No 401k? No problem. You have other retirement funding options
By Deborah Jeanne Sergeant
Many financial advisers advocate investing in a 401(k) because of the tax advantages and because many companies match employee contributions to the fund. It represents an easy way to build funds for retirement.
But if your company doesn’t provide a 401(k) plan or if you’re an entrepreneur, you have other vehicles for building a retirement nest egg beyond a low-interest rate savings account.
“My favorite retirement vehicle is a Roth IRA; if you qualify for a Roth IRA, do it,” said Peter Tallarico Jr., financial adviser and president of Blue Ridge Financial Services in Syracuse. “It’s 100% tax-free money forever. If you’re self-employed, you should consider an investment vehicle that can be deducted from business income. This can save a lot of money on taxes.”
The money contributed to a 401(k) plan is tax-deferred, which can help people reduce their annual taxable income. Their investment can grow tax-free until withdrawal. For those whose employers match their 401(k) contributions, allocating as much as allowed to the fund maximizes the free money from their employer.
An individual retirement account (IRA) is either traditional or a Roth IRA. The traditional type works like a 401(k) in that pre-taxed dollars go into it, which can lighten the current tax burden. However, it is taxed upon withdrawal.
Contributions to the Roth IRA are taxed now. However, the funds are not taxed upon withdrawal, which can help preserve more money in retirement. IRAs limit the annual contribution to $7,000 annually for those younger than 50 and $8,000 for those older than 50, including a $1,000 “catch-up” contribution.
Investing in stocks, mutual funds, bonds and certificates of deposit is best done under the guidance of a financial adviser as each involves differing levels of risk. If you have fewer than about 15 years until retirement, it may pay to get involved with lower-risk investments for most of your funds. An adviser can prove invaluable for balancing risk and security with a diverse portfolio of investments.
Stocks tend to bear the most risk but when they pan out offer the biggest returns. Mutual funds and bonds are more stable but yield lower returns.
Certificates of deposit are the safest and lowest yield of these but can tie up money for a longer time period unless you want to pay early withdrawal penalties. Many advisers suggest “laddering” CDs, which means choosing different time periods for separate sums of money so that at any given time, a CD may be soon available for penalty-free withdrawal.
Anthony Hinds-Fritz, president and owner of Evolution Retirement Solutions, LLC in Syracuse, encourages retirees to look at their projected Social Security income “at the very least” to know what to expect. If that amount is rather low, it will make sense to wait for retirement.
“If you’re in good health and not generating unearned income until 70, those benefits will grow,” Hinds-Fritz said. “When you start the benefits, they’ll be higher than if you start them earlier.”
Hinds-Fritz is a chartered financial consultant, chartered retirement plans specialist.
Hinds-Fritz said that once people know their Social Security income, they can then make further plans based upon the lifestyle they envision for themselves upon retirement. They may need to work a part-time job to help fund their retirement or find other ways to generate income both now and then.
“Maybe they have passive income through real estate they own,” Hinds-Fritz said.
You don’t have to be a real estate mogul to make small but steady income through renting out your hunting cabin, cottage or spare room through sites like Airbnb and Vrbo. Neighbor.com helps people rent out their garages, storage sheds and parking spaces for vehicles such as cars, boats and RVs.
Even your yard can generate cash. For example, Sniffspot.com facilitates homeowners renting large, preferably fenced yards to people with active dogs. None of these options bring huge payouts, but a few extra hundred bucks here and there that you tuck away into retirement funds can go a long way without negatively impacting your personal life. It’s also possible to continue to use real estate to generate mostly passive income while retired.
