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.
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.