Are You Financially Ready for Retirement?

Breaking Down the Options:

 

One thing everyone has in common is that they will eventually retire and need the financial resources to care for themselves. Retirement accounts can be a great way to protect oneself from financial difficulties later in life, but exactly how does one go about investing? In today’s volatile and unpredictable economy, it is even more important to secure one’s financial future. The options available to investors, however, can seem overwhelming. Fortunately, it doesn’t have to be. With a little information, it is possible for anyone to make sounds financial decisions and fortify their future.

There are several retirement options that can be used for investors. Although each is ultimately similar, there are subtle differences that need to be taken into account before investors jump in. This is in no means a complete explanation of the merits and drawbacks of each plan; however, it does provide an informational place to start. The most common investment options include:

Traditional Individual Retirement Accounts (IRAs):

Most people are familiar with the concept of an IRA, but exactly how does it work? IRAs are investment plans that allow for tax-free investments up to a certain level. For individuals under 50 years old, the maximum annual of deposit is $5,000. That number jumps to $6,000 after age 50. Although money isn’t taxed going in, it is hit by Uncle Sam going out. In addition, investors must wait until the age of 59 1/2 to withdraw money without penalty. A withdrawal before that date will result in a 10% fine and tax obligations. Investors must begin making withdrawals after the hit age 70 1/2, and cannot make any additional contributions. An early withdrawal can be taken without penalty during certain life events, including buying a first house, paying for qualifying medical expenses, or losing a job.

Many IRAs are self-directed, meaning the investor can choose where his/her funds go. Without this ability to self-direct, investors are forced to accept the decisions of the IRA trustee or custodian. A benefit of self-directed IRAs is that investors are allowed to diversify their portfolios with assets other than bank CDs, stocks, or mutual funds.

Roth IRAs:

Roth IRAs are very similar to traditional IRAs. The primary difference is that contributions to a Roth account are taxed going in, and tax-free coming out. Contributions don’t ever automatically trigger, regardless of the age of the investor. In addition, investors can continue to make contributions after the age of 70 1/2. Finally, most Roth IRAs contain fewer withdrawal restrictions than do traditional IRAs. As long as the account has been in existence for over 5 years, withdrawals are not penalized. Not everyone qualifies for a Roth IRA, however. For an individual, the annual adjustment gross income must be below $107,000; AGI for a joint account must be under $169,000.

401(k) Accounts:

An IRA account is individual-driven, while the 401(k) account is employer-driven; they are a popular investment vehicle for many companies. Most 401(k) contributions are taken out of a paycheck before the employee even sees it, making it an easy way to invest. Unlike an IRA, which is based solely on the investor’s contributions, many employers offer excellent contribution matching programs that allow employees to maximize their investment opportunities.

Unlike other accounts, 401(k) funds to not have to be withdrawn at a certain age, although they can be withdrawn without penalty after age 59 1/2. As long as an employee continues working for the company that set up the account, contributions can continue. One of the drawbacks of 401(k) accounts is that investments are often limited to the vehicle the company sets up.

SEP-IRAs:

For self-employed people or those owning extremely small businesses, the Simplified Employer Pension (SEP)-IRA may be the way to go. These IRAs follow the same rules and regulations as traditional IRAs. SEP-IRAs allows employees to invest up to 20% of net self-employment income or 25% of W-2 wages. It should be noted that 401(k) plans are also available to small businesses or self-employed individuals.

Precious Minerals IRAs:

Many people incorrectly believe that retirement accounts must be based on stock market investments. What people don’t realize is there are other options for your accounts, including investing in precious metals. Unlike stocks, which are at the mercy of an unpredictable stock market, gold and other precious metals are a solid, tangible asset that will not lose value.

There are several avenues of precious metals investment, including purchasing actual physical metal or investing in a variety of claims like future contracts and exchange traded funds (ETFs).
The instability of the economy has made investing in solid and predictable assets a popular alternative to traditional investments. Both IRA and 401(k) accounts can be used to purchase precious metals. IRA accounts may need to be rolled-over into a Precious Metals IRA, depending on the restrictions of the current plan.

 

By Jamee Larson