There is no one-size-fits-all method for growing a retirement portfolio. Everyone, myself included, experiences their own unique financial situation and path to retirement. Others may choose to never retire. It’s for these reasons that retirement portfolios often incorporate a variety of diversification and tax strategies rather than a single approach. For those who wish to retire, here are seven perspectives from financial institutions for increasing retirement funds.
1. Take Advantage of Your Employer’s Retirement Plan.
The U.S. Department of Labor recommends signing up for a workplace retirement plan, such as a 401(k), and maximizing your contributions. According to the Labor Department, “Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate.”
If you follow this advice, you may also wish to pay attention to how long the plan must stay in place. Is there a vesting schedule to consider? As the IRS notes, in some cases, “Each employee will vest, or own, a certain percentage of their account in the plan each year. [At a certain year of employment,] an employee is 100% vested in his or her account balance [and] owns 100% of it, and the employer cannot forfeit, or take it back, for any reason.”
As someone with more than one 401(k) as part of my retirement portfolio, I can tell you that vesting date is vital to consider when planning for retirement because “amounts that are not vested may be forfeited by employees when they are paid their account balance,” according to the IRS.
2. Capitalize on Your Employer’s Matching Contribution.
Companies that offer retirement plans may also provide matching contributions.
The IRS explains that matching contributions are those an employer makes to an employee’s retirement plan whenever an employee contributes part of their salary to that plan. Matching contributions do not reduce the amount an employee may contribute from their salary and can grow tax-free while in the plan.
Here’s an example of a matching contribution: An employer states that they will match up to 50% of an employee’s contributions to their workplace retirement plan, up to 5% of their salary. If the employee makes $30,000 a year and adds $1,200 to their retirement plan, the employer would then add another $600 in matching contributions.
If you have signed up for your employer’s retirement plan and they offer a matching contribution, financial services provider Merrill suggests that you allocate enough money to capitalize on the match. “It’s essentially free money. Don’t leave it on the table,” Merrill notes.
3. Open an IRA.
The Labor Department points out that individuals may contribute as much as $6,000 a year (or $7,000 for individuals age 50 and older), as of 2022, to an individual retirement account (IRA). There is no limit to the number of IRA accounts a person can have if contributions stay within the annual limit across all IRAs.
Two main types of IRA are available:
- Traditional IRA: Contributions to a traditional IRA may be partially or fully tax-deductible, based on the account holder’s filing status and income, according to the IRS. Generally, money in a traditional IRA (including gains and earnings) is not taxed until it is withdrawn from the IRA.
- Roth IRA: Although contributions to a Roth IRA are not tax-deductible, eligible withdrawals may be made tax-free, the IRS says.
“IRAs can provide an easy way to save,” the Labor Department emphasizes.
Remember that either a traditional IRA or Roth IRA can serve as a precious metals IRA. This variety of IRA lets you diversify your IRA with gold, silver, and other alternative assets such as real estate, adding additional levels of protection to your retirement portfolio.
4. Allocate Catch-Up Contributions.
If you’re coming closer to retirement and worried that you haven’t contributed quite enough to your retirement accounts, there are special allowances that may help you reach your goal. Those 50 years of age or older may make catch-up contributions to retirement plans like 401(k)s or IRAs. Merrill states that catch-up contributions enable near-retirees to exceed the normal contribution limits set for people under age 50.
For 2022, the catch-up limit for 401(k)s and similar plans is $6,000. For IRAs, the 2022 catch-up cap is $1,000.
5. Automate Retirement Savings.
Forbes Advisor highlights a set-it-and-forget-it approach to saving for retirement—automatic deposits to a 401(k), an IRA, or another retirement plan. These deposits could be weekly, biweekly, or monthly, for instance.
“Not only does this [method] keep you from having to take the time and energy to buy [assets] every month or week, but it also prevents you from spending money you’d rather save,” Forbes Advisor says.
There’s one caveat to automatic contributions—the deposits may not stop before annual contribution limits are reached, which could result in additional taxes.
6. Consider Rental Property.
One alternative to traditional retirement savings is having rental property.
The Balance, a personal finance website, emphasizes that rental property can be an excellent retirement portfolio-building mechanism for those who have experience in real estate or who are willing to spend time learning the business. The Balance notes, however, that rental properties should be treated as a “get-rich-quick affair.”
The Balance continues by saying, “There will be maintenance costs and unexpected expenses to account for. Before you buy a rental property, you should calculate all the potential costs you may incur over the expected time frame you plan to own the property for. You also need to factor in vacancy rates—no property will be rented 100% of the time.”
7. Research Precious Metals.
Equity Trust—a self-directed IRA custodian specializing in gold and other precious metals—writes that “many people choose to diversify their retirement portfolios with [holdings] in gold and other precious metals, which may help guard against high inflation and economic uncertainty.”
Forbes acknowledges that “while gold, silver, and palladium are subject to their own forms of volatility, many believe them to be superior long-term [asset] choices for retaining and growing [wealth].” This includes myself—I enjoy holding precious metals in an IRA as a form of insurance again market uncertainty.
There are many ways to grow your retirement portfolio, but it can take time and research to discover which avenues are right for you. This article should serve only as a starting point—but no matter what your retirement goals are, you have many options you can pursue to help secure a more comfortable future for yourself and your loved ones.
Everyone’s path to growing their retirement funds looks different. Some portfolios include more stocks and other paper-based assets, while others are filled with tangible alternative assets like precious metals. What will your retirement look like? Call U.S. Money Reserve to learn how precious metals can help you diversify and grow your retirement portfolio.