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.
Why Yes, Millennials are Saving for Retirement
The Millennial generation—those born between1977 and 1996—is projected to equal or surpass the size of the Baby Boomer generation over the next 20 years. They currently comprise the largest segment of today’s workforce. So what is this age group doing about saving for retirement?
Although Millennials are often misrepresented as “live in the moment” folks who prioritize life experiences over long-term financial planning, you may be surprised to find out that they are also more engaged at an earlier age with retirement savings in the workplace.
According to the Pew Charitable Trust Retirement Savings Project, Millennials had higher balances in their defined contribution plans than their Gen X counterparts did at a similar age (based on U.S. Census Bureau data). In addition, Millennials between ages 25 and 31 are saving more into retirement accounts than those right out of school.
The Transamerica Center for Retirement Studies supported this with the following statistics:
- Seventy-one percent of Millennials are saving for retirement through employer-sponsored plans
- The median age to start saving was 24, which is younger than prior generations
- Those participating in a 401(k) or similar workplace plan are contributing a median of 10 percent of their annual salaries
- More than half of Millennials surveyed said they expect their primary source of retirement income to be self-funded through retirement accounts (such as IRAs and employer-sponsored plans) or other savings and investments
- The estimated median amount that Millennials have saved in all household retirement accounts is $23,000
Given that the Social Security Trust Fund Reserve may be depleted by 2034 and benefits reduced, these savers are not only being proactive, they’re being smart.
Another smart savings move for savvy Millennials: Self-directed IRAs
Motivated savers can build a more diverse retirement portfolio, given the diverse types of alternative assets these plans allow. By making their own investment decisions, Millennials and others can take advantage of market shifts they are following more nimbly, or choose to invest in assets they care about or that reflect their interests—from becoming an investor in a theatrical production to owning shares in a specialty farm business.
If you’re a younger investor looking to do more with your IRA, you probably have some questions about self-directed retirement plans. As a convenience, Next Generation offers complimentary educational sessions with easy scheduling. Alternatively, you can contact us via email at NewAccounts@NextGenerationTrust.com or call 888.857.8058.
You Could Work a Little Longer to Build More Retirement Savings—or Invest More Creatively through Self-Direction
Did you know that by working six months longer, workers can reap significant Social Security compounding benefits? A Stanford University economics professor, John Shoven, says that older people who are behind on their retirement savings goals can catch up pretty well and increase their retirement standard of living by working just six months longer (and paying into Social Security).
In his paper, “The Power of Working Longer,” Shoven showed that postponing retirement by just three to six months is equivalent to saving an additional percentage point of earnings for 30 years. Plus, for individuals who are in their mid-60s, working just one month longer is equal to saving ten more years for retirement.
Shoven’s study is geared toward people ages 62 to 69 who have a retirement plan but have saved less money for retirement than they desire, have an annual income up to about $200,000 and who rely largely on Social Security during their retirement years. His model used an inflation-adjusted rate of six to eight percent real returns and assumed a safe strategy of investing mostly in bonds.
However, even with higher risk factored in, Shoven found that working slightly longer was still the better way to raise retirement income. Those extra months enable individuals to contribute more to their retirement plans while also boosting Social Security benefits by continuing to pay into the system.
Working a couple of years longer than originally anticipated—say, retiring at age 66 instead of 64—provides even more income when factoring in contributions to both one’s retirement plan and Social Security. Of course, as with any financial planning around one’s retirement age and when to claim Social Security benefits, it’s always best to consult a trusted advisor.*
Invest smarter—and make self-direction work for you
If working longer than originally planned isn’t for you, but investing in alternative assets is, you can boost your potential retirement savings with a self-directed IRA. If you start early enough (or are able to make additional catch-up contributions later on), and you are comfortable making your own investment decisions, self-direction can work for you in a number of ways:
You can build a more diverse retirement portfolio that is not dependent on stocks, bonds and mutual funds – or subject to stock market volatility
- You can include nontraditional investments you may already be investing in outside of your existing retirement plan (such as real estate, precious metals, unsecured or secured loans, private equity)
- You’ll enjoy the same tax advantages of regular IRAs – tax deferred or tax free earnings, depending on the type of account you use
So, you can keep that original retirement date on your calendar and start putting a broader array of investments in your retirement plan with a self-directed IRA. Next Generation makes setting up and funding your new account easy with our helpful starter kits, and our team is here to answer your questions about this type of retirement strategy. Contact Next Generation via email at NewAccounts@NextGenerationTrust.com or call us at 1.888.857.8058 or email NewAccounts@NextGenerationTrust.com.
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*Next Generation Trust Company (“NGTC”) does not review the merits or legitimacy of any investment. NGTC does not endorse or recommend any companies, products, services or investments. NGTC does not provide any financial, legal or investment advice.
If the services of NGTC were recommended by any third party, such persons or entities are not in any way affiliated with NGTC. All information provided is for educational purposes only. All parties are encouraged to consult with their professional advisors prior to making any investments.
Next Generation Services (NGS) is a third-party administrator of self-directed retirement plans, located in Roseland, New Jersey. NGS handles all the back office administration, record keeping, mandatory reporting, and transaction support. Accounts are named with Next Generation Trust Company as the custodian and holder of assets, for benefit of the individual account.
NGS does not review the merits or legitimacy of any investment. NGS does not endorse or recommend any companies, products, services or investments. NGS does not provide any financial, legal or investment advice.
If the services of NGS were recommended by any third party, such persons or entities are not in any way affiliated with NGS. Next Generation Services is not a “fiduciary” as defined in the IRC, ERISA, and/or any applicable federal, state or local laws. All information provided is for educational purposes only. All parties are encouraged to consult with their professional advisors prior to making any investments.
Baby Boomers Beware – Retirement Approaches: Are You Financially Prepared?
According to a study by the Insured Retirement Institute in April (Boomer Expectations for Retirement 2018), 42 percent of baby boomers have nothing saved for retirement.
Even the very youngest of this cohort, who are about a decade from retirement age, do not have enough savings for retirement. And, among baby boomers who do have retirement savings, 38 percent have less than $100,000 saved for retirement. As we have highlighted in other articles, this is not nearly enough to cover living expenses throughout a long retirement horizon… especially when you factor in health care costs.
The study also revealed that among baby boomers:
- Only 38 percent have calculated the amount they will need to retire
- Forty-six percent of boomers expect they will need $45,000 (in current dollars) or more in annual retirement income.
- Assuming the current average Social Security benefit of $16,848 annually, an individual would need to generate at least $28,152 in additional annual income from a combination of pension benefits and retirement savings to meet that figure.
- Only 25 percent believe that they will have enough money in retirement
- And only 28 percent believe they are doing (or did) a good job financially preparing for retirement
Given these statistics, it’s no surprise that 29 percent of those surveyed expect to work past age 70. With the “gig economy” on the rise and a lack of employer-sponsored retirement plans, the problem is likely to grow unless workers open a retirement plan and contribute on a regular and disciplined basis.
Create a retirement savings boom through self-direction
For baby boomers who are comfortable making their own investment decisions, especially those on the younger end of the boomer generation, they could close that savings gap with a self-directed retirement plan. By building a more diversified retirement portfolio through nontraditional investments, and by taking advantage of the catch-up contributions for investors ages 55 and older, financially savvy baby boomers can take control of their future now.
If you are a younger member of the baby boomer generation and are already investing in alternative assets outside of your existing retirement plan, opening a self-directed IRA could be a great way to grow your retirement nest egg. Next Generation Trust Company has all the information and forms you need to get started, and our helpful professionals can answer your questions about self-directed IRAs and the types of investments these plans allow. Plus, they’re always here to guide you along the way. Contact Next Generation at Info@NexGenerationTrust.com or 1-888-857-8058 to find out more about putting some boom into your retirement plan today!