In my April article I discussed the importance of having the right Social Security strategy as part of your retirement planning. Social Security is the major income source for many retirees; however, it is often not enough to cover all living expenses. In order to be completely “retirement-ready,” individuals must have some of their own money saved toward retirement. There are various retirement savings vehicles today that will allow you to save while being tax-efficient. In this article I will cover some of the basic features of two common plans: Traditional IRA and Roth IRA.

The Traditional IRA was established in 1974 and is available to anybody who is under 70-1/2 years old and has an income or a spouse with an income. A Roth IRA is a much newer retirement planning tool that became available in 1997. It is available to anybody with income, but there is an income limitation (go to the IRS website for the 2016 Roth income limits).

Those who are eligible can contribute a combined total of $5,500 into a Traditional and/or Roth IRA for 2016, and an additional $1,000 for those who are 50 or older. There is a wide range of investments that you can have in your Traditional or Roth IRA, including mutual funds, stocks, bonds, REITs, annuities, cash, gold, etc. What you cannot have inside your Traditional or Roth IRA are life insurance, collectibles such as artwork, options and derivatives.

The major difference between Traditional and Roth is the way taxes are treated for both contributions and distributions. With a Traditional IRA your contributions are tax-deductible, but you must pay tax on all your withdrawals. A Roth IRA, on the other hand, will not give you tax deductions on your contributions, but will allow you to make tax-free withdrawals. So the main question you want to ask yourself when trying to decide whether to open a Traditional or Roth IRA is, Do I want to pay tax now or when I retire?

There are two key ages to remember when you are dealing with qualified retirement plans:

>> 59-1/2: This is the age when you can begin making penalty-free withdrawals from your Traditional and Roth IRAs.

>> 70-1/2: This is the age when you have to start taking Required Minimum Distributions (RMD) from your Traditional IRA. If you don’t, the IRS will slap you with a 50 percent penalty.

There are two phases to any retirement account: accumulation and distribution. There is a tendency for people to focus solely on the accumulation phase and forget that the distribution phase could last as long as the accumulation phase! Imagine if you opened your IRA at age 30 and retire at age 65. That’s 35 years of accumulation, and you might need to make that money last for the next 35.

It is important to name a beneficiary on all of your IRAs when you establish the accounts, and to also update them promptly when needed. The beneficiary listed on your IRA account trumps wills and trusts.

Retirees today face various challenges, including limited income sources, a continued low-interest-rate environment, a volatile stock market and rising costs of long-term care. Because of these challenges, it is more important than ever to have a solid retirement income plan so that you can enjoy those years without worrying about outliving your money.

When you create an income plan, you should include how to maximize your Social Security benefit, how best to fill the income gap with the money you have saved up and how to protect yourself from potential long-term care expenses. You must know exactly when and from where to take the money when you need it — the sequence of withdrawals and where you take the money from will have drastic effects on your overall financial picture.

The income plan should be tax-efficient, able to keep up with inflation and, most important, provide you with an income that will last you for your (and possibly your spouse’s) lifetime regardless of how long you live. The plan also should include a legacy plan so that the assets will be passed down to your beneficiary in the most tax-efficient and smooth manner. Not having a plan can create an unnecessary tax burden and put you at risk of outliving your money. After working so hard for so many years, you deserve to enjoy your retirement in the way you always imagined.

Kana Aikawa is a financial adviser at Wealth Managing Partners, Inc. She has a Bachelor of Business Administration in Finance and Management from the Shidler College of Business at the University of Hawaii at Manoa. Reach her at 954-7072.