Retirement Savings with Your Future in Mind
Saving for a big ticket item like a car is relatively easy—you determine what kind of car you want, how much you want to spend and then you start saving. Saving for retirement is much more challenging. For instance, how long will you need the money? Since no one knows how long they will live, answering that question and undertaking the necessary savings needed to retire successfully can be tough.
According to the Society of Actuaries, people are living 10 percent longer than they did 20 years ago. Men who reach the age of 65 can be expected to live to an average age of 86.6 and women to 88.8. And, those are only averages. Online longevity calculators such as the Actuaries Longevity Illustrator may provide additional insight into your potential longevity.
With longer life spans on the horizon, individual investors need to get more aggressive about retirement savings to be able to fund their desired standard of living in retirement and avoid falling into longevity risk. Longevity risk occurs when the individual depletes his/her resources before the end of life. This problem can affect anyone but typically hits widows over 85 because income falls by about one-third after the death of a spouse. However, it can happen sooner than that. According to Social Security Administration data, 14.5 percent of widowed women over the age of 65 live in poverty; as well as divorced women (17.1 percent); and those who never married (23.2 percent).
Longer life, lower investment returns
Consider this: A 35-year-old couple with household income of $50,000 would need to save between 11 percent and 13 percent in pre-tax dollars to maintain their standard of living, while the same couple with household income of $100,000 would need to save between 13 percent and 16 percent.
Since investors are experiencing high asset prices on stocks and lower returns on safe assets such as bonds, aggressive savings alone won’t resolve this fiscal challenge. In fact, a consistently low-return environment means the percentage of income a person needs to save to meet a retirement goal needs to increase and also reduces the income a person can expect to receive once that goal is reached. All of this translates into lower expected returns in the future.
If reality bites, bite back
Here are some suggestions to overcome the financial reality:
- Calculate how much income you will need to save for retirement using a lower than expected rate of return. Not sure if you will have enough to retire? Check out CNN’s Money retirement calculator.
- Save more now in order to be able to fund your desired standard of living in retirement. (High earners will need to save even more.)
- Lower the percent you need to save by retiring later. This will reduce the number of years you will have to draw from your nest egg.
- Evaluate your Social Security strategy. You can maximize your Social Security with a delayed benefit claim.
- Self-direct your retirement savings. By taking control of what your retirement savings are invested in, you can maximize your returns.
Self-directed IRAs can provide informed investors the ability to develop a more diversified portfolio that they control. A self-directed retirement plan allows the individual to respond to economic downturns or take advantage of opportunistic (and tax-advantaged) investments with greater flexibility.
At Next Generation, our professionals are available to answer questions about self-directed retirement plans and the alternative assets allowed within these plans, and our transaction specialists ensure that you are investing within IRS guidelines. Since we do not give investment advice, we strongly recommend you consult your trusted financial advisors about your investments and any tax implications they have for your unique situation.
Ways to Keep Your Mind – and Your Investment Portfolio – Sharp During Retirement
Mental and physical activities are important as we get older; they keep our cognition and our bodies in better shape. Crosswords, jigsaw puzzles, and math games keep your brain active. Age-appropriate workouts and fitness classes, hikes and bike rides, even mall walking are ways to keep your muscles toned at any age.
Pushing yourself to stay fit and active in all ways is an important part of maintaining a healthy retirement. The same goes for pushing yourself to build a diverse investment portfolio to maintain healthier finances in your later years. One way to build retirement wealth is to use self-directed IRA’s.
While you’re seeking something new to learn, why not apply that quest for knowledge into researching alternative assets that are allowed in self-directed retirement plans? Through self-direction, individuals make all their own investment decisions and may include a broad array of nontraditional investments within these plans.
The self-directed the planned investment, which is something he or she already knows and understands (and may already be investing in outside of an existing IRA or other retirement plan). The investor sends instructions to the retirement plan administrator, such as Next Generation Trust Services, who then performs a thorough transaction review for asset feasibility, and then processes the transaction on behalf of the account holder.
What you should know about self-directed retirement plans
- Self-directed plans are as varied as your investment interests. Just as you wouldn’t plan a boring retirement, you don’t need to plan a boring investment strategy. The nontraditional investments within these plans may be real estate, precious metals, commodities, private placements, loans or mortgages, and much more.
- Self-directed retirement plans offer the same tax advantages of regular plans. Depending on whether you open a Traditional or a Roth IRA, you’ll enjoy tax-deferred or tax-free growth on your investments.
- All income and expenses related to the asset flow through the plan. You may not use personal funds or benefit personally from the asset; the self-directed IRA or 401(k) pays for all the expenses and income goes to the retirement account—not to the account owner.
- Opening a self-directed retirement plan is easy with Next Generation Trust Services. All the forms you need to get your account open and funded are on our website here. You’ll also find informative videos about various types of forms or accounts to sharpen your knowledge.
As always, our helpful professionals are available to answer your questions about the various types of plans, alternative assets and self-directed transactions available; they can also help you get you started on your way to a potentially sharper financial future through self-direction. Contact us at Info@NextGenerationTrust.com or 888.857.8058.
Live Long & Prosper with a Self-Directed Retirement
This is a great mantra if you are healthy and have planned ahead for your retirement. However, a new Healthview Services report acknowledges that with women living longer than men and the possibility of high health care costs looming in their future, it is more important than ever for women to get serious about ensuring that their retirement plan is in good shape.
Modern-day women are in a unique position. They have longer average life expectancies and typically have lower average lifetime earnings than men. And, while health care costs for men and women are similar during their lifetimes, it’s a fact that women tend to live two years longer than men. This means they will have more years to pay Medicare premiums and other out-of-pocket medical costs.
Other factors to take into consideration:
- Since husbands are often a few years older than their wives, many women may deplete much of their household assets to pay for the care of their spouse. After their spouse’s death, these women may spend their final years alone and with fewer assets.
- Rising divorces rates among older women may reduce available assets in retirement.
More Costs Ahead
Health care inflation and rising medical needs that are all part of aging translate into a stressful reality: Women face more years of health care expenses than men and with greater costs for each additional year of life.
- The report states that healthy women retiring this year at 65 (living to 89) can expect to spend more than $235,000 on health insurance premiums over the rest of their lifetimes, compared to men who are projected to spend $200,000. That figure includes Medicare Part B, which covers doctors’ visits, outpatient services, and Part D premiums for prescription drug coverage. It also considers Medicare supplement insurance and the assumption that health care costs will increase by about 6 percent annually.
- Add other out-of-pocket costs such as hearing, vision, and dental expenses, which are not covered by Medicare, and the total lifetime health care costs for women rises to $314,673, 17% higher than the total health care costs of $267,395 for men.
- An additional challenge will be meeting long-term care needs. According to the S. Department of Health and Human Services, 70% of people turning 65 will require some form of long-term care during their lifetime.
The numbers above are based on an assumption that a modified adjusted gross income for retirement is below $85,000 for individuals and $170,000 for married couples. These income figures would trigger high-income premium surcharges for both Medicare Parts B and D.
Plan to Prosper
The answer lies in understanding there is no gender equality in retirement. Therefore, the best way for women to live long and prosper is to plan ahead.
Knowledgeable investors should think strongly about self-directing their retirement plan and building a more diverse portfolio. Those who are already investing in alternative assets such as real estate, commodities, precious metals, or loans and mortgages may include these in a self-directed retirement plan and enjoy all the same tax advantages of regular IRAs. With Social Security at risk of disappearing and the stock market’s unpredictable returns, many people who are comfortable making their own investment decisions—and understand the ins and outs of nontraditional investments—can plan to prosper in their retirement years through self-direction.
At Next Generation Trust Services, our professionals are available to answer questions about self-directed retirement plans, and our transaction specialists are educated to ensure you are investing within IRS guidelines. Since we do not give investment advice, we strongly recommend you consult your trusted financial advisor about your investments and any tax implications for your unique situation. Contact us at 888.857.8058 or Info@NextGenerationTrust.com for more information, and read through our Starter Kits to open a new self-directed retirement account.
Were You Affected by Hurricane Matthew? Beware Investment Scams
Unfortunately, scammers take advantage of Americans’ difficult circumstances when disasters hit, and it seems Hurricane Matthew is no exception.
We’re all familiar (unfortunately) with Ponzi schemes and false trading programs that guarantee high returns. According to the SEC’s Office of Investor Education and Advocacy, there are investment scams related to this recent natural disaster to beware. These scams may be from criminals promoting bogus cleanup and repair companies, and those who target individuals who’ve received lump insurance payments as compensation for damages. The SEC warns that individuals should be extremely wary of potential investment scams related to Hurricane Matthew.
As has happened in the past, such as after Hurricane Katrina in 2005, “Some scams are circulated through spam email, promising high returns for small, thinly-traded companies that supposedly will reap huge profits from recovery and cleanup efforts.” Ugh.
It’s so important to protect yourself against investment fraud and other scams. The first rule of defense, says the SEC, is to be skeptical about any investment opportunity and ask a lot of questions. Of key importance is to ask if the person who contacts you is licensed and if the investment they are promoting is registered with the SEC or with a state. Be sure to check their answers with an unbiased source, such as the SEC or your state securities regulator.
Classic signs of fraud are promises of fast and high profits with little or no risk to you. Forget about it! The SEC publishes a handy resource called Ask Questions: Questions You Should Ask about Your Investments that details other questions you should ask of anyone who contacts you about making any kind of investment. It is also available in Spanish.
If you’re received a lump sum insurance payment, be very careful with how you invest this, as it may have to last you and your family a long time and there could be unforeseen expenses to cover that are related to storm damage. The SEC provides this helpful list of online resources; you can also call the agency’s Office of Investor Education and Advocacy at (800) 732-0330 or place a query using this online form.
- Lump Sum Payouts: Guidance about investing a lump sum payout wisely. Lump Sum Payouts: Questions You Should Ask Yourself before You Invest a Dime.
- Affinity Fraud: This relates to investment scams that target particular groups. Investor Bulletin on Affinity Fraud.
- Ponzi Schemes: Ponzi Schemes: Frequently Asked Questions.
- Saving and Investing Basics: General information about saving and investing. Saving and Investing: a Roadmap to Your Financial Security through Saving and Investing. (Also available in Spanish.)
Self-Directed Investors – Do Your Homework!
The wonderful thing about self-directing your retirement plan—and the alternative assets they allow—is that you, the investor, are in control. As the account owner, you make all your own investment decisions; therefore, it is your responsibility to do thorough research into those investments you intend to include in your self-directed retirement plan.
Whether you wish to include real estate, precious metals, commodities, or unsecured loans in your self-directed IRA—or any of the many other types of nontraditional investments available to self-directed investors—we cannot stress enough the importance of conducting your due diligence before sending us your transaction instructions. As a full-service administrator of self-directed retirement plans, Next Generation Trust Services will review the asset as part of our transaction review, and provide guidance about whether your investment complies with IRS investing guidelines. However, it is up to you, the self-directed investor, to fully understand the investment. We recommend you consult a trusted financial adviser if you have any questions about alternative assets and how they may affect your retirement planning; and of course, you can include the SEC’s handy resources as part of this research.
When you’re ready to make your investment, our professional team will assist you and we can answer your questions about self-direction as a retirement strategy, and about the types of investments that are allowed or that are prohibited. You can reach Next Generation Trust Services at 973-533-1880 or 888-857-8058 or Info@NextGenerationTrust.com.