Down to the Wire: Top Tips for Self-Directed IRA Owners About to Retire

The time went by fast, didn’t it? It seems like yesterday we were just starting out, thinking it would be forever when the older people were us. Now the bluehairs are the kids! If you’re approaching retirement age, it’s time to take some important steps to set yourselves up for a successful retirement. That means getting in all the tax-advantaged contributions you can, hitting your Medicare deadlines, and taking an honest look at your expected income and expenses.

  1. Assess your situation. Now’s the time for a realistic assessment of how much you can expect to receive per month and per year, on a sustainable basis from your retirement accounts, personal savings, pensions, taxable investments and Social Security benefits, as well as your required monthly and annual expenses. With interest rates still relatively low, most planners are using a 4 percent withdrawal rate as a rough rule of thumb. Rates much above that amount quickly increase the likelihood that you may outlive your retirement savings. However, owning rental real estate in a Self-Directed IRA, or investments designed to kick off a significant income such as REITs, annuities, preferred stock and the like may help increase those odds.

A good financial planner can help you with those projections.

Whatever income you project for yourself, discount it to account for inflation, and then try to live on that amount for a year or two. No cheating! Let’s see how it goes!

2. Get in your last-minute retirement plan contributions. For IRAs, including Self-Directed IRAs, you have until your tax filing deadline next year to make your contributions for the current year. But you don’t get that break for employer-sponsored plans. If you are participating in a 401(k) plan via an employer (even if you are the owner-employee of your own company), you must complete all your contributions by the end of the calendar year. Time to boost your contribution rate to the maximum possible.

3. Take advantage of ‘catch-up’ contributions. Whether you have a conventional IRA or a Self-Directed IRA, those taxpayers over age 50 are allowed to contribute an extra $1,000 toward retirement. So if you were planning on contributing the maximum of $5,500 per year to your IRA or Self-Directed IRA this year, and you turned 50 or older this year, you can contribute an additional $1,000, for a total of $6,500.

If you’re participating in a 401(k) plan, you get an additional $6,000 in allowable salary deferral contributions if you’re age 50 or older this year – for a total allowable employee contribution of $24,000.

4. Roll back your risk exposure. It’s been nearly 10 years since the stock market collapse in the Great Recession, sparked by the collapse in real estate and mortgage lending. Yes, the stock market has more than recovered since then. And so have most real estate markets (but not all). But back then, you had another ten years or more before you were looking at retirement in the face. You had time to recover. Do you have time to recover from a similar economic dislocation now? Chances are you don’t have the same amount of time. Your time horizon to retirement is now 9 years shorter than it was at this point in 2008. Depending on your situation, it may be time to take a good look at your risk exposure, asset allocation and increase your diversification. Self-Directed IRAs may help you increase diversification and decrease overall investment risk, depending on how you use them. While some Self-Directed IRA investors target quite risky asset classes, it’s also possible to use Self-Directed strategies and alternative asset classes to reduce portfolio risk as well, by picking up assets that may not be closely correlated with the broad U.S. stock market.

5. Don’t miss Medicare Supplement Open Enrollment. If you turned age 65 in the next year and you want to protect your savings against unexpected medical costs, be sure to make your Medicare decisions during your initial open enrollment period. That window opens up three months before the month in which you turn age 65 and enroll in Medicare Part Band closes three months after the month in which you turn 65 and enroll in Medicare Part B.

If you miss this enrollment period, you’ll have to pay higher premiums for Medicare Part B and you may not be able to enroll in Medicare Supplement (Medigap) or Medicare Part C (Medicare Advantage Plans), or you may need to pay higher penalty premiums.

If you don’t enroll, then you face the risk of having to pay significant out-of-pocket costs in the event of a hospitalization.