Oct. 7, 2013, 6:15 a.m. EDT

10 reasons your retirement plan won’t cut it

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By Robert Klein

About Robert

Robert Klein, CPA, PFS, CFP®, RICP®, CLTC, MBA, MST is the founder and president of Retirement Income Center, a retirement income planning firm located in Newport Beach, Calif. The firm specializes in innovative, conservative income management strategies in addition to offering traditional investment management services designed to help clients achieve their retirement income planning goals. Bob is also the sole proprietor of Robert Klein, CPA, which he founded in 1989. In addition, he is the writer and publisher of Retirement Income Visions, a weekly blog featuring innovative strategies for creating and optimizing retirement income, and previously wrote and published Financially InKlein’d. Bob has been quoted and featured in various publications, including The Wall Street Journal, Yahoo! Personal Finance, InvestmentNews, Financial Advisor Magazine, Bankrate.com, AnnuityNews, Wells Fargo Small Business Roundup Newsletter, and Wealth Manager Magazine. Bob can be reached via his website, Retirement Income Center, LinkedIn and Twitter: @IncomePlanner.
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Designed to fail?

Although congressional actions are constantly being scrutinized, we should be thankful to this organization for allowing us to have retirement plans.

Whether it's a 401(k) plan, 403(b) plan, traditional IRA, Roth IRA, SEP-IRA, etc., these plans allow employers, employees, and, in some cases, employees' spouses, to set aside funds earmarked for retirement.

While there are different eligibility rules, contribution limits, income tax incentives, and compliance requirements associated with each type of plan, all of them provide us with a tax-favored way to accumulate funds for retirement that we might not do otherwise.

That's the good news. The bad news is, retirement plans, in and of themselves, generally aren't sufficient to meet most individual's financial needs for the duration of their retirement years. Projected longer life expectancies don't make this situation any easier. While Social Security helps soften the blow, it doesn't solve the problem in most cases.

So why aren't retirement plans typically an all-encompassing solution to see us through our retirement years?

Here are 10 reasons :

1. Most plans aren't designed to provide sustainable retirement income

There's a major disconnect when it comes to IRS-blessed retirement plan choices and our retirement funding needs. During our working years, we pay our expenses from employment income. When we retire, we still require a dependable, sustainable source of income to cover our expenses. Unfortunately, with the exception of one type of plan, that is, a defined benefit plan, the majority of retirement plan types today aren't designed to provide us with lifetime income.

Other than the defined-benefit plan and hybrid plans which have a defined benefit element, both of which are rarely offered in the workplace today, all other retirement plans are defined contribution plans. With this type of plan, the amount of the annual maximum allowable contribution is specified by IRS without regard to the benefit amount that a participant will ultimately receive. These plans include 401(k), 403(b) (public education organizations and some nonprofit employers), 457 (governmental and certain nongovernmental employers), SIMPLE, SEP-IRA, traditional IRA, and Roth IRA plans.