Jim Hitt, CEO of American IRA, LLC, a national self-directed IRA provider, shares important steps to maximize retirement planning. Proper planning is key to enjoying those retirement years. Lack of planning is a great way to end up eating peanut butter sandwiches every meal (yes, everyone loves peanut butter sandwiches still eating them every meal is a bit much!) and soaking your feet in that $10 toddler swimming pool trying to keep cool!
Many people have difficulty planning for retirement because they are not sure where to begin.
The Time Element
The first thing that must be considered when planning for retirement is the “time element” in other words how old the person is now and how many years are left before they plan to retire. The longer the time between their current age and their retirement age, the more risk their portfolio can withstand. Though a point of caution to keep in mind is that the goal is to grow the retirement account; thus, risk should always be carefully weighed as a big loss in the retirement account even at an early age is still a loss that one should avoid if possible.
Expected Spending Habits
The second thing each person should consider is their expected spending habits during retirement. Keep in mind that lots of people underestimate this amount which leads to financial hardships in their retirement years. Be honest about this when forecasting those estimates. Realistically, most people ‘who have planned properly’ spend more each year during those retirement years than they spent each year they worked. The reason for this is pretty simple; retirees have more time to do the ‘fun things’ in life and thus tend to spend more money during their retirement years.
Pre-tax and After-tax Retirement Accounts
The third consideration for taxable retirement accounts is to be sure each person is forecasting their funds based on those after tax distributions. This may sound like the easiest step in planning…still it is difficult to know what the future tax rates will be…a good rule of thumb is to overestimate the tax burden and plan for that overestimated amount. Of course, those who have Roth IRA accounts will not have to worry about this as they paid their taxes on that account when they funded it and will not have to pay taxes on any of their distributions.
The fourth important rule of thumb is to diversify their retirement portfolio. Diversification helps to protect the retirement fund from the ups and downs of economic times. At American IRA, LLC, people can use their self-directed retirement accounts to invest in real estate, private lending, limited liability companies, precious metals and much more!
The Power of Compounding
A final point that is often overlooked is the power of compounding interest. A person who participates in hard money lending within their IRA generally receives interest rates between 7% and 10%. Most banks are currently offering less than 1% interest on savings accounts and 3% or less on CDs. Here’s a comparison of how that interest compounds over time using $50,000:
$50,000 at 1% Compounded Once Annually for 30 years equals $67,392.45
$50,000 at 7% Compounded Once Annually for 30 years equals $380,612.75
It is easy to see the growth potential of investing with a retirement account versus letting funds sit in a savings account!
Jim Hitt concludes, “Careful planning is critical to the onset of a happy and full-filling retirement. Self-directed IRAs provide people with the largest amount of flexibility, choice, and control over what they invest in and how much risk they put their portfolio in. When people wonder what to invest in, it depends on what they are currently doing; what their area of expertise is; what their comfort level is with risk. If they are comfortable with real estate investing, then it makes sense for them to use their real estate expertise to grow their retirement funds. For example, they can buy a rental property within their retirement fund and allow that property to contribute rental income to the retirement fund. At the same time, they can keep some mutual funds and perhaps even some CDs in their retirement account. This mix would give them a nice safe yet diverse retirement portfolio.
Another important point that many people over look is their loved ones. I have seen many parents and grandparents who want to help their children and grandchildren with college tuition and thus sacrifice their retirement funds to do so. Coverdell Education Accounts are a great way of saving for your loved one’s tuition expenses. Another little known fact is that Roth IRAs can be used for tuition expenses. I urge everyone to think through not just your retirement plans, but also, what you may want to do for your loved ones during your retirement and what you want to leave your loved ones in your Will. Thinking this through early and building your retirement account to cover all those things will allow you the happiest retirement years.”
American IRA, LLC was established in 2004 by James C. Hitt in Asheville, NC.
The mission of American IRA is to provide the highest level of customer service in the self-directed retirement industry. Mr. Hitt and his team have grown the company to over $250 million in assets under administration by educating the public that their self-directed IRA account can invest in a variety of assets such as real estate, private lending, limited liability companies, precious metals and much more!
To learn more about American IRA, LLC and self-directed IRAs/self-directed Solo 401(k)s, please contact our office at 1-866-7500-IRA(472).
As a self-directed IRA administrator they are a neutral third party. They do not make any recommendations to any person or entity associated withinvestments of any type (including financial representatives, investment promoters or companies, or employees, agents or representatives associated with these firms). They are not responsible for and are not bound by any statements, representations, warranties or agreements made by any such person or entity and do not provide any recommendation on the quality profitability or reputability of any investment, individual or company. The term “they” refers to American IRA, located in Asheville, NC.