In this day and age, retirement planning is one of the most dreaded financial exercises that people have to do. You have to combat inflation, save up a certain amount and at the same time, work enough to support your family. Companies and advisors encourage you to save as much as you can for your retirement plan, since the cost of living will only rise.
With the proper information and tactics, people who are close to retirement or those who wish to retire soon, can save a hefty sum by using self-directed 401K plan.
Use Tax Breaks
Traditionally, the IRA gives you a tax break in your working years so that you can save for the future. However, more often than not, you will have to pay income tax on that money and the earnings when you withdraw from your fund. Deciding which type of retirement account offers the best tax breaks is easy, though it needs a little research.
As a soon-to-be retiree, compare the current income tax rate to the one you expect to pay when you will retire. If the expected rate is higher than the present one, then it would be wise to pay off the taxes upfront. However, if the expected rate is lower, then it means you can save it money in a traditional IRA and take the next available tax break.
Opt for Flexibility
Traditionally, people are required to take a certain sum out of their retirement plans and pay the resulting tax, each year. These are called RMD’s (Required Minimum Distributions). Those who do not take the mandatory distribution will be made to pay a fifty percent penalty on the amount that should have been withdrawn. However, those who have a Roth IRA account are not required to take any distributions, which ends up giving you more room to maneuver. This means that you can have more flexibility when it comes to your withdrawals as well as pass on your money tax-free, to heirs.
Aim Low in Investments
It is highly unlikely that someone will have complete control over the returns in an investment. You do, however, have control over how much you invest, and where. Rather than investing a lot in a single investment project, it would be wiser to compare the expense ratios of similar funds before deciding on a long-term investment.
Utilize Social Security
A high percentage of people are saving money for retirement through their social security plans. The amount that you will be awarded after retirement is based on the qualifying years of employment. However, this does vary, depending upon the age at which you started working. Usually, if you wait until the age of 70 instead of opting in at 62, you social security income will be much greater.
The Option of Annuities
Annuities are a long-term contract between you and an insurance company. The monies you send to the insurance companies are called premiums. There are many options to fund an annuity and there are many types of annuities to consider. You can put a single larger sum of money in or your can contribute over time.
Annuities have changed considerably from “the old days” when they had a bad rap. Equity Indexed Annuities are relatively new – meaning 20 years approximately. There isn’t time here to explain all the complexities of an EIA. Suffice to say, the primary goal is protection of your principle (meaning the insurance company will guarantee you will not lose a dollar), and hopefully earn some money in the meantime. They are not designed to hit a “home run” but rather a safe place to put “some” of your retirement assets.
There are other types of annuities such as variable annuities or VA’s. The word variable means just that, your annuity value can vary depending upon market conditions. There are “riders” offered in variable annuities for an extra fee which will guarantee your principle. VA’s are not for the faint of heart.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning company based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last ten years has turned his focus to self-directed ira accounts and alternative investments. If you need help and guidance with traditional or alternative investments, call him today (866) 639-0066.