Retirements planning is more important than ever with the current downturn in the economy. There are many ways to plan for retirement and sifting through all the option can be confusing. However, the way to financial freedom and a successful retirement isn’t really that complicated. The main thing to remember is that you should start saving and investing as much money as you can and as early in your life as you can to give your money the time to grow over time. Time and sound money management are the keys to create wealth for your golden years to come.
Picture what your retirement looks like and the rest will quickly fall into a plan. After all, funding retirement is merely a means to an end. So, if you have no idea what the end looks like how could you possibly find the means to fund it?
Here are the 10 best options for your retirement plan:
Pensions are the easiest retirement plans because little is required of you. The employer contributes all the money and the funds are professionally managed. All you have to do is to stay on the job long enough to qualify, then retire and collect. But not everyone has this option.
2. Defined Contribution Plans
With defined contribution plans such as a 403b or 401k, you are in control of your future. You choose whether to participate, which plan options suit you, when to change those options and how much to contribute. Many financial advisors consider these the best retirement plans after pensions because most employers who offer them match a certain portion of your contributions.
3. Roth IRAs
A Roth IRA is an individual retirement account funded with taxed dollars. You enjoy the benefits of tax-free growth and tax-free withdrawals. “I typically recommend someone do a 401k employer plan and then do a Roth IRA, in addition to that if they’re within the income levels,” said Swanson. “That way they get a well-balanced plan that allows them to make pre-tax contributions the employer plan and after-tax contributions to the Roth plan.” Roth IRAs are also highly recommended for young retirement savers, whether or not they have access to employer-sponsored plans. When you’re decades from retirement, “the ability to pay taxes today at a known rate and have it grow tax-deferred and come out tax-free at an unknown tax rate is wildly advantageous.
4. Traditional IRAs
Traditional IRAs have the same annual contribution limits as Roth IRAs but they are not subject to income restrictions so anyone can contribute. The contributions are tax-deductible and you enjoy tax-deferred growth, meaning you don’t pay capital gains tax but you have to pay tax on your contributions and earnings when you make withdrawals. Traditional IRAs are subject to required distributions at age 70 ½ and you cannot make contributions to the plan after that point.
5. SEP IRAs
There are several types of retirement plans for self-employed people and it really comes down to how much you want to spend administering the plan, said Labadie. For most sole proprietors, he recommended the simplified employee pension plan (SEP). “If you’re self-employed with no employees, there’s probably no easier, lower cost, ease-of-administration plan with a huge contribution limit.
6. Nonqualified Deferred Contribution Plans
If you want to invest in a Roth like structure, but you’ve barred by income restrictions or you’ve maxed out your contributions to other retirement plans consider a nonqualified deferred compensation plan (NQDC).
7. Guaranteed Income Annuities
An annuity is an insurance product that allows you invest today and get a guaranteed income stream when you retire. You can get payments issued monthly, quarterly, annually or in a lump sum. There are different types of annuities with the single premium immediate annuity (SPIA), you invest and have to trigger the income right away which isn’t an attractive option now that invest rates are low.
8. Cash-Value Life Insurance Plana
Mike Foguth, founder of Foguth Financial highly recommends cash value life insurance plans, more than 401kѕ or IRAs. “The big value in this is you accumulate wealth in a tax-free vehicle. With a cash-value life insurance plan, you pay for a policy that develops cash value. Once you’ve accumulated that cash value, you can take a loan against your death benefit to serve as income during retirement. This is not like a traditional bank loan where you have to qualify. As long as you’ve built the cash value you can take the loan.
9. Social Security
Nine out of 10 people over age 65 receive Social Security, and those benefits account for 39% of older Americans’ income, according to the Social Security Administration. Despite all the hoopla about what might happen to Social Security, it’s still an extremely important part of retirement planning.
10. Real Estate
A real estate is a retirement-planning option you shouldn’t overlook, especially if you’ve 55 or 60 years old and you either didn’t save or did not save enough. “At that point, you need to prioritize income producing options. Look for what’s going to give you the most bang for your buck. Real estate is one of the things that can do that. Real estate can create a decent income stream.