Self Directed IRA -To Close the Retirement Income Gap, Contribute Early and Often to Yours

A recent study from the Insured Retirement Institute had a number of disturbing findings that drive home the importance of contributing to your Self Directed IRA early and often.

  • A 65-year-old male in good health today has a 50 percent chance of living to age 87, and a 25-percent chance of living to age 93.
  • A 65-year-old female in good health today has a 50 percent chance of living to age 89 and a 25 percent chance of living to age 95.
  • A 65-year old retiree would need more than $1 million of investable assets, plus Social Security income, to generate a reliable income through age 95.
  • By waiting until age 70 to retire, the retiree can reduce the estimated nest egg required to generate retirement income through age 95, but only modestly, to $720,000.

The use of lifetime income annuities can effectively eliminate longevity risk, of course. But at today’s anemic interest rates, the thought of locking in your future retirement income using the current low returns on investment doesn’t seem like a great idea.

Lifetime income annuities also effectively eliminate any legacy to your loved ones, once you have outlived any return of premium guarantees. There’s got to be another way.

It turns out there is. By starting early, and taking advantage of the freedom you have using a Self Directed IRA to maximize risk-adjusted returns of your retirement portfolio, while also increasing your portfolio diversity.

For best results, you do generally need to start early for two reasons:

  • The younger you are, the more risk you can accept in the expectation of higher returns. As you get close to retirement age, you may need to reduce your exposure to high-return asset classes like venture capital, private equity and partnerships where you have significant control. These are all perfectly legal to own within a Self-Directed IRA, but tend to be volatile in isolation.
  • The more years you have before you need to begin taking withdrawals, the more time your investments have to compound, tax-deferred or tax-free in the case of Roth Self-Directed IRAs.

With today’s relatively low dividends on stocks, high P/E ratios on a historical basis, and low interest rates on bonds, it’s imperative for most of us to seek out ways to eke out some additional return without taking undue risk. Self-Directed IRAs allow our clients to use their retirement capital to pursue these opportunities on a tax-advantaged basis.

According to the IRI’s report, a 50-year-old saver who makes the maximum allowable contributions to a 401(k) plan, including catch-up contributions, can make up a big chunk of the estimated retirement income gap if he or she earns 5.5 percent per year, on average, on his or her investments. This savings schedule and rate of return would theoretically generate some $239,000 in additional retirement resources over 20 years. Additional contributions to self-directed or conventional IRAs and outside savings can close the gap completely.

The alert reader, however, will note that in order for that ‘gap’ to be closed, the 50 year old would have to have a starting point of about $400,000 to $500,000 saved up already, because it’s this amount, plus earnings, that you would have to add to the amounts generated between ages 50 to 70.

Furthermore, many investors don’t have a choice about working to age 70. Many will have health issues, or economic pressures that force them to leave the work force earlier than planned.

And so we’re back to the original point: To have the best chance of a stable retirement income at acceptable levels of risk, while still preserving a legacy for heirs, you should start saving early and often, and maximize your returns on investment at a relatively young age.

American IRA, LLC specializes in assisting retirement savers who choose to hold any number of non-traditional asset classes within their IRAs, 401(k)s, SIMPLES, SEPs and even Coverdells and HSAs. Whether you are interested in using your retirement account to pursue opportunities in real estate, venture capital, private equity, oil and gas, partnerships, precious metals or anything else, we have the expertise to help you remain in compliance with IRS rules concerning these accounts and their holdings and provide you and the IRS with full accounting and reporting – all at a fraction of the cost of most firms that handle IRA and other retirement accounts.

To learn more, contact us at 828-257-4949 or visit our website at

We look forward to serving you.