America Saves Week is Feb. 22-26. Are you Saving Enough for Retirement?
America Saves Week is an annual event, and a call for Americans to commit to saving successfully—as individuals and families, for reducing debt and for retirement, to have something for emergencies, and to create the habit of saving automatically. According to its website, America Saves encourages us all to set goals and make a plan to achieve better financial stability. The week’s daily focus changes; yesterday, Wednesday, February 24th was “save to retire.” We like that!
It’s no secret that most Americans need better overall financial habits, especially when it comes to saving for retirement. Between the Great Recession and the COVID-19 pandemic, it’s been tough for many people to stay on track (or get back on it) with their retirement savings. Moreover, the pandemic has led to many people retiring before they had planned to do so, for various reasons. However, there’s an interesting flip side to this issue: for some retirees or those nearing retirement, they are opting to work longer, even part-time, because they find working remotely to be a viable option or they are waiting for more of the economy to rebound. With nowhere to go, they might as well still work.
Whether you aren’t on Medicare yet and can still contribute to an HSA (which you can use later on for non-medical expenses without penalty), or you’re still contributing to your workplace retirement plan or your IRA, America Saves Week is the perfect time to educate yourself about wealth building..
Investing those funds through a self-directed IRA could get you to your retirement goals sooner.
Saving and Investing with a Self-Directed IRA
Self-directed retirement plans come in all types, with the same tax advantages as their traditional counterparts. However, unlike typical retirement plans, you are not limited to stocks, bonds, and mutual funds when you self-direct your investments. Instead, you can include a wide range of alternative assets—ones you may already be investing in outside of your existing retirement plan—and build a more diverse portfolio based on what you know and understand.
You can self-direct a Traditional or Roth IRA, a SEP IRA or SIMPLE IRA – as well as a health savings account or education savings account. If you are a small-business owner or sole proprietor with no common law employees, you may also open a Solo 401(k).
When you self-direct your investments, you can include alternative assets such as real estate, private equity, precious metals, notes/loans, impact investments, cryptocurrency (and more) and take advantage of diverse investment opportunities. As with all self-directed investing, you as the investor conduct your full due diligence on the alternative assets you wish to include, all income and expenses related to the assets flow through the retirement plan, and you must avoid prohibited transactions.
As you may know, the SECURE Act has made it possible for you to continue contributing to a Traditional IRA after you’ve retired, as long as you have earned income (similar to a Roth IRA). To continue contributing to a Roth IRA, you must also meet certain income criteria as set by the IRS. That is good news when it comes to saving for retirement.
Here’s more good news: the professionals at Next Generation are here to help you understand the many options and benefits of self-direction as a retirement wealth-building strategy. You may schedule a complimentary education session to get answers to your questions and learn more about getting started—whether you’re many years away from retiring, in your mid-level career, or wish to change the way you’ve been investing your retirement savings. You can also contact the Next Generation team by phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.
Show Your Retirement Portfolio Some Love this Year
Whether you’ll be staring adoringly into your partner’s eyes on Valentine’s Day or celebrating with a Galentine’s/Malentine’s Day get-together with friends, February is the month of love and friendship—and your retirement plan also deserves some special attention.
The first way to give your retirement plan a loving boost is to open a self-directed IRA. Why a self-directed plan? Two words: alternative assets. And those non-publicly traded, alternative assets provide you with many ways to diversify your retirement portfolio with an array of investments you may already be “engaged” with outside of a retirement plan. In most IRAs held with a brokerage, those alternative investment options are not always available to you. Hence, the self-directed IRA.
Sure, you may love playing the stock market and enjoy the thrill ride of that roller coaster by way of its volatility. However, as a self-directed investor there’s no reason to limit your investing to stocks, bonds and mutual funds. In fact, most advisors may actually encourage diversification and alternative investing to allow you added control over your investment returns while providing a hedge against that volatility. Investment options include real estate, private equity, notes and loans, social causes, cryptocurrency, precious metals and more.
What do you already love?
Think about the investments you already know and understand—the ones you already love investing in, like real estate, precious metals, or private equity. As explained before, the list of possible investments through self-direction is long and enables individuals to take advantage of market opportunities and apply what they know to their tax-advantaged retirement account. For example:
- If you’re already doing fix & flip real estate investing, you can do so through your self-directed IRA.
- A friend is starting up a company and needs angel investors; your self-directed retirement plan can make that early-stage investment.
- You enjoy investing in energy-related assets like oil and gas; you can do so through your self-directed retirement plan.
Many types of retirement plans can be self-directed—a Traditional or Roth IRA, SIMPLE or SEP IRA, or solo 401(k), even health savings accounts (HSAs) and education savings accounts (ESAs). Depending on your goals and situation, you have plenty of options in terms of the type of plan to open. That flexibility may come in handy when you do retire and want a combination of tax-free and tax-deferred income, for example, or if you are self-employed or own a small business with employees.
Here’s more to love: opening a new self-directed IRA is easy and you can fund the new account the same way as you would any other plan—with a transfer from a like account, a rollover, or a personal contribution. At Next Generation, we simplify the process with our electronic starter kits that walk you through every step from opening the account through sending your instructions to our transaction specialists. As a third-party administrator and custodian of self-directed IRAs and other plans, we will review and execute investment transactions, custody asset(s) for our clients, provide recordkeeping and complete all necessary tax reporting.
If you are comfortable making your own investment decisions and conducting your full due diligence on the investments you wish to include, we invite you to learn more about this retirement strategy by scheduling a complimentary education session with one of our knowledgeable representatives. You may also contact our team directly via phone at 888-857-8058 or via email at NewAccounts@NextGenerationTrust.com.
What’s Your Retirement Planning Strategy?
If you’re a younger worker, it’s easy to think you have your whole life ahead of you to plan for retirement. And if you are nearing retirement, you may think you’ve got it covered through your employer’s retirement plan or other means. But with so much uncertainty swirling around us right now and with the cost of living rising, a proactive approach to your retirement planning strategy is always wise.
Plan ahead to be less dependent on Social Security or someone else’s bank account. Many older adults may feel that Social Security benefits will keep them financially secure or their adult children will help them out. But with real concerns about the Social Security Trust Fund’s sustainability and Generations X and Y facing their own savings issues, there are no givens. Besides, Social Security was meant to be a supplement to retirement income, not a main source of income.
Plan ahead for how (or if) the sale of your home will fund your lifestyle. Those who own a home may feel confident about living off the proceeds of the home’s sale, especially if the house is paid off already—but a lingering mortgage cuts into proceeds, capital gains may be a factor to consider, and if you’re thinking of moving into a retirement community, the rents can be quite high.
Plan ahead for possible early retirement. The pandemic has wreaked havoc on employers nationwide. Businesses are closing or tightening their financial belts in response to market conditions; extended furloughs may become permanent, and this may motivate some people to consider an early retirement.
Plan ahead for a smaller pension plan. Part of the corporate belt tightening has been the steady disappearance of traditional pension plans. Plus, many pension plans are in distress and may have to reduce distribution levels due to various factors such as poor ROI on investments, lower participant rates, and economic factors brought on by COVID-19.
Plan ahead for “I’m that old already?!” When getting our careers in gear, many of us think we have “forever” to get started on saving for retirement. Then suddenly, 20 years have passed and that time horizon for putting money away is much shorter.
Plan ahead for retirement through self-direction
Self-directed retirement plans offer an alternative strategy to traditional investing, by including non-traditional assets that brokerage accounts do not allow. For seasoned investors who are comfortable making their own investment decisions and are confident about conducting their own full due diligence on those investments, a self-directed IRA can be a great way to build retirement income with a powerful hedge against stock market volatility. Self-directed IRAs also allow for retirement portfolio diversification and greater control over your investment returns.
If you have an employer-sponsored plan, it is likely limited to stocks, bonds and mutual funds that are susceptible to the ups and downs of the market. You may also have an IRA (or brokerage account) that offers a “self-directed” option; however, it is not truly self-directed. The true definition of a self-directed IRA is a tax-advantaged retirement account that allows you to invest in non-publicly traded assets. These non-publicly traded assets, also known as alternative assets, can include real estate, private equity, social/impact investments, cryptocurrency, notes/loans, and more.
As a custodian and administrator for these self-directed retirement plans, the team at Next Generation is here to help. You can schedule a complimentary educational session to learn more about self-direction; or you may contact the Next Generation team directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.
It’s a New Year – Do You Have a New Outlook on Your Retirement?
The new year often brings promises and resolutions to create new habits, get back to something we enjoy, or try something new. Why not apply the “new year, new you” mindset to your retirement planning as well?
Do any of these scenarios sound like you?
- You’ve been inattentive in the past when it came to contributing to your retirement plan on a regular basis. Now you might be falling behind on your retirement savings goals.
- As a younger millennial, you’ve been thinking you don’t need to open an IRA yet, but you have some cash sitting in a 401(k) from a previous employer.
- You are semi-retired and are looking around for a side gig to stay busy, but you don’t need the money for living expenses.
- You enjoy investing in alternative assets outside of your existing retirement plan and are curious about how you could make those nontraditional investments through a tax-advantaged retirement account.
Get a new plan for your retirement in the new year with a self-directed IRA
Self-directed investors are those who are comfortable making their own investment decisions (that’s where the “self-directed” part comes into play), and who are knowledgeable about (and often experienced in) investing in various alternative assets. For example, you:
- Already invest in real estate (residential, commercial, industrial, raw land, etc.)
- Understand how to make a secured or unsecured loan with interest and terms
- Are involved in private equity funding
- Trade in agricultural or energy commodities
- Buy and sell cryptocurrency
- Are passionate about investing in social causes
The list goes on and is as diverse as the investors who self-directed their retirement plans.
Open a new self-directed IRA at Next Generation
Whether you’re just starting out with your self-directed IRA or have one that needs some catchup contributions, Next Generation is here to help. As a self-directed retirement plan custodian and administrator, we work with investors who wish to include alternative assets in their self-directed IRAs. Our clients understand that this strategy enables them to diversify their retirement portfolios with investments they already know and understand, while also providing a hedge against stock market volatility and the same tax advantages as regular retirement plans.
The turn of the calendar page is a great time to consider opening a new self-directed retirement account and start putting your investing expertise to work through a tax-advantaged plan. We offer client education through webinars, on our blog, and complimentary education sessions to help you evaluate if self-direction is the right direction for your retirement goals. If you have a specific question or want to know more, you may also contact the Next Generation team by phone at 888.857.8058 or by email at NewAccounts@NextGenerationTrust.com.
Has the COVID-19 Pandemic Affected Business Owners and Retirement Readiness?
COVID-19 has affected the American economy across a number of sectors and business owners nationwide are feeling the effects. Last month, TD Wealth released the results of a survey conducted in July among 1,296 business owners and individuals in two groups: high-net-worth business owners and individuals with investable assets of more than $500,000, and mass affluent business owners and individuals with investable assets between $100,000 and $499,000. The survey was about the pandemic’s impact on revenue and how or if that affected their retirement planning.
- The majority of respondents in both groups (67% and 73% respectively) said they were concerned about achieving their financial goals due to economic or political uncertainly.
- Among all business owners surveyed:
- Eighty-seven percent said their revenue had been affected by the pandemic,
- Forty-seven percent said they reduced their operations,
- Twenty-five percent experienced temporary or permanent closures.
However, 85% of respondents said they had not altered their retirement planning in spite of the pandemic’s negative economic effects on their businesses. Further, it appears they feel retirement-ready:
- Of those with a long-term investment plan, 94% said they were somewhat confident of achieving their financial goals.
- Among the high-net-worth respondents, 94% expressed confidence about their financial plan generating the income they would need in retirement.
- In the mass affluent group, 82% said they were somewhat confident about having the retirement income they’d need from their financial plans.
The TD Wealth survey also showed that together, retirement savings and investment portfolios comprised more than half of the retirement income across all survey respondents.
Get Retirement Ready with Self-Directed Retirement Plans
Savvy business owners already know a lot about running their businesses and are already comfortable making decisions that affect their operations every day. They could be building a diverse retirement portfolio with a range of alternative assets they also know a lot about—and make their own investment decisions regarding those assets—with a self-directed retirement plan.
Business owners may open several types of self-directed retirement plans based on their business situations, with all having the same benefits as their traditional counterparts but with added advantages—the ability to include nontraditional investments they already know and understand, and create a hedge against stock market volatility.
SEP IRA: SEP stands for Simplified Employee Pension plan; it’s an easy, flexible, option if you are self-employed, or a partner or owner of a corporation with 25 or fewer employees.
SIMPLE IRA: For larger companies of up to 100 employees, the Savings Incentive Match Plan for Employees enables employers to make contributions towards their retirement as well as their employees’ retirement.
Solo 401k: The individual/solo 401(k) is for sole proprietors who employ only themselves, their spouse, or partners. It has deduction and contribution benefits similar to a regular 401(k).
At Next Generation, we offer free education to help individuals make informed decisions about which type of self-directed retirement plan to open—including Traditional and Roth IRAs as well as health savings accounts (HSAs) and education savings accounts (ESAs). We always recommend you speak to a trusted financial or tax advisor who knows your specific financial situation to determine if, as a business owner, a SEP IRA, SIMPLE IRA, or Solo(k) will be the plan to help you meet your financial goals.
Once you decide which type of account to open, we make it easy with our starter kits and detailed instructions for funding a new account. As a self-directed investor the rest is up to you—selecting and researching the alternative assets you wish to include, conducting your full due diligence on each investment, and then providing Next Generation with instructions to execute the transaction.
If you are interested in learning more about self-direction as a retirement strategy, please sign up for a complimentary educational session with one of our representatives. Alternatively, you may contact our team directly via phone at 1.888.857.8058 or email NewAccounts@NextGenerationTrust.com.
Suddenly Become Self-Employed? We’ve Got a Retirement Plan for You.
Has your furlough become permanent or have you decided not to return to your place of work due to the COVID-19 pandemic? Is it time to turn a long-time interest into a business? If so, you are among the many older Americans who have recently joined the ranks of the self-employed, or are now semi-retired and working a nontraditional job. If that’s you, putting a tax-advantaged retirement plan in place is a smart step along your entrepreneurship and/or nearing-retirement journey.
Deciding how to approach your new employment situation and retirement strategy depends on certain factors. Perhaps you already have an established IRA you’ve been contributing to over the course of your career, with ample savings there and Social Security benefits on the horizon—but you like the idea of continuing to work in some capacity. Or maybe you had an employer-sponsored retirement plan but have separated service from that employer—in which case, you can roll those funds over into a new retirement plan.
With the sudden change in status from W-2 employee to independent contractor or business owner, you may not be aware of the self-employment taxes that come along with this new phase of your working life. You can continue to beef up your nest egg with several different retirement plans that also provide shelter from those taxes—and can all be self-directed.
Three ways for the self-employed to save for retirement
While you may continue to contribute to an existing Traditional or Roth IRA, there are additional options for the self-employed to consider, each with distinct tax advantages: a SEP IRA, SIMPLE IRA, or a solo 401(k). Plus, if you open a self-directed retirement plan, you can include many alternative assets and build diversity into your retirement portfolio through the nontraditional investments these plans allow—like real estate, private equity, lending, hedge funds and partnerships.
A solo 401(k) is for individuals operating an owner-only business (a spouse may also participate) and can replace your employer-sponsored 401(k) plan. Note that employee elective deferrals must be made by December 31; the employer contribution can be made upon calculating and finalizing the net income when doing the tax returns (March or April of the following year).
Qualifying for each type of plan depends on whether you are entirely self-employed or also still working for a company with a retirement plan (to which you may still contribute). These plans not only help individuals maximize their retirement savings—they are tax-saving tools as well, with different contribution strategies for each type of plan and according to your specific financial situation. Therefore, we recommend you review and discuss these with your trusted advisor to maximize your tax-saving opportunities.
If you have any questions about the types of alternative assets allowed in a self-directed SEP IRA, SIMPLE IRA or solo(k), or how the transaction process works with a self-directed retirement plan administrator, schedule a complimentary education session with a Next Generation representative. Alternatively, we’re also available to answer your questions via phone at 888.857.8058 or by email at NewAccounts@NextGenerationTrust.com.
Social Security Cost of Living Adjustment (COLA) for 2021
It was announced in mid-October that Social Security beneficiaries will see a 1.3% cost- of-living adjustment (COLA) in their monthly distribution checks, effective January 1, 2021. The Social Security Administration says this is in line with prior years’ increases, although it is slightly smaller than the 1.6% increase in 2020 and a more significant 2.8% bump to monthly checks in 2019. Looking back over a longer timeline, the COLA was zero several times (2010, 2011, 2016) and only 0.3% in 2017. Back in the 1970s and 1980s, the figures are much higher, ranging from around 6% in 1977 to 14% in 1981.
Given the financial effects of the COVID-19 pandemic on many Americans, including those receiving Social Security checks, that 1.3% increase won’t go too far in many areas of the country. According to the Social Security Administration, the average monthly benefit increase will be as follows for various categories of recipients:
- All retired workers, $20
- Aged couples who both receive benefits, $36
- Disabled workers, $16
Some other changes coming in 2021 are:
- The maximum amount of wages taxed for Social Security goes up from $137,700 now to $142,800 in 2021.
- For those of full retirement age, the maximum monthly retirement benefits are going up from $3,011 to $3,148 a month in 2021.
- In addition, the full retirement age is once again inching up based on year of birth.
The cost-of-living adjustment is based on the consumer price index for urban wage earners and clerical workers. However, this formula focuses on younger workers under age 62, who are not claiming benefits nor having Medicare payments deducted from their monthly Social Security income. Let’s not forget the rising costs of living seniors face in general, which outpace that COLA amount—food, housing, and prescription drugs among them.
There is a groundswell to change the COLA calculation to the consumer price index for the elderly instead. This is the Social Security 2100 Act, which is being put forward by Congressman John Larson of Connecticut. It expands benefits for current and future recipients, cuts taxes on the elderly, and aims to keep the Social Security Trust Fund solvent through the rest of this century.
Social Security is not so secure
Any way you slice it, relying heavily (or in many cases nationwide, solely) on Social Security for one’s retirement income does not bode well for today’s retirees —especially right now, when the fund is scheduled to be insolvent by 2033. Being more proactive about retirement saving can provide more stable financial health during one’s working and retirement years.
While Social Security benefits provide a financial safety net as per the program’s original intent, in today’s world, those benefits don’t stack up for individuals seeking to retire comfortably and maintain their accustomed lifestyle. That’s where self-directed IRAs and the nontraditional investment they allow can really shine.
Self-directed IRAs allow account owners to include a broad array of non-publicly traded, alternative assets, such as real estate, private equity, notes/loans, precious metals, and so many more. Self-directed investors can be proactive as well as nimbler about how they invest for their later years. That’s because, as individuals who make all their own investment decisions, self-directed investors can take advantage of market shifts and opportunities, and invest in many alternative assets they already know and understand, and that provide a hedge against stock market volatility.
At Next Generation, we’re all about client education. You can read more about the different types of self-directed retirement plans for individuals and business owners here. You may also schedule a complimentary educational session to get the information you need to decide whether self-direction is the right retirement strategy for you. Our helpful team is here to answer questions as well; you may contact us directly via phone at 888.857.8058 or NewAccounts@NextGenerationTrust.com.
Has the Pandemic Affected Your Retirement Confidence?
The Transamerica Center for Retirement Studies issued its 20th annual survey of retirees last month, titled “Retirees and Retirement Amid COVID-19.” The report focuses on financial stability and readiness in retirement amid the pandemic. Findings are based on a survey done in November/December 2019 and again in June 2020; it polled people 50+ years of age who consider themselves fully or semi-retired, and who worked for a for-profit company for the majority of their careers.
The study reported that among those retirees surveyed:
- The majority (76%) stated their confidence in being able to maintain a comfortable lifestyle has not been altered by the pandemic. Among that group, 29% are “very confident” and 47% are “somewhat confident.”
- A smaller group, 15%, cited a decline in confidence in light of COVID-19 while 4% reported increased confidence in financial stability.
- Social Security will be/is the primary source of income for 69% of respondents, but 40% have other savings and investments (such as checking and savings accounts, retirement plans, credit cards).
- Approximately 35% of retirees said they expect income streams from IRAs and workplace retirement plans with another 30% of retirees saying they have company-funded pension plans.
However, eating into the financial security for nearly half of those surveyed is household debt (student loans, car loans, credit cards, medical bills) and nearly a quarter of respondents are paying off mortgages.
Even though many retirees are not feeling shaken financially by COVID-19’s economic ramifications, Transamerica noted that relatively few were “very confident” before the pandemic. The study concluded that many retirees are in danger of outliving their financial resources or lack income to cover healthcare expenses or pay for long-term care. Another sobering revelation: the lack of a financial strategy for retirement. Of those who said they have a plan (58%), only 18% have it in writing. That leaves 42% without a financial strategy amid the pandemic.
Self-directed retirement plans—an effective financial strategy at any time
Self-directed IRAs are ideal for investors who are confident in making all of their own investment decisions, and those who may already be investing in alternative assets outside of a retirement plan. Whether you are in your early- or mid-career phase, nearing retirement, or already retired, you have the option to use the many different nontraditional investments allowed through self-direction to build retirement wealth.
Self-directed IRAs enable investors to include a wide range of non-publicly traded alternative assets that typical plans do not allow, such as real estate, private equity, social causes, precious metals, secured and unsecured loans, and many more. In short, while the pandemic and politics can create instability in the stock market, self-directed IRAs provide a valuable hedge against that volatility, with a more diverse retirement portfolio and better control on investment returns.
If you’re thinking of diversifying the investments in your retirement plan, are comfortable conducting your own due diligence and research about those investments, Next Generation has the tools you need to get started. Please considering registering for a complimentary educational session. Alternatively, you may also contact our team directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.
Could Your IRA Use More Love Next Year Due to the Pandemic?
In late July, Republican senators introduced legislation that would allow people to make catch-up contributions to their IRA, 401(k) and similar retirement accounts in 2021 and 2022, should they be unable to make full contributions this year. The bill, called the “Addressing Missed-savings Opportunities for Retirement due to an Epidemic Act” (AMORE Act) was introduced by Senators Ted Cruz, Thom Tillis, David Perdue, and Kelly Loeffler. It is designed to help individuals facing financial challenges resulting from COVID-19.
Usually, catch-up contributions are for workers age 50+ who wish to contribute more than the standard limit to their qualified retirement account; for 2020, the standard Traditional/Roth IRA contribution limit is $6,000 a year and the catch-up limit for individuals aged 55 and older is $7,000. However, with millions of Americans unexpectedly unemployed or working at reduced hours and/or wages due to the COVID-19 pandemic, the AMORE Act recognizes the challenges in maintaining their retirement savings goals.
The legislation will allow Americans with IRAs and other qualified retirement plans to catch up on their savings as the economy—and their financial situation—recover. Individuals would be allowed to make the catch-up contributions in 2021 and 2022 equal to the difference between their actual contributions for 2020 and current federal limits on these accounts.
For example, Judy is 45 years old and has contributed $5,000 so far to her IRA this year; she won’t be able to contribute any more in 2020 due to being furloughed. However, under the AMORE Act, she would be able to make a catch-up contribution in 2021 and 2022 for any unused contribution in 2020 – in Judy’s case, an additional $1,000.
Here’s another way to catch up: self-direct your IRA
Self-directed investors—that is, individuals with a self-directed IRA—have the ability to include many nontraditional investments within their retirement plans, such as real estate, private equity, notes/loans, social causes, and more. Self-direction provides a hedge against stock market volatility, allows individuals to diversify their retirement portfolios, and gives way for better control over their earnings – which could be seen as another form of a “catch up.”
These types of accounts are ideal for investors who already know and understand alternative assets and might already be investing in them outside of their existing retirement plan. Self-directed IRAs come with the same tax advantages as their regular counterparts, so investors can grow their retirement savings either tax-deferred or tax-free, depending on the type of plan.
If you’d like to learn more about self-direction and its benefits, we encourage you to schedule a complimentary educational session with one of our knowledgeable representatives. Alternatively, you can contact our team directly for answers to your questions about self-direction as a retirement strategy. You can reach us via phone at 888.857.8058 or via email to NewAccounts@NextGenerationTrust.com.