Your Guide to the Best Retirement Plans + 3 Retirement Tips
It may seem ages away right now, but retirement will sneak up on you faster than you can believe. Yes, before you know it, you’ll be leaving work and beginning the next exciting chapter of your life. But will you be financially ready?
When you end your career, you’ll find yourself faced with 30+ years of life left to live without earning an income. Saving up enough money ahead of time seems daunting. Fortunately, it just seems daunting. It’s actually quite doable! All you need to do is get started now so that, come retirement age, you’ll have created a nest egg large enough to accommodate a comfortable lifestyle for yourself.
Here’s your guide to the best retirement plans available and the pros and cons of each one so you can better understand which option is best for you. We’ve also thrown in a few retirement tips and advice on why hiring a retirement planning company will give you the best head start on saving for your future.
The Pros and Cons of the Best Retirement Plans
Which is the best retirement plan? The one that works for you!
Depending on your circumstances (which can change a few times over the course of your working years), there are a variety of retirement plans that will help you save for retirement and possibly even offer you tax breaks in the meantime.
Here are the best retirement plans that are available, and the pros and cons of each:
IRAs (Individual Retirement Accounts)
Anyone who is earning income (except in the case of a Spousal IRA) can open an IRA at a bank or brokerage firm and contribute money to it. Traditional IRAs lower your tax burden for the year you contribute. Roth IRAs don’t tax retirement distributions (and also have more lenient rules for early withdrawals).
The pros of IRAs are:
You get to make all the decisions regarding who holds your account and which investments you want to make.
They provide a much wider range of investment choices than other types of retirement plans.
You decide how and when you get a tax break, depending on your plan and eligibility.
The cons of IRAs are:
They have lower annual contribution limits than workplace retirement accounts.
Depending on your income, tax filing status, and if you also have a workplace retirement plan, the tax amount you are able to deduct may be affected.
Traditional IRAs require minimum yearly withdrawals starting at age 70 ½.
The most common type of employer-sponsored plan is the 401(k) which enables employees to contribute, tax-free, to an individual account within the company plan. This is usually done via payroll deduction and many companies also contribute funds to your account.
The pros of 401(k)s are:
They are easy to set up and are maintained by a retirement plan administrator.
You get free money if your employer contributes.
The contribution limits are higher than for IRAs.
They reduce your taxable income.
The cons of 401(k)s are:
Investment choices are limited to certain funds.
Occasionally, management and administrative fees are high.
If you’re a new employee, there may be a waiting period before you can contribute.
Funds may not be available to you until after you’ve worked for the company for a set amount of time.
You will owe taxes on the withdrawals.
3 Retirement Tips
While you’re already doing a bit of retirement planning, here are three retirement tips to keep in mind:
1- Ensure You Have the Right Insurance Coverage
You must ensure you have the right kind of insurance, and enough of it, when you retire. Research how your current plans change once you retire. Can you continue coverage through your group plan? Do you need to purchase additional or different types of coverage? Talk to an independent insurance agent now to make sure you know what to expect and how you can best plan for your changing insurance needs.
2- Consider Getting a Reverse Mortgage
Consider getting a reverse mortgage on your home. If you own your home, a lender will make monthly payments to you, converting your home into cash by decreasing its equity. Other than the income benefit of this strategy, it also allows you to “age in place.” There may be high upfront fees when getting a reverse mortgage, but for some, the benefits outweigh the costs.
3- Supplement with Real Estate Income
Many retirement planners agree that supplementing your IRA or 401(k) retirement plans with traditional investments such as real estate is a wise move. Renting out property is a smart way to get yourself some extra, passive income during your retirement years. That’s because your tenants will be paying off the house mortgage and you’ll be making up to a couple thousand extra dollars every month.
Getting Started with Retirement Planning Companies
Do you really want to go about planning for retirement without any help? Don’t leave your future up to chance! Retirement planning companies have mastery over every retirement topic and are experienced in advising for every scenario, including:
Various retirement plans
Pension distribution choices
Social Security benefits and bonuses
Investments and annuities
Taxes and reducing taxable income
Mortgage and reverse mortgage
Insurance coverage and policies
A good retirement planning company will spend plenty of time getting to know your needs and expectations, both now and for the future, so you can live the life you want once you reach your golden years.
If you’re ready to get going on your retirement plan, get educated with Quest Education!