Investing for Retirement
All about the HOW of investing for retirement and some ideas you probably didn't think about
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Don’t you wish you could retire?
This is going to sound terrible, but the HOW of investing for retirement never really occurred to me. When I graduated college I started working for an employer that offers a retirement plan. All I had to do was pick a plan and elect a certain percentage of my salary towards my retirement and I was done. Every month that percentage is taken out of my salary and invested into the stock market. It is that simple. Of course if you want to trade and get into that then it gets more complicated...but for the purposes of this article, I’m stopping there.
We all know and have probably heard our parents and others preach on the importance of saving for retirement. I can hear them now: “There won’t be any money left in Social Security when it’s your turn so you need to have put money away every month toward a retirement account…”
The point they are trying to make is this: the earlier you start investing the more money you make in the long run due to compound interest (see diagram).
Alright, I know you get it. This begs the question of what do you do if you don’t have a retirement plan through your employer? (Even if you have one through your employer, I highly recommend you consider and think through the alternatives).
Options to consider:
Please note I am not a financial advisor and am not giving you advise on how to invest your money for retirement. This is simply based on my own experience. Please speak with an attorney or financial advisor prior to taking any actions.
IRA - An IRA is not necessarily linked to an employer like a 401(K) or 403(B) is and you can pretty much open one anywhere.
DIY IRA - For savvy investors you can choose where to place your money and actively trade.
For less savvy investors you can have a robot or automated service through the IRA provider invest your money for you and re-balance your portfolio .
Note: You probably want to look for a provider that has low fees! This is where the provider can really take advantage.
Also note: there are different types of IRA accounts available, such as a Roth IRA. With a Roth IRA you pay taxes when you put your money into your account and aren't taxed when you take the money out. The idea is that you will more than likely be taxed at a higher rate later in life compared to what you are being taxed on now.
Financial Advisor - A financial advisor is responsible for handling their client’s portfolio and makes trades for them in the stock market. A lot of times they are incentivized to make certain trades that may not be beneficial to your own portfolio so keep that in mind as you are searching for help. They can also have fees!
Note: A Financial Advisor and a Certified Financial Planner are not created the same. A CFP gives financial recommendations and helps individuals create a plan to meet their long term financial goals, they don’t physically invest the money for you. These are good people to have in your back pocket!
Self-Directed IRA (SDIRA) - A self-directed IRA offers more investment opportunities than a traditional IRA. For instance in a traditional IRA you can invest in stocks, bonds and well that’s about it. With a self-directed IRA you can invest in real estate, small businesses or other investments. There are some regulations around SDIRAs so it is important to know them before converting to one or opening one. .
Why I like SDIRAs?
Out of all of the options above I like the self-directed IRA the most. I am a bit biased because I love the idea of being able to invest in real estate and small businesses. I trust real estate more than I do the stock market and I view the SDIRA as a way to passively invest in real estate. When I am tired of being an active investor I plan to invest in syndication deals through my SDIRA. This also gives me the ability to invest passively in markets outside of New York (diversification baby!).
Full Disclosure: I do invest in the stock market and play around in Robinhood every now and again, but I put my money in S&P 500 and NASDAQ ETFs. This is one of the simplest and easiest ways to invest because I just put my money in there and let it sit. My returns are definitely no where near my real estate returns but it keeps me diversified and involved in the broader market.
I learned about this investing strategy from this book: The Random Walk Guide to Investing ~ highly suggest this if you are just getting started w/ the stock market!
Another reason I love SDIRAS is because in the future I plan to provide investment opportunities for others (i.e., invest passively in mid-large multi-family deals). The SDIRA is one way that individuals can take advantage of these opportunities (there is always cash as well!). Let me know if this is something you would be interested in finding more about by clicking here to my google forms survey.
More Educational Nuggets:
Did you know that you can invest a certain amount of money toward your IRA and 401(K) tax free? Yes, cool right?
For a traditional IRA the limit is really low. As of 2020 you can invest up to 6,000 a year before you have to pay taxes on it. The rules are a bit different for ROTH IRAs and you find out more here: (IRS website)
For 401(K)s and 403(b)s in 2020 are tax deferred up to $19,500 a year. Could you imagine having the spare money to put about $20K a year towards a retirement account? You would be retiring so much earlier! Not many of us can afford to put $20K away a year toward retirement. And some of us would prefer to put $20K towards real estate instead. Yes, by some of us, I mean ME.
No matter HOW you invest, as long as you invest that is the most important part!
Thanks for reading my article. I hope you learned something. Let me know in the comments, if you have another idea for retirement investing. I’d love to learn from you too. Also, don’t forget to fill out my survey. I’m curious how many of you would be interested in passive RE investing.
Until next time,
Amanda
Please note I am not a financial advisor and am not giving you advise on how to invest your money for retirement. This is simply based on my own experience and research. Please speak with an attorney or financial advisor prior to taking any actions.