Which way out of Dodge?

The stock market went berserk on Monday, August 24, 2015. Stock values tumbled (including a 1,000—point drop in the Dow Jones Industrial Average), building on the market’s worst week in four years. Analysts, brokers and investors felt like they’d stepped into the OK Corral for the big fight.

For individuals working hard to save for retirement, and looking at their 401(k)s or other retirement plans, they may be wondering, “Which way out of Dodge?” Is it a shift to equities? Bonds? Asset reallocation? Stay the course or change investment course? All good questions to ask.

It might not be a question that owners of self-directed retirement plans are asking, however. That’s because they are likely to be investing in a passel of alternative assets instead.

Nontraditional Investments

Of course, everyone’s individual financial and investing picture is different, depending on age, investment strategy and knowledge, earnings, tax bracket and more. But investors who are self-directing their retirement plans have many more types of nontraditional investments they may include in their plans. And at a time when stocks are on a downward trajectory (or uncertain, at best), including certain hard assets in a retirement plan can keep that plan from getting caught in the crossfire of a roller coaster market.

Do you already know and understand real estate investing? Do you already invest in precious metals? Include foreign or domestic real estate, or investment-grade gold or silver bars in a self-directed IRA. Including alternative assets in your self-directed plan enables you to broaden your retirement savings strategy and steer clear of sharp market shifts like the one we saw the other day. Heck, you can even include livestock or have your IRA buy shares in a ranch.

Need more information about how to keep your retirement plan out of Wild West territory?

Contact one of Next Generation Trust Services’ knowledgeable professionals who can answer your questions about self-direction; they’re at (888) 857-8058 or Info@NextGenerationTrust.com.

You can also rope this white paper that has lots of helpful information about this retirement wealth-building strategy.

You can’t get there if you don’t know where you’re going. That adage can easily apply to your retirement plan and your savings /investment strategy.

First things first: how’s your financial literacy when it comes to saving for retirement? Writer Selena Maranjian of Motley Fool offers a simple financial literacy quiz to take and ponder.

The bottom line is, we all have to be savvier about managing our money and saving for retirement, including those individuals who are self-directing a retirement plan, which may include many types of alternative assets.

Whether you’ve already opened a self-directed IRA or are thinking of doing so, here are some questions to ask yourself, to give you an idea of how to direct your retirement strategy.

What is my net worth?

Take into account all your assets (cash, savings and investment accounts, home, car and other possessions); subtract your total debt (all loans, credit card balances, etc.) to arrive at this figure. Depending on where it is today, will help you determine how aggressive you need to be about saving and investing to reach your goal.

Which should take priority—paying off high-interest rate debt or saving for retirement?

Talk to your financial planner about your overall financial picture; chances are, it will be wiser for you to tackle the high-interest rate debt first, which costs you so much more over time. Just as compound interest can help you build up assets, the interest on credit cards adds up big time and eats into your disposable income (that can be diverted into your self-directed retirement plan). Paying off this debt first will free you up later to save more for retirement, with less to worry about.

When’s the best time for me to start saving?

As soon as you can and often! Millennials, take heed—there’s no time like the present for starting to save, even if you are trying to establish yourself, become independent, have student loans to pay … there’s always a way to put a little bit of money aside and get into the retirement savings habit. The younger you are, the longer your savings time horizon. The Motley Fool author offers this example: If you save and invest just $5,000 per year, and it grows at 10% annually, it will become $315,000 in 20 years. Over the course of 40 years (assuming you start saving this amount in your 20s), it would be … wait for it … $2.4 million!
Can’t be that ambitious just yet? She also says that if you put away just $1,200 at age 18 and it grows at 10% for 47 years until age 65, it will top $100,000. The main point: your earliest dollars have the most growth potential.

How much money will I need to accumulate for retirement?

This is a subjective issue and we always recommend you consult with a financial advisement professional about your particular needs and issues. There’s a lot to consider! You will want enough money to cover all your regular living expenses; to pay for hobbies and interests, such as travel, that cost money to enjoy; and there are unforeseen (and potentially enormous) medical expenses in the future. There’s also inflation to consider and you may not be able to rely on having some Social Security income. Depending on how much you estimate you’ll need (or want) for annual income in retirement, multiply that by 25 to determine the size of your nest egg, since the average length of retirement years is now about 25 years (we are living longer).

Which grow fastest over long periods of time—stocks, bonds or real estate (the most popular self-directed alternative asset)?

Stocks grow much more quickly than bonds over time if the companies are healthy and market conditions are stable—but the market fluctuations leave a lot of investors struggling to keep up.

If you are self-directing your retirement plan and are including nontraditional assets such as real estate, the picture changes dramatically. We all know the housing market has experienced serious setbacks in recent years but depending on your investing timeline, holding onto smart real estate investments can help you develop real tax-advantaged retirement wealth. For certain savvy investors, including real estate in a self-directed retirement plan can be a great way to build up your retirement nest egg.

The professionals at Next Generation Trust Services can answer your questions about including domestic or foreign real estate in your self-directed IRA and you can read more in our helpful white paper.

Have a question?

Contact us at Info@NextGenerationTrust.com or (888)857-8058 today!

Baby boomers who are reaching or have reached retirement age can look forward to about 20 years (or more) in retirement.

According to the Social Security Administration, one quarter of Americans who are age 65 today will reach age 90, and 10 percent will live past age 95. That’s a lot of time for enjoying hobbies and interests, perhaps a second part-time career or side job, and more. But how will you pay for all of that? Do you have the retirement savings necessary to live off those funds comfortably?

Some people stumble along the path to retirement with these avoidable blunders:

Failing to Plan for Retirement

Have you ever heard the saying, “Failing to plan is planning to fail?” It surely applies to your retirement savings. Start thinking about this early in your working life; open an IRA, take advantage of an employer’s plan, and work with a financial planner or tax professional to create a road map for a comfortable retirement.

Planning also means thinking about your retirement cash flow—how and where you will get and spend your retirement money. Revisit your road map periodically and make course corrections along the way to ensure you are being aggressive enough to meet your retirement goals. In addition, factor in the erosion factor inflation plays—today’s dollars won’t buy as much in 20 years and inflation needs to be calculated into your cash flow scenario.

Failing to Save Adequately for Retirement

Be diligent and disciplined about funding your retirement plan; even small, consistent contributions add up over time. If there are luxury or discretionary expenses you can forego now in order to save more, think about the long term (and give up some goodies in the short term if necessary). If you are self-directing your IRA or 401(k) you can boost the power of those contributions through nontraditional investments that may perform better than stocks, bonds or mutual funds. Find out if your employer offers a 401(k) match and if so, be sure to make the necessary contributions to meet that.

Dipping Into Your Retirement Account Too Early

There are certain needs for which you may take an early withdrawal from your IRA (such as higher education or first-time home purchase) but it’s always best to allow those funds to continue to build. Compound interest on certain instruments grows over time and of course, in self-directed retirement plans, alternative assets—such as real estate or commodities—may need a longer time horizon before paying off as desired.

Jumping Into “Hot” Investments vs. Maintaining a Cool Head

Rather than jumping into today’s hot stock or “can’t lose” investment, take a more studied approach to your retirement plan. Self-directed account holders have more latitude about the investments they can include, and therefore, are less subject to the vagaries of an unsteady market. Rather, they are doing the research necessary to make smart investment decisions regarding a wide range of alternative investments they may include in their plans. At Next Generation Trust Services, we strongly encourage our clients to thoroughly research their target investments and really understand what they’re about.

Taxable vs. Tax-Free Retirement Money

Depending on which type of retirement plan you choose, the funds are either taxed going in (Roth IRA) and grow tax free, or grow tax free and are taxed upon distribution (Traditional IRA). Both of these types of retirement plans may be self-directed. Be sure to discuss your tax strategy around these with your trusted advisor so you are on the right route for retirement.

Forgetting Those Health Care Expenses

As we’ve written about before, many people don’t take into account the high cost of health care over a long retirement period, even with Medicare and other medical insurance plans. There’s plenty that isn’t covered, so factor in this retirement expense when you are contributing to your self-directed retirement plan or self-directed HSA (for those with high-deductible health plans).

Filing Too Early for Social Security

If you can wait until you reach full retirement age before taking Social Security benefits, you’ll be better off over the long run. Taking benefits as early as age 62 (which is allowed) will yield a lower monthly amount for life vs. waiting until full retirement age (66 for those retiring in 2015). If you can wait even longer, until age 70, you’ll enjoy a higher benefit if you delay ‘til then. This is another reason why building a robust retirement account is so very important—besides the fact that it seems the Social Security Trust Fund is in continuous danger of being depleted.

Don’t trip on the road to retirement!

Unlock the secrets to retiring rich

Plan ahead, plan early and contribute often, and—for those who are self-directing their retirement plan—make wise investment choices that you know and understand. Our helpful professionals at Next Generation Trust Services are here to answer any questions you have about self-directed retirement plans and to ensure your nontraditional investments meet IRS guidelines.

Contact us at Info@NextGenerationTrust.com or (888) 857-8058; or, for those of you starting out, check out our road map on self-directed IRAs.

As you know, self-direction means being able to include many more types of assets in your retirement plan. Of course, you may self-direct your stock, bond, mutual fund, or Treasury bill investments (do your homework before sending instructions to your plan administrator); but for investors who understand various commodities markets, you can also include these alternative assets in your self-directed retirement plan.

What Are Commodities?

Commodities are raw materials that are mined, grown and used in construction and manufacturing, and they are traded on different types of markets. Investors may own the physical commodity itself or shares in its resource producers (or a combination of both). Including commodities in your self-directed retirement portfolio is a great way to diversify your holdings if you truly understand these types of assets and have the risk tolerance needed to be a commodities investor.

Commodities that you can invest in break out into a few categories:

• Agricultural/consumer – if it is farmed, harvested and later consumed by the public, it might be an investable commodity. Think coffee, sugar, tea, wheat, soybean, cotton, corn and cocoa.
• Energy – natural gas, heating oil, light crude oil and unleaded gas.
• Metals – we have written before about including investment-grade precious metals in a self-directed retirement plan. There are guidelines around the types of metals you may invest in through self-direction (gold, silver, platinum, palladium in bullion bars, some coins). See this post for more information.
• Meat and livestock – hogs and cattle are typical; however, you might include shares in an alpaca farm as something different.

The agricultural commodities markets were relatively strong in June, according to data compiled by CNN Money (https://money.cnn.com/data/commodities/). In the agriculture/consumer sector, wheat, corn, cocoa, cotton, coffee and soybeans showed strong gains. In the energy sector, natural gas showed strong gains that month.

If you are already investing in alternative assets, know and understand them, and want to build a more diverse retirement portfolio, contact our knowledgeable professionals at (888) 857-8058 or Info@NextGenerationTrust.com for a free consultation on how to include these nontraditional investments in a self-directed IRA.

Some good news has come out of the Investment Company Institute (ICI) from its year-end 2014 estimates regarding retirement asset accumulation – it turns out, U.S. workers are not doing quite as badly in terms of building up their employer-sponsored retirement plans and IRAs.

The ICI compiled data from financial, retirement and government sources (including Federal Reserve Board, Dept. of Labor, IRS and others). According to its report (https://www.iciglobal.org/research/stats/retirement/ret_15_q1) U.S. retirement assets at the end of last year totaled $24.6 trillion, a six percent increase over 2013, a trend that’s been consistent over the past ten years with the notable exception of 2008 (the Great Recession).

The $24.6 trillion includes assets in IRAs, defined contribution plans, private-sector and governmental defined benefit plans, and annuity reserves. What’s even more impressive about this figure is that it’s $10 trillion higher than what was calculated in 2005. Nice work, everyone!
The largest portion of these assets are in IRAs ($7.4 trillion at the end of 2014). The ICI report showed steady growth in total IRA assets every year (except the infamous 2008).

How does your IRA stack up?

You can build a more diverse and potentially more lucrative retirement portfolio through self-direction. A self-directed retirement plan can include many types of nontraditional investments such as real estate, commodities, precious metals, shares in many types of investments (from race horses to Broadway shows) … the list goes on.

If you are already investing in alternative, non-publicly traded assets and understand those investments and markets, and you are interested in making your own investment decisions, we have some good news: you can bolster your retirement savings by opening a self-directed retirement account. (You may even be able to self-direct a 401(k) plan if your employer allows it.)

More good news for self-directed investors

The professionals at Next Generation Trust Services are here to answer any questions you have about self-direction as a retirement wealth-building strategy, and our website offers many helpful resources and tools to help you get started. Read up on the types of retirement accounts you can self-direct (the answer is “all”).

Browse through our Starter Kits or contact us at Info@NextGenerationTrust.com or (888) 857-8058 and start making some of your own good news with your retirement portfolio!