beneficial. For one, withdrawals are not subject to Perks penalties. Another benefit is that contributions are not limited by age or earned income. In addition, you can contribute up to $6,000 per year, or one percent of your earned income, whichever is higher.

If you’re planning to withdraw your money during retirement, you should do so only if absolutely necessary. For example, you should avoid taking out more money from a Roth IRA than you have contributed. That way, you won’t have to worry about incurring additional taxes. In addition, your Roth IRA account is tax-free if you’re 59 1/2 or older.

Life insurance

Life insurance can be a smart asset in retirement. It can protect your loved ones against loss of income, and it can help you prepare for the unexpected. Many people put off enjoying retirement for the fear of leaving something behind or needing their retirement savings for an unexpected expense. Having a plan is important to preserve your legacy and plan for the future.

Cash-value life insurance policies, which can be obtained while still alive, provide a tax-deferred source of income for your retirement. These policies are especially useful for people who may have maxed out their retirement plans.

Disability insurance

Disability insurance is a great way to supplement your retirement savings. It makes monthly payments into a trust and the money is invested based on your risk tolerance. You can decide whether you want to continue receiving monthly payments until you reach 65 or 67, or to receive your benefits in a lump sum at retirement age. The only downside is that the money in the trust is subject to taxation. Also, you can’t change your plan if you become disabled.

Long-term disability insurance is offered through many private companies. Typically, employees pay a portion of the premium. The benefits are taxed, and they typically have an elimination period of 30 days to two years. However, you can usually negotiate for a lower elimination period if you are self-employed.