50-Somethings: Is Your Retirement Saving Behind Schedule?
Life happens. Maybe you had kids. Maybe you got clobbered by the Great Recession. Maybe you got divorced. Maybe it was all three. But your contributions to retirement accounts were not what you hoped they would be. Your dreams of a big Self-Directed IRA or Real Estate IRA generating awesome rental income in retirement fell behind schedule.
You are not alone.
But regardless of what happened in the past, now is the time to aggressively save and invest to secure your future.
If you are close to or into your 50s and you are still behind the power curve when it comes to saving for your retirement, here is a short list of things you can do to catch up:
Use “Catch Up” Contribution Limits
When Congress designed the IRA, Self-Directed IRA and 401(k) vehicles to help Americans provide for their own retirement security, they knew lots of people would need to play catch-up as they got into their 50s and 60s. Most of these people are now empty-nesters in their peak earning years. Since their kids’ previous college expenses are paid in full and they have no other debt, they are able to channel those savings towards the catch-up contributions.
So, if you are age 50 and older, you too should do your best to take full advantage of these expanded retirement account contribution limits:
Whether you have a Self-Directed Traditional IRA or Roth IRA, the contribution limits are the same. Including your catch-up eligibility, you can contribute $6,500 to either account. It is important to note, however, if you have both Traditional IRA and Roth IRA accounts the $6,500 is the total contribution for all accounts. i.e., you cannot contribute $6,500 to your Traditional IRA and another $6,500 to your Roth IRA.
401(k)s and Self-Directed 401(k)s
401(k) plan beneficiaries can defer an additional $6,000 per year on top of the applicable $18,500 limit on salary deferral contributions. Max out your salary deferrals, including the expanded ‘catch-up’ contribution limit, and you can generate another $24,500 for your retirement over your baseline.
You also get the benefit of any employer matching contributions.
If you are self-employed, or you are the owner/operator of your own business with just you and/or your spouse as full-time eligible employees, you can also increase your company contributions to the 401(k) as well – up to a combined limit of $55,000 if under the age of 50 and $61,000 if 50 and older, per year.
If you have enough free cash flow to fully fund a 401(k) for you and your spouse to that level, consider doing so. That maximizes the amount of money compounding for you on a tax-advantaged basis and may help shelter those assets from creditors.
Own Investment Real Estate
Investment real estate is a proven long-term wealth generator. It provides both current income and the potential for future price appreciation. Additionally, real estate investment also comes with the potential for increasing streams of income, an important source of protection against inflation as well as stock market declines.
You can own investment real estate in your own taxable account, or you can own it within a Real Estate IRA. You can even own investment real estate directly in your Self-Directed Solo 401(k).
Whether you have real estate exposure via direct ownership of real estate or via REITs, some exposure to real estate can help diversify your portfolio and provide a vital source of income and inflation protection going forward.
It is also a lasting legacy you can pass to your children.
Do not Hide from Risk.
Markets are volatile. But it is important not to hide from risk entirely. Returns on ‘risk free’ assets like money markets and CDs are abysmal and provide no real hedge against inflation. You could be retired 25, 30 years or more. Going all cash will not generate a living income over time. Inflation and cost of living increases will eat away at your savings like a cancer.
Keep some exposure to stocks, possibly including private equity assets. Also consider income generators like pipelines, oil and gas investments and other limited partnership structures using a Self-Directed IRA or Self-Directed Solo 401(k). Or just keep money you will not need for at least 5-10 years invested in stock markets for the long run.
For more information, call us today, or visit our website at www.AmericanIRA.com.