One of the unfortunate facts of working today is that over 70% of smaller businesses don’t provide their employees with any type of retirement savings plans at all. That means no 401(k), no pension, no nothing. Even if you’re not close to retiring that fact is a bit sobering. It’s also the reason that we’ve put together this short blog today about some of the ways that you can increase your retirement savings even if you don’t have the benefit of the 401(k) where you work. Enjoy.
One of the best things that you can do if you don’t have a 401(k) is to invest in a Roth IRA so that you get the benefit of a bit of tax diversity. Traditional IRAs allow people to contribute pre tax dollars up to $5500 a year (2013). For people over 50 years old, that limit increases to $6500. If you want to reduce your taxes in the future it’s a great way to do it.
The reason is that, since a Roth IRA is funded with after-tax dollars, at age 59 ½ you can start to withdraw money from your account without the risk of taxes and penalties. Another great reason to open a Roth IRA is if you anticipate that you’ll be in a higher tax bracket when you retire. If you’re keen on opening one, be aware that the IRS has a number of income requirements that you’ll need to meet in order to qualify.
Investing in a taxable brokerage account is also a great idea if you don’t have a 401(k). While it doesn’t carry the tax benefits of an IRA it can
be filled with a diversified mix of bonds, mutual funds and stocks. Also, it will let you access any earnings whenever you like without any penalties. Another benefit to a taxable brokerage account is that there are no income limitations and no rules on how much money you can contribute to the account every year. One of the best ways to minimize your tax exposure is to use a “buy and hold strategy”. If that’s not something you can do, you should at least avoid cashing in on any of the investments that you’ve made within the first year so that your long-term capital gains taxes will be lower.
Another way to invest for retirement, although a bit more risky, is alternative investments like real estate, startup funding for small businesses and artworks, among others. Indeed, these have the potential to advance your retirement plan greatly but keep in mind that they should not make up more than 10% of your portfolio because they carry quite a bit more risk than other types of investments.
One more tip is to simply delay receiving your Social Security checks as much as possible. While some people might argue that this is advice that the federal government would love you to follow, the fact is that the longer you wait to collect your Social Security checks the more money you’ll actually receive. If you’re in good health and can put off receiving your checks until your full retirement age, you’ll actually receive 8 percent more per year up until the age of 70, something that could increase the amount of money per check significantly.
Not having the availability of a 401(k) to invest in for retirement kind of stinks but, as you can see from the four examples above, there are a number of things that you can do to make up for it. If you have any questions about planning for retirement, personal finance or financial questions in general, please let us know and we’ll get back to you with answers, advice and solutions as soon as possible.