Retirement Investment Options
Retirement Investment Options
It’s never too early to begin thinking about retirement, and with retirees living longer, more active lifestyles, sound financial planning is critical. Unfortunately, far too few Americans have adequately prepared for the day they exit the workforce.
With more and more people aging and retiring, and a smaller, leaner workforce paying into social security and private pension plans, the future of government and company-sponsored retirement options are uncertain, at best. Even if Social Security remains viable and fully funded, the benefits you receive will not be enough to fully fund your retirement.
As pension plans grow weaker (and rarer), and with Social Security’s somewhat uncertain, it’s time to take retirement planning into your own hands. Fortunately, there are many options—ranging from IRAs to investing in real estate—for smart investors to build a solid retirement nest egg.
8 Great Retirement Savings and Retirement Investment Options
Defined Contribution Plans
With a 403(b) or a 401(k), you’re in charge of your destiny. A 403(b) is a tax-sheltered annuity plan for eligible employees of schools or certain nonprofit organizations. Employers who set up 403(b) accounts for their employees arrange for elective deferrals (pre-tax contributions that are withheld from your paycheck) or non elective contributions (employer contributions to your account that are not made under a salary reduction agreement). A 401(k) is a qualified profit-sharing plan that allows you and/or your employer to contribute a portion of your wages to the account.
Never, ever walk away from free money! Many nonprofit organizations and for-profit companies offer matching contribution programs as an incentive for developing healthy savings habits and retirement planning strategies. In some cases, once you have retired, these accounts may be eligible to be rolled over into self-directed IRAs. Be sure to take advantage of these incentives. The earlier you begin saving, the faster your money will grow, and the better off you’ll be moving into retirement.
If you have a pre-tax plan in place, a Roth IRA is a great way to round out your portfolio. With a Roth IRA, you’re contributing after-tax dollars (up to $5,5000 or $6,000 per year, depending on your age), and although you’ll receive no tax deductions for your contribution, the money you earn grows tax-free. If you wait until age 59 1/2 before withdrawing from the fund, you won’t pay taxes on the money. Nor is there a mandatory withdrawal clause at age 70 ½ as there is with a regular IRA. If you’re single and make less than $117,000 (or are married and make less than $184,000) you can contribute to a Roth IRA.
Unlike a Roth IRA, where income limits exist, anyone can contribute up to $5,500 per year to an IRA and up to $6,000 per year if you’re over 50. You can contribute to both an IRA and a 401(k), but if you have a defined contribution plan, you can’t deduct your IRA contributions from your taxable income. Traditional IRAs are great retirement savings options for high-income earners. They are, however, subject to mandatory distributions at age 70 ½.
A self-directed IRA is an individual retirement account with a twist. Unlike traditional IRAs, which limit investing opportunities to the more traditional stocks, bonds, and mutual funds, a self-directed IRA puts you in the driver’s seat, allowing you to invest in real estate, private equity, and even in precious metals, while enjoying the asset protection and tax advantages of a standard IRA. By using your self-directed IRA to invest in real estate or other investments, you may be able to defer until retirement any tax consequences that could result from the interest or profits you receive from your investment. Investors should know that many retirement plans including Traditional IRAs, Roth IRAs, SEPs and even Retirement Health Savings Plans can be set up to be self-directed.
If you feel you haven’t saved enough through traditional retirement options and your retirement age is fast approaching, investing in real estate may be an excellent option for high earners or for those with some capital to spare. Experienced investors can navigate real estate markets independently, work with private capital management companies, or instruct their self-directed IRA custodian to invest on their behalf.
If your company offers a pension, by all means, take advantage of it, but don’t count on it! Typically all you need to do is to remain on the job long enough to qualify for the plan and then retire from the company. However, as the job market becomes increasingly fluid and younger workers move from employer to employer, pensions aren’t what they once were.
While municipal and government workers still commonly enjoy pensions, the practice is growing less and less common in corporate environments. As with Social Security benefits, however, you shouldn’t count on your pension to see you through a comfortable retirement. In many cases, the amount you receive at 65 is the same amount you’ll receive at 99, regardless of inflation.
A simplified employee pension is perfect for entrepreneurs, small business owners, and for those who are self-employed. You can contribute up to 25% of your 2016 income (up to $53,000 whichever is less).
Guaranteed Income Annuities
If you’re looking for a guaranteed income flow with little risk, an annuity may be the way to go. An annuity is an insurance product that allows you to invest today and receive a guaranteed income stream upon retirement. There’s no annual contribution limit and they provide tax-deferred growth of earnings; however, management fees may be high and penalties may be steep.
If you’re an accredited investor, have a net worth of $1 million or more, or have a gross income greater than $200,000, contact Canopy South Capital Management to learn more about building a strong and diverse real estate portfolio that will see you through a long and active retirement. Canopy South does not offer legal advice or financial planning.
For these services, you should consult your professional advisers. However, we are offering suggestions for you to consider for discussion with your advisers. We also work with professional self-directed IRA administrators who can advise you about these options and help you establish such accounts.
Please contact us and we will be happy to connect you with these resources.