It is a major goal of sound financial planning to have a solid retirement plan. Financial experts have different views regarding the amount that an individual needs to save in order to lead a comfortable life after retirement, but all agree on the simple fact that it is imperative to set some amount aside for retirement savings.
There are several different avenues through which one can realize one’s retirement saving goals. Individuals often have the option of employer-sponsored saving programs such as 401(K) and 403(b) schemes, while individual retirement saving options are available in the form of traditional IRAs, Roth IRAs, or a combination of both.
In addition to these dedicated retirement saving options, individuals can also consider real estate, brokerage accounts, and annuities to reach their retirement saving goals.
Brokerage Accounts
When conventional retirement savings plan like 401(k)s and IRAs fail to provide the desired results, then alternative saving instruments like brokerage accounts can be very useful. It is true that brokerage accounts do not carry the same tax deferrals as traditional instruments but they do have some alternative benefits.
Brokerage accounts offer better flexibility and a wider range of investment options compared to the traditional saving opportunities. With brokerage accounts, you can select individual stocks, exchange-traded funds, mutual funds, money market funds or certificates of deposits, from among the many options.
Stocks, exchange-traded funds, and mutual funds are more aggressive in nature and in turn offer larger returns on the investment. But if you desire more stability in your portfolio then money market funds and certificates of deposits are much better options.
Brokerage accounts can be acquired through licensed brokers, credit unions, and registered financial advisers, and investors are increasingly opening brokerage accounts online for its ease of use and low fees.
Tax-Deferred Annuities
Annuities can be very effective in helping you reach retirement saving goals. Annuities carry tax incentives along with a variety of investment options that can be highly effective in the long run.
Annuities are usually offered by insurance companies to individuals and couples. Insurance agencies offer different types of interest rates on annuities to appeal to a wide variety of consumers. Variable rates that are driven by market performance, fixed rates, and indexed interest rates are all available.
Funds invested in annuities are usually tax-deferred at the time of investment but become taxable once the funds are cashed in or distributed upon their maturity during retirement. Along with the benefit of tax deferral, investors also get a stable stream of income for a specific number of years or for life.
It must be noted that annuities may not be the perfect investment option for all investors and are usually dependent upon the insurer’s ability to pay. There have been several cases where the issuers of annuities have been misrepresenting them to customers simply to earn the higher commission they offer.
Real Estate Investment
Most investors with a 401(k) or IRA can invest in real estate through ETF (Exchange Traded Funds) or mutual funds.
Real estate investment trusts (REITs) are very cost effective, stable, and provide a good return. By buying a REIT, investors gain access to a diversified investment opportunity through a very cost-effective mechanism.
In addition to REITs, investors can get into real estate directly for the benefits that can be felt during retirement. Like any sizable tangible asset, you could choose to get a title loan in the future to release the equity stored in the propery.
Buying a property provides investors with a tangible investment that can be sold, rented, or used personally during retirement. If the real estate is managed smartly it can generate ongoing rental funds while providing the investors with a highly appreciating asset that can be sold in retirement. The shortcomings in real estate investments are higher upkeep, expensive maintenance, and risky tenants.
Small Businesses
Investing in small businesses can be a very lucrative retirement saving option. As an investor, you don’t need to associate yourself with the day to day running of the business but can get all the financial benefits by becoming a silent partner.
There is no limit to the level of return you can get from a business, therefore compared to the conventional methods the small business investments carry the potential for very high returns. But the associated risk in small business investment is also much greater.
Conclusion
We all must make smart financial decisions that ensure that we have something to fall back on in our old age. Retirement saving is an important aspect of an individual’s financial life that is often neglected. Conventional savings options provide a great framework for creating a solid retirement plan but unconventional methods should be explored as well. Acquiring the services of an experienced financial advisor is usually the best course of action that an individual can take when it comes to long-term investments.
I like brokerage accounts because the 0% tax on dividends and capital gains (in the 15% bracket) effectively makes the Roth IRA a negative value tool. That is, you add restrictions unnecessarily for no tax benefit if you are in the 15% bracket.