How Are You Planning To Finance Your Retirement?

Written By Alla Levin
May 27, 2021
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How Are You Planning To Finance Your Retirement?

Even if you have a well-funded 401K, it can be astute to have extra options for funding your retirement. In a best-case scenario, this can provide you with extra funds so you can really make the most of your post-work years. In a worst-case scenario, they can make a huge difference to you or someone you love. So here are some options you could consider.

IRAs

In many ways, IRAs are very similar to 401Ks. For practical purposes, the biggest difference is that 401Ks are employer-run accounts. IRAs, by contrast, are run by their owners, albeit often with advice. This can be great from the point of view of having a maximum choice. It can, however, also get very confusing.

To begin with, there’s the sheer range of IRAs. Traditional versus Roth is just the start. You can also get SEP IRAs, SIMPLE IRAs, and Gold IRAs. Then, of course, there’s your choice of provider. Modern, innovative companies like Goldco are busy disrupting the status quo. In many cases, they can now offer much better deals than traditional providers.

Navigating the world of IRAs can be challenging. Unless you’re really confident with finance, you may find it best to get professional advice. You may find, however, that the benefits are very much worth the effort.

The stock market

In principle, there’s a lot to be said for investing in the stock market. However, in practice, there are a lot of pitfalls for newcomers and the unwary. What’s more, even the most experienced investors can struggle in certain markets. The most obvious example of this is how the COVID19 pandemic left investors reeling. There are, however, plenty of more subtle challenges for investors.

Additionally, there are tax implications to investing directly in the stock market. For some investors, understanding these can make the difference between profit and loss. The key point you need to check is whether you are taxed on your overall profit (or loss) for the financial year or whether tax is calculated on a per-trade basis.

If it’s the latter, then any profit on any sale could be subject to tax, even if you make an overall loss. Even if it’s the former, there’s a good chance that any fees (e.g., brokerage fees) will be charged on a “per trade” basis. This can be enough to turn a profit into a loss or at least reduce a profit substantially.

With all that said, however, the stock market can still provide lots of exciting opportunities for investors looking to finance their retirement. If you’re prepared to put in the work, you could establish a portfolio with the perfect balance of yield and growth. You could then leave this to your heirs when you move on.

Real estate

Real estate is possibly the classic retirement asset and for excellent reason. Like the stock market, you can get a balance of capital appreciation and yield. Also, like the stock market, however, you need to do your sums very carefully. Owning investment property is very different from owning residential property. It’s also very different from owning equities.

The main difference is that investment property needs to be maintained in a way that demonstrates compliance with applicable laws. These will vary from location to location. In general, however, you can expect to have to show that your investment property is safe. It’s increasingly likely that you will also have to demonstrate a certain level of sustainability.

You can definitely make good returns from an investment property. As with the stock market, however, there are also many potential pitfalls for the unwary. Many of these hinge on the issue of capital management and, especially, the use of leverage.  

In simple terms, the property is generally a big-ticket purchase. This can leave real-estate investors very exposed if they get their sums wrong. It’s also a politically charged area of investment. This means that investors have to accept the risk that political changes will invalidate calculations that were once totally accurate.

Finance your retirement: Other assets

Although real estate is possibly the most mainstream retirement asset, there are plenty of other options. These include collectibles, gold, and, these days, cryptocurrency. Realistically, unless you really know what you’re doing, you probably want to stay away from niche options such as collectibles, particularly more volatile ones like cryptocurrency.

Gold (and other precious metals) can be an interesting asset class for retirement (or retired) investors. You do, however, need to think about the security issues. So, in general, the most practical approach is to invest in this niche indirectly, for example, through a Gold IRA.

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