IRAs, 401(k)s, and something called a defined benefit plan? So many types of retirement plans, so little time! If you're wondering which plan is right for you, you're on the right track. Most people don't know how much they need to save or how to go about it in the first place, and more than “60 percent of Americans have no savings in retirement accounts like 401(k)s or IRAs,” reports Business Insider.
But not you. You're going to learn how to choose the best retirement plan for you and your loved ones with these simple tips from U.S. Money Reserve.
Tips for Choosing the Best Retirement Plan
1. Don't count on Social Security alone
First, don't assume that your Social Security check alone will afford you a comfortable retirement. Social Security is far from secure.
“The program, as it stands, is expected to be depleted in the 2030s,” says MarketWatch. It was originally designed as a safety net, but now “a great many Americans are relying heavily on Social Security to maintain their lifestyle in retirement.”
But what kind of lifestyle? Forbes reports that “the maximum monthly Social Security benefit for those retiring at full retirement age is a mere $2,687; the average payment is about $1,360 for all retirees, or less than $16,000 a year.”
Take a look at your monthly income and the expenses you anticipate maintaining into retirement. How does this amount compare to the average Social Security payment? For a more precise picture, sign up for a “my Social Security account” to see your Social Security statement and estimate your future retirement benefits.
2. Know your options
Aside from Social Security, there are a variety of retirement plans available to most Americans. Some put you in total control of the asset mix, others don’t. Some tax your contributions, others tax your withdrawals. The best retirement plan for you will depend a variety of factors, including your income level, workplace benefits, personal preferences, and how close you are to retirement. Keep in mind that you can contribute to multiple retirement accounts and they can work in parallel to secure your retirement dreams.
Individual Retirement Accounts
IRA stands for Individual Retirement Account. There are a handful of different types of IRAs, but in general, an IRA is like a basket that holds stocks, bonds, mutual funds, and the like, until you’re ready for retirement. These plans make up the bulk-load of retirement savings plans.
The IRS has set limits on how much you can contribute to an IRA each year, how the funds are taxed, and when you can deposit or withdraw funds.
An IRA might be right for you if…
- You want some control over the asset mix. You choose the financial institution and the asset mix (within the IRS's limitations). A Self-Directed IRA allows you to choose the asset mix, while Roth and Traditional IRAs have less flexibility. However, overall IRAs offer more choices than many workplace retirement plans.
- You want to decide how and when you get a tax break. With a Traditional IRA, deductible contributions lower your tax burden the year you make them. With a Roth IRA, your distributions in retirement aren't taxed.
- You don't want your retirement plan tied to your employer. You can have any type of IRA (Roth IRA, Traditional IRA, Self-Directed IRA, etc.) at any financial institution of your choosing. If you change jobs often, you don't have to worry about rolling your IRA from one employer to the next since it’s not tied to your employer!
For even greater control and choice, consider a Self-Directed IRA. You pick the stocks, bonds, and other traditional assets you buy, but you can also purchase real estate, certain precious metals, franchise businesses, and more with a Self-Directed IRA. Self-Directed IRAs can be set up as Traditional IRAs or Roth IRAs, so you can still decide when and how you get a tax break.
More and more soon-to-be-retirees are limiting their exposure to paper assets and turning to Self-Directed IRAs backed by the power of physical gold. Download U.S. Money Reserve’s free Gold IRA eBook to find out why.
Employer-Sponsored Retirement Plans
Sixty-six percent of nonunion workers have access to retirement benefits, reports the U.S. Department of Labor, mostly in the form of defined contribution plans.
Defined contribution plans, like a 401(k), specify how much money will go into a retirement plan. Employers set up these plans and enable employees to contribute to an individual account within the company plan, usually via a payroll deduction. Based on the employee's contribution, the company may contribute to the account too (e.g. they may match up to 6 percent, match 50 cents-on-the-dollar, etc.).
Around 4 percent of lucky Americans in the private sector still have access to defined benefit plans, or pension plans, in their workplace, says CNN Money. In the “good ol’ days,” a company would put money into a single retirement pool and guarantee workers a set retirement benefit based on their years of service and average salary. While these plans traditionally guaranteed a set payout upon retirement, most modern versions no longer do so, reports NerdWallet.
Soon-to-be retirees with state pensions shouldn’t be too hopeful either. Many of these “pension plans do not have enough money set aside to cover all the future payouts promised to current workers,” adds CNN Money.
Consider a workplace that offers an employer-sponsored retirement plan if…
- You don't mind giving up some control. Funds can be put into a variety of stocks, bonds, mutual funds and similar conventional assets, but not physical gold or silver, real estate, or other alternative assets. The quality and type of assets available for inclusion depend on the employer.
- You want higher contribution limits. The contribution limits for employer-sponsored plans are often higher than the limits for IRAs.
- You plan on staying with this employer for a while. Employer-sponsored plans are tied to the employer. If you change jobs, you'll likely have to move or change your retirement plan too.
3. Boost your financial awareness
Do all of these retirement plans sound equally great to you? Invest in your own financial literacy to truly choose the best retirement plan, keeping in mind that multiple accounts can work in parallel for a successful retirement. The following tips will help you get started:
- Set a goal. How much do you need to save for retirement? A retirement “plan” is only as good as the “goal” it's helping you reach. Use a retirement savings calculator (like Kiplinger's) to figure out how much money you really need to retire. In many ways, different retirement plans are like different routes to the same destination.
- Calculate your contributions. With your end goal in mind, calculate how much you'll need to contribute annually to reach it. Annual contribution limits vary by plan, with IRAs typically having a lower contribution limit than 401(k)s and other employer-sponsored plans.
- Know your tax bracket. Some retirement accounts may not be available to you if you make more than a certain amount of money. For instance, for 2018 contributions you must earn less than $120,000 to fully contribute to a Roth IRA.
Work towards your goal! Open your account and chart a path towards success with the best retirement plan (or plans) for you. Save early, often, and consistently to set yourself up for a better financial future.
4. Keep your eye on the prize
Markets go up and down. Employers cancel benefits. Emergency expenses come up! In a world where uncertainty may be the only certainty, there's no cookie-cutter response to the question, “What's the best retirement plan?” It depends on you and you alone.
“The responsibility to fund [y]our own retirement rests squarely on [y]our shoulders. Regardless of whether an employer provides a defined plan or not, we need to ensure we are funding an appropriate retirement plan in some capacity,” advises Jamin Armstead of Dishon Financial.
A 401(k) isn’t the only route to a better financial future. Neither is a Roth IRA. When you’re in charge of your retirement (and you are) there’s no limit to how well you can set yourself up financially.
At U.S. Money Reserve, we can help you understand how a retirement plan, strengthened by the power of precious metals, can help you achieve your financial goals. Now is the time to request U.S. Money Reserve’s exclusive Precious Metals IRA Kit. Learn more about Self-Directed Precious Metals IRAs today and unlock the information you need to secure your retirement! Call 1-844-307-1589 to speak with a dedicated IRA Account Executive today.